Q3 Cooper Tire result exceeds estimates
After delivering investors a net income of exactly no cents per share in the third quarter of 2013, this year Cooper Tire & Rubber exceeded analyst estimates to deliver US$0.77 per share, $0.05 higher than the consensus estimate. In reporting these much stronger third-quarter results, the company pointed out that its financial results from a year earlier were impacted by “a number of unusual circumstances,” including strike action and other issues at the Cooper Chengshan (Shandong) Tire Company Ltd (CCT) joint-venture operation in China, which resulted in lower production and shipments; higher costs and lower volume associated with shipping inefficiencies related to ERP system implementations; and costs related to the then-pending acquisition by Apollo Tyres, a deal that was terminated at the end of the year. “As a result, many of the year-over-year comparisons are not representative of the business under normal conditions.”
Net sales rose 10.5 per cent to $920.1 million in the third quarter of 2014. Operating income increased 220.2 per cent year-on-year to $89.4 million, with operating margin increasing from 3.4 per cent a year ago to 9.7 per cent. Cooper states that this increase was driven by favourable raw material costs of $86 million, which was partially offset by unfavourable price and mix of $57 million. The company also benefitted from higher unit volume of $25 million, lower products liability costs of $5 million, and $2 million of favourable manufacturing costs compared with last year. The 2013 quarter was negatively affected by a combined $22 million from lower unit volume in both segments and $7 million in manufacturing inefficiencies in the International segment related to the CCT issues, as well as $13 million of costs associated with manufacturing curtailments in the Americas segment related to the ERP implementation. Last year’s third quarter also included merger-related costs of $5 million, which were reported in selling, general and administrative costs. Total net income attributable to Cooper Tire & Rubber was $47.7 million in the third quarter of 2014, compared with a loss of $168,000 a year earlier.
”Our third quarter performance continued the solid trends we saw during the first half,” said Roy Armes, chairman, chief executive officer and president of Cooper Tire & Rubber. “Even after adjusting for the unusual issues last year, we had strong unit volume growth, particularly in the Americas segment. The 14 per cent overall unit growth, along with declining raw material costs, allowed us to post an operating margin of 9.7 per cent, which is at the high end of our target range,”
For the nine-month period, net income attributable to Cooper Tire & Rubber Company was $131.3 million, or $2.07 per share, versus $91.4 million, or $1.42 per share, last year. Sales increased to $2.61 billion from $2.58 billion in 2013. Operating profit for the nine months was $246.9 million compared with $193.7 million last year. Operating margin was 9.5 per cent versus 7.5 per cent.
Americas Tire Operations
Third quarter net sales rose 9.6 per cent to $693.9 million. Unit shipments increased 11 percent compared with the same period last year. Last year’s third quarter included $29 million of lower unit volume associated with CCT. This quarter’s unit volume increase was driven primarily by sales of new, higher margin passenger and light truck products introduced in the past year, as well as higher sales of truck and bus radial tyres. Cooper’s total light vehicle tyre shipments in the United States increased 11 per cent during the quarter, higher than the average for Rubber Manufacturers Association (RMA) members (+0.3 per cent) and total industry shipments (estimated at +3.0 per cent), however this above average rise reflects lower 2013 volumes due to supply issues from CCT.
For the nine-month period, net sales increased 2.1 per cent to $1.90 billion. Operating profit was $209.1 million versus $169.4 million in 2013. Operating margin was 11.0 per cent versus 9.1 per cent last year.
International Tire Operations
Net sales rose 18.5 per cent to $313.5 million. The increase reflects $116 million from the absence of volume related to the CCT labour issues, partially offset by $41 million of unfavourable price and mix, net of exchange rate changes.
Third quarter operating profit was $23 million, or 7.3 per cent of net sales, compared with $3 million, or 1.2 per cent of net sales, for the same period a year ago. The primary drivers of the operating profit increase were lower raw material costs of $39 million, higher unit volume of $11 million, and $2 million of lower manufacturing efficiencies. These benefits more than offset lower price and mix of $35 million. The 2013 third quarter included $15 million from lower volume and $7 million from inefficiencies related to the issues at the CCT joint venture facility.
For the nine-month period, net sales decreased 0.9 per cent to $950.2 million. Operating profit was $72.4 million compared with $62.3 million for the same period in 2013. Operating margin was 7.6 per cent compared with 6.5 per cent last year.
Share prices reach 52-week high
The 7 November release of these results prompted a flurry of share-related activity, with prices for the tyre maker’s shares hitting a 52-week peak in trading that day. After opening at $33.51, some 690,645 shares changed hands, causing their value to rise 2.1 per cent to $34.20. By the end of the day the price had declined to $32.49, still a long way from the low of $20.55 reached on 16 December 2013.
Full financial information for Cooper Tire can be found in our company profiles and reports section.