International Operations Outshine Domestic For Cooper Tire

Cooper Tire & Rubber Co has reported a first quarter net income of $2 million on 31 March 2008. Net sales for the period were $679 million, an increase of $10 million over the prior year. According to the company, the increased revenues were driven by volumes in the International segment. Industry observers calculated that the $2 million figure represents a 92 per cent fall in first-quarter net income, with the Retuers news agency highlighting the fact that the company’s “headwinds” are exacerbated by a doubling of costs related to liability claims. For its part, Cooper conceded that the company has faced similar challenges to other North America-based businesses including “increased raw material costs, increased products liability costs, and decreased sales volumes in North America.

Cooper shares fell 96 cents (7 per cent) to $12.75, below the stock’s earlier 52-week low of $12.85, in response to the results.

Cooper’s North American Tire division generated sales of $498 million, down 3 per cent from 2007’s record first quarter, and $8 million in operating profit which was considerably below the first quarter of 2007 ($28 million, an increase of $34 million over the first quarter of 2006). The segment’s decrease in sales, compared to the first quarter of 2007, was reportedly the result of lower unit volumes partially offset by improved mix. The largest volume decreases were in the areas of economy passenger and light truck tyres.

Company representatives point out that while this shortfall was greater than industry declines reported by the Rubber Manufacturers Association (RMA), a portion of the decline was also result of the company’s “strategic decisions to eliminate one brand and to exit sales of certain less profitable lines.” The company had also benefited from the Goodyear strike during the first quarter of 2007.

Merrill Lynch analyst John Murphy was sceptical about the latest figures, comparing them with a leading North American competitor: “We view Cooper Tire’s weak results as further evidence that the company remains well behind rival Goodyear in terms of restructuring progress…We continue to view Cooper Tire as a ‘show me’ story especially following the first quarter’s lacklustre performance.” Standard & Poor’s Efraim Levy changed his “Buy” rating to “Hold” and reduced his target price to $9 from $17, following the results.

International Tire Operations lead the way

The results couldn’t be more different in the company’s International Tire Operations division, which reported sales of $232 million in the quarter, an increase of 27 per cent compared with the first quarter of 2007. The segment’s operating profit improved by 13 per cent to $7 million from the prior year. This increase was driven by higher unit volumes and pricing, offset by increased raw material and advertising costs in China as market development activities continue.

Roy Armes, Chief Executive Officer, added: “Despite…headwinds, we are well positioned and fully committed to our long-term strategy to build a sustainable and cost competitive supply of tyres, profitably grow our business, and increase our organizational capabilities. We are fortunate to be in a position to deal with this current economic environment with a strong balance sheet, high liquidity levels and the anticipated sale of our investment in Kumho Tire Company.”