Jul 29, 2015
Executives
Christina Zamarro - Vice President, Investor Relations Richard J. Kramer - Chairman, President & Chief Executive Officer Laura K.
Thompson - Chief Financial Officer & Executive Vice President
Analysts
Ryan J. Brinkman - JPMorgan Securities LLC Rod A.
Lache - Deutsche Bank Securities, Inc. Itay Michaeli - Citigroup Global Markets, Inc.
(Broker) David J. Tamberrino - Goldman Sachs & Co.
Brett D. Hoselton - KeyBanc Capital Markets, Inc.
Emmanuel Rosner - CLSA Americas LLC Ravi Shanker - Morgan Stanley & Co. LLC
Operator
Good morning. My name is Keith, and I will be your conference operator today.
At this time, I would like to welcome everyone to The Goodyear Tire & Rubber Company Second Quarter Earnings Conference 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. Thank you.
I would now like to hand the program over to Christina Zamarro, Goodyear's Vice President, Investor Relations.
Christina Zamarro - Vice President, Investor Relations
Thank you, Keith. And thank you, everyone, for joining us for Goodyear's second quarter 2015 earnings call.
Joining me today are Rich Kramer, Chairman and Chief Executive Officer; and Laura Thompson, Executive Vice President and Chief Financial Officer. Before we get started, there are a few items we need to cover.
To begin, 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 our earnings release issued earlier this morning.
If I could now draw your attention to the Safe Harbor statement on slide two, 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 our 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 on the call are reconciled to the U.S.
GAAP equivalent as part of the appendix to the slide presentation. And, with that, I will now turn the call over to Rich.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thank you, Christina. And good morning, everyone.
This morning, I will review highlights from our outstanding second quarter, provide an update on how the macroeconomics in our regions are affecting our business, and give my perspective on our business for the remainder of the year. Laura will follow with a financial review of each of our businesses and an update to our outlook before we open the call to your questions.
In the second quarter, we delivered segment operating income of $556 million, a record for any quarter in the company's history and a 21% improvement versus last year. Also, if we exclude the impact of foreign currency translation, our operating performance improved by 28% in the quarter.
These were simply excellent results for our team. Combining this quarter with our record first quarter results, our segment operating income for the first half of the year was $947 million, the highest first half ever for Goodyear.
By comparison, that's higher than our full year segment operating income in 2010. In addition, we delivered segment operating margin of more than 13% in the second quarter despite significant foreign currency headwinds and regional macroeconomic challenges.
Leading the way, our North American business delivered record segment operating income and nearly a 16% segment operating margin. It's highest in my 15 years at Goodyear and likely longer than that.
In addition, three of our four global businesses delivered operating margins of greater than 10% in tougher-than-expected economic environments. Taken in total, our record second quarter performance reflects the strength and disciplined execution of our strategy.
We believe that strength comes largely from the integration of the key how to's on our strategy roadmap; innovation excellence, sales and marketing excellence, and operational excellence supported by an aligned and collaborative team. While each is a significant element in our plan, their value multiplies when they're integrated.
Our current results reflect that value and we've only just begun to tap into its full potential. I'd like to spend the next few minutes providing my perspective on each of our SBUs, as well as my thoughts on the industry outlook for each for the remainder of the year.
North America delivered $321 million of segment operating income, a record for any quarter. This performance was driven by positive price mix and raw material costs, demonstrating the earnings power of our value proposition in a strong market.
During the quarter, demand in our Replacement business remained solid and we began to see the benefits of our new product launches, such as the Kelly Edge. Early demand for these tires has exceeded our expectations as our market-back innovation has allowed us to bring HVA attributes to the mid-tier segments.
Similarly, we've increased our share in OE, which continues to deliver profitable results by selling HVA products, such as the Wrangler All-Terrain Adventure and the Assurance Fuel Max on some of the most popular vehicles in line with our strategy. The results are paying dividends not only in our OE performance, but also in The Goodyear brand replacement pull-through, as consumers visit our line dealers.
The enhancements to our product mix have been an important enabler of North America's improved value proposition. During the first half, we also began to roll out our new e-commerce platform for Consumer Replacement tires.
We developed our online sales strategy to reduce friction or in other words to make the tire buying process easier for consumers. The program is still in the early stages, but it has met or exceeded our initial expectations, while providing many key learnings needed to implement it successfully over the long term, as consumers change their buying habits.
We remain confident that this program, with our industry-leading dealer network and more than 4,000 locations enrolled to-date, will drive profitability through the value chain. Our Commercial Truck Tire business also had a strong second quarter based on the robust demand for our industry-leading products.
In June, we unveiled a new commercial tire product, the Endurance WHA for waste haul fleets, which will be available later this year. Our total portfolio of Commercial Truck Tire offerings has never been better.
And combined with our fleet service model, that's the gold standard of the industry that makes Goodyear a clear industry leader in the commercial truck business. Across all of our segments in North America, our value proposition has allowed us to excel in a market where drivers of demand have remained very strong.
New passenger vehicle sales are at the highest in a decade, miles driven for the first five months of the year was an all-time record and we project miles driven for the full year to be a record as well, and year-to-date truck tonnage has increased 3% over the same period last year. All are leading indicators for good tire markets, and we believe the underlying fundamentals will remain favorable for some time.
We've consistently said that it was a question of when not if industry fundamentals would improve, and they have. As I look at the success of our North American business and the industry fundamentals, our challenge continues to be meeting growing demand for our HVA tires.
As we've outlined, in the short term, we are investing in our factories locally and leveraging our global footprints to deliver more of the tires that our customers want. In fact, we broke ground yesterday in San Luis Potosí, Mexico for our previously announced new manufacturing plant, which will help satisfy demand and allow us to grow over the long term.
Shifting to Europe, our EMEA business unit delivered $108 million in segment operating income during the second quarter, down about 8% versus the prior year, which was more than explained by the weak euro. Excluding the impact of currency, EMEA grew 14% year-over-year.
EMEA's performance was led by the successful execution of our strategy of growing in targeted market segments along with the strength in summer tire sales in Western Europe. Goodyear-branded summer tires, particularly The Goodyear EfficientGrip Performance and EfficientGrip SUV tires claimed the top spots in several important magazine tests, which helped facilitate strong demand and growth in those segments during the summer season.
Industry sell-in for summer tires was strong during the quarter and helped offset the difficult year-over-year comparisons for winter tire sell-in. You'll remember that last year winter tire sell-in started earlier in the second quarter.
