Cooper Tire & Rubber Co. Says 2nd Quarter 2018 Results In Line With Outlook; Revises 2nd Half Outlook

Cooper Tire & Rubber Co. reported second-quarter 2018 net income of $15 million or diluted earnings per share of 30 cents, compared with $45 million, or 85 cents per share, for the same period last year.

Second quarter highlights:

Consolidated unit volume decreased 2.1% compared to the prior year, with a decrease in the Americas segment, partially offset by an increase in the International segment
Net sales decreased 3.1 % to $698 million
Operating profit was $33 million, or 4.7% of net sales
Cooper repurchased $14 million of common stock at an average price of $26.66 per share
The company began shipping the new Discoverer AT3 all-terrain product line in mid-June

“Cooper delivered second-quarter results in line with our stated expectations, including operating profit margin of 4.7% of net sales, up slightly from the previous quarter,” said Brad Hughes, president and CEO. “While challenging industry conditions have continued longer than expected, we are confident in our strategic plan, as detailed at our recent investor event. We continue to make solid progress in our strategic initiatives, including expanding into new sales channels and driving sell-in with exciting new products, such as our new AT3 line. Cooper’s brand strength and attractive value proposition, combined with our strategic initiatives, provide a solid foundation for volume and profit growth.”

Second quarter net sales were $698 million, a decrease of 3.1 %, compared with $721 million in the second quarter of 2017. Second quarter net sales were negatively impacted by $16 million of lower unit volume, $13 million of unfavorable price and mix and $6 million of favorable foreign currency impact.

Second quarter 2018 operating profit was $33 million compared with $84 million for the same period last year. Operating profit for the second quarter of 2017 has been restated to reclassify $9 million of other pension and postretirement benefit costs out of operating profit.

Operating profit for the second quarter included $21 million of higher manufacturing costs and $20 million of unfavorable price and mix, net of raw material costs. Higher manufacturing costs reflect the alignment of production to demand in order to control inventory levels. In addition, operating profit decreased $4 million related to lower unit volume. SG&A increased $6 million in the quarter due to higher professional fees related to strategic initiatives and mark-to-market cost of stock-based liabilities.

The effective tax rate for the second quarter was 12.6%, compared to 32.7 % in the prior year. The second quarter 2018 tax rate includes the benefit of a lower blended U.S. statutory tax rate as a result of U.S. income tax reform and approximately $1 million of net discrete items recorded in the quarter. The rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.

At quarter end, Cooper had $180 million in cash and cash equivalents compared with $302 million at the end of the same period last year. Capital expenditures in the second quarter were $38 million compared with $45 million in the same period of last year.

Cooper generated a return on invested capital, excluding the impact of discrete tax items in the fourth quarter of 2017, of 10.3% for the trailing four quarters.

During the second quarter, 517,354 shares were repurchased for $14 million at an average price of $26.66 per share. Since share repurchases began in August 2014, the company has repurchased a total of 15.7 million shares at an average price of $34.12 per share.

Outlook

“Due to continuing industry challenges and, in particular, rising raw material costs, we are revising our expectations for the balance of the year. Cooper now anticipates unit volume to be flat in 2018 compared to 2017, with a modest sequential improvement in operating profit margin in the second half of this year,” said Hughes. “We continue to believe that we have the right strategic plan in place and remain confident in our five-year financial targets, which include operating profit of 10 to 14 %, as well as annual unit volume growth in the low- to mid-single digits and return on invested capital of 14 to 16%.”

Additional management expectations for 2018 include an effective tax rate in a range between 23 and 26% and capital expenditures in a range between $200 million and $220 million.