The Goodyear Tire & Rubber Company GT CEO Rich Kramer on Q4 2019 Results

Good morning. My name is Keith and I'll be your conference operator today. At this time, I'd like to welcome everyone to Goodyear's fourth quarter 2019 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. I'll now hand the program over to Nick Mitchell, Senior Director of Investor Relations.

Thank you, Keith, and thank you everyone for joining us for Goodyear's fourth quarter 2019 earnings call. I'm joined here today by Richard Kramer, Chairman and Chief Executive Officer, and Darren Wells, Executive Vice President and Chief Financial Officer. The supporting slide presentation for today's call can be found on our website at investor.goodyear.com, and a replay of this call will be available later today. Replay instructions were included in the earnings release issued earlier this morning. If I could now draw your attention to our safe harbor statement on slide 2, I would like to remind participants on today's call that our presentation includes some forward-looking statements about Goodyear's future performance. Actual results could differ materially from those suggested by your comments today. The most significant factors that could affect future results are outlined in Goodyear's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Our financial results are presented on a GAAP basis and in some cases a non-GAAP basis. The non-GAAP financial measures discussed today are reconciled to their US GAAP equivalent as part of the appendix to the slide presentation. And with that, I'll now turn the call over to Rich.

Thanks, Rich. I have to agree with Rich's level of excitement about the impact our investments in technology and service offerings are going to have on our businesses' market results. In addition, there are a number of actions I'll cover today that will support improved results over the next two to three years as we work on those longer-term programs and as we move through the recessionary environment we're seeing right now across much of the world. Turning to the fourth quarter, while several of the positive developments from the third quarter continued to benefit our business, our results fell short of our expectations. As I reflect on our performance, three factors stand out as impacting our results relative to our thinking last time we spoke. First, our OE business faced significantly incremental headwinds with continued year-over-year declines in light vehicle production as well as the downturn in the US and European commercial truck cycles. Light vehicle production declined 5%, including the impact of the OE strike in the US, which was a deterioration from the third quarter, and the downturn in commercial truck builds in EMEA and the Americas accelerated in the period, further reducing demand for high-margin commercial truck tires. Second, demand for consumer replacement tires remained at recessionary levels in Europe. Industry shipments fell 3% in the EU, driven by a decline in the winter category. Shipments of winter tires declined 6%. We gained share in this important category during the period; however, our volume and price/mix performance were significantly impacted by the loss of winter tire business. Third, as always, recessionary industry conditions are resulting in increased competitive pressures. These conditions are making it difficult for us to capture the full value of our products in geographies where demand is the weakest, including value markets in Europe and China, where customers have been particularly aggressive in demanding price reductions on legacy fitments. Despite these near-term challenges, our OE pipeline remains strong, and we continue to expect significant volume growth in this channel through 2022, driven by improving win rates, including on high-value electric vehicle fitments. As we've discussed before, the weighting torque associated with electric powertrains makes tire design much more complicated. This reduces the number of capable suppliers and has resulted in our win rate on EV fitments being significantly higher. In the consumer replacement business, we continue to improve our performance in the Americas. We increased share and benefited from actions we've taken to recover the impact of higher raw material costs in recent years. These achievements helped us deliver significantly higher earnings and margins in our replacement business in the Americas compared to the prior year. Turning to slide 10, our fourth quarter sales were $3.7 billion, down four percent from last year, driven by lower volume and unfavorable foreign currency translation. These effects were partially offset by improvements in price/mix, primarily in EMEA and the Americas. Unit volume decreased 2 percent. The decline was more than explained by lower OE shipments, reflecting lower global vehicle production and the continued impact of strategic actions we've taken to renew our OE portfolio. Replacement shipments increased slightly, with continued strength in the Americas more than offsetting ongoing softness in EMEA and weakness in Asia-Pacific, particularly in Japan. Segment operating income for the quarter was $242 million, down $65 million from a year ago. About half of this decline came from a decrease in favorable indirect tax settlements in Brazil and the impact of the OE strike in the US. Our results were influenced by certain significant items, and after adjusting for these items, earnings per share on a diluted basis were 19 cents. The chart on slide 11 summarizes the change in segment operating income versus last year. The negative impact from volume was $19 million. In addition, production cuts taken during the third quarter, including those related to the OE strike in the US, resulted in lower overhead absorption and a negative impact of $26 million. While these production cuts negatively affected our earnings, they were the appropriate response as they contributed to our favorable working capital performance in 2019. Raw material costs increased $19 million, driven by the unfavorable transactional impact of foreign currency and higher natural gas costs. We saw less benefit than we expected from lower feedstock costs given slower inventory turns, reflecting softer than planned demand. Price/mix was favorable by $32 million, reflecting the continued benefit from our pricing actions, particularly in the Americas. Price/mix benefits were reduced by lower than expected winter tire shipments in Europe and continuing customer and channel mix challenges in the Americas. Inflation of $46 million more than offset cost savings of $45 million. It's important to recall that last year's costs were net $21 million lower as a result of indirect tax settlements in Brazil. Excluding this impact, cost savings this year would have been $66 million and would have exceeded inflation by approximately $20 million. The negative effect of foreign currency translation totaled $8 million. The $23 million decline in the other category was driven by higher incentive compensation and R&D costs, partly offset by lower startup costs and a favorable impact of our equity interest in TireHub, which improved by $4 million year-over-year. Turning to the balance sheet on slide 12, net debt totaled $4.8 billion, down $207 million from a year ago, reflecting strong cash flow and improved working capital management. Our liquidity profile remains strong with approximately $4.5 billion in cash and available credit at the end of the quarter. This is an improvement of over $500 million from the previous year, reflecting our strong free cash flow performance during the fourth quarter and the increase in the size of our European revolving credit facility last March. Slide 14 summarizes our cash flows. We generated $1.3 billion from operating activities, an increase of $406 million compared to the previous year. This improvement was driven by strong working capital performance reflecting initiatives we implemented over the course of the year. Capital expenditures for Q4 were $209 million. We