Cooper Tire: Earnings affected by tax reform in 2017

Cooper Tire & Rubber Company has reported full year 2017 net income of US$95 million, or diluted earnings per share of $1.81, a 61.7 reduction on the $248 million earned the year before. Income was affected by tax reform in the USA; the tyre maker states that excluding these discrete tax items, earnings per share would have amounted to $3.10.

Net sales last year were, at $2.86 billion, 2.4 per cent lower than in 2016. Operating profit was down 29.3 per cent to $272 million while the operating margin contracted 3.6 percentage points to 9.5 per cent.

“We are pleased to have ended 2017 with operating profit margin of 9.5 per cent, which is near the high end of our previously issued eight to ten per cent guidance range,” commented Brad Hughes, president and chief executive officer of Cooper Tire & Rubber. “This is noteworthy given the pricing and volume challenges within the industry throughout the year, and the significant impact of higher raw material costs.”

Consolidated unit volume decreased 0.5 per cent year-on-year, a reduction that Cooper Tire attributes to “challenging conditions” that led to a unit volume decline in the USA. This decline was nearly – but not entirely – offset by a strong increase in unit volume in Asia. “Unit volume declines in the US were caused by industry-wide conditions and our continued exit from some non-strategic private brand business, a process which is largely behind us now,” continued Hughes. “We are pleased with the performance of our Asia operations, which generated a unit volume increase that nearly offset the US decline. We also congratulate the Asia team for the rapid integration and production ramp of our GRT (Qingdao Ge Rui Da Rubber Co., Ltd) joint venture in China, which produces truck and bus radial tyres. Our prior projections called for GRT to be accretive early in 2018, but it was actually accretive to 2017 earnings.”

Hughes reports that Cooper Tire & Rubber has “already launched several initiatives” to improve unit volume in the USA. These include expanding on early inroads made in the global original equipment business outside of Asia, a region where the company already has a strong OE presence, entering into new channels, and increasing the cadence of new product launches.

“In addition to the volume opportunity, we are working to improve profit margin through company-wide efforts to enhance efficiencies and reduce costs, including continued balancing of production capacity within our network, automation in our plants, and a recent corporate reorganisation that eliminated about five percent of US salaried positions,” Hughes adds. “Our efforts will take some time to fully manifest in our results, but we are encouraged with the early progress.”

For 2018, Cooper Tire & Rubber expects unit volume growth compared to 2017. Due to the reclassification of certain pension costs, the company has upwardly revised its mid-term operating profit margin target to be in the range of nine to 11 per cent, and Hughes says he expects it to be “near the low end of this range” in 2018. “We will provide more detail on our strategic plans, capital allocation and updated guidance when Cooper hosts an investor event planned for the middle of this year,” the president and CEO concluded.

Detailed information about Cooper Tire & Rubber’s Q4 and full-year 2017 financial results can be read here.