Cooper Tire & Rubber Company (CTB) delivered a net income of 27 cents per share from continuing operations in the third quarter of 2011, down significantly from 71 cents in the year-ago quarter. Reported income per share was also substantially lower than the Zacks Consensus Estimate of 33 cents.
The poor performance of the company was largely due to higher raw material costs and lower profit from the North American Tire Operations.
Total sales in the quarter grew 19.4% year over year to $1.05 billion, beating the Zacks Consensus Estimate of $1.01 billion. However, gross profit decreased 27.5% to $93.0 million due to a 27.3% increase in cost of production to $960.5 million. Operating profit also declined 29.9% to $47 million, despite increased efficiencies and a decrease in selling, general and administrative (SG&A) expenses (down 18.8% to $45.8 million).
Segment Performance
The North American Tire Operations generated sales of $765 million, up 18.1% year over year due to favorable pricing and product mix and increased shipments. Unit sales for the North American segment grew 1.3% year over year.
The light vehicle tire shipments for the segment improved 1.1% in the U.S., compared to a 2.1% decrease in total industry shipment. Light truck tire shipments increased 11.9% in the U.S. while shipment of passenger tires dipped 1.0%.
Weak industry conditions coupled with higher raw material costs and reduced tire purchases by consumers negatively impacted the segment. Operating profit dropped to $17 million from $55 million in the comparable quarter of 2010.
International Tire Operations reported sales of $422 million in the quarter, up 29.8% year over year due to a better price-product mix and higher volumes. Sales volumes in Asia went up 2.2% (including inter-company shipments), while the same in the European operations climbed 12.4% from the year-ago level.
The segment was affected by weak demand in the domestic Chinese truck and bus tire market and the company’s strategy to focus more on profit rather than volume in certain export markets. Operating profit climbed to $30 million from $21 million in the prior-year quarter.
Financial Position
Cooper Tire’s cash and cash equivalents plunged to $90.6 million as of September 30, 2011 from $347.4 million as of September 30, 2010. Long-term debt rose to $329.6 million at the end of the third quarter of 2011 from $325.7 million at the end of the year-ago quarter.
In the first nine months of the year, the company had cash outflows of $72.7 million from operating activities compared with inflows of $67.3 million in the year-ago period, primarily due to lower earnings and more inventory additions. Meanwhile, capital expenditures increased to $121.3 million in the first three quarters from $75.0 million in the year-ago period.
Outlook
Cooper Tire believes that industry demand for tires will remain variable in the near term. However, the company expects sufficient improvements in the developing markets, but remains apprehensive about the mature markets including the U.S. The company also anticipates volatility in raw material prices.
Capital investments are expected to be between $140 million and $160 million, whereas, the effective tax rate is projected in the 20% to 30% range for 2011. The company also expects to release a majority of the valuation allowance in the fourth quarter of 2011.
Overview
Headquartered in Findlay, Ohio, Cooper Tire, a Zacks #3 Rank (Hold rating) stock, manufactures and markets tires and related products. The company has more than 60 manufacturing, sales, distribution, technical and design facilities across the world. The company has 8 manufacturing facilities: five in North America (including one in Mexico), two in China and one in Europe. Cooper is the ninth largest tire company in the world.
