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Ludwig predicts little if any growth in 2011

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Tire shipments were down in 12% in May, according to tire industry analyst Saul Ludwig. That was worse than expected, and he has reduced stock performance estimates for Cooper Tire & Rubber Co. accordingly.

Ludwig, a managing director at Northcoast Research Holdings LLC, blames rising gas prices, which has reduced consumer driving.

"We had always expected May replacement consumer tire shipments to decline, but the 12% decline -- following a 2% decline in April -- was worse than expected," he says.

"Based on comments from dealers, we suspect June, too, will see soft shipments. Lower volume is the reason for our estimate reductions."

(For the year, Northcoast Research has lowered its outlook for industry shipments. Originally estimating a 3% increase compared to 2010, it now predicts shipments will be flat. Ludwig says this reflects "the impact of high gas prices and other inflationary pressures on the consumer.")

Still, Ludwig maintains his "Buy" rating on Cooper Tire & Rubber Co.'s stock.

"All other aspects of Cooper Tire are performing as expected. There are no internal issues that impacted our EPS (earnings per share) changes.

According to Ludwig, lower unit sales will enable Cooper to rebuild low inventories. Its tire manufacturing plants are running at "a high level of efficiency, and its dealers "remain positive" in their view toward Cooper.

"Looking ahead, gasoline prices have started to decline, and soon, consumers could move towards returning to former driving levels. Yet it is appropriate to adjust our earnings outlook in light of the realities of current demand trends."

Ludwig says Cooper likely will have a "disappointing" second quarter, which ends June 30, 2011. Originally, he estimated the company would have a 4% increase in volume; his revised estimate assumes an 8% decline.

"That difference amounts to about 1.1 million tires with profits at about $15 per tire."

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