Cooper Tire & Rubber Company released its second quarter financial results Monday, reporting a 46.9% decrease in net sales and 27.5% decrease in global unit volume compared to Q2 2019.
“As anticipated, the global pandemic significantly impacted our results in the second quarter. However, our performance materially exceeded our expectations, and I want to thank our employees around the globe for stepping up during this challenging and unprecedented time,” said Brad Hughes, Cooper Tire’s president and CEO. “As you know, Cooper came into this situation with a strong balance sheet and with momentum building from our strategic initiatives. We took early and decisive actions to help weather the coronavirus storm, and our teams seized opportunities to continue to build our business. As a result of their efforts, and the economic recovery that started to emerge later in the quarter, Cooper was able to generate significant free cash flow for the period and grow market share in the U.S. We believe this affirms the strength of the Cooper brand, and the value that our products deliver to consumers who are increasingly looking to buy high-quality, affordable tires. We are excited that our strategic initiatives are improving our business even in challenging circumstances, and we are optimistic about the future.”
The company reported a drop in net sales in the second quarter from $679 million in 2019 to $496 million in 2020. Cooper says its Q2 2020 net sales were negatively impacted by $187 million of lower unit volume and $7 million of unfavorable foreign currency impact, partially offset by $11 million of favorable price and mix. The company’s Q2 operating profit was $5 million compared with operating profit of $32 million in the second quarter of 2019.
At the end of the second quarter, Cooper had $541 million in unrestricted cash and cash equivalents compared with $112 million at the end of the second quarter of 2019, and $433 million at the end of the first quarter of this year, according to its earnings report. During the first quarter of 2020, the company also drew down $270 million on its revolving credit facilities, and no new net borrowing occurred in the second quarter.
The company’s cash improvement was driven by its actions to reduce working capital, capital expenditures and discretionary spending, Cooper says. Capital expenditures in the second quarter were $17 million, compared with $45 million, in the same period. In 2020, the period included a reduction in staff at its corporate headquarters in Findlay, Ohio, and certain manufacturing plants as “the company positioned its capabilities to best align with future needs,” Cooper says. The restructure resulted in a $1 million cost to the company in Q2 2020.
For its Americas segment, Cooper Tire reported that second quarter net sales decreased 26.9%, a result of $183 million of lower unit volume and $2 million of unfavorable foreign currency impact, which were partially offset by $29 million of favorable price and mix.
For the quarter, segment unit volume dropped 31.5% compared to the same period a year ago, Cooper says.
Cooper’s second quarter total light vehicle tire shipments in the U.S. decreased 24.1%, according to its earnings report. To compare, the U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. decreased 31% and total industry shipments (including an estimate for non-USTMA members) decreased 31.7% for the period.
Internationally, Cooper’s Q2 sales decreased 27% compared to last year and segment unit volume was down 16.4%, driven by lower unit volume in Europe, the company reported. In Asia, Cooper reported a 4.5% increase in third-party unit sales. For Cooper Tire Europe, Q2 included $2 million of restructuring costs related to Cooper Tire Europe’s decision to stop light vehicle tire production at its Melksham, England, facility, positively impacting the year-over-year comparison.
“While the coronavirus presents a level of risk going forward, we expect our business to improve in the second half of 2020,” Hughes said. “In addition, other than discretionary debt pay-down, we do not currently believe we will have a substantial cash usage in the third quarter. In fact, due to our improving financial position and outlook, as of July 31, we have paid down $200 million of the $270 million we borrowed on our revolving credit facilities. We now expect full-year 2020 capital expenditures to be at the high end of our previously stated range between $140 and $160 million, and an effective tax rate, excluding significant discrete items, of approximately 25 percent,” Hughes said.
“As we look further out, given our attractive value proposition, growing awareness of the Cooper brand and the momentum of our strategic initiatives, we are confident in our ability to return to our mid-term target range in the future.”