As we predicted last quarter, we did not see the same early sell-in this year. Heading into the second half of the year, we're taking a measured approach to winter tire sales based on the warmer than usual weather Europe has had over the past three years, the higher levels of inventory currently in the channels, and a wait-and-see approach by the dealers.
Customers may be reluctant to build large inventories of winter tires and sell into retail channels maybe delayed. Clearly, the unpredictable winter weather will affect buying patterns, which remain difficult to gauge.
Regardless, we're confident our award-winning winter products will position us to win in the marketplace. In our Commercial segment, our recent share growth has been fueled by our outstanding products and increased demand from fleets.
For example, last month, Goodyear was honored with the Luxembourg Green Product award for its FuelMax S truck tire. The tire features IntelliMax Groove technology, which was cited as a major breakthrough in the tire industry for fuel efficiency and operating cost reduction.
It is this type of innovation that continues to enhance our value proposition and win with fleets around Europe. Like our success in North America, EMEA's end-to-end fleet service solutions of strong product lineup is driving our year-to-date success and winning new customers.
Emerging markets in Eastern Europe continue to struggle with an influx of low-cost Asian imports. This is a trend we saw in previous quarters and one that we believe will continue in the second half of the year.
Given the macroeconomic conditions in Europe, we have and will continue to take actions to better align our cost. In June, we announced the planned closure of our mixing and retread operation in Wolverhampton, England, and some other changes within our EMEA footprint.
These actions will help facilitate a more competitive cost structure. With the economic uncertainties in Europe surrounding currency, the situation in Greece and the ongoing Russia-Ukraine conflict, we believe these are the appropriate and the prudent steps to manage our business.
We do not foresee the economic situation improving during the second half of the year and expect the euro to continue to depreciate versus the U.S. dollar.
Through the remainder of the year, we will stay focused on strengthening our value proposition, reducing our cost and winning in our targeted market segments where the value of our brands differentiates us from the competition. Latin America continues to be a very volatile region as well.
Our business there delivered segment operating income of $43 million, down year-over-year because of the recessionary conditions in Brazil. I'm pleased, however, with how our team has executed in this environment.
There was double-digit growth in Consumer Replacement volumes in many of our Latin America growth markets including Mexico, Argentina and the Andean countries. However, this performance was more than offset by the weakness in Consumer OE, particularly in Brazil, which remains in a recession.
New vehicle sales declined 24% in the second quarter and are down 21% year-to-date versus 2014. Venezuela's fluid economic and political situation continues to create challenges and volatility in our Latin America business.
However, we are pleased our team has been very successful and continuing to operate profitably in the country, while servicing the strong demand for our replacement products. Laura will elaborate on Venezuela in her comments in a moment.
As I said last quarter, with currency, economic and political instability at levels not seen for years, we expect the Latin America region to remain volatile, but we also remain optimistic about the region's long-term prospects. Finally, in Asia Pacific, strong volume growth in China and India contributed to segment operating income of $84 million and operating margin of more than 17% in the second quarter.
In India, our strategy has been a success as OE and Consumer Replacement volumes and share both increased, driven by new vehicle launches and strong branded retail performance. During the quarter, we launched the Assurance TripleMax tire for the mid-tire passenger segment in India.
This is a product that has been very successful in other countries in the region over the past 18 months and we anticipate it will be in high demand here as well. In China, we continued to have strong year-over-year growth in our Consumer Replacement and Consumer OE businesses, but at a pace slower than anticipated.
The slower growth is largely due to a combination of weaker new car sales, domestic stock market volatility and lagging consumer confidence. While the macroeconomic environment in China is expected to soften relative to the first half, we are driving initiatives to support our growth goals.
For example, we recently expanded our relationship with Wal-Mart in China and Goodyear also is now the exclusive tire brand available through Sam's Club stores and online. Going forward, we are focused on driving incremental replacement tire sales in Tier 2 and Tier 3 cities taking advantage of additional opportunities to grow our customer base.
As we said in the past, China's growth may not be in a straight line, but it's the world's largest auto market. We expect continued growth over the balance of the year, but with stronger headwinds than in the first half.
We remain confident in our long-term growth in China. Looking back at our global businesses in the second quarter and over the first half, I'm very pleased with the execution of our strategy, the focus on our targeted segments and our teams' commitment to maximizing value through the integration of our key how to's.
Our 14% segment operating income growth in the first half gives us confidence that we will reach our 10% to 15% growth target despite challenges in the global economy. Our commitment to those objectives is unwavering, but we will be flexible in how we arrive at our strategic destination of creating sustainable value.
Many of our markets are considerably more volatile than they were when we developed our plan. We will have additional bumps in the road, but we're not running our business for one good quarter or one good year.
By running our business for the long term, we won't be distracted by the now familiar fluctuations in the marketplace with the expected headwinds in our industry. Our strategy is solid, it's working and it delivered in the quarter, as evidenced by 21% year-over-year segment operating income growth and by a 13% operating margin.
We believe it will continue to drive strong results. I'll now turn the call over to Laura.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thank you, Rich, and good morning, everyone. My remarks today will start with a review of our second quarter results, and I'll then cover updates to our full-year outlook for 2015, before we open the call up for your questions.
Turning to slide 7, I would like to highlight a few items on the income statement. We are very pleased with our second quarter performance, showing both volume growth and strong improvement in our segment operating income.
Unit volumes increased 1% in the quarter, driven by solid growth in North America and Asia-Pacific, partially offset by declines in EMEA and Latin America. Looking at our net sales for the quarter, the impact of the strengthening of the U.S.
dollar reduced sales by $401 million year-over-year. In addition, other tire-related sales were lower by $81 million.
The decline in other tire-related sales was driven by lower third-party chemical sales in North America, reflecting lower commodity costs. Gross margin improved 3.3 points to 27.4%, improving segment operating income to a record $556 million with a SOI margin of 13.3% for the quarter.
Our earnings per share on a diluted basis was $0.70. Our results were influenced by certain significant items, which are listed in the appendix of today's presentation.
After adjusting for these items, our earnings per share was $0.84. As a result of the release of our U.S.
tax valuation allowance at year-end 2014, our U.S. tax expense increased significantly year-over-year.
Consistent with our approach in the first quarter for year-over-year comparison purposes, we have provided an adjusted EPS excluding this incremental non-cash tax expense. For the quarter, the adjusted EPS on that basis is $1.13, up $0.33 versus last year.
