AKRON-Most of the publicly held companies involved in the U.S. tire industry have thus far reported sales increases for the second quarter of 1996, which ended June 30. But whether an increase in sales translated into an increase in net earnings seemed directly related to the level of the company's involvement in the U.S. replacement tire market, which has been characterized of late by extreme price competition.
The greater a company's aftermarket exposure, the greater the chance that its earnings not only did not improve, but actually fell, compared with the same three months in 1995.
Three companies-Goodyear, Titan Wheel International Inc. and Myers Industries Inc.-posted record income for the quarter, with Titan and Myers posting record sales as well.
These three companies share a limited exposure to the U.S. replacement tire market because they are diversified-their operations extend beyond the replacement tire market or beyond the U.S., or both.
Cooper Tire & Rubber Co. posted record sales for the quarter, but most of its tires are sold in the price-competitive U.S. replacement market. As a result, its net income increased a more modest 2 percent.
The two companies that fared the worst-posting net losses for the quarter-have extensive aftermarket sales operations: Treadco Inc. and Brad Ragan Inc. Both also are major retreaders.
Both also had significant one-time costs during the quarter. Treadco continued the process of converting its Bandag Inc. franchises to Oliver Rubber Co.'s system, while Brad Ragan reached a $4.8 million tentative settlement of two class-action lawsuits brought by certain retail installment credit customers.
TBC Corp. and Bandag Inc., whose second-quarter results were reported earlier, fall somewhere in the middle. While not retailers themselves, their principal customers are end users and/or retreaders. Both companies reported modest sales gains, but significant (19-20 percent) drops in earnings for the three months.
Recently reported second-quarter results follow, by company.
Cooper Tire & Rubber
Cooper earned $25.2 million in the quarter on a 7.4-percent jump in sales to a record $398.9 million.
``Cooper's market for passenger and light truck tires was stronger than industry demand and trended toward higher-value lines such as premium touring tires and light truck tires,'' said Chairman Patrick W. Rooney. ``However, the market for replacement tires remained intensely price-competitive during the quarter, especially in the more value-oriented lines.''
For the first half of 1996, the company's earnings slid 7 percent to $48.3 million, despite a 5.9-percent increase in sales to $779.9 million.
In related news, Cooper's board has authorized the repurchase of up to 5 million shares of the company's common stock, with no fixed timetable. ``The current stock price, we believe, undervalues the company and presents.*.*.*an opportunity to reduce the number of outstanding shares,'' Mr. Rooney said.
As it recently had predicted, Goodyear set a second-quarter earnings record of $187.9 million, up 8.1 percent from last year, on essentially flat sales of $3.33 billion, down 0.6 percent.
Worldwide tire unit sales increased 4.5 percent, but slipped 0.2 percent below the 1995 quarter in monetary terms, reflecting in large part what the company called ``competitive pricing pressures in the North American replacement market.'' Operating income from tires was off 5.3 percent.
Geographically, Goodyear's U.S. sales slid 3.7 percent, while operating income skidded 18.7 percent, again reflecting tough aftermarket pricing, as well as lower sales to original equipment customers.
For the six months, Goodyear's total net income rose 10.6 percent to $339.7 million, as sales held virtually even at $6.58 billion.
In related news, Goodyear reported that Moody's Investors Service has upgraded its rating of the tire maker's long-term debt from Baa2 to Baa1, closer to investment grade, based on Goodyear's strong market position and ``improving cost structure.''
The Akron-based parent of Myers Tire Supply and Patch Rubber Co. set sales and earnings records for the quarter.
Net income soared 28.7 percent to $5.61 million on a 5.8-percent increase in sales to $80 million.
First-half earnings surged by one-third to $10.8 million as sales grew 6.6 percent to $152.5 million.
Brad Ragan Inc. (BRI) saw its prospects for a profitable 1996 wiped out by a $4.8 million pre-tax charge against second-quarter earnings ``for costs and expenses associated with the tentative settlement of two class-action lawsuits related to charging certain retail installment credit sales customers for non-filing insurance.''
The Charlotte, N.C.-based Goodyear subsidiary, which operates 121 retail stores and 50 commercial outlets, primarily in the Southeast, reported a loss of $1.57 million for the quarter, though sales for the period grew 1.5 percent to $67.9 million.
Even without the unusual charge, the company's quarterly operating income would have fallen 6 percent.
``The settlement of these lawsuits will free us from the distractions and expense of prolonged liti-gation. . . ,'' said BRI President and CEO Michael R. Thomann, though he noted that the charge makes it unlikely the company will be able to show a profit for the year.
BRI lost $2.39 million in the first half, as sales slipped 1.4 percent to $121.1 million.
Titan Wheel International Inc., based in Quincy, Ill., posted its 18th consecutive quarter of record sales and net income, as the latter grew 4.4 percent to $10.5 million on a 6-percent increase in sales to $167 million.
Contributing to the quarter's positive results was Titan's sale, to existing management, of its Automation International Inc. unit, which manufactures and rebuilds welding and automation equipment.
The sale was part of Titan's efforts to concentrate on expanding its tire and wheel business, with a goal ``to become the leading global manufacturer of tire and wheel assemblies in the off-highway markets,'' according to President and CEO Maurice Taylor Jr.
First-half earnings jumped 11.1 percent to $21.5 million, as sales climbed 9.2 percent to $344.3 million.
Titan also reported that its board has authorized the buyback of up to 5 million shares of the company's common stock, via periodic purchases in the open market.
Increased competition in many of its markets, combined with the ongoing expenses of converting its Bandag retreading franchises to Oliver-licensed facilities, plunged Treadco into the red for the second quarter and first half, as sales for both periods dropped 5.1 percent.
The company lost $894,370 in the three months on sales of $36.1 million, while the first-half loss reached $2.08 million on sales of $68.2 million.
Treadco said the process of converting its retread plants from the Bandag to Oliver processes is proceeding on schedule, with nine converted in the quarter. Sixteen of the company's plants now have been converted, with the remainder to be completed during the third quarter.
``Each conversion results in a couple of lost production days, some short-term operational inefficiencies and time lost as production employees familiarize themselves with the new equipment,'' said President and CEO John R. Meyers.