By the Numbers: the Effect Tariffs Really Have on Tire Manufacturers

Bob Ulrich
Posted on October 28, 2019

Ever wonder just how much of an impact tariffs on Chinese tire imports have on the tire manufacturers? Cooper Tire & Rubber Co. revealed as much in its recent third-quarter financial results.

The company posted net income of $29.3 million and operating profit of $52.7 million for the quarter. In explaining the results, Cooper said its costs related to new tariffs on products imported into the United States from China versus 3Q 2018 were $15 million higher.

That may not seem like a lot to a multi-billion dollar company. But $15 million to the bottom line would increase net income by more than 50%. Suddenly, the company's income-to-sales ratio changes from an above average 4.1% to a very good 6.3%.

That $15 million also would increase Cooper's operating income by 28.4%. It still would have been down compared to 3Q 2018, but which sounds better: a decrease of 35% or 16.5%?

Quarterly results don't affect a company's stock price by themselves. If the company meets analyst expectations, the stock price may go up despite a comparative decrease in results. In addition, analysts may remain high on a company's stock because they have faith in the executives running a company. Or maybe they just see something in the results that us normal humans do not that gives them optimism in the company's future results.

If anyone really knew how to determine definitively what stocks would go up or down in price, everyone would problably be rich. Cooper's stock closed at $28.80 a share on the New York Stock Exchange on Friday, Oct. 25. Following its 3Q 2019 results, the price went up to $30.17. My guess is at the very least, analyst expectations were met. When John Healy, a managing director and research analyst with Northcoast Research Holdings LLC and author of Modern Tire Dealer's monthly "Your Marketplace" column, comments on the results, I will add to this blog.

Still, I can help but think that an extra $15 million in net income would have increased demand for Cooper's stock.

Related Topics: B.O.B., Chinese tariffs, Cooper financials, John Healy, Northcoast Research Holdings

Bob Ulrich Editor
Comments ( 10 )
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  • James Thompson

     | about 3 months ago

    A very good follow up Bob Ulrich, and as far as the CTB stock price, you are correct about the $15 million being additive to the stock price, no question about it. Also, I made a mistake in my previous post, Cooper had Yokohama make some radial truck tires, they were ok. The Chinese made TBR was/is a low quality tire at best, IMO. I believe it was Yokohama back then that also made some of the passenger tires for Cooper, and the reason we noticed is I had many WW 2 veterans working for me back then, and believe it or not, they had a 12mm red dot in the center of the label, and then the guys looked at the DOT and place of manufacture, and bingo, Japan. They were not happy, I can tell you that. They regarded it as the rising sun flag.

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