NEW YORK (Aug. 22, 2008) — Standard & Poor's Ratings Services has downgraded its outlook on Cooper Tire & Rubber Co.'s financial risk profile to negative from stable because of reduced tire demand in North America and volatile raw material prices, the securities company said.
It affirmed its “B+” corporate credit rating and other ratings.
Standard & Poor's said that although the company has been introducing premium products, reducing costs and expanding its presence in Asia, it expects the company's credit measures to worsen during the remainder of 2008.
“Cooper faces significant challenges that will impede its financial performance for the near term,” said Lawrence Orlowski, Standard & Poor's credit analyst. “Although revenues in the second quarter of 2008 increased by 6 percent compared to those of a year earlier, unit sales declined, and the company reported an operating loss of $15 million.”
Despite Cooper's price increases on tires in February, July and for October, Standard & Poor's said it didn't expect the price hikes to completely cover rising raw material costs that are expected to be up 25 to 30 percent vs. 2007 costs.
“We could lower our ratings if Cooper is unable to pass along raw material costs to consumers or if end-market demand softens further as a result of higher oil prices or slowing economic activity that leads to leverage of five times or higher, including our adjustments or weaker liquidity,” according to Standard & Poor's. “On the other hand, Cooper's strategy of diversifying its production and sales could enable it to counter cost pressures and tap sales growth in emerging markets.”