As a reminder, although we are incurring tax expense in the U.S. today, we do not anticipate paying significant cash income taxes in the U.S.
for approximately five years. The step chart on slide 8 walks second quarter 2014 segment operating income to second quarter 2015.
The positive impact of volume growth and lower unabsorbed fixed overhead cost was $8 million. Lower raw material cost of $108 million, more than offset reduced price mix of $7 million for a net benefit of $101 million during the quarter.
While this performance is well ahead of our previous guidance for the second quarter of $25 million to $50 million, about half of the net price mix versus raw materials in the quarter was a benefit from our Venezuelan operation. Excluding Venezuela, our price mix and raw material performance came in at the high end of our guidance range.
Cost saving actions of $101 million more than offset the $71 million impact of inflation, which was driven primarily by Latin America. The highly inflationary environment in Venezuela significantly impacted our net savings in the quarter.
Excluding Venezuela, our cost savings net of inflation would have almost doubled. Foreign currency exchange was a headwind of $35 million, reflecting the continued strengthening of the U.S.
dollar, particularly against the euro. Turning to the balance sheet on slide nine, cash and cash equivalents at the end of the quarter were $1.6 billion and essentially unchanged versus the prior quarter and the second quarter of last year.
This cash balance includes $304 million of cash in Venezuela. Our total debt and our net debt are effectively flat with our first quarter balances as well.
Net debt is lower than the second quarter last year by $660 million, following our strong free cash flow performance in 2014. Slide 10 shows we generated $377 million of free cash flow from operations in the quarter.
Working capital was a source of cash and more than explains the $63 million improvement in free cash flow compared to the prior year. Looking over the last 12 months, our free cash flow performance has been strong exceeding $1.1 billion.
Moving now to the business units on slide 11, I'll start with North America. North America had another great quarter with an all-time record segment operating income of $321 million.
This is the 24 consecutive quarter of year-over-year earnings growth and with a segment operating margin of 15.8%, the fifth quarter in a row of earnings exceeding 10% to sales. North America's $113 million year-over-year increase in earnings was driven by positive price mix in raw material costs demonstrating our strong value proposition.
North America's unit volume increase was driven by growth in both OE and the replacement channels. Our commercial truck volume was also strong in the second quarter, driven by strong OE demand for our fuel efficient tires such as the Fuel Max LHS steer and LHD drive tires.
Remember, fuel is among the top two largest expenditures for fleet, and as such, identifying the most fuel efficient tire is a critical factor impacting fleet profitability. Through the first half of 2015, North America has generated SOI of $519 million equal to 13% of sales.
This earnings power demonstrates the strength of our strategy and overall value proposition. Europe, Middle East and Africa delivered segment operating income of $108 million in the quarter, a decrease of about 8% over last year's $117 million.
The impact of foreign currency translation reduced earnings by $25 million, more than explaining all of the year-over-year decline. Our unit volumes decreased about 2% year-over-year and the volume decline was due to two factors.
First, a continuation of increased competition concentrated within our economy segment in Central and Eastern Europe. This area is where we have seen additional pressure driven by an increase in Asian imports.
And second, the discontinuation of our farm tire operations last year. Together, these headwinds offset volume increases we saw year-over-year in the HVA performance and SUV segment in the region.
As Rich mentioned, strong summer tire sales during the quarter in Western Europe helped offset decline we saw in winter tire selling year-over-year. However, with our previously announced price increases in Europe taking effect in July, we see some of the volume benefit in the quarter as pull ahead of third quarter demand.
In commercial truck, we continue to experience a stable industry environment and we have gained share in replacement based on the strength of our premium branded products. Our EMEA business has delivered solid underlying performance in the first half of 2015.
While there will continue to be challenges with foreign currency headwinds as Rich mentioned, we are very confident in our winter product portfolio and we've taken a cautious approach on volume expectations for the back half of the year, given some summer demand pull ahead and winter inventory remaining in the channels from last year's very warm winter. Even as we plan for a green winter, there is still some risk due to the unpredictable nature of the weather and a potential repeat of last year's warm temperature through the fourth quarter.
Asia-Pacific generated segment operating income of $84 million in the quarter, an increase of 11% over last year's $76 million. The main contributors to the earnings growth were increased volume and favorable price mix versus raw material costs, partially offset by higher SAG expenses and the negative impact of foreign currency translation.
Volume of 6 million units was 5% higher than a year ago and was primarily driven by two of our largest and fastest-growing markets with double-digit growth in India and China. In China, our volume growth in the quarter was driven by our OE business, where we have been successful in winning new business and gaining share, in addition to participating in the overall industry growth.
We are also proud to report that in June we launched the EfficientGrip Performance tire for Chinese luxury consumers, offering best-in-class quiet and comfort. As Rich touched on, although China's economic growth has recently moderated from the levels seen in the first half of the year, we are still excited about the long-term growth opportunities we see for our business in Asia.
In addition, on slide 16, in the appendix of today's presentation, we have provided some further details on our operations in China. In India, we enjoyed double-digit volume growth versus the prior year in both the Consumer Replacement and Consumer OE businesses.
In Latin America, our volume decreased about 4%. We again saw double-digit growth in Consumer Replacement volumes in Mexico, Argentina and the Andean countries.
However, this performance was more than offset by weakness in Brazil, especially in the OE and commercial replacement segments, which are feeling the effects of a significant recession. We also saw year-over-year volume declines in Venezuela, as we have been operating at lower levels of production than last year.
Segment operating income was $43 million for the quarter, $16 million less than the prior year. Latin America benefited from positive price mix, which is more than offset by the impact of inflation on raw material and conversion costs, as well as lower volume.
For the quarter, operating income from our Venezuelan business was $36 million, although the impact of Venezuela on our net income for the quarter was $24 million, which included $12 million of foreign currency exchange losses due to a weakening in Venezuela's (28:43). While the macroeconomic conditions and currency controls remain challenging, the team has been able to obtain sufficient U.S.
dollars to purchase raw materials to support our operations, albeit at a lower than optimal level. I'll discuss our latest thinking as it relates to Venezuela as part of our full-year outlook in a moment.
Our Latin America team is continuing to work proactively to maximize market opportunities, while at the same time taking actions to address the cost structure to better match the lower volumes in this recessionary environment. Slide 12 shows our updated full-year modeling assumptions for 2015.
