CTB Cooper Tire and Rubber Co

Cooper Tire & Rubber Company (NYSE: CTB) today reported first quarter 2021 net income of $22 million, or diluted earnings per share of $0.43, compared with a net loss of $12 million, or diluted loss per share of $0.23, for the same period last year.

First Quarter Highlights

• Global unit volume increased 16.6 percent compared to the first quarter of 2020.
• Net sales increased 23.3 percent from the first quarter of 2020 to $656 million.
• Operating profit was $38 million, or 5.8 percent of net sales, compared to an operating loss of $6 million, or 1.2 percent of net sales, in 2020.
• The quarter included $11 million of costs related to the proposed merger with Goodyear.
• Net income was $22 million, or $0.43 diluted earnings per share.

“We are pleased to have delivered strong first quarter operating results. Our teams continued to do a great job executing our strategy, which resulted in first quarter 2021 volume that exceeded not only the coronavirus-impacted 2020 level, but also 2019 in both segments,” said President & Chief Executive Officer Brad Hughes. “Within the Americas segment, our U.S. volume significantly outperformed the USTMA and the total industry. Our International segment volume increased nearly 50 percent compared to the first quarter of 2020.

“Demand remained strong for the industry and Cooper in the first quarter. Our unit volume performance in the quarter, while strong, continued to be constrained by supply that fell short of demand, caused in part by severe weather in the southern U.S. that impacted our ability to produce and move products. The Cooper value proposition of providing high quality tires at an affordable price remains compelling for consumers. We will continue to leverage our global production footprint and capabilities to meet this continued strong demand.

“As previously announced, Cooper stockholders overwhelmingly voted in favor of the proposed Goodyear-Cooper business combination. We expect to complete the merger in the second half of 2021, however the transaction could close earlier, following and subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals. Cooper looks forward to being part of a stronger combined organization that represents the best of what both our companies have to offer to customers, consumers, and shareholders.”

Consolidated Results

Cooper Tire

Q1 2021 ($M)

 

Q1 2020 ($M)

 

Change

Net Sales

$

656

 

$

532

 

23.3

%

Operating Profit/(Loss)

$

38

 

$

(6

)

706.6

%

Operating Margin

5.8

%

 

(1.2

)%

7.0

ppts.

First quarter net sales were $656 million compared with $532 million in the first quarter of 2020, an increase of 23.3 percent. First quarter net sales were positively impacted by $88 million of higher unit volume, $30 million of favorable price and mix, and $6 million of favorable foreign currency impact. Operating profit was $38 million compared with an operating loss of $6 million in the first quarter of 2020. The quarter included $29 million of higher unit volume and $13 million of favorable price and mix. In addition, the first quarter included $7 million of lower raw material costs, which is more than explained by lower tariff costs resulting from the company's sourcing strategy. The quarter also included $3 million of decreased manufacturing costs and $2 million of lower product liability expense compared to the first quarter of 2020. These were partially offset by $20 million of higher selling, general and administrative expenses and $1 million of higher other costs. The first quarter of 2020 included $11 million of restructuring charges related to the transition at the company's now wholly owned Mexico manufacturing facility.

The increase in selling, general and administrative expenses in the first quarter of 2021 included $11 million of costs associated with the proposed merger. This included $5 million of advisory, legal and other professional fees, as well as an increase of $6 million in mark to market costs of stock-based liabilities subsequent to the merger announcement. The mark to market cost represents the impact of the movement in the company's closing stock price from the last trading day prior to the merger agreement announcement compared to the closing price of the company's stock on the day of the announcement. The first quarter of 2021 also included an increase in mark to market costs of stock-based liabilities aside from the announcement, and an increase in incentive compensation costs. Incentive compensation costs were reduced in the first quarter of 2020 when the company revised its full-year 2020 outlook as a result of the forecasted impact of the global pandemic.

Cooper's first quarter raw material index increased 1.9 percent compared to the first quarter of 2020. The raw material index increased 6.1 percent sequentially from 144.8 in the fourth quarter of 2020 to 153.6 in the first quarter of 2021.

The effective tax rate for the first quarter was 27.9 percent. The first quarter 2021 effective tax rate was impacted by $5 million of merger-related costs, which are not tax deductible. 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 first quarter, Cooper had $460 million in unrestricted cash and cash equivalents. This compares with $433 million at the end of the first quarter of 2020, which included a $270 million draw on the company's revolving credit facility.

