Findlay, Ohio — Cooper Tire & Rubber Co.'s operating income plummeted 61.1% year-on-year to $32.8 million on second-quarter sales down 3.1% to $698.4 million. Net income for the three months to 30 June fell 66.9% to $15 million, compared with the year-ago period.
"Due to continuing industry challenges and, in particular, rising raw material costs, we are revising our expectations for the balance of the year. Cooper now anticipates unit volume to be flat in 2018 compared to 2017, with a modest sequential improvement in operating profit margin in the second half of this year," said Brad Hughes, Cooper president and CEO.
"We continue to believe that we have the right strategic plan in place and remain confident in our five-year financial targets, which include operating profit of 10 to 14%, as well as annual unit volume growth in the low- to mid-single digits and return on invested capital of 14 to 16%."
Second-quarter net sales were negatively impacted by $16 million of lower unit volume, $13 million of unfavourable price and mix and $6 million of favourable foreign currency impact, the company said.
"Cooper delivered second-quarter results in line with our stated expectations, including operating profit margin of 4.7% of net sales, up slightly from the previous quarter," said Hughes.
"While challenging industry conditions have continued longer than expected, we are confident in our strategic plan, as detailed at our recent investor event.
"We continue to make solid progress in our strategic initiatives, including expanding into new sales channels and driving sell-in with exciting new products, such as our new AT3 line.
"Cooper's brand strength and attractive value proposition, combined with our strategic initiatives, provide a solid foundation for volume and profit growth."
Operating profit for the second quarter of 2017 has been restated to reclassify $9 million of other pension and post-retirement benefit costs out of operating profit.
Operating profit for the second quarter included $21 million of higher manufacturing costs and $20 million of unfavourable price and mix, net of raw material costs. Higher manufacturing costs reflect the alignment of production to demand in order to control inventory levels, Cooper said.
Lower unit volume also negatively impacted operating profit by $4 million related to lower unit volume. SG&A increased $6 million in the quarter due to higher professional fees related to strategic initiatives and market-to-market cost of stock based liabilities.
Cooper's second-quarter raw material index increased slightly from the second quarter of 2017. The raw material index increased 4.6% sequentially from 156.6 in the first quarter of 2018 to 163.8 in the second quarter of 2018.
Hughes said raw material costs were rising faster than expected and he forecast that they would continue an upward trend through the remainder of the year, due in part to tariffs and proposed tariff increases. However, he expected the rising costs to be offset by anticipated pricing actions in the industry.