Cooper's U.S. Tire Units Increased for 3rd Straight Quarter

April 29, 2019

Nearly every performance marker for Cooper Tire & Rubber Co.’s business in the Americas improved in the first quarter of 2019, which helped offset the $10 million the company paid in additional tariffs on truck and bus tires imported from China.

The strong performance in the Americas helped Cooper record net sales of $619 million, up 2.9% from $601 million a year ago. Net income was $7 million, down from $8 million in 2018.

Cooper’s net income-to-sales ratio was 1.1% for the quarter.

“Operating profit in the first quarter was higher than we expected due to stronger than anticipated performance in North America and Asia," said CEO and President Brad Hughes. "Our Americas segment delivered an operating profit of $39 million, up $8 million from year ago, despite the $10 million impact of new TBR tariffs in the period this year. For the third consecutive quarter, we achieved unit volume growth in the U.S. In Asia, our business performed better than expected in what continues to be a challenging economic environment. In fact, third-party sales were up year over year in the region, but this was more than offset by lower intercompany shipments from China to North America.

“Moving forward, we will continue to make progress on our strategic priorities during 2019, and believe underlying macro-conditions will support growth in tire demand, particularly in the U.S. As a result, we continue to expect modest global unit volume growth for Cooper in 2019 and full year operating profit margin to improve compared with 2018. We are confident that our strategic plan remains the right path to achieve our goals and help drive shareholder value.”

Globally, Cooper’s net sales were held by $24 million of favorable price and mix, which was partially offset by $4 million of lower unit volume and $2 million of unfavorable foreign currency impact.

The company outlined two big negatives for the period:

  • $10 million in additional tariffs paid on TBR tires imported into the U.S. from China; and
  • $5 million of restructuring costs related to Cooper’s decision to cease passenger tire production in Melksham, England.

The Americas

This region, which includes both North America as well as Latin America, improved net sales by 6.1%, to $515 million up from $485 million in 2018. Operating profit for the Americas rose 24.2%, to $39 million from $31 million.

The increase in net sales is attributed to a $31 million of favorable price and mix.

There was an offset of $1 million in unfavorable foreign currency impact.

Overall segment unit volume was flat. Units were up in the U.S., but down in Latin America.

Cooper's first quarter light vehicle tire shipments in the U.S. increased 1.1%. (The U.S. Tire Manufacturers Association reported shipments were up 2.2% for the quarter.) Total industry shipments, including an estimate for non-USTMA members, increased 5.6% for the period.

Cooper spent $6 million on manufacturing improvements in the Americas, including better utilization and $4 million of lower product liability costs.

International operations

Net sales dropped 10.8% in the first quarter, to $144 million from $161 million in 2018. Segment unit volume decreased 9.1%, “primarily due to lower intercompany sales.”

The international business also suffered from $14 million of lower unit volume, $2 million from unfavorable currency and $1 million of unfavorable price and mix.

Cooper recorded an operating loss of $1 million, compared to a profit of $7 million in the first quarter of 2018.

Outlook for 2019

"We are pleased that our first quarter results have helped position us well for the remainder of the year," said Hughes. "We expect to continue to improve results, building on our strategic initiatives as we continue to make tangible progress on the milestones communicated at our May 2018 Investor Day. Importantly, we remain focused on building our team's capabilities to advance our strategic initiatives and win in the marketplace.

For 2019, management continues to expect:

  • Modest unit volume growth compared to 2018.
  • Improving operating profit margin throughout the year, with the full year exceeding 2018.
  • Capital expenditures to range between $190 and $210 million. This does not include capital contributions related to Cooper’s pro rata share of the previously announced joint venture with Sailun Vietnam or other potential manufacturing footprint investments.

For 2019, management now expects:

  • Charges related to the Melksham, England restructuring to be in a range of $8 to $11 million, including $5 million already incurred in the first quarter.
  • Effective tax rate in a range between 23 and 26 percent.

The 2019 expectations include tariffs already in place, but do not include rate changes or additional tariffs that continue to be considered, but have not yet been imposed.”