slowed down our capital spending plan significantly in the second half to reflect weakening market conditions. For the full year, we generated free cash flow of $437 million, allowing us to cover our dividend and decrease our net debt. Turning to our segment results beginning on slide 15, Americas volume decreased two percent to 18.7 million. The decline was more than explained by lower shipments in our consumer OE business, primarily in the US. More than half the decline in the US resulted from the OE strike, with the remainder largely a function of actions we've taken in previous quarters to reduce our exposure to older fitments, especially those on passenger cars, which continued to decline as a percent of new car sales. Shipments of replacement tires increased 2%, driven by solid growth in the US and Brazil. Segment operating income was $152 million, down $27 million from last year. The decline was more than explained by a decrease in indirect tax settlements in Brazil and the impact of the OE strike. These factors were partially offset by improved price/mix net of higher raw material costs and the benefit of net cost savings. Throughout 2019, we took several actions to strengthen the competitiveness of our manufacturing footprint in the Americas and curtailed production of tires for declining, less profitable segments of the market. Last February, we transitioned our manufacturing facility in Gadsden, Alabama to a five-day production schedule in response to declining demand for small rim diameter tires that are produced at the factory. During the fourth quarter, we offered voluntary buyouts to certain associates in the plant. Combined, these actions have allowed us to reduce our labor costs; however, they've resulted in near-term manufacturing inefficiencies for two reasons. First, we're transitioning certain SKUs from our Gadsden facility to other plants in our US footprint, which necessitates short-term development and ramp-up costs. Second, the Gadsden facility is operating at low volumes. This will result in a write-off in Q1 of about $15 million of overhead related to Q1 production. These transitional manufacturing costs are expected to offset savings from our recent restructuring in the near term. Turning to slide 16, Europe, Middle East and Africa's unit sales were down approximately 4%, driven by a decline in OE business. Our consumer replacement shipments fell 2 percent, reflecting weak industry conditions in Europe. Shipments of high-margin winter tires declined 5%. While this performance was slightly better than the market, the absolute decline in winter shipments adversely affected both volume and mix. Segment operating income was $38 million. The decrease versus last year was driven by lower volume, wage inflation, and higher unabsorbed overhead reflecting production cuts in Q3. Turning to slide 17, Asia Pacific tire units totaled 7.9 million, effectively flat with last year, as growth in OE was offset by softness in our replacement business. OE shipments increased 4%, driven by some recovery in China. Replacement shipments declined by 3 percent, more than explained by a decline in consumer replacement industry volume in Japan. Excluding Japan, shipments of consumer replacement tires increased 5%, driven by growth in China. Segment operating income was $52 million, $2 million lower than in the previous year. This variance primarily reflects lower price/mix and unfavorable foreign currency translation. Turning to slide 18, I'd like to share some information regarding the restructuring of our distribution in Europe. On our last call, we indicated the volume situation in Europe has been exacerbated by poor performance in our distribution channels. This reflects a lack of alignment and results from distribution lacking focus on our brands. This is similar to the situation we faced here in North America a few years ago. As you can see on the slide, the majority of our volume in Europe flows directly from our warehouses to aligned channels, including traditional franchise retail, car dealers, and certain B2C e-commerce channels. However, about 12 million tires are sold through wholesale distributors or large retail chains that are not as focused on the health or growth of our brands. With our aligned distribution initiative, we are signing agreements with full-service distributors covering each geography that will have increased focus on our brands. This will require us to shift many of the nine million units that are currently sold through non-aligned channels to full-service distributors. As a result, we expect to experience an inciting volume loss during the transition in 2020. This could negatively affect volume by as much as one and a half million units. Over time, we expect to fully recover this volume and strengthen our position and improve the stability of our business. In the US, this improvement delivered added net revenue per tire of two to four dollars a unit across our entire replacement business, and we see no reason why the benefit would not be similar in Europe. Turning to slide 19, you will see several of the key factors that we anticipate impacting our first quarter results when compared to the previous year, including unabsorbed overhead from the production cuts we took in Q4, which reduced our Q4 production by about a million units. Year-over-year, we continue to expect recessionary OE demand in several geographies, including Europe, China, and India. More importantly, we see little evidence that suggests the global OE environment will improve in the near term. In fact, third-party estimates of global light vehicle production continue to be revised lower, with forecasts pointing to a six percent decline in the first quarter, including a 13 percent decline in China. And from our vantage point, the risks to full-year auto production estimates are building. In total, we anticipate our consumer OE volume declining by about two million units this year, with approximately three-quarters of the decline occurring in Asia-Pacific. At this point, our thinking excludes any impact of the coronavirus. Given the dynamic nature of the circumstances, the duration of the business disruption and related financial impacts can't really be estimated yet. Slide 20 again reflects on several of the positive factors that give us optimism as we look at the next two to three years. In July, we talked about the first three items: our planned restructuring actions, the growth we expect on our OE business given our recent win rate, and continued recovery of price versus raw materials. We would now add two other items. First, improving mix, which was about $80 million negative for us in 2019 but began to recover in Q4. And second, the benefits of the restructuring of our distribution in Europe. We'll continue to keep you up to date as these plans and expectations play out. Turning to slide 21, we've included our current financial assumptions for 2020. We are forecasting raw material costs to be approximately flat, excluding the impact of transactional foreign currency, as higher non-feedstock costs are expected to offset the benefit of lower commodity costs. While we will benefit from replacement price increases late last year, we expect the benefit of these increases to be largely offset by lower prices. We plan capital expenditures of about $800 million, effectively in line with depreciation. At this point, we're expecting $50 to $100 million use of cash for working capital to reflect some timing differences versus 2019. However, we gained good traction with working capital initiatives that we implemented last year, and similar to last year, I hope to improve on this view as the year progresses. Restructuring cash outlays are expected to total $125 to $150 million. The increasing restructuring payments reflects the actions we are taking both in EMEA and in the US. We expect our book and cash tax rates to be very sensitive to small changes in income in 2020 given our distribution initiative and tax framework in EMEA. Our global tax rates...

