Cooper Tire & Rubber Co. reported net income of $47.7 million for the third quarter, compared with a $168,000 loss a year ago, as sales jumped 10.5 percent to $920.1 million.

The Findlay-based tire maker noted that year-over-year comparisons are not representative of the business under normal conditions as the third quarter of 2013 was impacted by:

Labor actions at Cooper’s joint venture, Cooper Chengshan (Shandong) Tire Co. Ltd (CCT), which resulted in lower production and shipments;

Higher costs and lower volume associated with shipping inefficiencies related to ERP system implementations; and Costs related to a then-pending merger with Apollo Tyres Ltd., which subsequently was terminated.
”Our third quarter performance continued the solid trends we saw during the first half. Even after adjusting for the unusual issues last year, we had strong unit volume growth, particularly in the Americas segment. The 14-percent overall unit growth, along with declining raw material costs, allowed us to post an operating margin of 9.7 percent, which is at the high end of our target range,” said Roy Armes, Cooper’s chairman, CEO and president.

The increase in third-quarter sales was the result of higher unit volume of $133 million, which was partially offset by unfavorable price and mix of $49 million, Cooper said. The third quarter of 2013 included $122 million in reduced unit volume associated with the supply issues at CCT.

Cooper tripled it third-quarter operating profit to $89.4 million, compared with $27.9 million a year ago. The company attributed the surge to higher unit volumes of $25 million, lower products liability costs of $5 million, and $2 million of favorable manufacturing costs compared with last year. The 2013 quarter was negatively affected by a combined $22 million from lower unit volume in both its segments and $7 million in manufacturing inefficiencies in the International segment related to the CCT labor issues, as well as $13 million of costs associated with manufacturing curtailments in the Americas segment related to the ERP implementation.

Last year’s third quarter also included merger-related costs of $5 million, which were reported in selling, general and administrative costs.

Cooper’s Americas Tire operations nearly doubled it operating profit to $75.6 million as sales increased 9.6 percent to $693.9 million for the quarter.

(COOPER TIRE & RUBBER CO. PHOTO)
Roy Armes
The higher operating profit primarily reflected favorable raw material costs of $55 million, higher unit volume of $14 million, and favorable products liability costs of $5 million. These benefits more than offset unfavorable price and mix of $27 million, as well as higher selling, general and administrative costs of $6 million, partially reflective of increased investment in brand awareness, Cooper said. The 2013 quarter included $6 million from lower volume related to the CCT labor issues.

Unit shipments increased 11 percent for the segment, compared with the same period last year, driven primarily by sales of new, higher margin passenger and light truck products introduced in the past year, as well as higher sales of truck and bus radial tires, according to Cooper.

“Our positive momentum has continued as we entered the fourth quarter, and raw material costs remain favorable. We expect global tire markets will remain highly competitive, with economies in varying stages of recovery or growth,” Mr. Armes said. “Our focus on innovation and new products positions us well to take advantage of growth opportunities worldwide. We continue to expect to meet or exceed industry unit volume increases in our largest markets this year.

“We recently received notice and related documentation from the Chengshan Group that it intends to exercise its option to acquire Cooper’s 65-percent ownership in our CCT joint venture in Rongcheng, China. After reviewing this documentation and working with the Chengshan Group to confirm the necessary steps to move forward, we are proceeding with the proposed sale of Cooper’s interest in CCT to Chengshan in accordance with the process set forth earlier this year.

“Should Chengshan purchase our stake in the joint venture,” Mr. Ames continued, “we will continue to have offtake rights, with CCT agreeing to produce Cooper-branded products until mid-2018. As I have stated in the past, China will continue to be an important part of Cooper’s long-term growth strategy whether or not we own the joint venture.”

For the nine-month period, Cooper’s net income surged 43.7 percent to $131.3 million on a 1-percent increase in sales to $2.61 billion, compared with the year-ago period. Operating income jumped 27.4 percent to $246.8 million.

The Americas Tire Operations segment‘s operating income jumped 23.4 percent to $209.1 million as sales edged up 2.1 percent to $1.9 billion, compared with the year-ago period.

Capital expenditures for 2014 are expected to be between $175 million and $185 million, Cooper said.

Source: tirebusiness.com