You'll notice that volume, overhead absorption, currency and Amiens closure-related savings, are all unchanged from our April call. We continue to see our full-year volume growth in the 1% to 2% range, with strength in North America, a cautious view on EMEA's second half volumes, an increasingly challenging environment in Brazil, and lower growth expectations for China.
The updates to our outlook are due to Venezuela. The two changes to our 2015 SOI drivers are in the price mix versus raw materials and net cost savings outlook lines.
As we were able to continue profitable operations in Venezuela throughout the first half and at this time we have enough visibility to expect access to U.S. dollars for raw material purchases, they will enable us to remain at current production levels through the third quarter.
As a result, we have updated our outlook to reflect the effect of Venezuela results to the various SOI drivers rather than including Venezuela as a separate line item. Overall, Venezuela will meaningfully increase our price mix versus raw material expectations and decrease our net cost saving guidance.
Both of these changes are a reflection of the highly inflationary environment in the country. Taken together, these changes, incorporating Venezuela, are a $70 million improvement versus our April outlook.
We now expect a full-year net benefit of approximately $330 million for price mix net of raw material changes. Raw material costs are expected to be 7% lower than last year before cost savings actions due to slight increases in underlying raw material costs since April, particularly for natural rubber in the second quarter.
This also includes the negative impact of currency on raw material transactions in our international businesses. The other significant change in the outlook relates to the net cost savings where including Venezuela significantly increases the overall inflation headwind.
As a result, we have reduced the net cost savings to approximately $70 million for the year. I want to be clear, this reflects simply the higher inflation related to including Venezuela results throughout the outlook.
Our operational excellence programs are on plan and delivering as expected. Additional financial assumptions for 2015 are listed on slide 13 and each is consistent with what we provided on our April call.
In summary, as we look at 2015, our financial outlook has a few moving pieces, but in total has increased $70 million reflecting the operating income improvement from our Venezuela operations. Excluding Venezuela, our full-year outlook is unchanged.
Our strong performance over the first six months gives us confidence that we will reach our SOI growth target of 10% to 15% in 2015. In addition, we continue to execute our capital allocation plan and as part of that plan, we have an existing $450 million share repurchase authorization and including the $50 million in repurchases during the second quarter, we've now repurchased $283 million under our 2014 through 2016 plan.
Now, we'll open the line up for your questions.
Operator
We can take our first question from Ryan Brinkman with JPMorgan. Please go ahead.
Ryan J. Brinkman - JPMorgan Securities LLC
Hi, good morning. Congrats on the quarter.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thanks, Ryan. Good morning.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thanks, Ryan. Good morning.
Ryan J. Brinkman - JPMorgan Securities LLC
Great. So just I'm trying to think about how to model North America for the balance of the year after the strong 2Q?
I think it's important to understand what's happening with price to mix – price mix to raws. So the first question is, can you break that out for North America now like I think, you will in your Q?
And then, secondly, can you comment even directionally on how you expect North America price mix to track in 3Q or 2H compared to 2Q or 1H? An agenda with sort of on again, off again preliminary tariffs in the first half being replaced with now permanent duties in the back half that pricing independent of raws pass through could be stronger, do you agree with that directionally?
And then regarding raws, should this too potentially get better at least in 3Q, given your FIFO accounting and the fact that prices seem to have bottomed about kind of one and a half quarters prior to 3Q, which I think is roughly consistent with your traditional lag between spot prices and impact to the P&L?
Richard J. Kramer - Chairman, President & Chief Executive Officer
So, yeah, Ryan, we'll try to tag team. You had a lot of questions there.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah,
Ryan J. Brinkman - JPMorgan Securities LLC
Go ahead.
Richard J. Kramer - Chairman, President & Chief Executive Officer
I guess, first thing is, we don't break out the difference between price mix and we're not going to start doing that as we go ahead. But I think as you look at where we're at, obviously we're very pleased with the results of the business.
And as you think about Q2 and first half and then roll into the second half, I think the first thing that I would say is, what we're seeing is our goal of creating a business that can deliver sustainable value, sustainable results over the long term and the decisions that we've taken in the past around our fixed costs, around efficiency, around business choices, around our new product portfolio, around innovation, around putting a focus on the consumer and driving our strategy – those three elements of our strategy with the right team, you're seeing that take route and really delivering in this quarter, and I would suggest it's been delivering over the last number of quarters, number of years. So, as we think about second half, I think that underlying business model certainly will continue.
We also got the benefit now, as you know, we've got lower gas prices; we've got better unemployment; we see miles driven being up, I think 15 reported periods in a row, that means more tread rubbers is being burned on the roads. We see a stronger OE business in the U.S., sort of the $17 million SAR and the work we did on our – getting on the right fitments is certain paying dividends as well.
So as we look into second half, I think some of that momentum will certainly still be there. As we look at what we said earlier in the year, we said that we would have a strong second half as well in North America.
We are also releasing some new tires again, part of the Kelly Edge power line. We have new tires going into Walmart.
We have new Assurance tire coming out. So certainly, that's going to help our momentum as well as we move ahead.
I will tell you, we still have – as I mentioned in my remarks, we see still have some supply constraints on some of the HVA tires that our customers want and we're still trying to work on that as we get into the second half and beyond getting more tires out of the factories that we have and more out of the import plant that we have as well. So all that momentum I think does carry into the second half as we go.
And in terms of where raw materials will be, I would point you back toward the assumption page that Laura can talk to here. We really haven't changed much where we're, I think we said – it was an 8%...
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah. We said so.
Richard J. Kramer - Chairman, President & Chief Executive Officer
...reduction for the year.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah. Exactly.
So on raw materials, while we expect it to be 7% for the full year, there is a slight improvement to that in the second half over the first half of the year. And then real quick, just back, no doubt as we think about North America and the price mix versus raws guidance, nothing has changed in the sense that we still based on our results in North America, expect price mix versus raws to be weighted more towards the back half of the year versus what we saw in the first half of the year, if that helps for the model?
Ryan J. Brinkman - JPMorgan Securities LLC
No. It definitely helps.
Thank you. Just one follow-up though.
On the price mix to raws, did you not beat the 2Q guidance? Was it for $20 million to $50 million comes in $107 million, so that's a $57 million improvement.
