Cooper Tire & Rubber Co. has reported second quarter 2019 net income of $9 million, or diluted earnings per share of 18 cents, compared with $15 million, or 30 cents per share, last year.
Second quarter net sales were $679 million compared with $698 million in the second quarter of 2018, a decrease of 2.8 percent. Net sales included $34 million of lower unit volume and $6 million of unfavorable foreign currency impact, which were partially offset by $21 million of favorable price and mix.
Operating profit was $32 million compared with $33 million in the second quarter of 2018. Negatively affecting the quarter was $13 million in costs related to new tariffs on products imported into the United States from China compared to the same period a year ago, as well as $2 million of restructuring costs related to Cooper Tire Europe’s decision to cease light vehicle tire production at its Melksham, England, facility. In addition, the quarter included $17 million of favorable price and mix, and $15 million of favorable raw material costs (excluding the new tariffs). The quarter also included unfavorable volume of $6 million, higher SG&A of $4 million and increased product liability costs of $1 million. Other costs increased $7 million, primarily due to higher distribution costs, including the non-recurrence of the Albany tornado insurance recovery in 2018.
“Our second quarter operating profit margin improved sequentially from the first quarter, and the Americas segment delivered improved operating profit despite new and incremental tariffs this year,” said Cooper President and CEO Brad Hughes. “Our International segment was challenged by the ongoing decline within the new vehicle market in China and a weak replacement tire market in Europe. While we are not satisfied with the lower unit volume in the second quarter, our strategic initiatives are taking hold, and we are confident that they will contribute more meaningfully to unit volume growth in 2020.”
Second quarter net sales in the Americas segment decreased 0.4 percent as a result of $22 million of lower unit volume, partially offset by $20 million of favorable price and mix. For the quarter, segment unit volume was down 3.8 percent compared to the same period a year ago.
Second quarter operating profit was $47 million, or 8 percent of net sales, compared with $40 million, or 6.9 percent of net sales, for the same period in 2018. Negatively affecting the quarter was $13 million in costs related to new tariffs on products imported into the U.S. from China compared to the same period a year ago. In addition, operating profit included $22 million of favorable price and mix, and $12 million of favorable raw material costs (excluding the new tariffs). The quarter also included $3 million of manufacturing improvements, $6 million of unfavorable SG&A costs, $5 million of lower unit volume, $1 million of higher product liability costs, and $5 million of higher other costs compared to the same period a year ago. Other costs increased primarily as a result of higher distribution costs, including the non-recurrence of the Albany tornado insurance recovery in 2018.
Second quarter net sales in the International segment decreased 17.5 percent as a result of $25 million of lower unit volume and $6 million of unfavorable foreign currency impact, which were partially offset by $2 million of favorable price and mix. Segment unit volume decreased 15.1 percent, with unit volume declines in Asia and Europe driven in large part by a challenging new vehicle market in China and weakness in the European replacement tire business.
The segment’s second quarter operating loss was $1 million compared with operating profit of $6 million in the second quarter of 2018. The decrease included charges of $2 million related to the Melksham, England restructuring. Additionally, the segment experienced $3 million of lower unit volume, $2 million of unfavorable price and mix, $3 million of higher manufacturing costs and $1 million of higher other costs. These were partially offset by $3 million of lower raw material costs, and $1 million of lower SG&A costs.
Outlook
“Increased U.S. tariff costs and delayed timing of anticipated commercial truck tire price increases, as well as weakness in the China new vehicle and Europe replacement tire markets, are expected to impact the remainder of the year,” said Hughes. “The Americas segment, excluding TBR tariffs, is still generally in line with previous expectations. On a consolidated basis, we anticipate growth throughout the year in operating profit margin.”
Cooper is adjusting expectations for the full year as follows:
• Given first-half volume performance, and the lack of clarity regarding the China new vehicle market, Cooper no longer expects full-year unit volume growth compared to 2018;
• Improving operating profit margin throughout the year, with full-year operating profit margin in line with 2018 reported margin of 5.9 percent;
• Capital expenditures to range between $180 million and $200 million. This does not include capital contributions related to Cooper’s pro rata share of its joint venture with Sailun Vietnam or other potential manufacturing footprint investments;
• An effective tax rate, excluding significant discrete items, to range between 23 and 26 percent; and
• Charges related to the Melksham, England restructuring to be in a range of $8 million to $11 million.
• 2019 expectations include tariffs already in place, but do not include rate changes or additional tariffs that continue to be considered, but have not yet been imposed.
