Cooper Tire & Rubber Company (CTB) saw a substantial increase in profits to $52 million or 82 cents per share in the second quarter of the year from $12 million or 18 cents a year ago, beating the Zacks Consensus Estimate by a wider margin of 32 cents. Operating profit increased about fourfold to $95.4 million from $24.3 million in the second quarter of 2011.
The improvement was attributable to lower raw material costs that contributed $67 million to the bottom line, partially offset by unfavorable price and mix of $3 million. Further, higher sales volumes contributed $19 million, improved manufacturing efficiencies $8 million and lower product liability costs $1 million to profits. However, pension expense and expenses related to the start up of the company’s recently acquired manufacturing operation in Serbia decreased profits by $9 million.
Sales in the quarter grew 15% to $1.06 billion, exceeding the Zacks Consensus Estimate of $1.03 billion. The increase in sales was attributable to higher sales volumes in both the company’s North American and International segments.
Segment Results
North America Tire Operations: Sales in the segment rose 16% to $770.8 million, driven by higher sales volumes (15%) and strong price and mix. Total light vehicle tire shipments in the U.S. increased 16% compared with flat year-over-year industry shipments as reported by the Rubber Manufacturers Association.
Operating profit skyrocketed to $65.0 million from $3.7 million in the year-ago quarter, driven by lower raw material costs of $35 million, favorable price and mix of $18 million, higher unit volumes of $12 million, manufacturing efficiencies of $7 million and lower product liability costs of $1 million. They were partially offset by $5 million of higher selling, general and administrative (SG&A) costs and $6 million of other costs, including pension and incentive compensation expenses.
International Tire Operations: Sales in the segment escalated 6% to $418.6 million on a 19% increase in sales volumes. The increased volumes in Asia (16%) was attributable to higher truck and bus radial and premium passenger car tire sales and in Europe (1%) led by new operations in Serbia.
Operating profit in the segment soared 86% to $43.2 million from $23.3 million a year ago driven by lower raw material costs of $46 million, higher unit volumes of $6 million and improved manufacturing costs of $1 million. These were partially offset by unfavorable price and mix of $32 million and higher s SG&A of $6 million, reflecting investments to expand the distribution network in China and to promote the company’s brands.
Financial Position
Cooper Tire had cash and cash equivalents of $240.5 million as of June 30, 2012, up from $137.7 million as of June 30, 2011. Long-term debt stood at $343.7 million as of June 30, 2012, translating into a long-term debt-to-capitalization ratio of 30.4%, compared with $345.9 million or 41.2% as of June 30, 2011.
Our Take
Cooper Tire believes strong sales based on product innovations and cost reduction measures will continue to boost the company’s results in the future. The company’s favorable position in the market and impressive results have led it to retain a Zacks #2 Rank, which translates to a Buy rating for the short term (1 to 3 months).
Cooper Tire’s competitor, Goodyear Tire & Rubber Company (GT) saw a 12% fall in profits to 57 cents per share in the second quarter of the year from 65 cents in the prior-year quarter (all excluding special items) due to lower tire volumes on the back economic uncertainty across the globe. However, profits blew the Zacks Consensus Estimate of 46 cents during the quarter. Total profit dipped 7% to $148 million from $159 million (all excluding special items) in the second quarter of 2011.
COOPER TIRE (CTB): Free Stock Analysis Report
GOODYEAR TIRE (GT): Free Stock Analysis Report
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