And then it seems that slide 12 is saying there is actually no change though to the full year except for Venezuela. So why not an improvement to the full year, is it because the spot prices kind of ticked up a little bit through the quarter or what – how to think about that?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Sure. So, no doubt.
For price mix – I'm sorry, so for price mix for the second quarter our guide was $25 million to $50 million. When we back out Venezuela in the actual results for the second quarter, you will see that about half of that is Venezuela, and therefore we're at the very high end or so, right, of our $25 million to $50 million range as we go.
Ryan J. Brinkman - JPMorgan Securities LLC
Yeah. You're right, that makes perfect sense.
And just final question just basically on slide 22, looks like one of the biggest improvements there was to commercial replacement in North America, which I think is disproportionally profitable for you, right? So, you talked about in your prepared remarks some of the freight industries that you look at and we can see too (39:32).
But, can you talk about maybe what you think is driving the underlying improvement in freight or what not and the sustainability of that? Thank you.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Yeah, Ryan, I think it's just the general economic lift that we're seeing in a broad sense. I mean, I know our U.S.
economy is not hitting on all cylinders but it certainly improved, and I think there's certainly some pent-up demand out there that's going over the roads. In addition, the OE business is very strong as well as truck builds.
I know you guys do or your colleagues follow the trucking industry, you know what the boards look like in terms of new truck build. So, there is a market, I think a favorable market out there in terms of freight and in terms of demand for trucks and consequently demand for tires.
We also have built our business around not just, and I think this is really the most important thing I can say, it's not just about tires, it's about the whole fleet services solutions that we bring. And I think particularly, in an environment, where there's more trucks on the road, being a full-service fleet provider, meaning new tires, retreads and ability to get truckers up and running when they have issues on the road and providing tires that have the fuel economy that really Laura mentioned in her remarks, can save trucking companies money on fuel.
It's that whole value proposition I would suggest you that drives our business results. And that's important because that model will also be beneficial to us when the industry is not as strong as it is right now.
So that really is, I would tell you the underlying strength that we have. And I would say very proudly, I think we have the best business model in North America by far.
Ryan J. Brinkman - JPMorgan Securities LLC
Okay. Thanks.
Congrats again.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thank you.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thanks.
Operator
We'll take our next question from Rod Lache with Deutsche Bank.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Good morning, Rod.
Rod A. Lache - Deutsche Bank Securities, Inc.
Good morning. Congratulations.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thank you.
Rod A. Lache - Deutsche Bank Securities, Inc.
Couple things. First, on the guidance, you're guiding the 10% to 15% SOI growth, I presume that's off the $1.7 billion last year.
So that's like a $170 million to $256 million. All those items that you provided the price versus raws, the costs FX in EMEA and that's about $220 million.
And if you had volume growth of 1% to 2%, that might be $25 million to $50 million. So all together you've got about $245 million to $270 million based on that.
So what do we need to think about to net down to that $170 million to $256 million?
Richard J. Kramer - Chairman, President & Chief Executive Officer
I mean, Rod, we're trying to give guidance as best we see what's happening in the world today. I mentioned in my remarks that when we put our plan together, clearly a lot of things have changed and our job is to try to deliver the results that we set.
So as we look at what's happening over the course of the second half of the year, we've got risk on currency in Europe with the euro; we've got the winter markets that we still have to work our way through. Does it snow, when does it snow in Europe?
We get the recession in Brazil to deal within a bit of a slowdown in China. So, there are a lot of different things that we have to work our way through.
What our guidance is intended to do is to be less of a point estimate, but to give you a view of how we see what we need to deliver over the course of the second half.
Rod A. Lache - Deutsche Bank Securities, Inc.
Okay. That makes sense.
And also just kind of a housekeeping thing. Typically, the difference between SOI and operating income, your corporate overhead is $35 million to $40 million, this quarter it was $56 million.
Is that an unusually high number or is that a run rate that we should be thinking about going forward?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Right. So, it is a run rate I'd say using going forward.
We were a little higher in this quarter. We had our intercompany profit elimination as we moved tires around the world, some corporate incentive plans and so on moving around.
But, similar to 2014, each quarter there are ups and downs in it, but on average we're still projecting to come out between $30 million and $35 million a quarter.
Rod A. Lache - Deutsche Bank Securities, Inc.
Okay, great. And then just two other things kind of market share questions.
So, in North America, the RMA was up 4.8%, your replacement volume was up, it was up 1%. But, presumably, the Asian imports would be doing less well.
So maybe could you talk a little bit about what's happening here market share-wise? Is the new Kelly product expected to kind of fill a gap that's outperforming?
And then in Europe you explained the market share issue there with Eastern Europe and Western Europe, but it's a bit surprising that you're implementing a price increase even though raw material costs are down. So, in Europe, is it basically just staying disciplined on pricing and just foregoing that volume growth?
Richard J. Kramer - Chairman, President & Chief Executive Officer
So, Rod, from a North America's perceptive, I think the market is up because you had non-Chinese imports come in mostly at the low end of the market again and that's not as you know a place where we play, so that's really what drove that market. As I've said in the past, we're sticking to our strategy, we're not just pursuing volume for volume sake, we're pursuing those parts of the market where we can create value for ourselves and for our customers, and that's what we're doing.
A lot of that bump comes at the low end. And exactly as you said, I think you hit it exactly right with the Kelly Edge, with the Douglas Power line and the Kelly Power line with another Assurance tire we're putting in, we're taking that HVA technology as we said in one of our megatrends a number of years ago, bringing that down into the mid-tier where we can get value for the Kelly name and for The Goodyear name as we move ahead.
And that was our strategy, it is our strategy, and that bump really comes in places that doesn't affect us as significantly as the numbers might suggest. And from a Europe perspective, I think when you look at our volume year-over-year, two things to keep in mind.
One, we had a significant sell-in in winter tires in Q2 last year, so that made it a tough comp because we didn't see that so and again this year. And also you're seeing the reduction in our farm business, which I think accounted for about a third of our volume loss in – in volume change year-over-year, because we're completely out of the farm business now, so that was sort of a one-time impact that you see there.
So those two things really say what volume is. It doesn't have a – we don't view it as a significant impact, a significant concern as we look at Q2 volumes.
And your comment on – obviously, Rod, maybe to just to add to that one other quick thing. Winter in Q3 and Q4 is obviously something we're paying very close attention to, because that is a significant item to the industry and to Goodyear.
