Cooper Tire posts record Q1 profit

Although year-on-year sales were down 12.5 per cent in the first quarter of 2013, Cooper Tire & Rubber nevertheless managed to more than double operating profit and net income during the January to March period. Net sales amounted to US$862 million, a decrease of $123 million compared with the same period a year ago. Operating profit was a first quarter record of $97 million, up 103 per cent from the first quarter of 2012 and 11.2 per cent of net sales. The company reported net income attributable to Cooper Tire & Rubber Company of $0.87 per share, or $56 million, in the first quarter. This is 160 per cent higher than the $22 million, or $0.34 per share, for the same period last year.

”We carried the momentum of record financial results from 2012 into the first quarter of 2013 by achieving record operating profit of $97 million despite a decline in volumes,” shared Cooper Chairman, chief executive officer and president Roy Armes. “We previously guided to lower volumes for the first quarter anticipating the deployment of a major phase of our ERP system and inventory adjustments being made by certain key customers. On top of these two expected impacts, which were specific to Cooper, the global tyre market was extremely soft and world economies continued to be weak, which constrained consumer spending. 

“Even with these combined factors negatively impacting volumes, we struck a balance between pricing discipline and volumes to achieve record results on the bottom line,” Armes continued. “That’s a testament to the strength of our brands and products in the marketplace. While a major phase of ERP deployment is largely behind us and key customer inventory adjustments are beginning to mitigate, we envision a second quarter that will remain challenging due to continued softness in global tyre demand and weakness in the economy. Our long-term focus will remain on executing our strategic plan and continuing to deliver shareholder value across a wide range of conditions.”

In addition to other profit contributors, the company’s first quarter operating profit was positively impacted versus the same period a year ago by $90 million in lower raw material costs as well as $19 million in lower manufacturing costs, which were more than explained by the non-recurrence of the labour action taken in the first quarter of 2012 at the company’s Findlay, Ohio manufacturing facility. Significant offsets to profit included $44 million of unfavourable pricing and mix and $15 million in lower volumes.

The company ended the first quarter with $272 million in cash and cash equivalents, a decrease of $80 million from 31 December 2012. The first quarter decrease followed the typical seasonal pattern for working capital.

North America Tire Operations

North America Tire Operations achieved net sales of $602 million during the first quarter, down 14 per cent from the first quarter of 2012. Unit shipments for the North American segment decreased 14 per cent compared to the same period a year ago. Cooper’s total light vehicle tyre shipments in the United States decreased 14 per cent during the quarter compared with Rubber Manufacturers Association (RMA) member shipments, which declined six per cent, and total industry shipments (including an estimate for non-RMA members) that decreased one per cent, as reported by the RMA.

The segment’s operating profit was $71 million for the first quarter, or 11.9 per cent of net sales. This represents an increase of $49 million compared with the first quarter of 2012. The improved profit includes a $59 million decrease in raw material costs and $6 million in lower product liability costs. Profit improvements also include $23 million in lower manufacturing costs, of which $29 million was attributed to the non-recurrence of the Findlay labour action, partially offset by manufacturing inefficiencies related to lower factory utilisation.

The profit improvements were partially offset by $14 million in lower price and mix and $15 million in lower volumes. Selling, general and administrative costs were $6 million higher and “other” costs increased by $4 million.

International Tire Operations

Cooper’s International Tire Operations generated first quarter net sales of $341 million, a decrease of $63 million, or 16 per cent, compared with the same period a year ago. Higher unit volumes of $3 million were more than offset by lower pricing and mix of $66 million. Sales volumes in Asia decreased two per cent, while European sales volumes increased ten per cent. Lower sales volumes in Asia were driven by reduced medium truck shipments, including intercompany shipments. European sales volumes improved as a result of incremental volumes from the company’s operation in Serbia and growth in Eastern Europe.

The International segment achieved first quarter operating profit of $30 million, or 8.8 per cent of net sales, compared with $33 million, or 8.1 per cent of net sales, for the same period a year ago. Profits were favourably affected by $41 million in lower raw material costs, $3 million from the non-recurrence of Serbia start-up costs and $1 million from lower selling, general and administrative costs. Improvements were more than offset by $41 million in unfavourable price and mix, $5 million in higher manufacturing costs driven by lower factory utilisation, and $2 million in “other” costs.

Outlook

Cooper Tire notes that raw material prices remained approximately flat from the fourth quarter of 2012 to the first quarter of 2013. Company management anticipates second quarter raw material prices will decline approximately one per cent sequentially compared to the first quarter and the long-term raw material outlook is for prices to generally trend higher with periods of volatility. Capital expenditures for 2013 are expected to be between $195 million and $215 million.

“Looking ahead to the second quarter, we continue to be cautious about volumes as the weak global economy and sluggish tyre demand look to continue,” Armes commented. “In addition, we expect that the impact of first quarter inventory adjustments by key customers may extend into the second quarter, but to a lesser degree. Beyond the second quarter, we expect volumes to continue to be challenged by industry and economic conditions. Yet, we are hopeful that the economy and industry will improve and we are confident that Cooper’s transformed business model and continued solid execution of our strategic plan will position us well to deliver value to our customers and shareholders.”