Analysts: Cooper 2Q results a ‘big miss'

“We had expected the second quarter to be tough…for Cooper given the weak second industry shipment numbers and adverse mix, but we were surprised by how weak it actually was,” was the stark verdict of analysts in response to Cooper Tire & Rubber’s most recent financials. This is exemplified in the company’s profitability results.

Cooper reported second quarter 2011 earnings per share of $0.18 compared with Morgan Stanley’s estimates of $0.40. Worse still, earnings per share was around $0.70 a year ago. And all this lead to Cooper Tire’s share price “locking up the brakes” as one commentator put it. As a result the price lost 26 per cent in intraday trading after the financials and have lost 29.2 per cent of their value in the last week (correct as of Thursday 5 August 2011).

Revenues however were much closer to the mark at $922 million (Morgan Stanley estimated $913 million for the period. International revenues, which includes Cooper Tire Europe based in the UK, were $395 million very close to the analysts’ projections of $399 millions.

Negative reactions to the financial results were compounded by the announcement that Cooper has reduced its prior goal of the production of 10 per cent more tyres in 2011 than 2010, apparently – the analysts say – “reflecting inventory and demand conditions.”

Looking forward consensus expectations are expected to reduce but the second half of the year is projected to improve. According to Morgan Stanley, the weak second quarter results were “largely a function of weak industry shipments with the low-end market where Cooper plays affected more as people deferred replacement of tyres.”

Something else the analysts didn’t mention was the fact that Cooper believes it is well positioned to improve sales and profitability when the Chinese-produced tyre import tariff expires in September 2012. During a conference call following the second quarter/first half financials, Brad Hughes, Cooper’s chief financial officer pointed out:
“While we can’t guarantee, it will be reduced. We do expect the tariff will be allowed to expire as originally designed. This means the tier up on tyres imported from China will decrease from 29 to 4 per cent at that time.”

Currently Cooper exports between 3 million and 4 million light vehicle tyres a year from China into the US. Although the cost to produce and ship tyres from China to the US has risen since the tariff was implemented due to changes in the exchange rate, the company believes there is still a positive differential.

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