And finally, in terms of raw materials price, the price increase you mentioned that we had in Europe, remember, our raw materials particularly natural rubber, but other raw materials are dollar based. So with the weakening euro, our raw material costs are going up, and I think that's the logic of what you've seen there, so.
Rod A. Lache - Deutsche Bank Securities, Inc.
Great. Okay.
Thank you.
Operator
And we'll take the next question from Itay Michaeli with Citi. Please go ahead.
Itay Michaeli - Citigroup Global Markets, Inc. (Broker)
Great. Thanks.
Good morning, everyone and congrats.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Good morning, Itay. Thank you.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thanks.
Itay Michaeli - Citigroup Global Markets, Inc. (Broker)
So maybe I'll turn to China and thanks for the detail on slide 16. Can you just remind us what you're assuming for China in the full year guidance maybe volume-wise and how to think about sensitivities there if that market were to get materially worse?
Richard J. Kramer - Chairman, President & Chief Executive Officer
So, Itay, I think it's a good question and maybe I'll just start, I'll take a step back by saying, we have what we feel is an excellent business in China. We've been there a long time since 1994 actually, and our business model there is largely focused in the premium/HVA part of the market.
We have low LVA-type tires that we make and sell over there. So we have a very good business mix.
And we supply that by and large with one of our most technologically advanced and really best-performing factories in Polandian (48:20), where we have capacity of about 11 million consumer tires and about 0.5 million truck tires there. So we've been there a long time, we've seen the bumps in the road and where we get that.
As we look at our business, we still think China will be a growth market over the long term. Today, it's about – the industry is about a 50-50 split between OE and replacement.
And remember that's really different than the rest of the world, there are mature markets. When we describe our company, we say about 30% OE, 70% replacement.
China is a little bit different as that market matures and as cars get put on the road. So as you think about our business there, it's a little bit different mix and obviously there's a little bit different margin change, 50-50 versus 30-70 in terms of how we think about the rest of the world as well.
So, that's sort of a picture of our business. Our focus there, Itay, continues to be on growing our branded business and expanding our distribution.
We had a very good second quarter both in OE and a strong quarter in replacement as well. As I mentioned, we're going to continue to focus on growing our business in places like Wal-Mart and Sam's Club, where we're the exclusive tire and just recently in Sam's Club as well.
And we see opportunities beyond sort of the Tier 1, Tier 2 cities. We play into Tier 2 and Tier 3 and see a lot of growth opportunities for us there.
That's sort of the next phase as we move ahead. So we still feel very optimistic about the long term.
But listen, all the things that everyone's been following, we've seen a lot of the OEMs take down their forecasts on the industry and on growth, and we see the same thing there. So, we saw growth in the first half.
We see that certainly changing in the second half and be about flat as we look to the year, is what we see there. So we'll have some headwinds there.
But we also have a plant, as I said, that has high technology. We import some from that today.
And you would be right to think that we're going to think about how we use that capacity in other ways both in the Asia region as well as possibly in other parts of the world as well. So, clear bump in the road, a clear headwind that we have to deal with.
And I'll just say, we can and we will and we're going to remain – we do remain very optimistic about our prospects in China over the long term.
Itay Michaeli - Citigroup Global Markets, Inc. (Broker)
That's very helpful, Rich. And then maybe just a second question on just the full year SOI guidance of 10% to 15%.
I mean, it sounds like that your second half outlook with respect to the European winter situation, China we just talked about, is fairly conservative and you clearly are trying to embed some of these potential risks in your guidance. So with that, is there any bias in the SOI range at this point, high-end, midpoint, low-end, given some of these risks?
And if not, maybe just talk about what some of the few things that can go right versus wrong in the second half of the year in your modeling?
Richard J. Kramer - Chairman, President & Chief Executive Officer
Yeah, I don't think there is a bias in there. There's a lot of volatility in global markets.
And as I mentioned, I think you've seen this as well in a lot of the companies you are covering is the world changed versus all of our planning cycles a while ago and we've got to react to it, and that's what we're doing. So there is really no bias in there, other than sort of putting the gloves on every day and figuring out what we need to do to deliver the results.
In terms of headwinds, I won't repeat them. I think you actually touched on and, again, those are the things that we have to deal with.
In terms of things going right, I would tell you we're focused on executing our strategy, our key how to's, and getting value for our brands, and making more of the right products and delivering them both in – well, really in all our markets. I was going to say in Europe and North America in particular where we have still demand for those HVA products.
But Itay, that's our focus to make those customers that we have who want more of our product happier customers by getting it to them. And if we do that, that's going to have goodness all around.
Itay Michaeli - Citigroup Global Markets, Inc. (Broker)
Terrific. Thanks so much.
Congrats, again.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thank you.
Operator
And we'll take our next question from David Tamberrino with Goldman Sachs.
David J. Tamberrino - Goldman Sachs & Co.
Good morning and congrats on the quarter. Just a couple of questions on our end, as we look at regional margins, I think it's probably hitting on Brinkman's questions from earlier, but North America was quite strong at about 16%.
Wondering your thoughts into the back half, is that sustainable or do you see some slight compression sequentially in the third quarter because of the aforementioned increases in spot prices of raw materials?
Richard J. Kramer - Chairman, President & Chief Executive Officer
Well, David, I think I'd just – I think I'd refer you back to Laura's comments where she said that we had originally – in our original planning assumptions that second half of the year, we'd see stronger results because of the price mix equation. But also I'd just kind of remind you that the way raw material flows, remember, we're about six months from – I think about six months from date of purchase till the time it hits into our P&L, particularly for our raw materials.
So lower spot prices today will turn up in our P&L down the road – sort of six months down the road. So I'd just remind you we have that lag in our – particularly in our North American business, Europe as well.
Asia, obviously, is a little bit different as their proximity to the source of those raw materials, they see that flow-through much, much quicker.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
No doubt.
David J. Tamberrino - Goldman Sachs & Co.
Understood. I think that's fair.
And then just moving on to EMEA. As I look at last year third quarter, you had pretty strong 11% margins.
You've kind of gotten back on the margin expansion path here and with price increases being announced, it seems as if you'd probably see expansion in that region again. I mean, are we thinking correctly on that or is there something that we're missing?
Richard J. Kramer - Chairman, President & Chief Executive Officer
David, I would say we still take a very measured and cautious view of Europe and that's for a couple of reasons. One, as we look at the economy, there's still a lot of volatility.
