A little more than six months into the job, Roy Armes is feeling good about Cooper Tire & Rubber Co.´s prospects.
The tire maker finally recorded a profit in the first quarter of the year, ending a string of eight losing periods. The company´s new president and CEO said he feels the firm has developed some momentum and direction.
Going further, he said Cooper has turned the corner financially-albeit with the caveat there will continue to be challenges in the future.
"I would say we´re not out of the water by any stretch of the imagination," Armes said in a recent interview at Cooper´s Findlay, Ohio, headquarters. "But it´s a far cry different when you come from last year to this year and you´re sitting on $250 million in cash and wondering what you´re going to do with that money versus not having anything to look forward to, which was the position we were in last year."
Investors seem to agree. Since the beginning of January, when Armes joined the tire manufacturer, the company´s share price has nearly doubled to almost $28 from less than $15. Tony Cristello, senior vice president of equity research for BB&T Capital Markets, said Cooper has delivered initially on what the company outlined in a "soft restructuring" initiated under interim CEO Byron Pond in September and carried out by Armes during the past six months.
Management devised a plan to take the company in a different direction and "they executed," Cristello said.
Much of the easy work is now done, he said. The next big step is Cooper´s conversion of its Texarkana, Texas, plant into a flexible manufacturing operation-a key to Cooper´s strategy, he said, allowing the firm to improve utilization across all its facilities.
Having its work force more focused on the core fundamentals of the business is leading the turnaround, said Armes, who joined the tire maker after 31 years at Whirlpool Corp.
"Over the last couple of years, we kind of lost our way a bit," he said. "We had less than acceptable financial performance and results, focusing a lot on getting into new tire segments like the high performance and ultra-high performance, and we probably didn´t have the right balance between getting into new segments and maintaining good balance with those core business fundamentals."
He described these fundamentals as profitable growth, continuous improvement in product quality, cost competitiveness and getting the work force aligned with the company´s objectives and priorities.
Profitable growth, Armes said, is one of Cooper´s highest priorities. "Before we were selling a lot of volume, and (today) we´re not selling volume for volume´s sake. We´re selling profitable growth." Cristello called this a refreshing change for the company. Cooper under Armes "is focused more on profitability than aggregate revenue," he said. "Revenue is important, but at what cost?"
Cooper also is striving for improved product quality. "I get a lot of positive feedback from our dealers and our customers about the quality of our products, but I want our organization to never be satisfied with where we are," Armes said.
As for cost competitiveness, Cooper got away from that, particularly in the broadline tire category, he said. "We feel that we are very competitive now, and we are going to get more competitive as we go forward. But we´ve got to get more focused on that end of the business."
The last fundamental has to do with getting all employees on the same page-"getting the right people in the right place to be able to deliver our objectives."
The employees seem to have embraced Armes, Cristello said. "When you get the employees behind a CEO, a new leader, productivity goes up." He replaced Thomas A. Dattilo, who ran the company for about seven years.
In a report to investors, Cristello said this about Armes´ leadership: "We have much greater confidence in the new CEO to deliver results as the company has lacked the ability to successfully execute its plans over recent years. While the tire industry is not growing robustly, we see opportunity for Cooper to drive profit growth irrespective of macro and industry trends, at least for the next two years."
Armes said one surprise at Cooper is how the company was able to maintain its relationship with its tire dealer customers during the difficult past few years. "Our dealers had other choices, and our dealers were loyal and supportive during this whole period of time."
The executive said he will strive to make Cooper competitive, but dealers need to understand the company´s growth must be profitable "so that we don´t put ourselves into the situation where we´ve been the last couple of years."
Being competitive means more than pricing and new products. It means faster reaction to changes in the marketplace, he said.
Dealers also can expect Cooper´s fill rates to be among the best in the industry, he pledged, and the company will continue to provide products that satisfy the retailers´ and the company´s needs.
This includes producing private brand tires, with which Cooper has had a long and successful history. "There are a lot of tire manufacturers that are getting out of that business," Armes said. "It´s still a strong business of ours, and we´re continuing to support that and at the same time supporting our house brands."
Strategy for China
Along with the turnaround efforts in North America, Cooper also is making headway in China, where it has two joint ventures.
One is a 50-50 partnership in a $200 million factory with Taiwanese tire maker Kenda Rubber Industrial Co. Ltd., which began production in the first quarter. Cooper will take 100 percent of the plant´s output for the first five years of the contract for export to the U.S., Europe or other parts of the world. Annual capacity eventually will reach 6 million to 7 million tires.
Cooper also owns 51 percent of Cooper Chengshan (Shandong) Passenger Tire Co. Ltd. and Cooper Chengshan (Shandong) Truck Tire Co. Ltd., which operate a single tire factory making radial passenger and light truck tires as well as radial and bias truck tires primarily for the Chinese market.
That plant already is out of capacity, Armes said, and Cooper is considering whether to make an additional investment there to boost production, a decision which is expected in the near future.
Along with this manufacturing presence, Cooper is building a retailing network through independents in China for the Cooper brand, leveraging in some cases distribution already established under Cooper Chengshan and in other cases "establishing our own," Armes said.
These tire outlets, which are similar to independent tire outlets in North America, will market Cooper as their main line but also will offer competitors´ products, Armes said.
Cooper´s heavy investment in China presents some challenges for the future, the CEO said.
The company needs to build "the right capabilities in our people to be able to support a global business," Armes said. "Those people have been very, very focused on the U.S. market and a little bit on Europe, but now we´ve got China out there that requires a lot of resources. We´re trying to build resources today to support a global business."