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Cooper Enjoys a Full-Year Income-to-Sales Ratio of 8.5%

Posted on February 17, 2017

Cooper Tire & Rubber Co. posted net income of $69.3 million on net sales of $783.9 million for its fourth quarter ended Dec. 31, 2016. That compares to income of $59.2 million on sales of $775.5 million for the same period in 2015.

The company’s fourth-quarter income-to-sales ratio was 8.8%, compared to 7.6% for the same period in 2015. Operating income was up 2.5%, from $102.5 million to $105.1 million.

For fiscal 2016, Cooper recorded net income of $248.4 million on net sales of $2.92 billion, an income-to-sales ratio of 8.5%. That compares to income of $212.7 million on sales of $2.97 billion for fiscal 2015.

Full-year operating income was up 8.4%, from $354.5 million to $384.4 million. The operating profit margin for 2016 was a record 13.1%.

“Through consistent execution of our strategic plan, and the favorable raw material cycle of the past few years, Cooper ended 2016 in a very strong position, achieving a record full year operating profit margin of 13.1%,” says CEO and President Brad Hughes. “Our profit performance was led by record operating profit in our Americas segment and substantial profit improvement in the International segment.

“In addition, we delivered unit volumes that were up nearly 8% in the fourth quarter, led by double-digit domestic growth in Asia and Latin America. We also continued to return cash to shareholders through our balanced capital allocation program, and remained good stewards of capital, as reflected in our 18.9% return on invested capital for 2016.”

Results in the Americas

In the company’s Americas Tire Operations (with comparisons to the same periods the previous year in parentheses), net sales for the fourth quarter and full-year were $694 million ($711 million) and $2.6 billion ($2.685 billion), respectively. Operating profit was $116 million ($122 million) and $440 million ($423 million), respectively.

Fourth-quarter net sales in the Americas segment declined 2.4% as a result of $22 million of unfavorable price and mix, primarily due to net price reductions related to lower raw material costs, and $6 million of negative currency impact, partially offset by $11 million of higher unit volume. Segment unit shipments increased 1.5% compared with the same period last year.

Cooper’s total light vehicle tire shipments in the U.S. decreased 1% during the quarter. Unit volume growth in Latin America was strong, with a double-digit year-over-year increase in the fourth quarter.

By comparison, the Rubber Manufacturers Association (RMA) reported that its member shipments were up 0.2%, and total industry shipments (including the RMA's estimate for non-RMA members) increased 5.7% for the period.

Cooper’s truck and bus radial (TBR) tire shipments for the U.S. were down 1.8% for the quarter. For the same period, RMA member shipments were up 0.4%, and total industry shipments increased 7.2%.

Cooper’s full-year total light vehicle tire shipments in the U.S. decreased 2.5%. For the same period, RMA member shipments were down 1.5%, and total industry shipments increased 2.2%.

Full-year TBR tire shipments increased 13.3% year-over-year, compared with a decrease of 0.8% for the RMA and an increase of 4% for the total industry.

What the future holds

“Looking ahead, we expect raw material costs -- which began to increase sharply toward the end of 2016 – to continue to rise in 2017,” says Hughes. “We are confident in the strength of the Cooper business model, which has led to positive mix transformation, improved speed to market with exciting new products, cost efficiencies, and other advances.

“These business model improvements will help Cooper succeed during this period of rapidly rising raw material costs. However, we do expect rising raw material costs to impact results in the short term, until pricing adjusts for such costs.

“With raw material cost increases that we believe will level off later this year, and pricing actions by Cooper and competitors beginning to take place, we anticipate that full year 2017 operating profit margins will be at the high end of our previously projected 8 to 10% range,” says Hughes. “This is based on operating profit margins around the low end of this range in the first half of the year, as pricing lags raw material cost increases, and operating profit margins above the high end of this range in the second half of the year, when we expect raw material costs to level off and pricing to begin to catch up.

"As a reminder, in the United States, we use the LIFO accounting method, charging the most recent costs against sales, which impacts profits more quickly than other inventory accounting methods.

“Cooper remains committed to delivering shareholder value as demonstrated by our announcement this morning to increase and extend our share repurchase program to $300 million in common stock through Dec. 31, 2019. This action reflects our confidence in Cooper’s financial strength and in the long-term success of our business.”

Related Topics: Brad Hughes, Cooper financials, raw material costs, RMA

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