Cash taxes are expected to range between 130 and 140 million for the year, but book tax levels will depend to a great degree on geographic profitability, which is hard to predict with precision. We will update you on our thinking as the year progresses, but the book tax rate in Q4 was close to 50 percent and could be even higher at times during 2020. Finally, you will find a few other reference slides in our deck. Slides 25 to 27 provide an updated breakdown of our raw material costs by major commodity as well as providing some continuous analysis of the price versus raw material cycle. Slide 28 provides an updated breakdown of our consumer business between large rim and smaller rim diameter tires for 2019. Slide 29 provides our current expectations for industry shipment growth for the US and Western Europe, and slide 24 contains updated modeling assumptions that will be useful as you develop your forecasts. There are a few significant changes I would point out in our modeling assumptions. Our volume sensitivities have been adjusted to reflect recent share and market data, particularly the near-term decline we discussed in consumer OE. Our assumption for profit margins per tire for the OE business have been adjusted down to reflect recent trends including increased price pressure. We've refined our estimates of the impact of pricing on the replacement business to exclude some revenue to which replacement pricing does not apply. The biggest change was in Europe. Finally, the impact of raw materials percentage price changes has been reduced slightly given recent lower prices and lower volumes. Now we'll open up the line for questions. And at this time, if you'd like to ask a question, please press the star 1 on your touch-tone phone. You can remove yourself from the queue by pressing the pound key. Once again, a star 1 on your touch-tone phone. We'll take our first question from Ryan Brinkman with JP Morgan. Please go ahead.

