Based on continuing operations, Cooper sets 3Q sales record
Cooper Tire & Rubber Co. reported net income from continuing operations of $9.8 million on record net sales of $551 million for the third quarter ended Sept. 30, 2004. That compares to income of $17.7 million on sales of $519 million for the same period a year ago.
The company has designated both its Clarksdale, Miss., tube operations and its Cooper-Standard Automotive Group as "discontinued" following two major announcements during the third quarter. On Sept. 8, Cooper revealed ced that it will cease production and exit the inner tube business. On Sept. 17, Cooper announced it was selling Cooper-Standard to an entity formed by the The Cypress Group and Goldman Sachs Capital Partners for approximately $1.165 billion in cash.
Cooper´s financial statements have been restated to reflect these designations and to highlight continuing operations.
Income from continuing operations in the quarter was $13 million compared to $15 million in the third quarter of 2003. Including a net loss of $3 million from discontinued operations, total net income for the third quarter of 2004 was $10 million.
Net income for the third quarter of 2004 includes the negative impact of 20 cents per share in restructuring charges and the positive impact of 10 cents per share in adjustments for lower warranty liabilities.
(Cooper conducted a regular review of its reserves for tire product warranties -- previously established for both regular tire warranty liability and the enhanced product warranty related to the settlement of class action suits during 2001 -- during the third quarter. The review resulted in a determination that the company had excess reserves; an adjustment of $11 million was made accordingly.)
"The announcement of our agreement to sell Cooper-Standard was an important step forward in our strategy to dedicate ourselves to the tire business," says Cooper Tire Chairman, CEO and president Tom Dattilo.
"In addition, our plant expansions, product introductions and Asian initiatives will serve us well as we continue our history of growth and customer satisfaction. While tire industry conditions are less favorable than we had anticipated, with softer replacement tire demand and higher raw material prices, we were able to achieve another all-time record in tire sales and increase market share in some of our key product lines."
North American Tire operations
Cooper´s North American Tire operations posted sales of $499 million in the quarter, up 5% compared to sales of $478 million in the third quarter of 2003. The increase was driven by improving price and mix and was partially offset by lower overall unit volumes, according to the company.
Quarterly highlights in North America include the following, according to the company:
* Industry demand for replacement tires in the quarter was soft.
* Cooper´s shipments were down compared to the unusually strong third quarter of 2003. The most notable declines were in the economy and broad-line passenger tire categories.
* The company gained market share in the winter, high performance and light truck tire categories.
Third quarter operating profit for the North American Tire operations was $27 million, compared to $31 million in the same period last year. Cooper says the decline was largely the result of lower unit volumes, higher raw material costs and production complexity, partially offset by improved price and mix.
Cooper says it remained "capacity constrained" during the quarter and continued implementation of capacity expansion projects in all four North American tire plants. Current expansion projects are now largely complete in Findlay, Ohio, and Tupelo, Miss., and should result in improved volume and production efficiency moving forward.
Current projects at the Texarkana, Ark., tire manufacturing facility will continue through the end of 2004. Expansion initiatives in Albany, Ga., will continue through the end of 2005.
International Tire operations
The company´s International Tire operations reported sales of $66 million in the quarter, up 21% (from $55 million) compared to the third quarter of 2003. This increase was driven by higher volumes, improving prices and favorable currency exchange rates, according to Cooper.
Third quarter operating profit for the International Tire operations was $3 million, up 6% compared to the same period last year. The company says the improvement was the result of higher volume, improved pricing and favorable exchange rates, partially offset by higher raw material costs and increased administrative costs related to the establishment of operations in Asia.
For the first nine months of the year, Cooper Tire´s continuing operations generated net sales of $1.5 billion, a 15% increase compared to net sales of $1.3 billion in the first nine months of 2003. Income from continuing operations in the first nine months of 2004 increased to $24 million, compared to $17 million in the first nine months of 2003.
Including income from discontinued operations, total net income was $68 million in the first nine months of 2004 compared to $46 million in the first nine months of 2003.
"We are optimistic about our opportunities in the fourth quarter and into 2005," says Dattilo. "Raw materials are still headed higher and will make industry conditions challenging but we can offset some of this impact as we begin to benefit from our capacity expansions in North America and also from increasing sourcing from China.
"As we close on the sale of Cooper-Standard Automotive, and we anticipate this will occur within the fourth quarter, we will deploy the proceeds to expand and recapitalize our tire business. As we have said, this means buying back stock and debt as well as making significant investments in the global tire arena.
"Additionally, we are dedicated to productivity and efficiency improvements in our existing plants and securing business with new customers. Our future is bright."
The company also announced that it intends to reactivate a share repurchase program previously authorized by its board of directors in May 2000. The repurchase program originally authorized the repurchase of up to 10 million common shares. As of September 30, 2004, approximately 1.3 million shares have been repurchased pursuant to the program; 8.7 million shares remain authorized.
The company also may consider a self-tender for shares in the future.