Cooper Tire & Rubber Company (NYSE: CTB) today reported
second quarter 2019 net income of $9 million, or diluted earnings
per share of $0.18, compared with $15 million, or $0.30 per share,
last year.
Second Quarter Highlights
- Net sales decreased 2.8 percent to $679 million.
- Unit volume decreased 4.9 percent compared to the second
quarter of 2018.
- Operating profit was $32 million, or 4.7 percent of net
sales.
- The company amended its bank credit facility to extend the
term, increase capacity, and provide for refinancing of its
upcoming bond maturity.
“Our second quarter operating profit margin improved
sequentially from the first quarter, and the Americas segment
delivered improved operating profit despite new and incremental
tariffs this year,” said Cooper President & Chief Executive
Officer Brad Hughes. “Our International segment was challenged by
the ongoing decline within the new vehicle market in China and a
weak replacement tire market in Europe. While we are not satisfied
with the lower unit volume in the second quarter, our strategic
initiatives are taking hold, and we are confident that they will
contribute more meaningfully to unit volume growth in 2020.”
Consolidated Results
Cooper Tire
Q2 2019
($M)
Q2 2018
($M)
Change
Net Sales
$
679
$
698
(2.8
%)
Operating Profit
$
32
$
33
(3.3
%)
Operating Margin
4.7
%
4.7
%
—
ppts.
Second quarter net sales were $679 million compared with $698
million in the second quarter of 2018, a decrease of 2.8 percent.
Net sales included $34 million of lower unit volume and $6 million
of unfavorable foreign currency impact, which were partially offset
by $21 million of favorable price and mix.
Operating profit was $32 million compared with $33 million in
the second quarter of 2018. Negatively affecting the quarter was
$13 million in costs related to new tariffs on products imported
into the United States from China compared to the same period a
year ago, as well as $2 million of restructuring costs related to
Cooper Tire Europe's decision to cease light vehicle tire
production at its Melksham, England facility. In addition, the
quarter included $17 million of favorable price and mix, and $15
million of favorable raw material costs (excluding the new
tariffs). The quarter also included unfavorable volume of $6
million, higher SG&A of $4 million, and increased product
liability costs of $1 million. Other costs increased $7 million,
primarily due to higher distribution costs, including the
non-recurrence of the Albany tornado insurance recovery in
2018.
Cooper's second quarter raw material index decreased 1.2 percent
compared to the second quarter of 2018. The raw material index
increased sequentially from 160.4 in the first quarter of 2019 to
161.8 in the second quarter of 2019.
The effective tax rate for the second quarter was 38.7 percent
compared with 12.6 percent for the same period the prior year. The
tax rate for the second quarter of 2019 includes $2 million of
discrete items related to the accrual of additional uncertain tax
positions pertaining to previous years. The second quarter of 2018
included $1 million of net discrete tax items that favorably
impacted the tax rate. The effective tax rate is based on
forecasted annual earnings and tax rates for the various
jurisdictions in which the company operates.
At the end of the second quarter, Cooper had $112 million in
unrestricted cash and cash equivalents compared with $180 million
at the end of the second quarter of 2018. Capital expenditures in
the second quarter were $45 million compared with $38 million in
the same period a year ago. Also, as of the end of the second
quarter, the company had invested $49 million in its new joint
venture with Sailun Vietnam.
On June 27, 2019, Cooper executed an amendment to its existing
bank credit facility which extended the maturity date to June 27,
2024, and increased the borrowing capacity to $700 million. The
amended agreement is comprised of a $500 million revolving credit
facility and a new $200 million delayed draw term loan. The
proceeds from the new term loan will be used primarily to retire
existing 8 percent senior notes that mature in December of this
year.
The company generated a return on invested capital, excluding
the impact of the goodwill impairment charge in the fourth quarter
of 2018, of 9.3 percent for the trailing four quarters.
