Cooper Reports Q3 Net Loss

Cooper Tire & Rubber has reported a net loss of US$55 million, or 94 cents per share, for the financial quarter that ended September 30, 2008. This result contrasts markedly from the company’s result for the same period in 2007, in which it recorded a net profit of $30.2 million. The company says its results were pressured by unprecedented raw material cost increases, higher utility costs, and production curtailments due to raw material shortages caused by hurricanes in the Gulf Coast region.

Net sales for the period were a record $794 million, an increase of $26 million or 3.4 per cent from the prior year. The increased revenues were driven by pricing and improved mix, partially offset by decreased tyre unit volumes in the United States. The company expanded market share in Canada and Mexico during the period. Through the first nine months of 2008, Cooper generated a record $2.2 billion in net sales. Net losses were $76 million during the same period, compared with net income of $53 million from continuing operations in 2007.

North American Tire operations generated sales of $586 million, up 2 per cent from 2007’s record third quarter. Operating losses were $51 million, a decrease of $78 million from the same period in 2007. Sales were affected by softening demand in North America as consumers reacted to the credit crisis and increased gas prices. The most significant volume decreases were in the broadline and light truck product segments. The Cooper brand continued to increase its market share in the US (compared to the Rubber Manufacturer Associations reported shipments).

Operating profit for North American Tire declined year over year as a result of several key factors. Raw material increases during the quarter negatively affected results by $104 million compared to the prior year quarter. This was partially offset by price and mix increases of $41 million. Volume decreases affected profits by $13 million. Production cutbacks resulted in unabsorbed fixed overheads of $9 million during the period. Manufacturing operations improved by $6 million, despite increased utility costs, as a result of the company’s continued focus on improvement in this area.

Cooper’s International Tire Operations reported record sales of $285 million in the quarter, an increase of 21 per cent compared with the third quarter of 2007. This increase was the result of improved price and mix, and the continued ramp up of the company’s Cooper Kenda Tire joint venture in China. Price increases were implemented along with cost savings measures across its international operations in an effort to offset increased raw material costs, says Cooper. The segment’s results were also negatively impacted, says the tyre maker, by the effects of the Olympics that took place in Beijing and resulted in decreased economic activity and production curtailments in China during the quarter. Despite these increasing raw materials costs, inflationary pressures and the start-up costs related to developing a larger presence in Asia, the segment delivered operating profit of $7 million.

After the quarter ended, Cooper Tire announced it is executing a network capacity study of its US facilities that is likely to result in restructuring, including capacity consolidation or geographical shifts to production. “Our business has come under intense pressure from several fronts including increased raw material costs, decreased global demand, and more intense competition,” commented Cooper CEO Roy Armes. “We are committed to reaching the long term goals we established in our strategic plan and are proactively taking steps to achieve those goals. The pillars of our plan include establishing a sustainable and cost competitive supply of tyres, profitably growing our business, and enhancing our organisational capabilities to continue providing excellent value and service to our customers.

“We believe it is prudent to increase our level of caution in executing our plan,” Armes continued. “Therefore, we have significantly reduced our capital expenditures. The capacity study is aligned with improving our cost competitive position in the United States. Our investment in Mexico supports our efforts to secure a lower cost supply of high quality tyres.”