Good morning. You mentioned on slide 19 that in the first quarter of 2020, the positive demand and restructuring and distribution changes are expected to more than offset the impact of improved pricing environment. I'm not sure if those comments are year-over-year, and so the implication is first quarter SOI should then be below last year's level. I don't know if that's the case. And then secondly, what magnitude of price mix gains could be reasonably expected for 2020, and do you think those gains are enough to be able to offset these other headwinds to drive higher SOI in the remaining quarters of the year beyond Q1, absent the unknown impact of coronavirus?

So right, let me take a shot at 2020 because I think the view on slide 19, to be clear, that is a year-over-year view. So that began the pluses and minuses there are meant to indicate how we feel like the first quarter might evolve versus a year ago. Obviously, a lot of minuses on the page. As we look at 2020 segments operating income, I think we look at volume as something that clearly is going to create some pressure. We're operating in an environment where we're expecting the industry to be largely flat and for us to have a couple of unique factors impacting our volume. One of those is a risk of up to a million and a half units for the distribution transition that we're going through in Europe, and we expect that to be a hit for us. We also are in our OE, we're expecting our own volume to be down a couple of million units in a relatively flat industry, and most of that drop coming in Asia-Pacific. There's a specific issue that we encountered in China that has resulted in us losing some OE business there. So that is part of what's driving a couple of million unit drop in OE value for us for the year, and that's before we take into account the impact of the coronavirus. So we've got a couple of things there that are driving volume down in addition to an industry that's not very robust. With regard to pricing, I think the point we made there is we will get some benefit, carryover benefit from pricing actions that we took in the second half of 2019. However, that's going to be largely offset by price decreases that we've encountered at OE. So between the impact of raw material indices and just pure price reductions that have been demanded by the OEMs and have become part of the market, both those things are going to offset to a great degree the pricing that we would get in replacement during 2020. Mix is a little less certain, and after mix being a negative for us for the first three quarters of 2019, in the fourth quarter it was still slightly negative but essentially flat. I think we're moving in the right direction; it's improving. I think we're hoping that we can drive some positive mix in the year. So if we take price and mix together, not getting a lot of benefit there. And unfortunately, raw materials we see as flat. The only point I'll make on raw material cost is that our forecast for raw material cost being flat, excluding the impact of currency, does assume that there is some recovery in the price of butadiene and carbon black. If we don't see prices of butadiene and carbon black recover and get back to something on average similar to 2019, then there would be an 80 million dollar benefit. So that's a couple of different views you could take on raw materials. We're taking the assumption right now that it's flat, similar to the industry being flat. We have some opportunity for net cost savings, and that has been sort of 10 million a quarter or so for us in 2019, so get a little bit of benefit there. Restructuring cost savings, quite honestly, are largely going to come in 2021 for the programs that we have in Europe and the US. So and we've got some slight currency headwinds. So you take it all together, I think the view for the first quarter and for the full year is that we need the environment to improve to see higher SOI in 2020.

