Cooper sales and profits fall in Q2

Cooper Tire & Rubber’s second quarter 2013 results – most likely the last it will post before its incorporation into Apollo Tyres – showed a year-on-year drop in net sales, operating profit and net income. Net sales amounted to US$884 million, a decrease of $174 million compared with the same period a year ago, and operating profit for the second quarter was $69 million, $26 million lower year-on-year and 7.8 per cent of net sales. Net income was $35 million, or $0.55 per share, down from $52 million, or $0.82 per share, for the same period last year.

Earnings per share fell way below the average estimate of $0.93 given by four analysts polled by Thomson Reuters. Analysts’ estimates typically exclude one-off items. Cooper’s second quarter operating profit comparison was impacted by several one-time items unique to the period in both 2012 and 2013. In the second quarter of 2012, operating profit included a pre-tax gain of $7 million related to the curtailment of a pension plan within the company’s United Kingdom operations, which was partially offset by $2 million in start-up costs for the company’s new manufacturing operation in Serbia. In the second quarter of 2013, results included $7 million in higher costs related to the pending merger with Apollo Tyres, Ltd. The $7 million included increased accruals for stock-based liabilities of $3 million, reflecting the stock price appreciation following the acquisition announcement, and transaction related expenses of $4 million. The tyre maker says these non-recurring items account for $12 million of the year-over-year decline in second quarter operating profit.

In addition to the one-time items, the company says its second quarter 2013 operating profit reflected $120 million from lower raw materials costs, which was partially offset by reduced pricing and unfavourable mix of $81 million. Lower unit volumes decreased profit by $35 million. Selling, general and administrative costs for the period were $10 million higher than second quarter 2012, excluding the merger related costs referenced above. The higher costs included professional fees related to the company’s ERP implementation and continued investments in brand building initiatives and increasing tyre distribution capability, primarily in China. Manufacturing costs in the second quarter of 2013 were $8 million higher than second quarter 2012, driven entirely by $10 million of cost from production curtailments implemented to adjust inventory levels. Products liability expenses in the second quarter of 2013 were $5 million lower than the same period a year ago. All other changes were $5 million unfavourable during the quarter, primarily due to higher freight and logistics costs related to managing higher inventories.

Outlook

Raw material prices decreased by approximately one per cent quarter-on-quarter in Q2 2013-08-08. Cooper Tire’s management anticipates third quarter raw material prices will decline approximately four per cent sequentially compared to the second quarter. 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 $190 million and $210 million.

“Looking ahead to the remainder of the year, we have much to accomplish with respect to the pending merger with Apollo, and we look forward to the opportunities the combined company will have to compete and grow within the global tyre industry long term,” said Cooper Tire president and CEO Roy Armes. “Regarding our near-term view for Cooper, we continue to be cautious about volumes as weak global economic conditions and sluggish tyre demand are expected to continue. Yet, we remain confident that Cooper’s transformed business model and continued solid execution of our strategic plan will position us to perform well in the future.”

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