Americas Tire Operations
Americas Tire Operations
Q2 2019
($M)
Q2 2018
($M)
Change
Net Sales
$
582
$
584
(0.4
%)
Operating Profit
$
47
$
40
15.6
%
Operating Margin
8.0
%
6.9
%
1.1
ppts.
Second quarter net sales in the Americas segment decreased 0.4
percent as a result of $22 million of lower unit volume, partially
offset by $20 million of favorable price and mix. For the quarter,
segment unit volume was down 3.8 percent compared to the same
period a year ago.
Cooper’s second quarter total light vehicle tire shipments in
the U.S. decreased 4.0 percent. The U.S. Tire Manufacturers
Association (USTMA) reported that its member shipments of light
vehicle tires in the U.S. were down 1.5 percent. Total industry
shipments (including an estimate for non-USTMA members) increased
0.7 percent for the period.
Second quarter operating profit was $47 million, or 8.0 percent
of net sales, compared with $40 million, or 6.9 percent of net
sales, for the same period in 2018. Negatively affecting the
quarter was $13 million in costs related to new tariffs on products
imported into the U.S. from China compared to the same period a
year ago. In addition, operating profit included $22 million of
favorable price and mix, and $12 million of favorable raw material
costs (excluding the new tariffs). The quarter also included $3
million of manufacturing improvements, $6 million of unfavorable
SG&A costs, $5 million of lower unit volume, $1 million of
higher product liability costs, and $5 million of higher other
costs compared to the same period a year ago. Other costs increased
primarily as a result of higher distribution costs, including the
non-recurrence of the Albany tornado insurance recovery in
2018.
International Tire Operations
International Tire Operations
Q2 2019
($M)
Q2 2018
($M)
Change
Net Sales
$
139
$
168
(17.5
%)
Operating (Loss)/Profit
$
(1
)
$
6
(122.9
%)
Operating Margin
(0.9
%)
3.4
%
(4.3
) ppts.
Second quarter net sales in the International segment decreased
17.5 percent as a result of $25 million of lower unit volume and $6
million of unfavorable foreign currency impact, which were
partially offset by $2 million of favorable price and mix. Segment
unit volume decreased 15.1 percent, with unit volume declines in
Asia and Europe driven in large part by a challenging new vehicle
market in China and weakness in the European replacement tire
business.
The segment's second quarter operating loss was $1 million
compared with operating profit of $6 million in the second quarter
of 2018. The decrease included charges of $2 million related to the
Melksham, England restructuring. Additionally, the segment
experienced $3 million of lower unit volume, $2 million of
unfavorable price and mix, $3 million of higher manufacturing
costs, and $1 million of higher other costs. These were partially
offset by $3 million of lower raw material costs, and $1 million of
lower SG&A costs.
Outlook
“Increased U.S. tariff costs and delayed timing of anticipated
commercial truck tire price increases, as well as weakness in the
China new vehicle and Europe replacement tire markets, are expected
to impact the remainder of the year,” said Hughes. “The Americas
segment, excluding TBR tariffs, is still generally in line with
previous expectations. On a consolidated basis, we anticipate
growth throughout the year in operating profit margin.”
Cooper is adjusting expectations for the full year as
follows:
- Given first half volume performance, and the lack of clarity
regarding the China new vehicle market, Cooper no longer expects
full year unit volume growth compared to 2018;
- Improving operating profit margin throughout the year, with
full year operating profit margin in line with 2018 reported margin
of 5.9 percent;
- Capital expenditures to range between $180 and $200 million.
This does not include capital contributions related to Cooper’s pro
rata share of its joint venture with Sailun Vietnam or other
potential manufacturing footprint investments;
- An effective tax rate, excluding significant discrete items, to
range between 23 and 26 percent; and
- Charges related to the Melksham, England restructuring to be in
a range of $8 to $11 million.
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.
Second Quarter 2019 Conference Call Today at 10 a.m.
Eastern
Management will discuss the financial and operating results for
the second quarter, as well as the company’s business outlook, on a
conference call for analysts and investors today at 10 a.m. EDT.
