Cooper Tire posts Q1 losses, withdraws financial outlook

FINDLAY, Ohio—Cooper Tire & Rubber Co. reported operating and net losses in the quarter ended March 31 as sales fell 14.1 percent to $532 million.

Due to the economic impact of the pandemic, Cooper said it is withdrawing its previously announced full-year 2020 outlook, which was issued on Feb. 24.

"We cannot, at this time, predict the extent or duration of the pandemic and its impacts on our financial and operating results for the full year," Brad Hughes Cooper Tire CEO and president, said in a statement. "Given that the coronavirus will likely have a significant impact on the second quarter, we believe it will be the most challenging quarter of our year for operating profit."

Cooper reported operating and net losses of $6 million and $12 million, respectively, for the quarter ended March 31. That compares with an operating profit of $26 million and net income of $7 million for the year-ago period.

Operating results included about $11 million of restructuring charges related to the transition at the company's now wholly owned manufacturing facility in Mexico.

Unit volume decreased 15.8 percent compared with the first quarter of 2019.

"We entered this challenging period caused by the global pandemic with a strong team and strategic plan, a solid cash position and borrowing capacity, appropriate inventory levels and a flexible global manufacturing footprint," Hughes said. "Cooper was tracking well against our strategic initiatives and previously stated financial goals and had considerable momentum.

"In response to the coronavirus, we temporarily shut down our manufacturing plants for various periods of time while we continued to operate our distribution centers around the world. At the same time, we took several actions to improve liquidity."

In recent weeks, Cooper put factories in China, the U.S. and Serbia back in operation, and said they will continue to ramp up as conditions improve. Plants in England and Mexico remain closed temporarily.

"Overall, we believe Cooper is in a good position to benefit when the economy recovers," Hughes said. "Over the past two years, we have transformed our company into a consumer-driven organization with Cooper products now more available where consumers want to buy tires."

First-quarter net sales were impacted negatively by $98 million of lower unit volume and $4 million of unfavorable foreign currency impact, partially offset by $15 million of favorable price and mix.

Cooper attributed the operating loss to $30 million of higher manufacturing costs, $18 million of lower unit volume, $6 million of higher restructuring costs and $2 million of higher other costs, which partially were offset by $12 million of favorable raw material costs, $6 million of favorable price and mix, and $6 million lower SG&A expenses.

Cooper's first quarter raw material index decreased 6 percent from the first quarter of 2019.

Cooper's Americas Tire Operations segment saw operating profit plummet 73.1 percent to $10 million as net sales fell 11.2 percent to $457 million. Cooper attributed the drops to $61 million of lower unit volume and $1 million of unfavorable foreign currency impact. This was partially offset by $4 million of favorable price and mix.

Cooper's first quarter total light vehicle tire shipments in the U.S. decreased 11.9 percent.

The international segment suffered an operating loss of $10 million, compared with a loss of $1 million in the first quarter of 2019. International operations sales fell 28.8 percent to $102 million due to $46 million of lower unit volume and $4 million of unfavorable foreign currency impact, which were partially offset by $8 million of favorable price and mix.

The quarter included $11 million of higher manufacturing costs, $4 million of lower unit volume and $1 million of higher other costs. This was partially offset by $1 million of lower raw materials and $1 million of favorable price and mix compared to the same period a year ago.

The first quarter of 2019 also included $5 million of restructuring costs related to Cooper Tire Europe's ending of light vehicle tire production at its Melksham, England, facility.

The tire maker said it has taken temporary actions to improve liquidity, including:

• Reduced working capital, capital expenditures and discretionary spending;
• Reduced salaries for executive leadership and the majority of salaried employees, and reduced cash retainers for members of the board of directors;
• Suspended discretionary pension contributions and company contributions to employee 401(k) plans; and
• Furloughed an undisclosed number of hourly and salaried employees.

Capital expenditures in the first quarter were $55 million, down from $60 million during the year-ago period.

"We have dramatically scaled back our capital expenditure plans, and now expect full year 2020 capital expenditures to be between $140 million and $160 million, but this is dependent on the duration and severity of the pandemic," Hughes said.

"With this and other actions, we do not currently believe we will have a substantial cash usage in the second quarter. Overall, we are confident in our ability to weather the storm. Prior to the pandemic, we were on pace relative to our original outlook, validating that our strategic plan remains the right path for our future. We entered this challenging period with a strong balance sheet and financial flexibility.

"While we will face uncertainty and many challenges," he said, "we believe Cooper will overcome the impacts of the coronavirus and we look forward to the opportunities ahead. We expect the economy to improve as the year progresses, and that our results will reflect this."