Cooper Tire & Rubber Company reported its results for the second quarter of 2019 this week, which showed a net income of $9 million, or diluted earnings per share of $0.18, compared to $15 million, or $0.30 per share, last year.
Other highlights of the second quarter report include:
- Net sales decreased by 2.8% to $679 million;
- Unit volume decreased by 4.9% compared to the second quarter of 2018;
- Operating profit was $32 million, or 4.7% of net sales;
- The company amended its bank credit facility to extend the term, increase capacity and provide for refinancing of its upcoming bond maturity.
“Our second-quarter operating profit margin improved sequentially from the first quarter, and the Americas segment delivered improved operating profit despite new and incremental tariffs this year,” said Cooper President and Chief Executive Officer Brad Hughes. “Our International segment was challenged by the ongoing decline within the new vehicle market in China and a weak replacement tire market in Europe. While we are not satisfied with the lower unit volume in the second quarter, our strategic initiatives are taking hold, and we are confident that they will contribute more meaningfully to unit volume growth in 2020.”
Second-quarter net sales for Cooper were $679 million compared with $698 million in the second quarter of 2018, a decrease of 2.8%. Net sales included $34 million of lower unit volume and $6 million of unfavorable foreign currency impact, which were partially offset by $21 million of favorable price and mix.
Operating profit for the company was $32 million compared with $33 million in the second quarter of 2018. Negatively affecting the quarter was $13 million in costs related to new tariffs on products imported into the United States from China compared to the same period a year ago, as well as $2 million of restructuring costs related to Cooper Tire Europe’s decision to cease light vehicle tire production at its Melksham, England facility. In addition, the quarter included $17 million of favorable price and mix, and $15 million of favorable raw material costs (excluding the new tariffs).
On June 27, Cooper amended its existing bank credit facility which extended the maturity date to June 27, 2024 and increased the borrowing capacity to $700 million. The amended agreement is comprised of a $500 million revolving credit facility and a new $200 million delayed draw term loan. The proceeds from the new term loan will be used primarily to retire existing 8% senior notes that mature in December of this year.
Americas Tire Business
Second-quarter net sales in the Americas segment decreased 0.4% as a result of $22 million of lower unit volume, partially offset by $20 million of favorable price and mix ($582 in Q2 2019 versus $584 in Q2 2018). For the quarter, segment unit volume was down 3.8% compared to the same period a year ago.
Cooper’s second-quarter total light vehicle tire shipments in the U.S. decreased 4%. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. were down 1.5%. Total industry shipments (including an estimate for non-USTMA members) increased 0.7% for the period.
Second quarter operating profit was $47 million, or 8.0% of net sales, compared with $40 million, or 6.9% of net sales, for the same period in 2018.
“Increased U.S. tariff costs and delayed timing of anticipated commercial truck tire price increases, as well as weakness in the China new vehicle and Europe replacement tire markets, are expected to impact the remainder of the year,” said Hughes. “The Americas segment, excluding TBR tariffs, is still generally in line with previous expectations. On a consolidated basis, we anticipate growth throughout the year in operating profit margin.
Cooper is adjusting expectations for the full year as follows:
- Given first half volume performance, and the lack of clarity regarding the China new vehicle market, Cooper no longer expects full year unit volume growth compared to 2018;
- Improving operating profit margin throughout the year, with full year operating profit margin in line with 2018 reported margin of 5.9%;
- 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%; and
- Charges related to the Melksham, England restructuring to be in a range of $8 to $11 million.
Expectations for 2019 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.