Joint venture sale lifts Cooper Tire 2014 income

The sale of its share in the Cooper Chengshan (Shandong) Tire Company joint venture operation in China helped propel Cooper Tire & Rubber’s net income upwards in 2014 and played a key role in quadrupling it in the final quarter of the year. Net sales were 0.4 per cent lower year-on-year, dragged down by weak performance outside of the Americas and the absence of Cooper Chengshan towards the end of the year. The tyre maker says it aims to maintain its margins in 2015 and expects to exceed industry unit volume growth rates in its largest markets; house brands will be a key contributor to this growth.

Net income attributable to Cooper Tire & Rubber for full-year 2014 was US$214 million, or $3.42 per share, versus $111 million, or $1.73 per share, in 2013. The results include a gain of $56 million (net of tax) from the sale of the company’s 65 per cent interest the Cooper Chengshan joint venture. Excluding the gain, earnings per share were $2.53. The company’s sales reached $3.42 billion last year versus $3.44 billion in 2013, while operating profit was $300 million compared with $241 million in 2013. Operating margin increased from 7.0 per cent in 2013 to 8.8 per cent last year.

Fourth quarter 2014 net income was $82 million, or $1.39 per share, compared with $20 million, or $0.31 per share, in the fourth quarter of 2013. Excluding the gain on the joint venture shareholding sale, fourth quarter earnings per share were $0.45. Fourth quarter 2014 earnings per share reflect an average share count of 59.2 million, which accounts for the initial share delivery under the accelerated share repurchase programme launched in August 2014, while full year earnings per share reflect an average share count of 62.4 million shares.

Cooper Tire & Rubber points out that its 2013 results were impacted by “a number of unusual circumstances”, including labour actions at Cooper Chengshan, which resulted in lower production and shipments; higher costs and lower volume associated with shipping inefficiencies related to ERP system implementations; and costs related to a now-terminated merger agreement. Cooper sold its ownership interest in Cooper Chengshan in November 2014, and therefore it was not included in the company’s results for the full quarter. “As a result of all of these items, many of the year-over-year comparisons are not representative of the business under normal conditions,” commented the tyre maker in a statement.

“I am proud of what we accomplished in 2014, particularly after a very disruptive year in 2013,” said Roy Armes, Cooper Tire’s chairman, chief executive officer and president. “Our full year 2014 operating profit was our second best in our 100-year history. Unit volume for the full year rose six per cent, and our operating margin was strong at almost nine per cent. In the fourth quarter, we continued to see robust unit volume growth in the Americas segment and that segment delivered operating margins near ten per cent. However, our fourth quarter results were negatively impacted by weakness in our international operations. In 2015 we will continue our focus on exploring opportunities to expand our presence in Asia after the sale of our interest in the joint venture, so as to benefit from a more sizeable footprint in that high-growth market.”

Fourth quarter net sales were $820 million, a decrease of five per cent from $861 million in 2013. The decrease primarily was due to lower volume of $61 million related to the absence of Cooper Chengshan for part of the quarter, and unfavourable price and mix of $33 million. These negatives were partially offset by higher unit volume of $54 million. Fourth quarter 2014 operating profit was $54 million compared with $47 million for the same period in 2013. Operating margin was 6.5 per cent versus 5.5 per cent in 2013.

Americas Tire Operations

The tyre maker’s fourth quarter net sales in its Americas business rose ten per cent to $689 million from $628 million in 2013. Unit shipments increased eight per cent compared with the same period in 2013. The segment’s operating profit for the fourth quarter was $66 million, or 9.5 per cent of net sales, compared with $35 million, or 5.5 per cent of net sales, last year. For the full year, net sales increased four per cent to $2.59 billion from $2.49 billion in 2013. Operating profit was $275 million versus $204 million in 2013. Operating margin was 10.6 per cent versus 8.2 per cent in the prior year.

Cooper’s total light vehicle tyre shipments in the United States increased four per cent during the quarter compared with the fourth quarter of 2013. This was higher than average Rubber Manufacturers Association (RMA) member shipments, which were up approximately three per cent, and total industry shipments (including an estimate for non-RMA members), which (as reported by the RMA) increased two per cent.

International Tire Operations

Within Cooper’s international operations, fourth quarter net sales declined to $191 million from $283 million in 2013. The decrease largely reflected $61 million related to the absence of Cooper Chengshan for part of the quarter. Fourth quarter operating profit was $2 million, or 1.1 per cent of net sales, compared with $22 million, or 7.7 per cent of net sales, for the same period in 2013. For the full year, net sales decreased eight per cent to $1.14 billion from $1.24 billion in 2013. Operating profit was $75 million compared with $84 million for the same period in 2013. Operating margin was 6.5 per cent compared with 6.8 per cent in 2013.

Outlook

“In 2015, we expect the tyre markets to continue to grow modestly in North America,” remarked Roy Armes. “In the Americas segment, while the early part of this year is likely to be negatively impacted by the pre-buying we saw ahead of the tariff announcements, we expect to continue our strong performance for the full year. In Asia, the tyre market is growing at high single-digit rates. We are looking to invest in Asia to expand our business after the sale of Cooper Chengshan Tire. Until that time, we will see the impact of a higher cost structure on our operating profit. In Western Europe markets have softened, and we expect continued volatility in Russia and Eastern Europe.

“Raw material costs continue to be favourable, and we are expecting further declines in the first quarter,” Armes continued. “We are monitoring these costs, along with the tariff implementation and its impact. Our goal is to maintain our margins, while recognising the need to remain competitive. Overall, while we expect that global tyre markets will remain highly competitive in 2015, we expect to exceed industry unit volume growth rates in our largest markets for the full year. House brands will be a key contributor to this growth. For the full year, we expect to continue our strong performance in line with our strategic plan.”

Cooper Tire & Rubber expects its full year 2015 effective tax rate will be in a range of 30 per cent to 35 per cent and capital expenditures for 2015 will be in a range of $205 million to $215 million.

Further financial information for Cooper Tire & Rubber can be found in our company profiles and reports section.