FINDLAY, Ohio — Cooper Tire & Rubber Company (NYSE: CTB) today reported third-quarter 2019 net income of $29 million, or diluted earnings per share of $0.58, compared with $54 million, or $1.07 per share, last year.
Highlights
- Net sales decreased 4.5 percent to $704 million.
- Unit volume decreased by 7.0 percent compared to the third quarter of 2018.
- Operating profit was $53 million, or 7.5 percent of net sales.
“Despite the continued impact of tariffs, we were pleased to deliver sequential operating profit margin improvement in the third quarter driven by positive trends in pricing, mix and raw materials,” said President & CEO Brad Hughes.
He noted, “As expected, our volume was impacted by customer inventory actions in the U.S., as well as challenging market conditions in our other regions. Cooper continues to make progress on the strategic initiatives outlined at our Investor Day in 2018, including expansion into new channels and efforts to optimize our global manufacturing footprint, including our actions in the U.K. and new joint venture in Vietnam. We expect that the impact from our strategic initiatives will begin to make a more visible contribution to our results in 2020.”
Consolidated Results
Third-quarter net sales were $704 million compared with $738 million in the third quarter of 2018, a decrease of 4.5 percent. Net sales included $54 million of lower unit volume and $7 million of unfavorable foreign currency impact, which were partially offset by $27 million of favorable price and mix.
Operating profit was $53 million compared with $81 million in the third quarter of 2018.
Key drivers included:
- $4 million benefit from lower product liability costs related to an adjustment of the company’s product liability reserve model in the third quarter of 2019, compared to a $31 million benefit in 2018 resulting from a similar adjustment. The impact of the variance in the model adjustment, partially offset by normal activity, including settlements and changes in the amounts of reserves, resulted in $23 million of higher net product liability expense for the third quarter of 2019.
- $15 million of higher costs related to new tariffs on products imported into the United States from China compared to the same period a year ago.
- $20 million of favorable price and mix and $24 million of favorable raw material costs (excluding the new tariffs).
- $16 million impact of lower volume, $12 million of higher manufacturing costs and $6 million of higher all other costs.
Cooper’s third-quarter raw material index decreased by 6.9 percent compared to the third quarter of 2018. The raw material index decreased 2.9 percent sequentially from 161.8 in the second quarter of 2019 to 157.1 in the third quarter of 2019.
The effective tax rate for the third quarter was 21.0 percent compared with 22.6 percent for the same period the prior year. The effective tax rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.
At the end of the third quarter, Cooper had $137 million in unrestricted cash and cash equivalents compared with $209 million at the end of the third quarter of 2018. Capital expenditures in the third quarter were $50 million compared with $46 million in the same period a year ago. In addition, as of the end of the third quarter, the company had invested $49 million in its new joint venture with Sailun Vietnam, named ACTR Company Limited.
The company generated a return on invested capital, excluding the impact of the goodwill impairment charge in the fourth quarter of 2018, of 7.8 percent for the trailing four quarters.
Americas Tire Operations
Third-quarter net sales in the Americas segment decreased 4.3 percent as a result of $51 million of lower unit volume and $1 million of unfavorable foreign currency impact, partially offset by $25 million of favorable price and mix. For the quarter, segment unit volume was down 8.2 percent compared to the same period a year ago.
Cooper’s third-quarter total light vehicle tire shipments in the U.S. decreased 7.7 percent. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were up 0.7 percent.
Total industry shipments (including an estimate for non-USTMA members) increased 3.5 percent for the period. As previously stated, Cooper’s U.S. volume was impacted by customer inventory actions.
Third-quarter operating profit was $68 million, or 11.3 percent of net sales, compared with $87 million, or 13.9 percent of net sales, for the same period in 2018. Operating profit included $23 million of favorable price and mix, and $22 million of favorable raw material costs (excluding the new tariffs).
This was offset by $23 million related to product liability, $15 million of new tariffs, $13 million of volume, $6 million of manufacturing, $5 million of SG&A and $2 million of other costs compared to the same period a year ago.
International Tire Operations
Third-quarter net sales in the International segment decreased 18.6 percent as a result of $28 million of lower unit volume and $6 million of unfavorable foreign currency impact, partially offset by $4 million of favorable price and mix. Segment unit volume decreased 16.4 percent driven primarily by lower intercompany shipments.
The segment’s third-quarter operating loss was $5 million compared with an operating profit of $6 million in the third quarter of 2018. The quarter included $3 million of unfavorable price and mix and $2 million of favorable raw material costs.
In addition, the quarter included $1 million of lower SG&A costs, which were more than offset by $3 million of volume, $6 million of manufacturing, $1 million of restructuring and $1 million of other costs compared to the same period a year ago.
Outlook
“Cooper expects fourth-quarter operating profit margin to improve sequentially, with full-year operating profit margin slightly above the 5.9 percent we reported for full-year 2018, driven by positive trends in pricing, mix and raw materials,” said Hughes. “We expect continued global volume headwinds in the fourth quarter, but we anticipate growth in 2020 driven by our strategic initiatives and improving market conditions.”
Additional management expectations for 2019 include:
- Capital expenditures to range between $180 and $200 million. This does not include capital contributions related to Cooper’s pro-rata share of its joint venture with Sailun Vietnam or other potential manufacturing footprint investments.
- An effective tax rate, excluding significant discrete items, to range between 23 and 26 percent.
- Charges related to the Melksham, England restructuring to be in a range of $8 to $10 million.
- These expectations include tariffs already in place, but do not include rate changes or additional tariffs that continue to be considered, but have not yet been imposed.
Third Quarter 2019 Conference Call Today at 10 a.m. Eastern
Management will discuss the financial and operating results for the third quarter, as well as the company’s business outlook, on a conference call for analysts and investors today at 10 a.m. EDT.
The call may be accessed on the investor relations page of the company’s website at http://coopertire.com/Investors.aspx or at https://services.choruscall.com/links/ctb191028.html. Following the conference call, the webcast will be archived and available for 90 days at these websites.
A summary slide presentation of information related to the quarter is posted on the company’s website at http://investors.coopertire.com/Quarterly-Results.
About Cooper Tire & Rubber Company
Cooper Tire & Rubber Company (NYSE: CTB) is the parent company of a global family of companies that specializes in the design, manufacture, marketing, and sale of passenger car, light truck, medium truck, motorcycle and racing tires. Cooper’s headquarters is in Findlay, Ohio, with manufacturing, sales, distribution, technical and design operations within its family of companies located in more than one dozen countries around the world. www.coopertire.com, www.facebook.com/coopertire or cooper.