Capital expenditures in the first quarter were $57 million, compared with $55 million in the same period a year ago.

Return on invested capital was 11.8 percent for the trailing four quarters.

Americas Tire Operations

Americas Tire Operations

Q1 2021 ($M)

 

Q1 2020 ($M)

 

Change

Net Sales

$

562

 

$

457

 

23.0

%

Operating Profit

$

60

 

$

10

 

473.8

%

Operating Margin

10.7

%

2.3

%

8.4

ppts.

First quarter net sales in the Americas segment increased 23.0 percent as a result of $62 million of higher unit volume and $43 million of favorable price and mix. For the quarter, segment unit volume was up 13.6 percent compared to the same period a year ago.

Cooper’s first quarter total light vehicle tire shipments in the U.S. increased 18.4 percent. The U.S. Tire Manufacturers Association (USTMA) reported that its member shipments of light vehicle tires in the U.S. increased 13.7 percent. Total industry shipments (including an estimate for non-USTMA members) increased 10.9 percent for the period.

First quarter operating profit was $60 million, or 10.7 percent of net sales, compared with $10 million, or 2.3 percent of net sales, for the same period in 2020. Operating profit included $22 million of higher unit volume, $15 million of favorable price and mix, $4 million of lower raw material costs, $2 million of lower product liability expense and $1 million of decreased manufacturing costs compared to the first quarter of 2020. These were partially offset by $3 million of higher selling, general and administrative expenses and $2 million of higher other costs compared to the first quarter of 2020. Operating profit in the first quarter of 2020 also included $11 million of restructuring charges related to the transition at the company's now wholly owned Mexico manufacturing facility.

International Tire Operations

International Tire Operations

Q1 2021 ($M)

 

Q1 2020 ($M)

 

Change

Net Sales

$

139

 

$

102

 

36.1

%

Operating Profit/(Loss)

$

3

 

$

(10

)

N.M.

 

Operating Margin

2.3

%

(10.0

)%

12.3

ppts.

First quarter net sales in the International segment increased 36.1 percent as a result of $48 million of higher unit volume and $6 million of favorable foreign currency impact, which were partially offset by $17 million of unfavorable price and mix. For the quarter, segment unit volume was up 47.2 percent compared to the same period a year ago.

The segment's first quarter operating profit was $3 million compared with an operating loss of $10 million in the first quarter of 2020. The quarter included $7 million of higher unit volume, $3 million of lower raw material costs, as the segment utilizes the FIFO method of inventory valuation, $2 million of decreased manufacturing costs and $2 million of favorable price and mix. These were partially offset by $1 million of higher selling, general and administrative costs in the first quarter of 2021 compared to the first quarter of 2020.

First Quarter 2021 Conference Call

Due to the proposed acquisition of Cooper by Goodyear, Cooper will not host a conference call to discuss its first quarter 2021 results. For additional materials related to Cooper’s results, please visit https://investors.coopertire.com/Quarterly-Results.

Forward-Looking Statements

This release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “anticipate,” “believe,” “could,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “may,” “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “should,” “strategy,” “target,” “will,” “would” or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:

• the ability to complete the proposed merger of the company and Goodyear on anticipated terms and timetable;
• the effect of restructuring or reorganization of business components;
• uncertainty and weaknesses in global economic conditions, including the impact of the ongoing coronavirus (COVID-19) pandemic, or similar public health crises, on the company’s and Goodyear’s financial condition, operations, distribution channels, customers and suppliers, as well as potentially exacerbating other factors discussed herein;
• continued 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, which may impact the price-adjustment calculations under sales contracts;
• delays or disruptions in the supply chain resulting in increased costs or disruptions in operations;
• the ability to cost-effectively achieve planned production rates or levels;
• the ability to successfully identify and consummate any strategic investments or development projects;
• the outcome of any contractual disputes with customers, joint venture partners or any other litigation or arbitration;
• impacts of existing and increasing governmental regulation and related costs and liabilities, including failure to receive or maintain required operating and environmental permits, approvals, modifications or other authorization of, or from, any governmental or regulatory entity and costs related to implementing improvements to ensure compliance with regulatory changes;
• the ability to maintain adequate liquidity, level of indebtedness and the availability of capital could limit cash flow available to fund working capital, planned capital expenditures, acquisitions and other general corporate purposes or ongoing needs of the business;
• the ability to continue to pay cash dividends, and the amount and timing of any cash dividends;
• availability of capital and ability to maintain adequate liquidity;
• 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;
• the ability of our customers, joint venture partners and third party service providers to meet their obligations on a timely basis or at all;
• adverse changes in interest rates and tax laws; and
• the potential existence of significant deficiencies or material weakness in our internal control over financial reporting.

