Year-over-year comparisons for Cooper Tire & Rubber Co. show drops in net income and sales in the first quarter of 2015, but those numbers don't reflect the whole picture, which includes the sale of the Chengshan (Shangdong) Tire Co. Ltd. (CCT) at the end of 2014.
"The sales decline was more than attributable to the absence of Chenghshan (Shangdong) Tire Co. Ltd.," Cooper said.
Income for the first quarter ended March 31, 2015, was $41 million, compared to $45 million in 2014. Net sales in the first quarter of 2015 were $663 million, compared to $796 million during the same period in 2014.
But subtracting CCT's influence from the 2014 figures - Cooper said CCT contributed $157 million in net sales in the first quarter of 2014 - Cooper said its 2015 sales actually increased 4% from the same period a year ago, a result of higher unit volume of $35 million which was partially offset by negative foreign exchange of $7 million.
Cooper's income-to-sales ratio is 6.18% for the first quarter of 2015.
“Our first quarter performance continued the positive trends we saw last year," says Roy Armes, chairman, CEO and president. "The Americas segment posted outstanding results, with solid unit volume growth and an operating margin of 15%, well above our target. With the strong Americas performance, we came close to last year’s earnings per share despite the absence of CCT in the quarter."
First quarter 2015 operating profit was $70 million compared with $81 million for the same period last year, which included $21 million from CCT. First quarter operating margin was 10.6% versus 10.2% in 2014. Excluding the impact of CCT, operating profit increased $10 million from favorable raw material costs of $46 million and higher volume of $4 million. These benefits were partially offset by $16 million of higher manufacturing costs, unfavorable price and mix of $15 million, higher product liability costs of $4 million, higher selling, general and administrative (SG&A) costs of $3 million, and an increase in other costs of $2 million, including negative foreign exchange impact.
The effective tax rate for the first quarter, including discrete items, was 34.8% compared with 30.4% last year. The rate in 2015 is higher due to the mix of income, and is based on forecasted annual earnings and tax rates for various tax jurisdictions. SG&A expense for the quarter was $62 million, or 9.3% of sales, compared with $66 million, or 8.3$ of sales, in the first quarter of 2014. SG&A expense in the first quarter of 2015 was impacted by unfavorable mark-to-market costs of stock-based liabilities of $4 million.
At quarter end, Cooper had $449 million in cash and cash equivalents, compared with $336 million at March 31, 2014. During the first quarter, the company completed the accelerated share repurchase program announced in August 2014. Under that program, the company repurchased 6.4 million shares at an average cost of $31.49 per share. The company announced a new $200 million share repurchase program in February 2015. During the first quarter, 313,405 shares were repurchased under that program for $12.4 million, or an average price of $39.41 per share. Capital expenditures in the first quarter were $48 million compared with $40 million last year.
Americas Tire Operations
First quarter net sales rose 6% to $599 million from $563 million in 2014. The increase was comprised primarily of higher volume of $27 million. Unit shipments increased 5% compared with the same period last year, driven primarily by sales of higher margin light truck products introduced in the past two years, as well as higher sales of truck and bus radial tires.
Cooper's total light vehicle tire shipments in the U.S. increased 2.4% during the quarter. The Rubber Manufacturers Association (RMA) member shipments were up 2.5%, and total industry shipments (including an estimate for non-RMA members) decreased 7.9%, as reported by the RMA.
The segment's operating profit for the first quarter was $90 million, or 15% of net sales, compared with $69 million, or 12.2% of net sales, last year. The higher operating profit primarily reflected favorable raw material costs of $37 million, higher unit volume of $6 million, and reduced SG&A expense of $5 million. These favorable items more than offset higher manufacturing costs of $14 million, unfavorable price and mix of $9 million, and higher product liability costs of $4 million. The higher manufacturing costs are due to U.S. plant reconfiguration to meet demand for higher value tires, as well as higher medical costs, pension expense, and technical spending.
Outlook
First quarter raw material costs declined approximately 14% from the fourth quarter of 2014. The company anticipates that in the second quarter raw material costs will be down slightly from the first quarter, but that they will generally trend slightly higher during the second half of 2015.
The company expects its full year tax rate to be in a range of 30%t to 35%. SG&A expense is forecast to be in a range of $260 million to $270 million in 2015. Capital expenditures for 2015 are expected to be between $205 million and $215 million.
“We expect global tire markets will remain highly competitive," Armes says. "Our focus on innovation and new products positions us well in such an environment. The Americas segment volume growth has been solid thus far in 2015, and raw material costs have continued to decline.
"In the United States, it appears the inventory purchased ahead of the tariff announcements largely has been worked through. We anticipate seeing more normal order patterns and will build inventory in our seasonally weak second quarter for sell through in our typically stronger third and fourth quarters. For the full year, we continue to expect to meet or exceed industry unit volume growth in the U.S.
“In Europe, the economies remain sluggish. While the outlook for tire growth in China is strong longer term, the domestic market currently has been impacted by oversupply due to fewer exports to the U.S. because of the tariffs. For the full year, we anticipate operating profit in our International businesses will be approximately breakeven," Armes says. "For the company overall, we expect to deliver full year operating margin in a range of 8% to 10%.
