Lockout will have little effect in 4Q, says Ludwig

Dec. 5, 2011

Cooper Tire & Rubber Co. and United Steelworkers (USW) Local 207L were unable to reach an agreement, leading to a lockout at the company's Findlay, Ohio, plant. How will that affect Cooper's financials, and, perhaps, the state of its stock price?

"We assume that no sales will be lost as Cooper has high inventories and should be able to meet customer orders in December, typically a slow month," says Saul Ludwig, a managing director at Northcoast Research Holdings LLC.

The soft volume in the fourth quarter itself, however, is a negative. So is unabsorbed overhead at other Cooper plants as the company cuts its inventories.

In the near term, Ludwig is reducing his earnings per share estimates on Cooper's stock. Still, Ludwig maintains his "Buy" rating on the stock.

Here are his observations about Cooper Tire from the 2011 Specialty Equipment Market Association (SEMA) Show in Las Vegas, Nev., which he and his research associate, Kevin Hocevar, attended in early November.

"At the SEMA Show we recently attended, dealers were glowingly positive about Cooper Tire, but most dealers believe tire prices will soon come down," he says. "Believing that, near term tire purchases will be as low as possible as dealers fear devaluing their inventories.

"Justification for expecting lower prices are a combination of sluggish demand, high inventories at some manufacturers, falling raw material costs (i.e., natural rubber and butadiene) and the 2012 expiration of tariffs on Chinese consumer tires."

For more information on the situation in Findlay, click on the following links:

"Cooper locks out steelworkers at Findlay plant."

"USW condemns Cooper lockout in Findlay."

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