Cooper Tire's 2Q Profits, Sales and Unit Volumes Are Down

Aug. 6, 2018

"We have the right strategic plan in place," says Cooper Tire & Rubber Co. CEO and President Brad Hughes following Cooper's second-quarter 2018 results.

Cooper Tire posted net income of $15 million on net sales ofnearly $700 million for the second quarter ended June 30, 2018. That compares to income of $45.3 million on sales of $720.7 million for the same period last year. The company's income-to- sales ratio was 2.1%.

Second quarter net sales were negatively impacted by the following:

* $16 million of lower unit volume;

* $13 million of unfavorable price and mix; and

* $6 million of favorable foreign currency impact.

Cooper's operating profit for the quarter was down 61%, from $84.2 million to $32.7 million. (Operating profit for the second quarter of 2017 has been restated to reclassify $9 million of other pension and postretirement benefit costs out of operating profit.)

Operating profit included $21 million of higher manufacturing costs and $20 million of unfavorable price and mix, net of raw material costs. Higher manufacturing costs "reflect the alignment of production to demand in order to control inventory levels." In addition, operating profit decreased $4 million related to lower unit volume.

SG&A increased $6 million in the quarter due to higher professional fees related to strategic initiatives and mark-to-market cost of stock based liabilities.

"Cooper delivered second quarter results in line with our stated expectations, including operating profit margin of 4.7% of net sales, up slightly from the previous quarter," says Hughes. "While challenging industry conditions have continued longer than expected, we are confident in our strategic plan, as detailed at our recent investor event.

"We continue to make solid progress in our strategic initiatives, including expanding into new sales channels and driving sell-in with exciting new products, such as our new AT3 line. Cooper's brand strength and attractive value proposition, combined with our strategic initiatives, provide a solid foundation for volume and profit growth."

Consolidated unit volume decreased 2.1% compared to the prior year, with a 3.7% decrease in the Americas Tire Operations segment, partially offset by an 0.7% increase in the International Tire Operations segment.

Cooper’s total light vehicle tire shipments in the U.S. in the second quarter decreased 3.3%. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were down 0.6%. Total industry shipments -- including an estimate for non-USTMA members) increased 4.2%.

Operating profit in the Americas segment was down 55.5%, from $91 million to $40 million. Second-quarter 2018 operating margin was 6.9%, down from 14.8% in 2Q 2017.

Outlook for the rest of the year

"Due to continuing industry challenges and, in particular, rising raw material costs, we are revising our expectations for the balance of the year," says Hughes. "Cooper now anticipates unit volume to be flat in 2018 compared to 2017, with a modest sequential improvement in operating profit margin in the second half of this year.

"We continue to believe that we have the right strategic plan in place and remain confident in our five-year financial targets, which include operating profit of 10 to 14%, as well as annual unit volume growth in the low- to mid-single digits and return on invested capital of 14 to 16%.”

Additional management expectations for 2018 include an effective tax rate in a range between 23-26%, and capital expenditures in a range between $200 million and $220 million.

For more information, check out these links:

"Cooper Spells Out Strategy to Boost Profits to Investors."

"Cooper's 1Q 2018 Net Income Drops 74%."