FINDLAY, Ohio—Cooper Tire & Rubber Co. reported lower operating income and sales for the quarter and half year ended June 30, and management sees the company facing a challenging economic environment throughout the rest of year.
Among the headwinds Cooper management sees for the second half are the increased U.S. tariff costs (which impact Cooper's medium truck tires), the delayed timing of anticipated commercial truck tire price increases, and weakness in the China new vehicle and Europe replacement tire markets.
Despite the first-half results and the headwinds, Cooper said it expects to report an improved operating profit margin throughout the year, matching or exceeding the 5.9 percent reported last year.
As a result of the changing market conditions, Cooper is adjusting its financial expectations for the full year in a number of areas, including:
- 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 versus 2018;
- Capital expenditures to range between $180 million and $200 million, not including any capital contributions related to Cooper's pro-rata share of its joint venture with Sailun Vietnam or other potential manufacturing footprint investments;
- Charges related to the restructuring of the Melksham, England, factory to be in a range of $8 million to $11 million.
For the quarter ended June 30, Cooper's operating income fell 3.3 percent to $31.7 million on 2 percent lower sales of $679.1 million, for a 4.5 percent earnings ratio. Cooper attributed the earnings drop to costs related to elevated tariffs on products imported into the U.S. from China ($13 million), lower production volumes ($6 million), higher operating and liability costs, 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, plant.
Offsetting these costs were $17 million of favorable price and mix and $15 million of favorable raw-material costs.
Cooper attributed the sales drop to the impact of lower unit volume ($34 million) and unfavorable foreign currency exchange rates ($6 million), partially offset by $21 million of favorable price and mix. Net income plunged 41.2 percent to $8.82 million.
"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," Cooper President and CEO Brad Hughes said.
"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."
In the Americas business segment, operating profit improved 15.6 percent to $46.8 million on 0.4 percent lower sales of $582.3 million. Cooper attributed the earnings improvement to $22 million in favorable price/mix and $12 million of favorable raw material costs, which more than $13 million in costs related to the China tariffs.
Sales revenue fell in part due to a 3.8 percent drop in unit sales volume, including a 4 percent decline in passenger/light truck tire shipments in the U.S.
For the half year, operating income fell 1.9 percent to $58.1 million on 0.1 percent lower sales of $1.3 billion. Net income was off 32.2 percent to $15.8 million.