We have based our forward-looking statements on our current expectations, estimates and projections about our industry and our partnership. We caution that these statements are not guarantees of future performance and you should not rely unduly on them, as they involve risks, uncertainties, and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. While our management considers these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in our forward-looking statements. Differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following:

• the failure to satisfy various other conditions to the closing of the transaction contemplated by the merger agreement;
• the failure to obtain governmental approvals of the transaction on the proposed terms and schedule, and any conditions imposed on the combined company in connection with consummation of the transaction;
• the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected;
• disruption from the proposed transaction making it more difficult to maintain relationships with customers, partners, employees or suppliers;
• the risk that the proposed transaction may be less accretive than expected, or may be dilutive, and that the combined company may fail to realize the benefits expected from the merger;
• risks relating to any unforeseen liabilities of Goodyear or the company;
• the 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; extensive governmental regulation;
• changes to tariffs or trade agreements, or the imposition of new or increased tariffs or trade restrictions, imposed on tires, raw 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, as well as changes to trade agreements resulting from the United Kingdom's withdrawal from the European Union;
• future laws and regulations or the manner in which they are interpreted and enforced;
• the inability to obtain and/or renew permits necessary for the operations;
• existing and future indebtedness may limit cash flow available;
• operating expenses could increase significantly if the price of electrical power, fuel or other energy sources increases;
• changes in credit ratings issued by nationally recognized statistical rating organizations;
• risks involving the acts or omissions of our joint venture partners;
• natural disasters, weather conditions, disruption of energy, unanticipated geological conditions, equipment failures, and other unexpected events;
• a disruption in, or failure of our information technology systems, including those related to cybersecurity; failure of outside contractors and/or suppliers to perform;
• the cost and time to implement a strategic capital project may be greater than originally anticipated;
• reliance on estimates of recoverable reserves; and
• the risks that are described from time to time in Goodyear’s and the company’s respective reports filed with the SEC.

We undertake no obligation to update any forward-looking statements except to the extent required by applicable law.

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, 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, 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 and follow us on Facebook, Twitter, Instagram and LinkedIn.

Cooper Tire & Rubber Company

Condensed Consolidated Statements of Income

 

 

 

 

 

(Dollar amounts in thousands except per share amounts)

 

 

Three Months Ended March 31,

 

 

(Unaudited)

 

 

2021

 

2020

Net sales

 

$

655,827

 

 

$

531,694

 

Cost of products sold

 

546,860

 

 

475,781

 

Gross profit

 

108,967

 

 

55,913

 

Selling, general and administrative expense

 

71,189

 

 

51,211

 

Restructuring expense

 

—

 

 

10,930

 

Operating profit (loss)

 

37,778

 

 

(6,228

)

Interest expense

 

(5,130

)

 

(5,007

)

Interest income

 

699

 

 

1,696

 

Other pension and postretirement benefit expense

 

(2,846

)

 

(4,210

)

Other non-operating income

 

133

 

 

1,773

 

Income (Loss) before income taxes

 

30,634

 

 

(11,976

)

Income tax provision (benefit)

 

8,544

 

 

(659

)

Net income (loss)

 

22,090

 

 

(11,317

)

Net income attributable to noncontrolling shareholders' interests

 

31

 

 

274

 

Net income (loss) attributable to Cooper Tire & Rubber Company

 

$

22,059

 

 

$

(11,591

)

 

 

 

 

 

Earnings (Loss) per share:

 

 

 

 

Basic

 

$

0.44

 

 

$

(0.23

)

Diluted

 

0.43

 

 

(0.23

)

 

 

 

 

 

Weighted average shares outstanding (000s):