We said, I don't know, how many – it's probably for a number of years now that we saw sort of Europe continuing to muddle along and we still see that happening with injections into the economy to get it going again. We see the pressure on the euro.
We see the Russia-Ukraine situation potentially popping its head up at some point. We certainly can't prognosticate there and we saw what happened with Greece.
So there's still a lot of volatility going on and that's always underneath us to think about what has to happen. And frankly, it's why we're focused on our cost structure as well.
You may recall, we announced a restructuring plan in the UK to take out about 400 head count and close our mixing and retread operations there. And you'll see us focusing on our cost structure representative of that uncertainty in the market.
So I think that's one thing that remains in our thinking. And secondly, the winter markets are determinative and what's determinative in the winter markets is the weather.
So that will have an impact for us as we look to the second half of the year. And maybe to frame it for you, again, I think we're coming off of what three warm winters in a row, green or yellow.
So what you see is you've got sort of a wait-and-see attitude from dealers who typically don't go long on inventory coming out of a warmer winter. You've got some inventory in the channel as it is, and there's just a little uncertainty under there.
So we've taken a very measured approach, a balanced approach. We plan for a "green" winter and not a white winter and we're doing that very consciously to manage our business and manage our factories and manage our inventories.
So those things I think are going to come into play into the back half of the year. So that's really how we think about it.
Laura, I don't know if you'd add anything to that?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah, no, exactly.
David J. Tamberrino - Goldman Sachs & Co.
Okay. That's fair.
Pretty detailed as well. Just lastly, on the balance sheet, it looks like you have your 8.25% notes with a call date coming up, is there any potential update there you might be reviewing that?
Obviously, you re-priced your second-lien not too long ago.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah, exactly. No doubt.
In May and June both, we took some actions out in the market. In May, we amended and restated that European revolving credit facility and actually upsized it as well.
And then, mid-June, right, we amended the second-lien term loan, which did lower our borrowing cost by about 100 basis points. So we were always monitoring our capital structure.
We really can't say whether or when we plan to be in the market. But as you know, we have a long track record of being opportunistic in reducing our interest expense.
David J. Tamberrino - Goldman Sachs & Co.
Helpful. Thanks, again.
Congrats on the quarter.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Okay. Thank you.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thanks, David.
Operator
And we'll take our next question from Brett Hoselton with KeyBanc. Please go ahead.
Brett D. Hoselton - KeyBanc Capital Markets, Inc.
Good morning, Rich, Laura, Christina.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Good morning, Brett. How are you?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah, good morning.
Brett D. Hoselton - KeyBanc Capital Markets, Inc.
I'm very well. First of all, you obviously didn't change your price mix versus raw materials with the exception of Venezuela.
But I was hoping you could just broadly talk about pricing trends in the different regions: North America, Europe, Asia and South America. What are you seeing?
I mean, again, you haven't really changed your guidance per se, but are you seeing any acceleration, de-acceleration, any differences relative to your expectations in terms of direction?
Richard J. Kramer - Chairman, President & Chief Executive Officer
So, Brett, as you can appreciate, we can't speak on or comment on pricing specifically. And as you know, we think about our pricing, not just the price itself, but the value we try to bring to the market.
The brand that we bring, which brings customers to dealer stores, the products, the innovation we have in them, the customer service that we bring, the promotions that we put out in the market, all those things go into how we think about our price versus just the raw material or a cost input. So while I can't speak specifically on price, maybe I can just give you a little bit of flavor of some of the things happening in our regions.
And I will start with EMEA, and really I'll be a bit repetitive here and say, I think it was Rod who mentioned that we had a price increase in the second quarter and that really was reflective of the fact that our raw materials are dollar-based. And as the euro weakens, it makes our costs go up, and I think that's a headwind that we have to deal with as we think about Europe.
As we go to Asia, also there, as raw material prices change, they move quicker through our P&L, as I just mentioned a while ago. So as we see those raw material fluctuations, I would just point out that that region gets hit quicker and it has to react quicker, and that's what that team does there.
And also remember in places like Australia and India and other places like that, they too have the currency pressure while sourcing materials in U.S. dollars as well.
And also, we see a bit in Asia and particularly in China more of China-based products staying home versus being exported. So we see some of that capacity coming into the market in China as well, but I'd also tell you, most of that's on the low end.
And as I previously mentioned, we particularly play in the premium segments or the HVA segments in China. And in Latin America, I'd say the biggest thing to be aware of there is, is simply the slower OE production.
As I mentioned, new car production was down about 20% – over 20%, so that overcapacity is certainly in the market there and any situation where supply is ahead of demand has an impact. But also I would say with the real devaluing, what's happened is domestic manufacturers certainly of which we are one, have an advantage now, the opposite of what we had before as a weaker real means less imports being purchased by our customers there and that certainly helps us in terms of our market there.
And I think our changes in and what we've done in places like Brazil in terms of new products and engaging our dealers, all that has resulted in big market share gains for us in Brazil and volume increases in Brazil in 2015. And in the North America, I think we probably covered that with some of the other calls.
So that's just a – maybe some color on what's happening in the market. And I'll just say, our goal is to continue to capture the value of our brands for our customers and ourselves, and that's what we're focused on.
Brett D. Hoselton - KeyBanc Capital Markets, Inc.
Changing gears, how do we think about your increased emphasis, let's say on the Kelly brand relative to your longstanding strategy of kind of moving towards higher value-added, higher margin tires and so forth. I mean, is this kind of an opportunistic move relative to the recent tariff introduction, or should we think about it differently?
Richard J. Kramer - Chairman, President & Chief Executive Officer
Yeah. I think, Brett, I'd make two points to you.
One, if you go back to when we introduced the MegaTrends, I mean, we don't go back and talk about those as such. But if you remember, we said that the trend would be the HVA or bigger rim diameter, a more complex constructed tires, better rolling resistance, so on and so forth would migrate to the mid-tier and that's exactly what's happening and you see that on new car fitments.
So that was I think something we knew we called that was going to happen, we saw happening and it is, and it says that mid-tier is a place to be with HVA tires. Secondly, as we look at the market, we had to get our business model in line to get out of some of the private label business, which we did, and we moved upmarket where we could get value for the brand.
And then we wanted to – we are and we said we wanted to play in that mid-tier section particularly mid-tier commuter touring because that is the single largest part of the auto market and the tire market, if you will. So, playing in there with Goodyear brand in some cases and the Kelly brand in other cases, really sets us up very well to get the value of our brand to put the technology in there, and to do that as an alternative for dealers and consumers who in most cases would rather have that Kelly or Goodyear tire than an imported tire, and that was I think a strategy we had planned and the strategy we're executing.
