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Cooper’s 2019 Earnings Are Up 24% on Lower Sales

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Cooper Tire & Rubber Co. posted net income of $96 million on net sales of $2.75 billion for fiscal 2019 ended Dec. 31, 2019.

2019’s results compare to income of $77 million on sales of $2.81 billion for fiscal 2018.

The company’s income-to-sales ratio for 2019 was 3.4%

Operating income was up 5.5% from $165 million to $174 million.

Global Volumes Drop in Q4

The company overcame lower volumes to post a profit in 2019’s fourth quarter versus a loss in the year-ago quarter.

For its fourth quarter ended Dec. 31, 2019, Cooper posted net profit of $51 million on net sales of $750 million. That compares to a loss of $419,000 of net sales of $770 million in the year-ago quarter.

Sales in 2019’s fourth quarter dipped 2.6% from $770 million in 2019’s fourth quarter. Cooper said 2019’s fourth quarter net sales were negatively impacted by $20 million of lower unit volume.

Compared to the fourth quarter of 2018, consolidated operating profit was up 156%, from $25 million to $64 million.

In a press release, Cooper President and CEO Brad Hughes said the company’s fourth quarter results were in line with expectations: “Operating profit margin improved on both a year-over-year and sequential basis. We saw volume declines in all regions as global tire markets continued to be affected by unfavorable economic and political factors. Yet, in our core U.S. market, light vehicle tire volume was in line with the industry, and in Asia, third party sales were up compared to last year. We have the momentum to continue to make even greater progress on our strategic initiatives and derive even more positive results in 2020.”

Lower Volumes in the Americas Segment

In the Americas segment, Cooper improved profitability despite lower volumes compared to the year-ago quarter.

The company said fourth quarter net sales in its Americas segment fell 1.4% to $655 million as a result of $15 million of lower unit volume, partially offset by $5 million of favorable price and mix and $1 million of favorable foreign currency impact. For the quarter, segment unit volume was down 2.2% compared to the same period a year ago. The company said its fourth quarter total light vehicle tire shipments in the U.S. decreased 0.1%.

Despite lower volumes, operating profit for the 4Q in the Americas segment was up 19.6% to $84 million compared to the year-ago quarter.

Hughes credited improved product mix for the profitability gains. In a conference call with industry analysts today, he said mix "significantly contributed to profit improvement, supported by the continued consumer transition to larger rim diameter tires" for full year 2019.

"Cooper enhanced its capabilities to deliver these high-value added products. For instance, at the end of 2017, 44% of our U.S. sales were tire rims with diameters of 17 inches or higher. At the end of 2019, nearly 60% of our sales were in this size category."

He noted the Cooper brand specifically is "in line with the overall U.S. market share of high value added products at approximately two-thirds."

More Points of Sale

In today's conference call with industry analysts, Hughes said the company's strategy to increase its retail presence is progressing extremely well.

"In the U.S. we have added thousands of additional points of sale over the last 18 months and we will continue to find ways to provide consumers with easier access to our brands and products. We have added or expanded business with Monro and Walmart in addition to others, including independent retailers. In fact, with the addition of Monro and Walmart, Cooper tires are now available in all of the top five retailers in the U.S."

He added that Cooper has seen strong growth on e-commerce platforms, and named Tire Rack and Walmart.

In the conference call, analyst John Healy asked for details on the company's e-commerce initiatives as well as its relationship with Walmart. Healy, who is a managing director and research analyst with Cleveland, Ohio-based Northcoast Research Holdings LLC and author of MTD’s monthly Your Marketplace column, asked how Cooper is performing relative to other brands that are sold online.

Hughes responded: "With regards to the ecommerce platforms, we do receive some information from the partners that we have in that space and I would just say that overall we feel very positively about that business. We feel positively about the types of tires that we are selling on that, we feel positively about the mix of products that we’re selling on those platforms and we feel positive about the revenue and profit that those are generating even by comparison to our base book of business."

Healy also asked how many Walmart stores carry Cooper products. Hughes said, "We’re not going to get into a lot of specifics in terms of the in-store activities of any of our big retail partners, suffice to say we have made steps forward in terms of our presence with some of those big customers relative to where we were a year ago." He added that there are good growth opportunities for Cooper with its retail partners.

Outlook for 2020

Cooper's expectations for 2020 are described below.

  • A modest global unit volume increase compared to 2019, including in the U.S.Operating profit margin that improves during the year, with the second half better than the first half, and the full year exceeding 2019.An effective tax rate, excluding significant discrete items, of approximately 25% .Capital expenditures that will range between $260 and $280 million. This includes investments in Serbia and Mexico.
  • Management anticipates first half 2020 operating profit margin to be impacted by typical seasonality and certain unique items which are included in the full year outlook:
  • Approximately $10 million of restructuring charges related to the transition at the company's Mexico manufacturing facility, which will occur primarily in the first quarter of 2020.Higher manufacturing costs in Latin America, Europe and Asia related to both market conditions and the company's footprint actions.Higher SG&A expenses, including the impact of the timing of advertising spend.
  • Expectations do not include tariff rate changes or additional tariffs that continue to be considered, but have not yet been imposed. The outlook for 2020 also does not include the impact of the coronavirus.
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