Cooper Tire suffers operating, net losses on 14% lower sales

Findlay, Ohio — Cooper Tire & Rubber Co. reported operating and net losses in the quarter ended 31 March as sales fell 14.1% to $532 million (€490 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 24 Feb.

"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," Cooper Tire President and CEO Brad Hughes said.

"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 for the quarter ended 31 March, compared 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% 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,” said Hughes.

In response to the coronavirus, the company temporarily shut down manufacturing plants for various periods of time while it continued to operate distribution centres around the world. 

In recent weeks, Cooper put factories in China, the US and Serbia back in operation and said they will continue to ramp up as conditions improve. Plants in the UK 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 organisation 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 unfavourable foreign currency impact, partially offset by $15 million of favourable 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 were partially offset by $12 million of favourable 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% from the first quarter of 2019.

Cooper's Americas tire operations segment saw operating profit plummet 73.1% to $10 million as net sales fell 11.2% to $457 million.

Cooper attributed the drops to $61 million of lower unit volume and $1 million of unfavourable foreign currency impact. This was partially offset by $4 million of favourable price and mix.

Cooper's first quarter total light vehicle tire shipments in the US decreased 11.9%.

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% to $102 million due to $46 million of lower unit volume and $4 million of unfavourable foreign currency impact, which were partially offset by $8 million of favourable 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 reducing working capital and capex, reducing salaries for company executives and furloughing an undisclosed number of employees.

"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," Hugnes 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.