Cooper nets record operating profit in Americas

Findlay, Ohio – Cooper Tire & Rubber Co’s net income surged 56 percent to $59.6 million (€53.5 million) and its operating income jumped 29.8 percent to $99.4 million, despite a 15.4-percent slump in sales to $751.8 million for the second quarter, ended 30 June, compared with the year-ago period.

Cooper attributed the sales decline to the absence of Cooper Chengshan Tire (CCT), the company’s former joint venture in China. Cooper sold its interest in the joint venture during the fourth quarter of 2014. The tire maker said CCT contributed sales of $172 million, net of intercompany eliminations, in the second quarter of 2014.

Excluding the impact of CCT, second-quarter 2015 sales rose 5 percent as a result of higher unit volume of $64 million, with increases in both the Americas and International segments, Cooper said. The unit volume increase was partially offset by unfavourable price and mix of $20 million, related to lower raw material costs, and negative foreign exchange of $8 million.

Operating profit — excluding CCT — increased more than 90 percent, resulting from favourable raw material costs of $76 million, higher volume of $14 million, and lower product liability and selling, general and administrative costs of $5 million, Cooper said.

These benefits were partially offset by unfavourable price and mix of $27 million, $13 million of higher manufacturing costs and $7 million of other costs and foreign exchange impact. The higher manufacturing costs were primarily in the Americas segment, where Cooper said it incurred costs related to plant reconfiguration to meet demand for higher value tires, as well as investments in technical capabilities and increased pension expense.

“This was a record second quarter operating profit for the company. The Americas segment posted another quarter of outstanding results, with continued unit volume growth and an operating margin of 16 percent, which is well above our long-term total company target.

“Unit volumes increased in both the Americas and International segments, with double-digit increases in unit volumes in China, excluding CCT, and Latin America. This demonstrates that our efforts to grow in these rapidly expanding markets are working as we continue to execute our global strategic growth plan.”

Capital expenditures in the second quarter totalled $41 million compared with $36 million in the same period last year. Capital expenditures are expected to be higher in the remaining quarters of 2015, compared with the prior year periods, and total between $205 million and $215 million for the full year as the company invests in equipment and capabilities to support growth.

Second-quarter operating income for the Americas segment surged 67.5 percent to $108.6 million as sales climbed 5.3 percent to $673 million, compared with the year-ago quarter.

Unit shipments increased 7.3 percent compared with the same period last year. The increase was driven in large part by higher unit sales of light truck and SUV tires, supported by additional production capacity for these tires resulting from the company’s recent reconfiguration of manufacturing capacity, Cooper said. The firm’s total light vehicle tire shipments in the U.S. increased 8.2 percent during the quarter.

The International segment reported an operating loss of $3.6 million as sales plummeted 61.8 percent to $124.9 million, compared with the year-ago period. The decrease was primarily attributed to a $198-million decline, before intercompany eliminations, from the absence of CCT. Excluding the impact of CCT, sales decreased $4 million, as higher unit volume of $17 million was not enough to offset $13 million of unfavourable price and mix related to lower raw material costs, and $8 million of negative foreign exchange, Cooper said.

Unit volume increased in Europe, but sales were reduced by competitive pressure on pricing and foreign exchange impact. Unit volume in China was also slightly higher due to increased sales in the domestic China market attributed to higher OE unit volume, which offset the tariff-driven decline in exports to the US.

First half

Cooper’s net income for the first half surged 20 percent to $100.3 million and operating income rose 7.8 percent to $169.8 million as sales slid 16 percent to $291.6 million, compared with the year-ago period.

For its Americas segment, operating income jumped 48.8 percent to $198.6 million while sales edged up 5.7 percent to $1.27 billion.

The International segment suffered a $6.4 million operating loss, compared with a $49.6 million earnings result a year ago. Sales fell 63.6 percent to $231.9 million.

Cooper reported that its second-quarter raw material costs declined about 3 percent from the first quarter of 2015, with the company’s internal raw material index decreasing from 159.0 in the first quarter to 153.5 in the second quarter. Cooper anticipates raw material costs will be up slightly in the second half of 2015, compared with the second quarter of 2015.

Costs are expected to be higher in the Americas segment in the second half of 2015, compared to the first half of the year. In addition to normal seasonality, expected increased costs include the timing of brand and product marketing programs this year and adjustments to Cooper’s LIFO inventory valuation due to lower projected inventory levels, the tire maker said.

“As we look toward the second half of 2015 we expect global tire markets to remain highly competitive,” Mr. Armes continued. “Our new products and improving mix of sales focused on higher value and higher margin tires positions Cooper well in such an environment. For the full year, we expect to exceed industry unit volume growth in the United States and continue strong unit volume growth in the international markets. Our success in growing unit volumes in the International segment in the second quarter is encouraging, and we will continue to focus on growth in all regions. We are committed to making the appropriate investments to support our strategic growth plans.

“In the second half of 2015, we anticipate that Cooper will incur slightly higher raw material and other costs, which will somewhat diminish the strength of the operating profit margins we had in the first half of this year, and will impact what is traditionally our strongest half of the year.”

Mr. Ames said the tire maker anticipates “that profitability will improve in the second half of 2015 in our International segment, while still generating a small operating loss for the full year. Full company operating margin for 2015 is expected to be above the high end of our mid-term target of 8 to 10 percent, but below results of the first half of this year because of expected cost increases described in this release,” he added.