Cooper-Standard takes financial hit in 2021, poised for growth ahead

NORTHVILLE, Mich.—Headwinds that have plagued the automotive industry since the start of the pandemic hit Cooper-Standard particularly hard in 2021.

The company, which released its fourth-quarter and full-year financial results Feb. 17, reported $2 million in EBITDA for the quarter and, for the year, an $8 million loss.

Cooper-Standard attributed its year-over-year decline to unfavorable volume and mix, while also citing rising materials costs, higher wages, general inflation, higher income tax expenses and the non-recurrence of certain COVID-19-related government assistance as negative factors.

The company's efforts to recoup the losses—both through costs cutting and renegotiated contracts with customers—fell short of the needed savings, Jon Banas, executive vice president and chief financial officer, said during a call with investors Feb. 18. The inflationary costs and volume pressures Cooper-Standard faced in 2021 remained too much to overcome.

By region, North America was the strongest for Cooper-Standard and was the only region to show positive earnings (EBITDA of $3.81 million) for the fourth quarter. Even that was $34.6 million lower than for the same period in 2020.

Europe, Asia-Pacific and South America all finished in the red for the three months through Dec. 31. In Europe, Cooper-Standard reported an EBITDA of an $8.6 million loss (down $17 million overall from 2020), while Asia-Pacific and South America showed negative EBITDA of $3.7 and $3 million, respectively (down $23 million and $863,000 compared to 2020.)

Regarding Cooper-Standard's effort to recoup $100 million in cost from renegotiating with customers, company Chairman and CEO Jeffrey Edwards said Feb. 18 that the firm is "tracking toward the high end of our historical recovery range of 40-60 percent."

On-going discussions with customers regarding costs will remain essential for the company's near-term successes. Continued restructuring, though a small part of the plan going into 2022—particularly in Europe—cannot be a major factor for savings, he said.

"We have significantly leaned out our cost structure to offset what we can. But we have little room for further cuts without impacting our ability to deliver quality products and world-class service that our customers demand and deserve," Edwards said. "We have no choice but to insist that our customers pay for a fair portion of these cost increases."

So far, a majority of Cooper-Standard's customers have been open to the discussions regarding cost recovery. Others, Edwards said, have not.

"As material costs continue to rise, we will again be asking our customers to pay a fair share of the increases," he said. "If customers remain unwilling to come to the table, it can only lead to a more difficult conversation later this quarter."

These discussions will continue, he added, as long the inflationary pressures and industry headwinds persist.

"Given their demonstrated ability to pass cost onto their end customers through higher prices, we expect (OEMs) to fairly consider the needs of the supplier community," he said.

Headwinds aside, the automotive sealing and fluid handling products maker sees reason for optimism, particularly when it comes to sales.

Fourth-quarter sales of $601.3 million were an improvement (14 percent) over the third quarter of 2021, despite being down by the same 14-percent margin when compared to the fourth quarter of 2020.

Cooper-Standard attributed fourth-quarter sales declines to lower volume and mix across all of the company's automotive segments, factors spurred by the semiconductor shortage and supply chain issues that impacted vehicle production levels.

For the quarter, the firm posted a net loss of $50.3 million, compared to a net profit of $3.3 million the prior year.

For the full year, Cooper-Standard recorded $2.33 billion in sales, a decline of about $45 million compared to 2020. Divestiture of certain European operations as well the sale of the firm's India business in July 2020 were factors in this, Banas said.

Cooper-Standard suffered a net loss of $102.2 million for 2021, after posting a $27.2 million net loss in 2020.

He also cited a non-favorable volume and mix as factors in the decline, adding this was partially offset by favorable foreign exchange that benefited the top line.

During the earnings call, Banas noted the auto industry began to see some stabilization in the fourth quarter. It's a trend he expects to continue through 2022, and it's one he believes will have positive impacts on Cooper-Standard in the year ahead.

"We were encouraged by the increase in production volume and improved stability in schedules that we saw in the latter part of fourth quarter, and we are cautiously optimistic that the positive trends will continue," Banas said. " ... We don't want to give the quarterly breakdown, but generally, we think the first half (of 2022) will look similar to what Q4 did (in 2021) as OEMs continue to work out supply chain issues and chips to some extent."

Edwards remains confident that Cooper-Standard is poised for significant growth in the months and years ahead, given its aggressive, targeted approach in supplying high-growth, high-demand segments: trucks, SUVs and electric vehicles.

"Our strategic focus on light trucks and SUVs puts us in a great position to benefit from the current light vehicle market trends," Edwards said.

According to Edwards, the trucks and SUV markets are expected to grow annually at rates of 4 percent and 7 percent, respectively over the next five years. Near term, the growth is more promising with projected growth rates of 6 percent and 11 for trucks and SUVs, respectively, in 2022.

"For Cooper-Standard over 70 percent of our 2022 global revenue is expected to come from trucks and SUVs. In North America, the portion is approaching 90 percent," Edwards said. "And, importantly, our average content on trucks and SUVs is 2.1 times our content on cars globally, and 2.7 times the average car content in North America."

These drivers considered, Cooper-Standard projects a 9 percent annual growth rate throughout the next five years, outpacing the market average, he said.

The company also looks to outpace growth in the EV segment. Here, Cooper-Standard is set to supply four of the top five—and 14 of the top 25—global EV platforms.

In the past two years, the company has secured $200 million in annualized new business on future electric vehicle platforms. In 2021, its new business awards for EVs—$106 million—exceeded the new awards for internal combustion engine vehicles ($80 million).

"Our portfolio on commercialized innovation products, technical expertise and manufacturing capabilities have been the keys to our success in this high-growth segment," Edwards said.