FINDLAY, Ohio—Cooper Tire & Rubber Co. posted double digit drops in operating income for the three- and nine-month periods ended Sept. 30, due, in part, to the negative effects of higher costs related to U.S. import duties on Chinese products and higher manufacturing costs.
Sales revenue for both periods also fell, by 4.5 percent in the quarter to $704.1 million and by 1.7 percent in the nine months to $2 billion. Unit sales dropped 7 percent in the quarter.
Operating income in the quarter dropped 35 percent to $52.8 million and by 21 percent in the nine months to $110.9 million, cutting the operating margin 3.5 points in the quarter to 7.5 percent and 1.5 in the Q1-Q3 period to 5.5 percent.
Cooper said its third-quarter operating profit was affected negatively by $15 million in higher costs related to the U.S. import duties on tires from China. The tire maker also saw $16 million of lower volume impact and $12 million of higher manufacturing costs (related to the lower volumes).
On the plus side, Cooper booked $20 million in favorable price/mix impact and $24 million in favorable raw materials costs.
Net income fell 45.3 percent in the quarter to $29.3 million and 41.4 percent in the nine-month period to $77 million.
Brad Hughes, Cooper Tire president and CEO, noted the company's third-quarter operating ratio was higher than that reported in the second quarter (7.5 percent versus 4.5 percent) "despite the continued impact of tariffs." He expects it to be higher in the fourth quarter.
"As expected, our volume was impacted by customer inventory actions in the U.S., as well as challenging market conditions in our other regions," Hughes said, noting that Cooper continues to make progress on the strategic initiatives outlined at its 2018 Investor Day.
These initiatives include expanding distribution into new channels and efforts to optimize the firm's global manufacturing footprint, including phasing out production at its Melksham, England, plant and committing to building a joint venture truck tire factory in Vietnam.
"We expect that the impact from our strategic initiatives will begin to make a more visible contribution to our results in 2020."
Hughes said Cooper expects to end the year with an operating profit margin slightly above the 5.9 percent reported for fiscal, "driven by positive trends in pricing, mix and raw materials.
"We expect continued global volume headwinds in the fourth quarter, but we anticipate growth in 2020 driven by our strategic initiatives and improving market conditions," he said.