Okay, great, thanks. And then just lastly for me, if it looks like you are planning to spend some more cash restructuring this year than in some prior years, you've expressed some dissatisfaction with your performance level in EMEA. Is it fair to assume that restructuring efforts will be concentrated there then? And I thought I heard you in your prepared remarks that you're focused on having the right level of investment in Europe going forward. Are you contemplating the potential changes to the scope of your operations there, or should we just expect the more traditional restructuring?

Yeah, I think the restructuring actions that we've taken fall in the category of trying to reduce our less capable, higher-cost manufacturing capacity and also to reduce the level of salaried headcount. And both of those have been part of the plans that we've had in Europe and continue to be. The biggest issue that we face business-wise in Europe right now, I think, is the alignment with our distribution channels, and therefore that's where we're putting a lot of time and attention. But as we move through 2020 into 2021, we should see some benefit in recovering volume of our distribution channels, and we'll start to see some of the cost benefit from the two factory downsizings that we announced last year for our factories in Germany. Clearly, in Europe and in fact in the company overall, we'll continue to look at additional restructuring opportunities just given the softness of the markets we're in, the part of the cycle we're in.

Thank you. I got two questions. The next question comes from John Ely with North Coast Research. Please go ahead.

I think you, Darren, talked a little bit more about the European distribution efforts. Just hoping to understand maybe a little bit more granularly how those new channels might look compared to what you did in 2019. And additionally, how that 1.5 million unit volume might flow through the year. Should it be first-half weighted or second-half weighted?

Yeah, well, so John, let me take the second question first. I think the European business is characterized by a couple of seasonal sell-in periods, and so I think that effectively what that means is that the volume impact is going to be spread pretty evenly throughout the year as we move through the need to reposition inventory, trade inventory toward our aligned distributors. And I think the way you can envision this is where the number of aligned distributors we have is directionally sort of half the number that we've been working with, and we're asking and working with each of them to increase their capacity, both in warehousing and transportation, in order to be able to handle higher volumes in our brands. And that will take them some time to do, and so they'll work through the increases in those capacities. At the same time, the distributors that either we have not chosen to work with as full-service distributors or who themselves have chosen not to want to put the additional resource into our brands, they're going to gradually destock. And I think that destocking process probably takes a bit longer than the inventory growth in the aligned distributor space, and that is going to reduce the sell-in volume that we experience during the year and may in fact impact sell-in volume more than impact sell-out volume, and that's certainly our expectation. So in some ways similar to the expectations that we had for TireHub, although in the TireHub transition we certainly had a better outcome than we expected, and obviously we'll work on improving on the outlook here as well. But that process started for us in January, so it is ongoing right now. We're doing it in a market that's already a bit soft, so there's a number of things that are going to be playing into this program. Importantly, though, I think we're looking at this as an opportunity to reposition our volume and to put us in a position where we can get full value in the marketplace for our brands and reduce unneeded multiple touches in distribution, which is obviously cost that we don't want to pay for and consumers don't want to pay for. So I think there's a really good opportunity there for us to drive our earnings in Europe in 2021, 2022, and beyond.