Brett D. Hoselton - KeyBanc Capital Markets, Inc.
Thank you very much, Rich.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thanks. Okay.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thanks.
Operator
And we'll take our next question from Emmanuel Rosner with CLSA.
Emmanuel Rosner - CLSA Americas LLC
Hi, good morning everybody.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Good morning, Emmanuel.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Good morning.
Emmanuel Rosner - CLSA Americas LLC
So just first a quick housekeeping question. So, on your outlook slide, so the net effect of all the changes related to Venezuela is a positive $70 million for the full year?
How much of that happened in Q2? How much of the $70 million is something that helped your SOI this quarter?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Okay. So it's about half.
So you're correct, in the $70 million and you'd say about of the half of that is Venezuela's second quarter.
Emmanuel Rosner - CLSA Americas LLC
And the breakup of that is about $50 million plus on the price versus raw, and then a little negative on the cost saving?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Correct.
Emmanuel Rosner - CLSA Americas LLC
Okay. All right.
That's great for the housekeeping. And then sort of like, looking longer term, I know it's obviously too early to speak about in detail about 2016, but at the same time, I'm obviously impressed that as part of your reiterated outlook today, you're mentioning the 10% to 15% SOI both for 2015 as well as 2016.
So just directionally, a lot of the – your SOI growth sort of in recent quarters and periods has come from positive price net of raw materials, which obviously is not your long-term strategy, it's more like neutral. So when you sort of like look at going into 2016, what sort of a driver should we expect that will sort of yield 10% to 15% SOI growth?
Richard J. Kramer - Chairman, President & Chief Executive Officer
Emmanuel, I think what we talk about internally and it's what I'll tell you very openly as well, we have to be focused on a balanced plan of growth, of volume growth, of revenue growth and of cost reduction and efficiencies in our business. And I think, there are times when some of those will have a higher weighting than the others.
But as we think about our long-term strategic goal on our roadmap of creating sustainable value over the long-term, we have to have a balanced plan of revenue growth, of volume growth and of cost management and efficiency to drive that 10% to 15%.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Right. And as we move through the year and especially on our fourth quarter call, we'll walk through kind of the same formats and give you a lot more detail as we see it.
As you can imagine, things continue to change by the day as they have.
Emmanuel Rosner - CLSA Americas LLC
Definitely. Thanks for the color.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thank you. You're welcome.
Operator
And we'll take our next question from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker - Morgan Stanley & Co. LLC
Thanks. Good morning, everyone.
Just one housekeeping question on the FX guidance, which you've kept pretty flat, but now points to heavier-weighted second half versus first half. I would have thought that comps get easier in the second half versus the first half.
So can you just talk about any moving parts that kind of shifted that, if at all?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah. No, the comps don't get easier in the second half as we go.
Right now, we've got the euro in our assumptions at about $1.09 as we go, but the comps do not get any easier as we go. We're only about half way through the year, right?
These are very volatile, so we're really not changing our guidance at this time.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Yeah. Ravi, I don't think there is anything to read into there, other than FX is a big headwind to the moving target?
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah, very uncertain.
Richard J. Kramer - Chairman, President & Chief Executive Officer
There's nothing (1:07:36)
Ravi Shanker - Morgan Stanley & Co. LLC
Understood. And just to summarize some of your comments on this call.
When you look at the North American market today and just look at the volatility around orders related to the tires and such, what's your feeling on the state of the market today, especially that the state of the channel in terms of the channel being filled versus not?
Richard J. Kramer - Chairman, President & Chief Executive Officer
Ravi, I guess, maybe the way we look at it is – first of all, we look at market back from what's happening in terms of the consumers buying tire. And I think what we still see is around a 1% to 2% sell-out, and that's the – for us that's the key number versus just the sell-in number and that number has actually been pretty consistent.
I think from a sell-in standpoint, the numbers are muted and have been on a comparative basis as you've had big periods of buy-aheads and then big periods of not buying, and that can kind of make the sell-in numbers which those share numbers are based on a little bit more difficult to read. I would tell you and I've said this consistently, we're on our plan, we're not going to get thrown off our game because there was a big sell-in ahead, let's say, by a buy-ahead for a tariff coming in where we look like we've lost share on a sell-in basis, and then have it reversed the next quarter where we look like we're up because dealers have stopped buying those imported tires because of the tariff.
We're not going to get thrown by a big up and big down. We're on our way to play on an industry that is growing sell-out 1% to 2% and it's been driving it on our strategy, and I think that's the best answer I can give you.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Yeah.
Ravi Shanker - Morgan Stanley & Co. LLC
Understood. And just on lastly on Europe, you said you aren't planning for a white winter, which is I think the right strategy given what's happened the last couple of years.
But how quickly can you adapt if the winter quickly turns yellow to white?
Richard J. Kramer - Chairman, President & Chief Executive Officer
I think, Ravi, we can adapt to a certain extent. But even in winters where we had white winters, there will be in effect land grab for winter tires.
And I think, even planning for a white winter if it would happen, there would be a land grab for winter tires, because there hasn't been one in the while and there is – I would tell you, there's pent-up demand out there for it. Our view though is, we have to approach this in a very measured way.
We have to have balance, both in terms of our inventory and customer service and we'll strike the right balance to the extent that we can supply more tires we're going to go ahead and do that. But we're not going to stake our plan on white winter at this point.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Right.
Ravi Shanker - Morgan Stanley & Co. LLC
Great. Thank you.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Thank you.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thanks.
Operator
And it appears we have no further questions. So I will return the floor to our presenters for any closing remarks.
Richard J. Kramer - Chairman, President & Chief Executive Officer
Well, thank you. I'd like to wrap up our call by reiterating how pleased we are with our second quarter and first half results, particularly amid global economic challenges.
We expect those challenges to continue in many of our markets but we are confident in our strategy and teams, we're confident in our products and brand, and confident in our ability to reach our growth target and deliver sustainable value. So, thanks everyone for joining us, and we'll talk with you again next quarter.
Thank you.
Laura K. Thompson - Chief Financial Officer & Executive Vice President
Thank you.
Operator
And this does conclude today's program. Thanks for your participation.
You may now disconnect. Have a great day.