“Cooper closed the first half of 2016 with another outstanding quarter,” said Chairman, CEO and President Roy Armes. “We achieved record-setting second quarter operating margin, building upon the strong results we delivered in the first quarter. The Americas segment posted another terrific quarter, generating operating margin of more than 17 percent. Our International segment performed better than expected, moving from a loss to delivering an operating profit for the period. Cooper continues to execute on our strategy to deliver shareholder value, including returning cash to shareholders through our quarterly dividend and share repurchases, which totaled more than $29 million during the second quarter.”
Armes added, “As my retirement will be effective Aug. 31, this is the final quarter I will report on behalf of Cooper. It has been my honor to lead such a talented and committed team in transforming the Cooper business model to deliver outstanding results quarter after quarter, positioning the company for long-term success.”
Second quarter net sales were $740 million, a decrease of 1.5 percent compared with $752 million in the second quarter of 2015. Second quarter results include $7 million of higher unit volume, with increases in the International segment partially offset by decreases in the Americas segment. The unit volume increase was more than offset by $11 million of negative currency impact and $8 million of unfavorable price and mix, primarily due to net price reductions related to lower raw material costs.
Second quarter 2016 operating profit was $110 million compared with $99 million for the same period last year. Operating profit increased as a result of $23 million of favorable raw material costs, net of price and mix, $2 million of higher unit volume, and $1 million of lower other costs. These benefits were partially offset by $10 million of unfavorable SG&A expense and $5 million of higher manufacturing costs.
At quarter end, Cooper had $412 million in cash and cash equivalents, compared with $408 million at June 30, 2015. Capital expenditures in the second quarter were $49 million compared with $41 million in the same period last year.
In February, the company announced an extended and increased $200 million share repurchase program. During the second quarter, 894,265 shares were repurchased for $29.3 million at an average price of $32.77 per share. Purchases have continued in the third quarter under this authorization with an additional 373,188 shares purchased at an average cost of $30.61 per share for $11.4 million through Aug. 3. The remaining repurchase authorization is $152 million and expires on Dec. 31, 2017. Since share repurchases began in August 2014, the company has repurchased a total of 11 million shares at an average price of $33.85 per share.
Second quarter raw material costs increased 3 percent from the first quarter of 2016, in line with the company’s expectations. The company’s internal raw material index increased from 131.5 in the first quarter to 135.5 in the second quarter. Cooper anticipates third quarter raw material costs will be up modestly from the second quarter.
Management expectations for the full year 2016 are as follows:
- Unit volume growth is expected in each of the company’s segments in the second half.
- Total company operating margin, excluding the impact of acquisitions and non-cash pension settlement charges, is expected to be modestly above 2015 levels. This projection includes an estimate for the impact of the pending truck and bus radial tire tariffs, which was not included in Cooper’s previous margin outlook.
- The International segment, excluding the impact of acquisitions, is expected to perform better than originally anticipated for the full year 2016. Management now expects the segment to deliver a small profit for the full year 2016.
- The company expects a non-cash pension settlement charge of $14 million to $18 million in the third quarter of 2016 related to optional lump-sum payments of benefits offered to certain former employees. This option was offered to reduce the size and potential future volatility of Cooper’s domestic defined benefit pension plan obligations.
- Effective tax rate for full year 2016 is expected to be in a range of 33 percent to 35 percent.
- Capital expenditures, excluding the impact of acquisitions, are expected to range from $210 million to $240 million for the year.
“The Cooper business model continues to provide a solid foundation for growth,” said Armes. “Looking ahead, while we expect that the benefit of lower raw material costs will moderate, and global markets will become more competitive in the back half of this year, we look forward to a strong second half and full year 2016. We are encouraged by the performance of our International segment, which continues to deliver volume growth and is expected to be profitable for the full year 2016. Overall, our strong first half performance makes us even more optimistic that our full year 2016 margins will be higher than where we ended 2015. I leave Cooper highly optimistic about the future with a great strategic plan in place that Brad Hughes, who takes the helm as president and CEO on Sept. 1, was instrumental in developing. I have no doubt that Brad will lead with great energy, expertise and a commitment to the long-term success of all Cooper stakeholders.”