Cooper Tire & Rubber posts Q3 2017 results

Cooper Tire & Rubber Company has reported a net income of US$62 million (diluted earnings per share of $1.18) for the third quarter of 2017, up 26.5 per cent from a year earlier.

Net sales decreased 2.3 per cent to $734 million, impacted by $19 million of lower unit volume and $1 million of unfavourable price and mix, partially offset by $3 million of favourable foreign currency impact.

Consolidated unit volume decreased 2.0 per cent compared to the prior year, with strong growth in Cooper Tire’s International segment more than offset by lower volume in the Americas segment.

Operating profit was $101 million, or 13.8 per cent of net sales, an increase of $23 million from the prior year. Operating profit included $15 million in unfavourable raw material costs, net of price and mix, $8 million of lower unit volume, and $7 million of higher manufacturing costs. These higher costs were offset by $39 million of lower product liability costs, the $11.5 million non-cash pension settlement charge that was recorded in 2016, and lower other costs of $3 million.

“Our third quarter performance, particularly the decline in North America unit volume, reflects continued challenges within the tyre industry, including raw material cost variability, weak trends in retail sell-out of tyres to consumers, elevated inventory in the channels and a fluid promotional landscape,” said Brad Hughes, president and chief executive officer of Cooper Tire & Rubber. “These conditions were exacerbated by the hurricanes in Texas and Florida.

“In North America, we continue to respond to current market conditions by being competitive on pricing and promotions. We are addressing the unit volume decline, which was partially the result of the ongoing reduction in our private brand business, by expanding into additional channels with new positions in the car dealer and e-commerce channels, as well as new OE fitments that we will announce in the future. In addition, we have an aggressive schedule of new product introductions underway that continues throughout 2018 and 2019.

“Cooper continues to believe that positive macro-economic factors, such as gas prices, miles driven, low unemployment, growing wages and others will support growth for the tire industry. We think our strong business model and global footprint position us well going forward.”

Outlook

“Weak sell-out of tyres to consumers and heavy promotional activity are likely to persist into the fourth quarter in North America,” said Hughes. “As a result, we expect that operating margin in the fourth quarter will be below our previously stated expectations. Cooper will continue to price our products appropriately given market conditions and will remain focused on executing the programs we have in place to expand into additional channels. In addition, we will continue to manage our production levels and inventories, helping to position Cooper for a strong start to 2018.”

Management expectations for the fourth quarter include:

• Operating margin below the previously announced mid-term target of eight to ten per cent.
• A modest sequential increase in raw material costs.
• Unit volume in the Americas segment will improve sequentially from the third quarter, but US unit volume is expected to lag the industry. Unit volume growth is expected in the International segment.
• The International segment is expected to continue to improve profitability relative to 2016, inclusive of the recently acquired majority interest in GRT.

Management expectations for the full year 2017 include:

• Consolidated operating margin near the high end of the company’s previously announced mid-term target of eight to ten per cent.
• Effective tax rate in a range between 30 percent and 33 per cent.
• Capital expenditures to range between $190 and $210 million.

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