Cooper Tire & Rubber Co. reported full-year 2018 net income of $77 million, or diluted earnings per share of $1.51, compared with $95 million, or $1.81 per share, last year, according to its year-end results.

In its report, Cooper also said its 2018 results included a $34 million goodwill impairment charge, which came as a result of the company’s joint venture with Sailun Vietnam to build a new TBR tire plant in the country. The capacity created by this planned facility will decrease expected production requirements for Cooper’s Qingdao Ge Rui Da Rubber Co., Ltd. (GRT) joint venture in China, resulting in the goodwill impairment charge, Cooper said. Excluding the charge, diluted earnings per share would have been $2.18.

Other highlights for Cooper in 2018 included

• Consolidated unit volume decreased by 2.4% compared to the prior year.
• Net sales were $2.81 billion compared to $2.85 billion the prior year.
• Operating profit was $165 million, or 5.9%of net sales. Excluding the goodwill impairment charge, operating profit would have been $199 million, or 7.1% of net sales.

In the fourth quarter, Cooper also experienced a decrease in consolidated unit volume by 1.8% compared to the fourth quarter of 2017. Net sales also increased by 1.8% to $770 million, and fourth quarter operating profit was $25 million, or 3.2% of net sales. Excluding the goodwill impairment charge, operating profit would have been $59 million, or 7.6% of net sales.

“Our fourth quarter operating margin, excluding the goodwill impairment charge, exceeded what we achieved in the third quarter, excluding the benefit from an adjustment of our product liability reserve model in that quarter. As stated at the beginning of 2018, we expected operating margin improvement throughout the year, and we delivered on this expectation as our strategic initiatives took hold,” said Brad Hughes, Cooper’s president and CEO. “As projected, in the fourth quarter we drove unit volume growth in the U.S., which was offset by volume declines in our other regions, reflecting economic and political factors. Raw material costs improved sequentially but was up on a year-over-year basis by nearly 8%.

“Additionally, we successfully implemented our plan to right-size inventory levels, reducing the number of inventory units in the Americas by over 10% in 2018. While this plan impacted our 2018 results through higher manufacturing costs, we believe this positions Cooper with the right level of inventory as we enter 2019.

“Moving forward, we expect to make continued progress on our strategic priorities in 2019, and believe underlying macro-conditions will support growth in tire demand, particularly in the U.S. As a result, we expect modest global unit volume growth for Cooper in 2019 and full-year operating profit margin to improve compared with 2018. We are confident that our strategic plan remains the right path to achieve our goals and help drive shareholder value.”

Throughout 2018, the company focused on cash flow improvement by aligning production to demand, managing inventory levels, and taking other working capital actions. These actions resulted in improved cash flows, which enabled Cooper to improve the funding status of its U.S. pension plans.

At year end, Cooper had $356 million in cash and cash equivalents, compared with $372 million at the end of 2017. Capital expenditures in the fourth quarter were $49 million compared with $54 million in the same period the prior year. The company generated a return on invested capital, excluding the impact of the goodwill impairment charge in the fourth quarter, of 10% for the trailing four quarters.

In 2019, Cooper said it is expecting modest unit volume growth compared to 2018, an improved operating profit margin throughout the year, with the full year exceeding 2018 and an effective tax rate in a range between 22-25%. It also expects capital expenditures to range between $190 and $210 million, according to its 2018 year-end financial report. This does not include capital contributions related to Cooper’s pro rata share of the previously announced joint venture with Sailun Vietnam or other potential manufacturing footprint investments.

Cooper Tire management expects first quarter 2019 operating profit margin to be lower than the first quarter of 2018 as a result of typical seasonality and some unique items which will impact the first part of the year, the report said. Those items include: $10 to $15 million in restructuring charges related to ceasing light vehicle tire production in England; recently enacted tariffs on tires and raw materials imported into the U.S. from China; and economic conditions in China that continue to be challenging.

The 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.

“We are optimistic about 2019 as our business model is strong and our strategic initiatives continue to gain momentum,” said Hughes. “We anticipate operating profit margin to improve throughout the year, with the full year expected to be better than 2018.”