Cooper sales, earnings hit by material costs, slow demand

Findlay, Ohio – Cooper Tire & Rubber Co. suffered double-digit drops in operating income for the quarter and year ended 31 Dec as the company dealt with elevated costs related to raw materials and manufacturing and reduced unit sales and revenue.

Fiscal 2017 operating income fell 29.3% to $271.7 million (€221 million) on 2.4% lower sales of $2.85 billion, dropping the operating margin nearly four points to 9.5%.

Net income fell 61.6% to $95.4 million, as the company recorded $68 million of "discrete" tax items in the fourth quarter related to the impact of U.S. tax reforms.

Despite the earnings drops, Cooper President and CEO Brad Hughes said Cooper management was "pleased" to have ended 2017 with an operating margin of 9.5%, which he said was "near the high end" of the 8-10% guidance range the company issued in the fourth quarter.

"This is noteworthy," he said, "given the pricing and volume challenges within the industry throughout the year, and the significant impact of higher raw material costs."

For 2018 Cooper expects unit volume growth over 2017 and an operating ratio in the 9-11% range, based on revenue-growth initiatives, the reclassification of certain pension costs and "underlying macro-conditions that favour tire industry growth," Hughes said.

The company didn't disclose a specific revenue forecast.

In the fourth quarter, operating income plunged 55.5% to $46.8 million on 3.4% lower sales of $757 million. Unit sales were off 1.9%, reflecting a drop of 6.2% in the Americas, which was partially offset by a 15% unit volume growth in the International segment.

The firm reported a net loss of $42.2 million due in large part to the tax-related charges.

Cooper's Americas segment reported 7.1% lower revenue in both the quarter and fiscal year — to $645 million and 2.42 billion, respectively — as unit shipments were off 6.2% overall, including an 8.3% drop in car/light truck tire sales in the US.

Cooper cited "industrywide conditions and our continued exit from some non-strategic private brand business" for its shipments decline.

By contrast, industrywide shipments for the same period were up 1.6%.

Operating income for the year fell 26% to $325 million.

Among the initiatives Hughes said Cooper is undertaking to reverse the negatives of 2017 in the US is to expand efforts to gain OE business outside of Asia, enter new channels and accelerate the cadence of product introductions.

On the cost side, Cooper is working to balance supply and demand more effectively, increase plant automation and streamline its corporate structure. The latter has trimmed about 5% of Cooper's salaried positions, the company said.

A bright spot for the company was in its Asian operations, which generated a unit volume increase that nearly offset the US decline. In addition, Cooper singled out its management in Asia team for the rapid integration and production ramp of the GRT truck/bus tire joint venture in China, which generated earnings a year ahead of schedule.