Sounds good. And then a question on, for Rich, as it relates to the coronavirus. I understand that it's impacting production in China for you guys, but I wanted to get your big-picture thoughts if you think that this has an impact on the US replacement market. I know a lot of import tires come in from the region, and as you look out to the spring, do you think the industry as a whole is in a position where potentially there could be tire shortages? And do you think the company is positioned to benefit from that potentially with the US production in the US or in Mexico?

Understood. Thank you, guys. So we'll take our next question from Rod Lash with Wolf Research. Please go ahead.

Hey, morning. Good morning. Had a couple questions. This first, could you just give us a little bit more insight into what's behind these additional pricing concessions on OE? Like you said, it goes beyond the contractual pass-throughs on raw materials, and obviously OEMs always demand pricing, but until recently you were pretty disciplined on that.

Okay. And just thinking about the bridge, it sounds like you're expecting 1.5 million units of climate replacement, which using your sensitivity to volume and overhead, that's about 30 million bucks. The OE 2 million unit decline is about 40 million negative, and you've got the 15 million dollar GATS impact. Seems like that would be offset by if you spot prices for raw materials, that's 80 million positive, and you said 10 million a quarter or 40 million on the cost. What happened to some of the other idiosyncratic positives that you've talked about before, like the actual savings from the GATS and headcount, or the German headcount reduction and plant closure, or the TireHub losses declining, and that you've also mentioned before that some of that 7 million of new OE fitments are to come in?

Okay. And is TireHub a year positive? And can you also just lastly clarify what corporate overhead was in the quarter? Did you have some kind of catch-up here for incentive comp?

Yeah, I think that is the story on the corporate overhead, Rod. I think the delivery on cash flow in the second half of the year did result in an increase in our compensation accrual. So I think there's not too much more of a story to it than that.

What's the number, the corporate overhead number in the quarter that you guys put up?

Yes, so I think for about 50 million for the quarter. And TireHub, yeah, so TireHub, we continue to improve there. So in the quarter it was a 4 million improvement from a year ago. So a year ago our equity loss in TireHub was about 9 million in the fourth quarter, was about 5, so that's 4 million better. I think as we go through the first half next year, we had 25 million of equity losses in the first half of 2019. If we're running at 5 million a quarter, which is where we've been the last couple of quarters, that would be 10 or 15 million benefit there, and then hopefully continued benefit as well. But the focus on TireHub right now is making sure they're making the investments to be able to continue to expand their distribution coverage. So that's not really pushing for profitability as much as we are for the service. The company continues to go very well right now; it's a very good asset for us.

Thank you. Yep, we'll take our next question from James Picarello with KeyBanc. Please go ahead.

Good morning, guys. So just regarding the European wholesale channel exits, you're going to be exiting the 1.5 million units there. Have you quantified or can you quantify the associated overhead absorption costs for this year?

Yeah, so I think the unabsorbed overhead in Europe, depending on where tires are made, is 8 to 12 dollars a unit. So if you average around 10 dollars a unit, then there's around 15 million dollars worth of unabsorbed overhead for us to deal with as a result of that. And yeah, there is some of that that because of the lag in inventory might bleed over to the beginning of 2021. But on the other hand, we cut about a million units from our production schedule in the fourth quarter, and that was sort of split between the US and EMEA. So we may have had some of that coming into this year. So I think that 15 million may not be too bad a guide for the overall impact there.

Okay. And then the 65 million plus in savings over the two to three year outlook, would that be in addition to the headwind that you're experiencing in 2020, or would that be captured in the 65 million?

Yeah, so it is not. So we'll do two benefits after 2020. The first benefit is recovering the volume. The second benefit is the extra, you know, it is the two to four dollars of additional net revenue per tire that we would expect. So those are the two benefits, part of which is recovering what we lose in 2020, but part of which is upside relative to history.

