Cooper Tire & Rubber Co. posted net income of $35 million on net sales of $884 million for its second quarter ended June 30, 2013. That compares to net income of $52 million on net sales of $1 billion for the same period last year.
Operating income for the quarter was $69 million, down from $95 million in the year-ago quarter. The company's income-to-sales ratio was 4.0%.
The company says several one-time items contributed to the 27.3% decline in operating income:
* In the second quarter of 2012, operating profit included a pre-tax gain of $7 million related to the curtailment of a pension plan within the company's United Kingdom operations, which was partially offset by $2 million in start-up costs for the company's new manufacturing operation in Serbia.
* In the second quarter of 2013, results included $7 million in higher costs related to the pending merger with Apollo Tyres Ltd.
* The $7 million included increased accruals for stock-based liabilitiesof $3 million, reflecting the stock price appreciation following the acquisition announcement, and transaction related expenses of $4 million. These non-recurring items account for $12 million of the year-over-year decline in second quarter operating profit.
In addition to the one-time items, the company specified other factors affecting its second quarter 2013 operating profit:
* $120 million in lower raw materials costs, which was partially offset by reduced pricing and unfavorable mix of $81 million.
* Lower unit volumes decreased profit by $35 million.
* Selling, general and administrative costs for the period were $10 million higher than second quarter 2012, excluding the merger-related costs. The higher costs included professional fees related to the company's ERP implementation and continued investments in brand building initiatives and increasing tire distribution capability, primarily in China.
* Manufacturing costs in the second quarter of 2013 were $8 million higher than second quarter 2012, driven by $10 million of cost from production curtailments implemented to adjust inventory levels.
* Products liability expenses in the second quarter of 2013 were $5 million lower than the same period a year ago.
* $5 million in costs primarily due to higher freight and logistics costs related to higher inventories.
On June 12, 2013, the company announced it had reached a definitive merger agreement under which a wholly-owned subsidiary of Apollo Tyres, Ltd. will acquire Cooper in an all-cash transaction valued at approximately $2.5 billion.
Cooper Chairman, Chief Executive Officer and President Roy Armes says: "With regard to Cooper's second quarter results, the period was one of challenge for the economy, the tire industry, and Cooper as we continued to navigate through a tough business environment.
"We are pleased with the initial reaction to the pricing changes we made toward the end of the quarter, but more remains to be seen as we enter the third quarter. While the second quarter was challenging, we are pleased to have ended the first half of 2013 with operating profit that is $4 million higher than the same time last year, excluding one-time items. Cooper has once again demonstrated an ability to deliver bottom line results across varied industry conditions."
The company says second-quarter raw material prices were down by approximately 1% from the first quarter of 2013. Management anticipates third quarter raw material prices will decline approximately 4% sequentially compared to the second quarter. The long-term raw material outlook is for prices to generally trend higher with periods of volatility. Capital expenditures for 2013 are expected to be between $190 million and $210 million.
Says Armes: "Regarding our near-term view for Cooper, we continue to be cautious about volumes as weak global economic conditions and sluggish tire demand are expected to continue. Yet, we remain confident that Cooper's transformed business model and continued solid execution of our strategic plan will position us to perform well in the future."
For Cooper's first-quarter results, see Cooper's sales drop, but profits rise in 1Q.
