FINDLAY, Ohio—Cooper Tire & Rubber Co. reported a 5.5 percent improvement in operating income during fiscal 2019 on 2.1 percent lower sales, prompting management to forecast continued improvements in earnings and a "modest" gain in global unit sales throughout 2020.
For the year ended Dec. 31, Cooper's operating income rose to $174.5 million on sales of $2.75 billion, raising the operating ratio marginally to 6.3 percent. Net income jumped 24.7 percent to $96 million, or diluted earnings per share of $1.91.
Cooper cited a number of factors for the earnings improvement, including a favorable price/mix impact ($52 million), favorable raw materials costs ($64 million) and the "non-recurrence" of a goodwill impairment charge from a year ago ($34 million).
Offsetting these gains were $141 million in higher costs, including $26 million in elevated manufacturing costs related to reduced production volumes, $27 million in reduced sales volumes, and $32 million in costs associated with elevated tariffs on truck tires imported into the U.S. from China.
Brad Hughes, Cooper president and CEO, noted that Cooper has made a "great deal of progress" on the strategic initiatives outlined at the company's 2018 Investor Day.
"Our teams around the globe are aligned in executing our strategic plan and delivered improved operating profit and operating profit margin, as well as increased cash flows in 2019, allowing us to continue to fund our strategic initiatives," Hughes said in a statement.
"All of this was achieved in the face of net new tariffs and restructuring costs resulting from our footprint actions."
Among the items Hughes pointed out were:
- Gains made in the retail aftermarket, including gaining a presence at Monro Inc. and Walmart Inc., and a growing e-commerce presence;
- An improved product mix through a continued focus on high value-added tires;
- Increased original equipment presence, highlighted by an OE fitment with Mercedes-Benz;
- Acquisition of full ownership of the firm's manufacturing venture in Mexico;
- Opening a truck/bus tire (TBR) joint venture plant in Vietnam;
- Shifting production out of the firm's Melksham, England, plant to lower-cost sites (including a plant in Serbia).
Cooper's Americas Tire Operations reported a 3.5 percent gain in operating income, to $238 million, on 0.4 percent lower sales of $2.35 billion.
Cooper noted that sales fell 1.4 percent in the fourth quarter on 2.2 percent lower unit volume. Cooper said the lower volume resulted in $15 million in lower revenue.
Cooper's light vehicle tire shipments fell 0.1 percent in the fourth quarter in the U.S.; by comparison, the U.S. Tire Manufacturers Association reported that its member shipments of light vehicle tires in the U.S. were flat during the same period.
For 2020, Hughes said Cooper management is optimistic "as our business model remains strong and our strategic initiatives continue to gain momentum."
Among the company's expectations for 2020 are:
- A modest global unit volume increase;
- An improved operating profit;
- An effective tax rate, excluding significant discrete items, of approximately 25 percent;
- Capital expenditures that will range between $260 million and $280 million, with specific investments earmarked for plants in Serbia and Mexico;
- Approximately $10 million of restructuring charges related to the transition at the company's Mexico manufacturing facility, which will occur primarily in the first quarter of 2020;
- Higher manufacturing costs in Latin America, Europe and Asia related to both market conditions and the company's footprint actions; and
- Higher selling and general expenses, including the impact of the timing of advertising spend.
Hughes noted these expectations do not include tariff rate changes or additional tariffs that continue to be considered, but have not yet been imposed nor estimates for the potential impact of the coronavirus.