Got it. Yeah, just within raw materials, in the past you kind of separated out feedstock versus non-feedstock costs. Are there any of the latter, the non-feedstock factors, playing in for 2020?

Yeah, so James, for 2020 we've got non-feedstock cost increases embedded in our forecast of about 50 million, and therefore we've got feedstock decreases of about the same amount, and the two kind of offset each other, and that's what's embedded in our flat guidance.

Any color at all on what the non-feedstock increase is related to, regional, commodity-specific, anything at all?

Yeah, generally speaking, it's a matter of either resourcing commodities where we have lost suppliers, and certainly there's a lot of instances in China where in petrochemicals we've got suppliers that just aren't making the material anymore, and we have had to shift back to supplies outside China. In other cases, we've got suppliers that have had to make incremental investments in order to meet environmental standards, and the cost of those incremental investments are being passed through. And so it's not strictly speaking feedstocks, but it's increased investment that they've had to make in order to deal with the new regulations. So those are very common examples for us behind this. And the amount of non-feedstock increases is declining, so less of an impact this year than last year. So I think we're working our way through that, and obviously we're focused on trying to find ways to mitigate those, but that is the view that we've got sitting here today.

Got it. No, that's helpful. And just last one on mix. I believe backing into the fourth quarter, maybe it was still a 5 million headwind within the EBIT bridge. One, is that right? And then two, just how are you thinking about mix for this year? I believe the headwind, or a major headwind, in '19 was related to your consumer alignment mix in North America. Does that finally abate in 2020?

Yeah, so I think the negative impact in our consumer replacement business in North America, I think we do see that abating because there's a number of actions that have been taken to address some of the factors that were causing that negative impact. So we've addressed it with some commercial discussions with customers in order to at least get rid of some of the duplicative distribution costs that we were experiencing. So I think that's good. I think what we will see in 2020 is loss of commercial truck tire volume as the commercial trucks cycle and particularly OE build starts to hit, and we expect some loss in our off-highway business as well as that cycle and the cycle for mining tires has started to turn negative. So we've got a couple of other factors working against us. So I think that while we're, as you said, sort of 4 or 5 million negative in the fourth quarter, I think we're hoping to see something at least in the positive direction in 2020. And I think we're confident we'll see something in the positive direction in the consumer replacement business. I think the question is in some of the other businesses, and we'll try to provide some color for that as we go through the year.

Thanks. Yeah, we'll take our next question from Atama Kelly with Citi. Please go ahead.

Okay, thanks. Good morning. Just two questions, I apologize in advance. The first, on slide 20, just continuing the mix conversation in terms of the expected positive contribution over the next two or three years. Hope you could elaborate more on that. Maybe you can talk about the individual buckets of product, customer, and channel, and how you're thinking about different scenarios for mix in the next couple of years.

That's helpful. And then just a thumb on the consumer OE price reduction that you referred to. Are you seeing that as a sort of a new annual normal this comp? Are the contracts that you signed for the 7 million units, or is this more of a kind of more one-time type of a headwind just in response to market conditions?

That's very helpful. Thanks for all that. Maybe just lastly for Darren, just going back to the pro formas on slide 21 on working capital restructuring, are you expecting free cash flow to be able to comfortably cover the dividend again in 2020?

Now, so I guess the thing I would say is that we feel like the dividend we have is appropriate for us through the cycle. And for 2020, even if our earnings are under some pressure, we believe our cash flow is going to enable us to cover both our planned capex or restructuring payments and our dividend without a meaningful increase in our net debt. We've got several actions that we've taken to protect our balance sheet, and we are very cognizant of that. But I think that we're in a position here where we can cover it without any meaningful increase in that debt.

That's very helpful. Thanks so much.

Thank you. Ladies and gentlemen, we have no further questions. I'll reserve the floor two or three seconds for closing remarks. We should like to thank everyone for joining us today. Appreciate it. Thanks very much. As we conclude today's program, thanks for your participation. You may now disconnect.