In its third-quarter earnings report, Cooper Tire & Rubber Co. reported decreases sales, unit volume and net income compared to last year’s quarterly report. However, the company delivered “sequential operating profit margin improvement in the third quarter,” according to President and CEO Brad Hughes.
Cooper reported a 2019 net income of $29 million, or diluted earnings per share of $0.58, compared with $54 million, or $1.07 per share, last year.
Third-quarter highlights included:
- Net sales decreased by 4.5% to $704 million;
- Unit volume decreased 7% compared to the third quarter of 2018;
- Operating profit was $53 million, or 7.5% of net sales;
“Despite the continued impact of tariffs, we were pleased to deliver sequential operating profit margin improvement in the third quarter driven by positive trends in pricing, mix and raw materials,” said Hughes. “As expected, our volume was impacted by customer inventory actions in the U.S., as well as challenging market conditions in our other regions. Cooper continues to make progress on the strategic initiatives outlined at our Investor Day in 2018, including expansion into new channels and efforts to optimize our global manufacturing footprint, including our actions in the U.K. and new joint venture in Vietnam. We expect that the impact from our strategic initiatives will begin to make a more visible contribution to our results in 2020.”
Operating profit was $53 million in the third quarter compared with $81 million in the third quarter of 2018. Key drivers included:
- $4 million benefit from lower product liability costs related to an adjustment of the company’s product liability reserve model in the third quarter of 2019, compared to a $31 million benefit in 2018 resulting from a similar adjustment. The impact of the variance in the model adjustment, partially offset by normal activity, including settlements and changes in the amounts of reserves, resulted in $23 million of higher net product liability expense for the third quarter of 2019;
- $15 million of higher costs related to new tariffs on products imported into the United States from China compared to the same period a year ago;
- $20 million of favorable price and mix and $24 million of favorable raw material costs (excluding the new tariffs);
- $16 million impact of lower volume, $12 million of higher manufacturing costs and $6 million of higher all other costs.
Cooper’s third-quarter raw material index decreased by 6.9% compared to the third quarter of 2018. The raw material index decreased 2.9% sequentially from 161.8 in the second quarter of 2019 to 157.1 in the third quarter of 2019.
At the end of the third quarter, Cooper had $137 million in unrestricted cash and cash equivalents compared with $209 million at the end of the third quarter of 2018. Capital expenditures in the third quarter were $50 million compared with $46 million in the same period a year ago. In addition, as of the end of the third quarter, the company had invested $49 million in its new joint venture with Sailun Vietnam, named ACTR Company Limited.
The company generated a return on invested capital, excluding the impact of the goodwill impairment charge in the fourth quarter of 2018, of 7.8% for the trailing four quarters.