Cooper posts improved Q1 results

Despite higher manufacturing costs in the first quarter of 2012, including costs related to the lockout at its Findlay plant, Cooper Tire & Rubber has announced improved results. The company reports net sales of US$984 million in the first three months of the year, an increase of $82 million, or nine per cent, compared with the first quarter of 2011. Operating profit was $48 million for the quarter, an increase of $16 million from the prior year same quarter. Net income attributable to Cooper Tire & Rubber for the quarter ended 31 March 2012 was $22 million, or $0.34 per share on a diluted basis, compared with $16 million, or 25 cents, for the first quarter of 2011.

When compared with the first quarter of 2011, improved price and mix of $71 million offset $8 million of higher raw material costs. Sales volumes were slightly lower than the prior year same quarter. Higher manufacturing costs, including $29 million related to the labour situation at the company’s Findlay factory, decreased results by $31 million. Selling, general and administrative costs increased by $9 million as the company invested in expanding distribution networks and promoting Cooper brands. Startup costs related to the manufacturing operations in Serbia were $3 million.

Cash and cash equivalents of $258 million at 31 March 2012 increased $24 million from 31 December 2011, and $69 million from 31 March 2011. During the first quarter of 2012, the company invested $19 million to acquire assets for use by the company’s new operation in Krusevac, Serbia.

North America Tire Operations

Cooper’s North America Tire Operations achieved net sales of $698 million during the first quarter, up eight per cent from 2011 net sales of $644 million. The increased sales are said to be the result of stronger price and mix, partially offset by lower unit sales. Unit sales for the North American segment decreased three per cent compared with the prior year first quarter. Cooper’s total light vehicle shipments in the United States decreased 6.1 per cent during the quarter, compared with a total industry shipment decline of 5.8 per cent as reported by the Rubber Manufacturers Association.

The segment’s operating profit was $23 million for the first quarter, or 3.3 per cent of net sales. This was an increase of $1 million compared with the same period in 2011. Favourable price and mix of $58 million was partially offset by $18 million of higher raw material costs. Manufacturing costs increased by $28 million, including the impact of the aforementioned lockout. This cost was partially offset by other manufacturing efficiencies, Cooper noted. Lower volumes reduced profit by $3 million. Selling, general and administrative costs were $3 million higher than a year ago as the company invested in advertising and brand promotions. Product liability costs increased $2 million from a year ago.

International Tire Operations

The company’s International Tire Operations reported record first quarter sales of $404 million, an increase of $41 million, or 11 per cent, compared with the first quarter of 2011. The increase reflected positive price and mix as well as increased volumes. The segment shipped nearly eight per cent more units than during the same quarter in 2011, including intercompany shipments. Asian sales volumes increased eight per cent, while European sales volumes decreased ten per cent. Higher Asian sales were driven by improved truck and bus radial and premium passenger car sales. European sales volumes decreased as a result of general economic conditions in the region. Intercompany shipments within the segment declined compared to the prior year.

The segment’s operating profit increased $13 million to $33 million, or 8.1 per cent of net sales, in the first quarter of 2012, compared with $20 million, or 5.5 per cent of net sales, in the first quarter of 2011. Profits improved from favourable price and mix of $6 million, lower raw material costs of $17 million and increased volumes of $3 million. Selling, general and administrative costs increased $7 million, reflecting investments to expand the distribution network in China and promoting Cooper brands. Serbia startup costs were $3 million.

Management commentary and outlook

“During the first quarter we continued progress toward our goals in the midst of a challenging business environment,” commented Cooper Tire chief executive officer Roy Armes. “We have now achieved 11 consecutive quarters of profitability, which is a tribute to the resiliency of our business model.

“While demand has been sluggish for the industry, our new products continue to do well as we exceeded industry growth in many product lines,” Armes continued. “We continue to believe that pent-up demand for broadline tyres exists, although it is difficult to predict exactly when that demand will manifest.

“Raw material costs remain at elevated levels,” said the CEO. “We expect costs, as measured by our raw material index, to increase between five per cent and seven per cent sequentially in the second quarter. Impacts of the labour situation in the Findlay plant are largely behind us and our manufacturing operations will focus on efficiency improvements.

“We continue to expect capital expenditures for 2012 to total $180 million to $210 million,” added Armes. “This includes investments in an ERP system and investments to ramp up production at our Serbian operation. There are continued opportunities for the company to increase shareholder value as we move forward. These opportunities include building on the momentum from our new product introductions and driving cost savings to the bottom line as we become more efficient in our operations. We will also create new opportunities to enhance the effectiveness of our operations as we implement our ERP system.

“We have confidence that successful execution of initiatives aligned to our plan will move our business forward, despite the volatile environment in which we operate. We remain optimistic about our future.”