The call may be accessed on the investor relations page of the
company’s website at http://coopertire.com/Investors.aspx or at
https://services.choruscall.com/links/ctb190729.html. Following the
conference call, the webcast will be archived and available for 90
days at these websites.
A summary slide presentation of information related to the
quarter is posted on the company's website at
http://investors.coopertire.com/Quarterly-Results.
Forward-Looking Statements
This release contains what the company believes are
“forward-looking statements,” as that term is defined under the
Private Securities Litigation Reform Act of 1995, regarding
projections, expectations or matters the company anticipates may
happen with respect to the future performance of the industries in
which it operates, the economies of the U.S. and other countries,
or the performance of the company itself, which involve uncertainty
and risk. Such forward-looking statements are generally, though not
always, preceded by words such as “anticipates,” “expects,” “will,”
“should,” “believes,” “projects,” “intends,” “plans,” “estimates,”
and similar terms that connote a view to the future and are not
merely recitations of historical fact. Such statements are made
solely on the basis of the company’s current views and perceptions
of future events, and there can be no assurance that such
statements will prove to be true.
It is possible that actual results may differ materially from
projections or expectations due to a variety of factors, including,
but not limited to:
- volatility in raw material and energy prices, including those
of rubber, steel, petroleum-based products and natural gas or the
unavailability of such raw materials or energy sources;
- the failure of the company’s suppliers to timely deliver
products or services in accordance with contract
specifications;
- changes to tariffs or trade agreements, or the imposition of
new or increased tariffs or trade restrictions, imposed on tires,
materials or manufacturing equipment which the company uses,
including changes related to tariffs on tires, raw materials and
tire manufacturing equipment imported into the U.S. from China or
other countries;
- changes in economic and business conditions in the world,
including changes related to the United Kingdom’s decision to
withdraw from the European Union;
- the inability to obtain and maintain price increases to offset
higher production, tariffs or material costs;
- the impact of the recently enacted tax reform legislation;
- increased competitive activity including actions by larger
competitors or lower-cost producers;
- the failure to achieve expected sales levels;
- changes in the company’s customer or supplier relationships or
distribution channels, including the write-off of outstanding
accounts receivable or loss of particular business for competitive,
credit, liquidity, bankruptcy, restructuring or other reasons;
- the failure to develop technologies, processes or products
needed to support consumer demand or changes in consumer behavior,
including changes in sales channels;
- the costs and timing of restructuring actions and impairments
or other charges resulting from such actions, including the
possible outcome of the recently announced decision to cease light
vehicle tire production in the U.K., or from adverse industry,
market or other developments;
- consolidation or other cooperation by and among the company’s
competitors or customers;
- inaccurate assumptions used in developing the company’s
strategic plan or operating plans, or the inability or failure to
successfully implement such plans or to realize the anticipated
savings or benefits from strategic actions;
- risks relating to investments and acquisitions, including the
failure to successfully integrate them into operations or their
related financings may impact liquidity and capital resources;
- the ultimate outcome of litigation brought against the company,
including product liability claims, which could result in
commitment of significant resources and time to defend and possible
material damages against the company or other unfavorable
outcomes;
- a disruption in, or failure of, the company’s information
technology systems, including those related to cybersecurity, could
adversely affect the company’s business operations and financial
performance;
- government regulatory and legislative initiatives including
environmental, healthcare, privacy and tax matters;
- volatility in the capital and financial markets or changes to
the credit markets and/or access to those markets;
- changes in interest or foreign exchange rates or the benchmarks
used for establishing the rates;
- an adverse change in the company’s credit ratings, which could
increase borrowing costs and/or hamper access to the credit
markets;
- failure to implement information technologies or related
systems, including failure by the company to successfully implement
ERP systems;
- the risks associated with doing business outside of the
U.S.;
- technology advancements;
- the inability to recover the costs to refresh existing products
or develop and test new products or processes;
- the impact of labor problems, including labor disruptions at
the company, its joint ventures, or at one or more of its large
customers or suppliers;
- failure to attract or retain key personnel;
- changes in pension expense and/or funding resulting from the
company’s pension strategy, investment performance of the company’s
pension plan assets and changes in discount rate or expected return
on plan assets assumptions, or changes to related accounting
regulations;
- changes in the company’s relationship with its joint venture
partners or suppliers, including any changes with respect to its
former PCT joint venture’s production of TBR products;
- the ability to find and develop alternative sources for
products supplied by PCT;
- a variety of factors, including market conditions, may affect
the actual amount expended on stock repurchases; the company’s
ability to consummate stock repurchases; changes in the company’s
results of operations or financial conditions or strategic
priorities may lead to a modification, suspension or cancellation
of stock repurchases, which may occur at any time;
- the inability to adequately protect the company’s intellectual
property rights; and
- the inability to use deferred tax assets.