 

 

 

 

Basic

 

50,448

 

 

50,236

 

Diluted

 

50,794

 

 

50,236

 

 

 

 

 

 

Segment information:

 

 

 

 

Net Sales

 

 

 

 

Americas Tire

 

$

562,321

 

 

$

457,055

 

International Tire

 

139,369

 

 

102,387

 

Eliminations

 

(45,863

)

 

(27,748

)

 

 

 

 

 

Operating profit (loss):

 

 

 

 

Americas Tire

 

$

59,772

 

 

$

10,416

 

International Tire

 

3,207

 

 

(10,279

)

Unallocated corporate charges

 

(23,032

)

 

(6,951

)

Eliminations

 

(2,169

)

 

586

 

 

Cooper Tire & Rubber Company

Condensed Consolidated Balance Sheets

 

 

 

 

 

(Dollar amounts in thousands)

 

 

March 31,

 

 

2021

 

2020

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

460,424

 

 

$

433,362

 

Notes receivable

 

13,174

 

 

13,676

 

Accounts receivable

 

541,596

 

 

509,280

 

Inventories

 

446,920

 

 

501,604

 

Other current assets

 

43,309

 

 

46,224

 

Total current assets

 

1,505,423

 

 

1,504,146

 

 

 

 

 

 

Property, plant and equipment, net

 

1,082,699

 

 

1,022,152

 

Operating lease right-of-use assets, net

 

102,313

 

 

86,878

 

Goodwill

 

18,851

 

 

18,851

 

Intangibles, net

 

94,114

 

 

108,181

 

Restricted cash

 

60,309

 

 

1,491

 

Deferred income tax assets

 

28,030

 

 

33,162

 

Investment in joint venture

 

53,563

 

 

48,472

 

Other assets

 

11,780

 

 

9,384

 

Total assets

 

$

2,957,082

 

 

$

2,832,717

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Short-term borrowings

 

$

4,569

 

 

$

277,844

 

Accounts payable

 

337,147

 

 

230,675

 

Accrued liabilities

 

246,237

 

 

208,767

 

Income taxes payable

 

7,959

 

 

2,485

 

Current portion of long-term debt and finance leases

 

20,974

 

 

15,477

 

Total current liabilities

 

616,886

 

 

735,248

 

 

 

 

 

 

Long-term debt and finance leases

 

309,187

 

 

301,920

 

Noncurrent operating leases

 

81,419

 

 

61,249

 

Postretirement benefits other than pensions

 

220,204

 

 

227,249

 

Pension benefits

 

144,315

 

 

146,095

 

Other long-term liabilities

 

160,881

 

 

165,102

 

Deferred income tax liabilities

 

1,412

 

 

114

 

Total parent stockholders' equity

 

1,401,381

 

 

1,177,712

 

Noncontrolling shareholders' interests in consolidated subsidiaries

 

21,397

 

 

18,028

 

Total liabilities and equity

 

$

2,957,082

 

 

$

2,832,717

 

Cooper Tire & Rubber Company

Condensed Consolidated Statements of Cash Flows

 

(Dollar amounts in thousands)

 

 

March 31,

 

 

2021

 

2020

Operating activities:

 

 

Net income (loss)

 

$

22,090

 

 

$

(11,317

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

Depreciation and amortization

 

41,518

 

 

37,807

 

Stock-based compensation

 

1,735

 

 

390

 

Change in LIFO inventory reserve

 

31,502

 

 

(8,563

)

Amortization of unrecognized postretirement benefits

 

8,400

 

 

8,385

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts and notes receivable

 

(40,796

)

 

11,772

 

Inventories

 

(92,944

)

 

(41,123

)

Other current assets

 

(2,244

)

 

(7,848

)

Accounts payable

 

46,125

 

 

(20,422

)

Accrued liabilities

 

(58,082

)

 

(91,414

)

Other items

 

2,516

 

 

7,964

 

Net cash used in operating activities

 

(40,180

)

 

(114,369

)

Investing activities:

 

 

 

 

Additions to property, plant and equipment and capitalized software

 

(57,489

)

 

(54,827

)

Proceeds from the sale of assets

 

5

 

 

65

 

Net cash used in investing activities

 

(57,484

)

 

(54,762

)

