Cooper Tire & Rubber Company Reports Lower First Quarter Sales and Net

Cooper Tire & Rubber Company reported first quarter 2018 net income of $8 million, or diluted earnings per share of $0.16, compared with $31 million, or $0.57 per share, for the same period last year

First Quarter Highlights:

• Consolidated unit volume decreased 6.1 percent compared to the prior year, with decreases in both the Americas and International segments.
• Net sales decreased 6.5 percent to $601 million.
• Operating profit was $26 million, or 4.4 percent of net sales, which is a decrease of $32 million from the prior year.
• The company repurchased $16 million of its common stock during the quarter at an average price of $33.15 per share.

“Cooper’s first quarter U.S. volume performance was generally aligned with USTMA trends, which were weaker than expected due to slow consumer sell-out within the industry that continued from 2017,” said Brad Hughes, President & Chief Executive Officer. “The decrease in our first quarter operating profit, adjusted for one-time items, was more than explained by weaker volume and higher manufacturing costs as we made production adjustments to keep our inventories in line with current market conditions.

“As the tire business navigates through current weak U.S. demand and raw material prices inch up, we expect our performance to be choppy in the months ahead. However, we believe that underlying macroeconomic factors support improvement in tire industry demand within the second half of this year. We expect that this, together with our initiatives to increase unit volumes and reduce costs, will drive improvements in our operating profit in the second half of the year. Our initiatives will be detailed at our investor event on May 11. Cooper has a strong brand with great consumer loyalty and we are poised to succeed when conditions improve and our efforts take hold.

“We are pleased with the volume performance of our truck and bus radial tire (TBR) business, which was up 25 percent in the first quarter, well above the industry trend. In March, we announced a Cooper branded TBR product line to complement our successful Roadmaster brand, and it has been very well received. In addition, we are encouraged by the profitability within our International segment, which continues to grow and demonstrate the value of our flexible global footprint. In the long-term, we believe Cooper will continue to be a strong global tire competitor that delivers value to our shareholders.”

First quarter net sales were $601 million, a decrease of 6.5 percent compared with $643 million in the first quarter of 2017. First quarter net sales were negatively impacted by $39 million of lower unit volume and $20 million of unfavorable price and mix, partially offset by $17 million of favorable foreign currency impact.

First quarter 2018 operating profit was $26 million compared with $58 million for the same period last year. Operating profit for 2017 has been restated to reclassify $9 million of other pension and postretirement benefit costs out of operating profit.

Operating profit for the first quarter 2018 included $12 million of higher manufacturing costs and $11 million of lower unit volume. This was partially offset by $6 million of lower raw material costs, net of price and mix. Higher manufacturing costs reflect decisions to align production to demand and control inventory levels.

There were multiple unique items that impacted the comparison of first quarter 2018 to first quarter 2017. The non-recurrence of the Q1 2017 tariff reversal created an unfavorable variance of $22 million in the first quarter of this year. This was partially offset by $7 million of costs related to tornado damage at a North American distribution center in 2017 and $3 million of net insurance recoveries in the first quarter of 2018 related to that event.

In addition, there were $3 million of higher other costs in the quarter. Other costs included expenses related to workforce actions in the U.S. and Mexico as well as start-up costs related to two new U.S. distribution warehouses that will be operational this year.

Cooper’s first quarter raw material index decreased 5.8 percent from the first quarter of 2017. The raw material index increased 2.3 percent sequentially from 153.1 in the fourth quarter of 2017 to 156.6 in the first quarter of 2018.

The effective tax rate for the first quarter was 27.8 percent, compared to 30.7 percent in the prior year. The first quarter 2018 tax rate includes discrete items related to the accrual of additional uncertain tax positions pertaining to previous years. The rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.

At quarter end, Cooper had $213 million in cash and cash equivalents, compared with $365 million at the end of the same period last year. Capital expenditures in the first quarter were $60 million compared with $45 million in the same period of last year.

Cooper generated a return on invested capital, excluding the impact of discrete tax items in the fourth quarter of 2017, of 12.3 percent for the trailing four quarters.

In February 2017, the company announced an increased and extended $300 million share repurchase program through December 2019. During the first quarter, 469,581 shares were repurchased for $16 million at an average price of $33.15 per share. Since share repurchases began in August 2014, the company has repurchased a total of 15.2 million shares at an average price of $34.38 per share.

Category: General Update, News, Wheels & Tires