Cooper Tire & Rubber Co. has reported third quarter 2018 net income of $54 million, or diluted earnings per share of $1.07, compared with $62 million, or $1.18 per share, for the same period last year.
“Unit volume in the U.S. improved in the third quarter and outpaced the USTMA. We ended the quarter on an encouraging note, with U.S. unit volume that outperformed both the USTMA and total industry in the month of September,” said Brad Hughes, president and CEO. “Cooper also achieved year-over-year operating profit improvement in our International segment, as well as unit volume growth in our truck and bus radial (TBR) tire business. Our core business delivered strong sequential operating profit margin improvement, even when you exclude the benefit from lower product liability costs.”
Third quarter net sales were $738 million, an increase of 0.5 percent compared with $734 million in the third quarter of 2017. Third quarter net sales were favorably impacted by $5 million of positive price and mix, partially offset by $1 million of unfavorable foreign currency impact.
Third quarter 2018 operating profit was $81 million compared with $111 million for the same period last year. Operating profit for the third quarter of 2017 has been restated to reclassify $9 million of other pension and postretirement benefit costs out of operating profit.
The effective tax rate for the third quarter was 22.6 percent compared to 33.8 percent in the prior year. The third 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 expense items recorded in the quarter. These discrete items include the benefit of approximately $4 million related to a $25 million discretionary pension contribution in the third quarter of 2018, which applied to the 2017 tax year. This was more than offset by approximately $5 million of tax expense related to the true-up of the 2017 Transition Tax. The company’s effective tax rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates.
At quarter end, Cooper had $209 million in cash and cash equivalents compared with $258 million at the end of the same period last year. Capital expenditures in the third quarter were $46 million compared with $53 million in the same period last year.
Cooper generated a return on invested capital, excluding the impact of discrete tax items in the fourth quarter of 2017, of 9.7 percent for the trailing four quarters.
During the third quarter, 31,154 shares of the company’s common stock were repurchased for approximately $1 million at an average price of $26.59 per share. Since share repurchases began in August 2014, the company has repurchased a total of 15.8 million shares at an average price of $34.11 per share. As of Sept. 30, $193 million remains on the previously announced $300 million authorization.
“We continue to make good progress on our strategic priorities and are seeing some benefits as our initiatives begin to take hold. We expect unit volume growth in the U.S. in the fourth quarter, which is expected to be offset by continued volume declines in our other regions, driven by economic and political challenges,” said Hughes. “We continue to expect an impact from higher raw material costs. In the fourth quarter, our raw material index is projected to be flat sequentially, but up more than 10 percent on a year-over-year basis. Tariffs have been enacted on certain materials and tire imports from China, and there are proposed tariffs that represent further potential risk. We have implemented price increases to partially offset some of these higher costs. As a result, we would expect fourth quarter operating margin to be close to what we achieved in the third quarter, excluding the benefit from lower product liability costs.”
Additional management expectations for 2018 include:
- Effective tax rate in a range between 23 and 26 percent, and
- Capital expenditures in a range between $200 and $220 million.
Cooper Tire Europe recently announced its decision to enter an employee consultation period to explore ceasing light vehicle tire production at its Melksham, England, facility and obtaining such tires from other locations in the broader, global Cooper production network. The fourth quarter outlook does not include any one-time charges related to actions resulting from potential outcomes of this process.