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Goodyear and Cooper stocks remain a good 'Buy'

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Goodyear Tire & Rubber Co. finished its fiscal 2011 with net income of $321 million on net sales of $22.7 billion. Cooper Tire & Rubber Co. posted income of $253.5 million on net sales of $3.9 billion.

Will those results carryover into 2012? Tire industry analyst Saul Ludwig says the good outweighs the bad, and maintains "Buy" ratings for both.

Here's what Ludwig, a managing director at Northcoast Research Holdings LLC, recently had to say about both homegrown tire manufacturers.

Goodyear and headwinds

There are headwinds, for sure, says Ludwig, who felt Goodyear's fourth-quarter results (net income of $18 million on sales of $5.7 billion) were disappointing. A few of them are:

* soft demand in 2012.

* transitional costs moving production from Union City to other plants.

* China start-up costs.

"The good news is the expectation of strong price-mix/raws and the coming of lower cost production," he says. This is the key to offsetting many of the negative forces the company faces.

"CEO Rich Kramer has been a positive force on building morale within Goodyear with adroit management selection and a clear articulation of steps to reach goals combined with strong interpersonal skills. Transforming an underperforming company is difficult and lumpy as it has spurts of success interspersed with disappointments, but the thrust of the transformation is still valid.

Cooper and labor

The company's labor woes have been left in the rear-view mirror, says Ludwig.

"Cooper has now settled labor matters for a long time into the future. Its Texarkana plant signed a four-year contract and Findlay settled on a five-year contract." (Its other plant in Tupelo, Miss., is non-union.)

Ludwig estimates the new labor contracts will yield net flat labor costs as modest wage increases and stay-on bonuses are offset by the following:

* the elimination of 401K matches,

* no sixth week of vacation for new hires, and

* new hires being paid $13 an hour versus more than double that amount for existing workers.

Cooper also has the right to buy-out 25 workers annually, says Ludwig.

"The main plus for Cooper in the new contracts is productivity increases as low productivity workers can be moved to other jobs if their output does not increase. Cooper notes that the productivity gains can be significant although it has not quantified the savings that are expected.

"Bottom line, the contracts are set and there will be no disruptions for years to come."

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