It is not possible to foresee or identify all such factors. Any
forward-looking statements in this release are based on certain
assumptions and analyses made by the company in light of its
experience and perception of historical trends, current conditions,
expected future developments and other factors it believes are
appropriate in the circumstances. Prospective investors are
cautioned that any such statements are not a guarantee of future
performance and actual results or developments may differ
materially from those projected.
The company makes no commitment to update any forward-looking
statement included herein or to disclose any facts, events or
circumstances that may affect the accuracy of any forward-looking
statement. Further information covering issues that could
materially affect financial performance is contained in the
company’s filings with the U.S. Securities and Exchange Commission
(“SEC”).
Non-GAAP Financial Measures
This press release includes non-GAAP financial measures as
defined under SEC rules. Non-GAAP financial measures should be
considered in addition to, not as a substitute for, operating
profit, net income, earnings per share or other financial measures
prepared in accordance with generally accepted accounting
principles (“GAAP”). The company’s methods of determining these
non-GAAP financial measures may differ from the methods used by
other companies for these or similar non-GAAP financial measures.
Accordingly, these non-GAAP financial measures may not be
comparable to measures used by other companies. As required by SEC
rules, detailed reconciliations between the company’s GAAP and
non-GAAP financial results are provided on the attached schedule.
The company believes return on invested capital (“ROIC”) provides
additional insight for analysts and investors in evaluating the
company’s financial and operating performance. The company defines
ROIC as the trailing four quarters’ after tax operating profit,
exclusive of certain items affecting comparability of results from
period to period and utilizing the company’s adjusted effective tax
rate, divided by the total invested capital, which is the average
of ending debt and equity for the last five quarters. The company
believes ROIC is a useful measure of how effectively the company
uses capital to generate profits.
About Cooper Tire & Rubber Company
Cooper Tire & Rubber Company (NYSE: CTB) is the parent
company of a global family of companies that specializes in the
design, manufacture, marketing and sale of passenger car, light
truck, medium truck, motorcycle and racing tires. Cooper's
headquarters is in Findlay, Ohio, with manufacturing, sales,
distribution, technical and design operations within its family of
companies located in more than one dozen countries around the
world. For more information on Cooper, visit www.coopertire.com,
www.facebook.com/coopertire or www.twitter.com/coopertire.
