Cooper Tire & Rubber Co. has reported full year 2016 net income of $248 million, or diluted earnings per share of $4.51, compared with $213 million, or $3.69 per share, one year ago. The full year results included non-cash pension settlement charges of $12 million. Excluding these charges, diluted earnings per share for the full year would have been $4.66 per share.
“Through consistent execution of our strategic plan, and the favorable raw material cycle of the past few years, Cooper ended 2016 in a very strong position, achieving a record full year operating profit margin of 13.1 percent. Our profit performance was led by record operating profit in our Americas segment and substantial profit improvement in the International segment,” said President and CEO Brad Hughes. “In addition, we delivered unit volumes that were up nearly 8 percent in the fourth quarter, led by double-digit domestic growth in Asia and Latin America. We also continued to return cash to shareholders through our balanced capital allocation program, and remained good stewards of capital, as reflected in our 18.9 percent return on invested capital for 2016. I am proud of the work our teams around the globe did throughout 2016 to deliver these great results.
“Looking ahead, we expect raw material costs — which began to increase sharply toward the end of 2016 — to continue to rise in 2017. We are confident in the strength of the Cooper business model, which has led to positive mix transformation, improved speed to market with exciting new products, cost efficiencies, and other advances. These business model improvements will help Cooper succeed during this period of rapidly rising raw material costs. However, we do expect rising raw material costs to impact results in the short term, until pricing adjusts for such costs. With raw material cost increases that we believe will level off later this year, and pricing actions by Cooper and competitors beginning to take place, we anticipate that full year 2017 operating profit margins will be at the high end of our previously projected 8 to 10 percent range. This is based on operating profit margins around the low end of this range in the first half of the year, as pricing lags raw material cost increases, and operating profit margins above the high end of this range in the second half of the year, when we expect raw material costs to level off and pricing to begin to catch up. As a reminder, in the United States, we use the LIFO accounting method, charging the most recent costs against sales, which impacts profits more quickly than other inventory accounting methods.
“Cooper remains committed to delivering shareholder value as demonstrated by our announcement this morning to increase and extend our share repurchase program to $300 million in common stock through Dec. 31, 2019. This action reflects our confidence in Cooper’s financial strength and in the long-term success of our business,” Hughes concluded.
Fourth quarter net sales were $784 million, an increase of 1.1 percent compared to a year ago. Fourth quarter results included higher unit volume of $60 million, with increases in both the Americas and International segments. The unit volume increase was partially offset by unfavorable price and mix of $35 million, primarily due to net price reductions related to lower raw material costs early in the quarter, as well as $17 million of negative foreign currency impact.
Fourth quarter operating profit was $105 million compared with $103 million for the same period last year. Operating profit increased as a result of $6 million of higher unit volume, $6 million of favorable SG&A and $3 million of lower product liability cost. These benefits were partially offset by $8 million of unfavorable raw material costs, net of price and mix, $1 million of unfavorable manufacturing charges and $4 million of other costs. Raw material costs are inclusive of tariffs, including the preliminary duties on TBR tires.
Consolidated Full Year 2016 Highlights
Full year 2016 net sales were $2.92 billion. This represents a 1.6 percent decrease over the prior year. While net sales were positively impacted by higher unit volume of $78 million, the increase was offset by $77 million of unfavorable price and mix, primarily due to pricing and promotion actions related to lower raw material costs, and $49 million of negative currency impact.
Operating profit was $384 million compared with $354 million for the same period last year. Operating profit increased as a result of $48 million of favorable raw material costs, net of price and mix, $13 million of favorable product liability costs, $9 million of higher unit volume and $7 million of favorable SG&A. These benefits were partially offset by $21 million of higher manufacturing costs, $12 million in non-cash pension settlement charges, $9 million of negative currency and $5 million of other costs. Higher manufacturing costs were concentrated in the Americas segment and were primarily related to the greater complexity of manufacturing more higher value, higher margin tires.
In related news, Cooper Tire announced that its board of directors has increased and extended its share repurchase program by authorizing the repurchase of up to $300 million of the company’s outstanding common stock through Dec. 31, 2019.
“The consistent execution of our strategic plan and the structural improvement of our business model over the past several years have put Cooper in a very strong financial position, and we continue to deliver on opportunities to profitably grow our business,” said Hughes. “Our increased and extended share repurchase program demonstrates our confidence in the Cooper business model and our commitment to continuing to deliver value to shareholders. It also represents a key component of our balanced approach to capital allocation as we plan to continue to invest in our business, opportunistically pursue value-enhancing acquisitions and partnerships, and return capital to shareholders.”
The $300 million authorization replaces the $98 million remaining on the authorization from February 2016, as of Feb. 14, 2017. The increased authorization is approximately 15 percent of the current market capitalization.
Since the company began repurchasing shares in August 2014 through Feb. 14, 2017, Cooper has repurchased approximately 12.6 million shares at an average price of $34.15, which amounts to 20 percent of the outstanding shares as of August 2014. As of Feb. 14, 2017, Cooper had approximately 52.7 million outstanding common shares.