Cooper posts net loss for quarter, year
Cooper Tire & Rubber Co. posted a net loss of nearly $7 million (including discontinued operations) on net sales of $572 million for the fourth quarter ended Dec. 31, 2005. That compares to net income of $133 million on sales of $541 million for the same period in 2004.
Quarterly sales -- a record for Cooper's tire operations -- were up 6% compared to 4Q 2004 sales. The increase was driven primarily by higher average prices and improved product mix in the company's North American Tire operations.
Cooper says its continuing operations generated operating profit of $6 million in the fourth quarter versus $7 million last year.
In addition to higher raw material costs and improved pricing and mix, operating profit for the quarter included a $12 million positive impact from a settlement in a dispute with certain suppliers. However, it was negatively impacted by the following:
* reduced operating levels in the company's North American plants ($8 million);
* scrap charges stemming from voluntary recalls of a limited number of tires in two specific product lines ($6 million);
* asset write-downs ($3 million); and
* severance costs ($2 million).
Results for the quarter also included the positive impact of a $6 million gain on the company's repurchase of publicly traded debt, and the negative impact of $9 million in taxes imposed on earnings repatriated to the United States from the Company's foreign operations at favorable rates.
For the full year, Cooper recorded a net loss of $9.3 million on net sales of $2.2 billion. That compares to net income of $201.3 million on net sales of $2.1 billion for 2004. Sales increased 4% as a result of higher prices and improved mix throughout the year.
The company's continuing operations incurred a loss of $15 million in 2005, compared to income of $27 million in 2004. Operating profit declined due largely to higher raw material prices, lower overall unit volumes, and plant inefficiencies. The plant inefficiencies were driven by three factors:
1. ongoing plant and product transitions, which were largely completed during the year;
2. the strike in the Texarkana, Ark., facility in the first and second quarters; and
3. reduced production levels in all four North American plants in the fourth quarter.
"There were many items, both positive and negative, that obscured our actual results and make it difficult to immediately recognize the improvements and progress we have achieved in our operations," says Tom Dattilo, chairman, CEO and president. "The reduced production schedules we implemented during the fourth quarter enabled us to reduce our overall inventory and rebalance it with an increased focus on products that are in greatest demand.
"Investments in our plants and the transitions to new and more efficient equipment throughout the year have increased our capacity to produce ultra-high performance and larger rim diameter tires by approximately 75%. We have already seen improvements in our sales mix as a result and ongoing trends in production efficiency and scrap rates are improving significantly."
Dattilo says raw material prices will continue to present challenge and uncertainty in the tire industry in 2006. "Stubbornly high oil prices and recent spikes in natural rubber prices will certainly have an impact on the first and second quarters of the year.
"In spite of this headwind, we remain optimistic about our opportunities for the year overall. The preliminary RMA (Rubber Manufacturers Association) forecast for the North American light vehicle replacement tire market in 2006 is for growth of around 2%.
"Based on certain customer agreements and the enthusiasm and support from our dealers overall, our internal forecasts are for growth above that in our North American operations. And we started the year well by outpacing the market in January. In addition, our acquisition of Cooper Chengshan (Shandong) Tire Co. in China will add approximately $500 million in profitable sales annually.
"As all of our efforts from the past 18-24 months come together, we expect to see continued improvements in manufacturing efficiency, improvements in product and customer mix, improving order fill rates, increasing market share in all of our key markets and particularly within key product lines, increased low-cost product sourcing and profitable international operations," says Dattilo. "We expect each of these areas to contribute to improved results in 2006."