Cooper Tire & Rubber
Company
Consolidated Statements of
Operations
(Unaudited)
(Dollar amounts in thousands except per
share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Net sales
$
679,130
$
698,408
$
1,298,293
$
1,299,904
Cost of products sold
579,989
604,185
1,110,894
1,121,196
Gross profit
99,141
94,223
187,399
178,708
Selling, general and administrative
expense
65,811
61,460
122,665
119,490
Restructuring expense
1,659
—
6,632
—
Operating profit
31,671
32,763
58,102
59,218
Interest expense
(7,810
)
(8,417
)
(16,123
)
(16,108
)
Interest income
1,999
1,988
5,379
4,303
Other pension and postretirement benefit
expense
(9,288
)
(6,967
)
(18,650
)
(13,953
)
Other non-operating expense
(1,463
)
(1,391
)
(84
)
(3,050
)
Income before income taxes
15,109
17,976
28,624
30,410
Provision for income taxes
5,851
2,267
12,186
5,718
Net income
9,258
15,709
16,438
24,692
Net income attributable to noncontrolling
shareholders' interests
437
701
637
1,400
Net income attributable to Cooper Tire
& Rubber Company
$
8,821
$
15,008
$
15,801
$
23,292
Earnings per share:
Basic
$
0.18
$
0.30
$
0.32
$
0.46
Diluted
$
0.18
$
0.30
$
0.31
$
0.46
Weighted average shares outstanding
(000s):
Basic
50,165
50,436
50,133
50,636
Diluted
50,362
50,590
50,370
50,883
Segment information:
Net Sales
Americas Tire
$
582,307
$
584,412
$
1,097,243
$
1,069,804
International Tire
138,514
167,839
282,299
329,083
Eliminations
(41,691
)
(53,843
)
(81,249
)
(98,983
)
Operating profit (loss):
Americas Tire
$
46,814
$
40,480
$
85,603
$
71,715
International Tire
(1,296
)
5,652
(2,635
)
13,086
Unallocated corporate charges
(13,278
)
(13,705
)
(23,730
)
(25,670
)
Eliminations
(569
)
336
(1,136
)
87
Cooper Tire & Rubber
Company
Condensed Consolidated Balance
Sheets
(Unaudited)
(Dollar amounts in thousands)
June 30,
2019
2018
Assets
Current assets:
Cash and cash equivalents
$
111,681
$
180,493
Notes receivable
4,175
24,022
Accounts receivable
616,974
582,524
Inventories
589,410
580,095
Other current assets
48,863
59,600
Total current assets
1,371,103
1,426,734
Property, plant and equipment, net
1,017,356
964,158
Operating lease right-of-use assets,
net
93,183
—
Goodwill
18,851
53,960
Intangibles, net
115,937
125,979
Deferred income tax assets
27,246
54,006
Investment in joint venture
49,001
—
Other assets
11,396
7,942
Total assets
$
2,704,073
$
2,632,779
Liabilities and Equity
Current liabilities:
Notes payable
$
19,656
$
47,378
Accounts payable
267,851
240,506
Accrued liabilities
280,933
262,233
Income taxes payable
8,881
2,295
Current portion of long-term debt and
finance leases
173,766
1,398
Total current liabilities
751,087
553,810
Long-term debt and finance leases
120,624
295,017
Noncurrent operating leases
67,214
—
Postretirement benefits other than
pensions
234,782
255,527
Pension benefits
132,024
198,421
Other long-term liabilities
144,316
152,736
Total parent stockholders' equity
1,192,349
1,118,347
Noncontrolling shareholders' interests in
consolidated subsidiaries
61,677
58,921
Total liabilities and equity
$
2,704,073
$
2,632,779
Cooper Tire & Rubber
Company
Consolidated Statements of
Cash Flows
(Unaudited)
(Dollar amounts in thousands)
Six Months Ended June 30,
2019
2018
Operating activities:
Net income
$
16,438
$
24,692
Adjustments to reconcile net income to net
cash from operations:
Depreciation and amortization
74,347
73,587
Stock-based compensation
2,319
2,627
Change in LIFO inventory reserve
9,797
2,411
Amortization of unrecognized
postretirement benefits
18,240
18,396
Changes in operating assets and
liabilities:
Accounts and notes receivable
(68,786
)
(68,485
)
Inventories
(119,118
)
(74,104
)
Other current assets
(958
)
(12,572
)
Accounts payable
2,599
(12,622
)
Accrued liabilities
(30,482
)
(13,970
)