Financing activities:

 

 

 

 

Issuance of short-term debt

 

—

 

 

273,587

 

Repayment of short-term debt

 

—

 

 

(4,308

)

Repayment of long-term debt and finance lease obligations

 

(9,920

)

 

(2,594

)

Acquisition of noncontrolling shareholder interest

 

—

 

 

(62,272

)

Payments of employee taxes withheld from share-based awards

 

(2,144

)

 

(910

)

Payment of dividends to Cooper Tire & Rubber Company stockholders

 

(5,301

)

 

(5,277

)

Issuance of common shares related to stock-based compensation

 

813

 

 

177

 

Net cash (used in) provided by financing activities

 

(16,552

)

 

198,403

 

Effects of exchange rate changes on cash

 

(3,618

)

 

(875

)

Net change in cash, cash equivalents and restricted cash

 

(117,834

)

 

28,397

 

Cash, cash equivalents and restricted cash at beginning of period

 

649,505

 

 

413,125

 

Cash, cash equivalents and restricted cash at end of period

 

$

531,671

 

 

$

441,522

 

 

 

 

 

 

Cash and cash equivalents

 

$

460,424

 

 

$

433,362

 

Restricted cash included in Other current assets

 

10,938

 

 

6,669

 

Restricted cash

 

60,309

 

 

1,491

 

Total cash, cash equivalents and restricted cash

 

$

531,671

 

 

$

441,522

 

  RETURN ON INVESTED CAPITAL (ROIC)

 

 

Trailing Four Quarters Ended March 31, 2021

Calculation of ROIC

 

 

 

 

 

Calculation of Net Interest Tax Effect

Operating profit

 

 

 

$

274,887

 

 

Provision for income taxes (c)

 

$

56,202

 

Adjusted (Non-GAAP) effective tax rate

 

24.1

%

 

 

 

Income before income taxes (d)

 

233,513

 

Income tax expense on operating profit

 

66,160

 

 

 

 

Adjusted (Non-GAAP) effective income tax rate (c)/(d)

 

24.1

%

Adjusted operating profit after taxes (a)

 

 

 

208,727

 

 

 

 

 

Total invested capital (b)

 

 

 

$

1,761,654

 

 

 

 

 

ROIC, including noncontrolling equity (a)/(b)

 

 

 

11.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Invested Capital (five quarter average)

 

Equity

 

Long-term

debt and

finance

leases

 

Current portion

of long-term debt

and finance

leases

 

Short-term

borrowings

 

Total invested capital

March 31, 2021

 

1,422,778

 

 

$

309,187

 

 

$

20,974

 

 

$

4,569

 

 

$

1,757,508

 

December 31, 2020

 

1,410,591

 

 

314,265

 

 

24,377

 

 

15,614

 

 

1,764,847

 

September 30, 2020

 

1,348,630

 

 

319,438

 

 

22,923

 

 

15,422

 

 

1,706,413

 

June 30, 2020

 

1,197,471

 

 

324,610

 

 

21,696

 

 

244,745

 

 

1,788,522

 

March 31, 2020

 

1,195,740

 

 

301,920

 

 

15,477

 

 

277,844

 

 

1,790,981

 

Five quarter average

 

$

1,315,042

 

 

$

313,884

 

 

$

21,089

 

 

$

111,639

 

 

$

1,761,654

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of Trailing Four Quarter Income and Expense Inputs

Quarter-ended:

Operating

profit as

reported

 

Income tax

provision

(benefit) as

reported

 

Income (Loss)

before income

taxes as reported

 

 

 

 

March 31, 2021

 

$

37,778

 

 

$

8,544

 

 

$

30,634

 

 

 

 

 

December 31, 2020

 

60,291

 

 

8,315

 

 

46,056

 

 

 

 

 

September 30, 2020

 

171,507

 

 

40,225

 

 

163,348

 

 

 

 

 

June 30, 2020

 

5,311

 

 

(882

)

 

(6,525

)

 

 

 

 

Trailing four quarters

$

274,887

 

 

$

56,202

 

 

$

233,513

 

 

 

 

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210503005120/en/

Investor: Jerry Bialek 419.424.4165 investorrelations@coopertire.com

Media: Anne Roman 419.429.7189 alroman@coopertire.com