Cooper Tire & Rubber Co. reported net sales of $796 million for its first quarter of 2014, a decrease of $65 million compared with the same period a year ago. Operating profit for the quarter was $81 million, which is $16 million lower than the first quarter of 2013.
The company reported net income attributable to Cooper Tire & Rubber Co. of $45 million. This compares with $56 million for the same period last year.
"Cooper is off to a strong start in 2014, which is our 100th year in the tire business," says Chairman, Chief Executive Officer and President Roy Armes. "Our first quarter operating profit is the second-best for a first quarter in our company's history, topped only by last year's first quarter, when we set an all-time profit record," he says. "We are pleased with the way our employees around the globe have remained focused on our goals as they continue to execute our strategic plan. Going forward, we will build on our successes and address the opportunities we have to further strengthen our business and deliver shareholder value across a wide range of economic and industry conditions."
Factors impacting operating profit in the first quarter of 2014 included unfavorable pricing and mix of $96 million, which was partially offset by lower raw material costs of $67 million, manufacturing cost efficiencies of $11 million, higher unit volumes of $8 million and lower products liability costs of $2 million. Compared with the first quarter of 2013, selling, general and administrative costs were $5 million higher, and other operating costs increased $3 million, including distribution costs that were higher than a year ago.
Cooper ended the first quarter with a strong balance sheet, including $336 million in cash and cash equivalents, which was an increase of $64 million compared with March 31, 2013. Cash was down $62 million from Dec. 31, 2013, consistent with typical seasonal patterns for working capital.
North America Tire Operations
North America Tire Operations achieved net sales of $563 million during the first quarter, down 6% from first quarter 2013 net sales of $602 million. Unit shipments for the North American segment increased 5% compared with the same period a year ago, despite extremely limited shipments of Roadmaster truck and bus radial (TBR) tires, which did not begin reaching the market until late in the first quarter, the company noted. Cooper's total light vehicle tire shipments in the United States increased 7% during the quarter compared with Rubber Manufacturers Association (RMA) member shipments, which were up approximately 1%, and total industry shipments (including an estimate for non-RMA members), which increased 5%, as reported by the RMA.
The segment's operating profit was $69 million for the first quarter, or 12.2% of net sales. This represents a decrease of $3 million compared with the first quarter of 2013. The lower operating profit reflects unfavorable pricing and mix of $70 million, which was offset by lower raw material costs of $50 million, higher unit volumes of $10 million, manufacturing cost efficiencies of $10 million, and lower products liability costs of $2 million, the company says. Selling, general and administrative costs were $1 million higher than the first quarter of 2013, and other costs were $4 million higher, including increased distribution costs.
International Tire Operations
International Tire Operations generated first quarter 2014 net sales of $310 million, a decrease of $31 million, or 9%, compared with the same period a year ago. Lower pricing and mix of $35 million and reduced unit volumes of $7 million were partially offset by favorable exchange effects of $11 million. Unit shipments for the International segment decreased 2% compared with the first quarter of 2013, with declines in both Asia and Europe.
Lower sales volumes in Asia were driven by reduced passenger car tire and medium truck tire shipments, including intercompany shipments. The reduced shipments were largely attributable to the lingering effects of the earlier labor disruptions at Cooper's Chengshan (Shandong) Tire Company Ltd. (CCT) joint venture in Rongcheng, China.
The decline in European sales volumes was primarily due to reduced sales of lower priced tires, driven in part by the end of an arrangement to sell an entry-level tire brand exclusively through a large retail chain.
The International segment achieved first quarter operating profit of $23 million, or 7.5% of net sales, compared with $30 million, or 8.8% of net sales, for the same period a year ago.
The lower operating profit was primarily due to unfavorable pricing and mix of $30 million and lower unit volumes of $2 million, which were largely driven by the lingering effects of the earlier CCT labor disruptions. Partially offsetting these impacts were lower raw material costs of $22 million, manufacturing cost efficiencies of $2 million and lower selling, general and administrative costs of $1 million.
Outlook
Raw material prices declined about 4% from the fourth quarter of 2013 to the first quarter of 2014. Management anticipates that second quarter raw material prices will be roughly flat sequentially compared to the first quarter.
The long-term raw material outlook is for prices to generally trend higher with periods of volatility. Capital expenditures for 2014 are expected to be between $165 million and $175 million, the company says.
"We have strong momentum moving into the second quarter," says Armes. "It is expected that our TBR volumes in the United States will rebound as Roadmaster truck tire production resumed earlier this year at CCT. While we anticipate that global tire markets will remain highly competitive, and that underlying economic conditions will likely continue to vary widely across markets, our exciting line up of new products and demonstrated ability to execute our strategic plan makes us optimistic about the future," Armes adds. "We have successfully moved our business forward and believe Cooper is well positioned to meet or exceed industry unit volume growth rates in our largest markets this year."
"Importantly, Cooper continues to move forward on the path to determine the long-term ownership of CCT per the process set forth in the agreement with our joint venture partner, as announced on January 31, 2014. Regardless of who owns CCT, China is and will remain an important part of Cooper's long-term growth strategy. CCT and our wholly-owned Cooper Kunshan Tire (CKT) subsidiary are continuing to operate well and contribute to Cooper's overall performance," Armes concludes.