Other items
(3,560
)
(18,599
)
Net cash used in operating
activities
(99,164
)
(78,639
)
Investing activities:
Additions to property, plant and equipment
and capitalized software
(105,354
)
(97,759
)
Investment in joint venture
(49,001
)
—
Proceeds from the sale of assets
49
160
Net cash used in investing
activities
(154,306
)
(97,599
)
Financing activities:
Net payments on short-term debt
4,721
10,718
Repayments of long-term debt and finance
lease obligations
(989
)
(1,013
)
Payment of financing fees
(2,207
)
(1,230
)
Repurchase of common stock
—
(29,355
)
Payments of employee taxes withheld from
share-based awards
(1,158
)
(1,894
)
Payment of dividends to Cooper Tire &
Rubber Company stockholders
(10,529
)
(10,623
)
Issuance of common shares related to
stock-based compensation
177
—
Excess tax benefits on stock-based
compensation
—
270
Net cash used in financing
activities
(9,985
)
(33,127
)
Effects of exchange rate changes on
cash
601
1,344
Net change in cash, cash equivalents
and restricted cash
(262,854
)
(208,021
)
Cash, cash equivalents and restricted
cash at beginning of period
378,246
392,306
Cash, cash equivalents and restricted
cash at end of period
$
115,392
$
184,285
Unrestricted Cash and cash equivalents
$
111,681
$
180,493
Restricted cash included in Other current
assets
2,211
1,702
Restricted cash included in Other
assets
1,500
2,090
Total cash, cash equivalents and
restricted cash
$
115,392
$
184,285
Cooper Tire & Rubber
Company
Reconciliation of Non-GAAP
Financial Measures
(Unaudited)
(Dollar amounts in thousands)
RETURN ON INVESTED CAPITAL
(ROIC)
Trailing Four Quarters Ended
June 30, 2019
Calculation of
ROIC
Calculation of Net
Interest Tax Effect
Adjusted (Non-GAAP) operating profit
$
197,956
Provision for income taxes (c)
$
39,965
Adjusted (Non-GAAP) effective tax rate
27.4
%
Adjusted (Non-GAAP) income before income
taxes (d)
$
146,100
Income tax expense on operating profit
54,150
Adjusted (Non-GAAP) effective income tax
rate (c)/(d)
27.4
%
Adjusted operating profit after taxes
(a)
143,806
Total invested capital (b)
$
1,547,207
ROIC, including noncontrolling equity
(a)/(b)
9.3
%
Calculation of
Invested Capital (five quarter average)
Equity
Long-term
debt and
finance
leases
Current
portion of
long-term
debt and
finance
leases
Notes
payable
Total
invested
capital
June 30, 2019
$
1,254,026
$
120,624
$
173,766
$
19,656
$
1,568,072
March 31, 2019
1,248,218
121,305
173,974
20,074
1,563,571
December 31, 2018
1,232,443
121,284
174,760
15,288
1,543,775
September 30, 2018
1,228,509
294,841
1,376
14,831
1,539,557
June 30, 2018
1,177,268
295,017
1,398
47,378
1,521,061
Five quarter average
$
1,228,093
$
190,614
$
105,055
$
23,445
$
1,547,207
Calculation of
Trailing Four Quarter Income and Expense Inputs
Quarter-ended:
Operating
profit as
reported
Goodwill
impairment
charge*
Adjusted
operating
profit
Provision
for income
taxes as
reported
Income
before
income taxes
as reported
Goodwill
impairment
charge*
Adjusted
income
before
income
taxes
June 30, 2019
$
31,671
$
—
$
31,671
$
5,851
$
15,109
$
—
$
15,109
March 31, 2019
26,431
—
26,431
6,337
13,515
—
13,515
December 31, 2018
24,826
33,827
58,653
11,550
11,989
33,827
45,816
September 30, 2018
81,201
—
81,201
16,227
71,660
—
71,660
Trailing four quarters
$
164,129
$
33,827
$
197,956
$
39,965
$
112,273
$
33,827
$
146,100
*The Company recorded a non-cash goodwill
impairment charge of $33,827 in the fourth quarter of 2018 related
to the company's Chinese joint venture.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190729005103/en/
Investor Contact: Jerry Bialek 419.424.4165
investorrelations@coopertire.com
Media Contact: Anne Roman 419.429.7189
alroman@coopertire.com
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