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Cooper: Sales Down and Profits Up in 1Q

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Cooper Tire & Rubber Co.’s net sales dropped and net income rose in the first quarter of 2016 compared to the year-ago quarter.

Cooper recorded net sales of $650 million and net income of $59 million in the first quarter of 2016. That compares to sales of $663 million and income of $41 million in 2015’s first quarter. Operating profit increased by 29.5% year-over-year to $91 million, or 14% of net sales.

The company’s net income-to-sales ratio for the first quarter of 2016 was 9.1%.

“Cooper is off to a strong start in 2016,” says Chairman, Chief Executive Officer and President Roy Armes. “Our first quarter operating margin performance was excellent, and continued the positive results we delivered in 2015. The Americas segment posted another outstanding quarter, with operating margin of over 18 percent. Unit volumes grew nearly 2% year-over-year, with strong growth in the international segment, which was partially offset by a slight decrease in the Americas segment.

“We continue to execute against our strategic plan, investing in operations around the globe to improve our competitive position and accelerating the development of new products. In North America, new products—those launched in the last two years—represent approximately 30% of sales.”

Here are first-quarter highlights:

* unit volume increased 1.9% year-over-year;

* net sales decreased 2.0% to $650 million;

* operating profit increased by 29.5% year-over-year to $91 million, or 14% of net sales

* diluted earnings per share of $1.05 compared with $0.69 per share a year ago; and

* repurchased $24.8 million of stock at an average price of $35.98 per share.

Cooper’s consolidated results are:

  Q1 2016 ($M) Q1 2015 ($M) Change
Net Sales $650 $663 (2.0%)
Operating Profit $91 $70 29.5%
Operating Margin 14.0% 10.6% 3.4 ppts

 

First quarter net sales were $650 million, a decrease of 2.0% compared with $663 million in the first quarter of 2015. First quarter results include $12 million of higher unit volume, with increases in the international segment partially offset by decreases in the Americas segment. The unit volume increase was more than offset by $17 million of unfavorable price and mix, primarily due to net price reductions related to lower raw material costs, as well as $8 million of negative currency impact.

First quarter 2016 operating profit was $91 million compared with $70 million for the same period last year. Operating profit increased as a result of $23 million of favorable raw material costs, net of price and mix, $6 million of lower product liability costs, $2 million of favorable SG&A and $1 million of higher unit volume. These benefits were partially offset by $6 million of higher manufacturing costs, $3 million of negative currency impact, and $2 million of other costs.

Cooper says higher manufacturing costs were concentrated in the Americas segment and were related to the greater complexity of manufacturing more high value, high margin tires along with nonrecurring costs in our Mexico tire plant resulting from manufacturing process changes that were implemented in the first quarter.

At quarter end, Cooper had $434 million in cash and cash equivalents, compared with $449 million at March 31, 2015. Capital expenditures in the first quarter were $36 million compared with $48 million in the same period last year.

Cooper reported the following results for its Americas Tire Operations unit:

  Q1 2016 ($M) Q1 2015 ($M) Change
Net Sales $579 $599 (3.2%)
Operating Profit $106 $90 17.8%
Operating Margin 18.3% 15.0% 3.3 ppts

 

First quarter net sales in the International segment declined 3.6 percent as a result of $6 million of unfavorable price and mix and $3 million of negative foreign currency impact, which was partially offset by $5 million from higher unit volume. International segment unit volume was up 4.6% driven by increased sales in the domestic China market for original equipment and replacement tires.

The first quarter operating loss was $2 million compared with an operating loss of $3 million in the first quarter of 2015. The improvement was driven by $2 million of favorable SG&A (selling, general and administrative) costs and $1 million of increased volume, partially offset by $2 million of negative currency impact and other costs.

The company says it continues to make progress on its planned acquisition of a majority interest in GRT, a joint venture in China to produce truck and bus radial tires for global markets. The transaction is expected to close in the third quarter of this year pending certain permits and approvals by the Chinese government.

Outlook

First quarter raw material costs decreased 10.1% from the fourth quarter of 2015, with the company’s internal raw material index decreasing from 146.2 to 131.5 in the first quarter. Cooper says it anticipates second quarter raw material costs will be up modestly from the first quarter.

Management updated expectations for full year 2016, which includes revised guidance for operating margin, tax rate and capital expenditures as follows.

* unit volume growth is expected in each of the company’s segments;

* total company operating margin, excluding the impact of acquisitions, is expected to be modestly above 2015 levels for full year 2016.

* the international segment, excluding the impact of acquisitions, is expected to generate continued improvement in operating profit in 2016 and is anticipated to approach break-even operating profit by the fourth quarter of this year;

* effective tax rate for full year 2016 is expected to be in a range of 33% to 35%; and

* capital expenditures, excluding the impact of acquisitions, are expected to range from $210 million to $240 million for the year. The company says it continues to invest in organic growth and margin improvement initiatives across all regions, and has adjusted the guidance to more accurately reflect expected timing of capital spending for those investments.

“Our new products, expectations for unit volume growth in both segments, and the improving mix of sales to more high value, high margin tires, position Cooper well in an extremely competitive market,” Armes says.

 “We continued to see very strong results in our Americas segment in the first quarter of 2016, with significant benefit coming from lower raw material costs during the quarter. As we look ahead to the balance of 2016, we expect that the benefit of lower raw material costs will moderate and global markets will become more competitive. In the International segment, our successful unit volume growth and improving operating results in the first quarter of 2016 give us encouragement for future performance in the segment.”

A summary presentation of information related to the quarter is posted on the company's website at http://investors.coopertire.com/Quarterly-Results.

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