Concerned about rising raw material costs, Cooper Tire & Rubber Co. is considering raising tire prices.
Those hikes could come as soon as the next couple of weeks or not until next year, Thomas Dattilo, Cooper chairman, president and CEO, said during an Oct. 16 conference call regarding the company's third quarter earnings.
``We are really giving a lot of thought to the next pricing initiative,'' he said.
Pull-ahead sales from the Bridgestone/Firestone and Ford Motor Co. recalls still are impacting aftermarket tire sales. Because of that, many dealers are keeping their inventories low, Mr. Dattilo said.
In the third quarter and nine months, ended Sept. 30, Cooper reported improved sales and earnings, with the gains coming principally from the company's automotive components business.
Meanwhile, the tire division suffered a 48 percent drop in comparable operating earnings as sales edged up 0.4 percent. Cooper cited rising raw material costs, weaker customer and product mix and operating in efficiencies as the reason for the division's weaker performance in North America.
While the overall replacement tire market declined nearly 8 percent during the quarter, Cooper said, its own North American passenger and light truck tire sales fell just 1 percent.
Although replacement demand is weak, it will pick up, said Roger Hendriksen, director of investor relations and corporate communications.
``The question is when, but when it does, it will pick up very, very quickly,'' he said, given that manufacturers' inventory levels are down 25 percent from where they were in 2000.
Rising costs related to product liability and legal defense, labor costs, Transportation Recall Efficiency, Accountability and Documentation (TREAD) Act-related expenses, and raw materials are the rationale for considering price hikes, Mr. Hendriksen said.
Cooper paid an additional $5 million during the third quarter alone for its raw materials. Ever-rising oil prices are driving up the cost of carbon black and monomers, according to Mr. Dattilo.
Kumho Tire USA Inc. and Yokohama Tire Corp. earlier this month said they will raise passenger and truck tire prices as of Nov. 1 because of rising manufacturing costs. Kumho will increase its prices 3 to 5 percent, depending on the tire, while Yokohama will boost its replacement prices for passenger and light truck tires between 4 and 6 percent.
For the third quarter, Cooper reported net income of $23.3 million, compared with a loss of $19.5 million in the third quarter a year ago when it a took a charge related to a proposed settlement of class action litigation. Sales in the quarter rose 6 percent to $839.3 million.
Sales in the tire division fell slightly to $464.4 million. The unit's operating profit of $27.4 million contrasted with an operating loss of $9.3 million a year ago, Cooper said, but the 2001 result was affected by the non-recurring charges for the class action litigation settlement. Excluding the one-time charge, the tire units' operating profit a year ago was $52 million.
Besides a weaker product mix, Cooper said the tire segments' margins suffered from decreased customer demand and unusual operating inefficiencies tied to lower production at its plants, which cost Cooper another $5 million.
Overall, Cooper was able to meet analysts consensus earnings estimates on the strength of its automotive business.
Cooper-Standard Automotive sales totaled $381.5 million in the quarter, up 14 percent and operating income of $27.4 million.
For the nine months, Cooper generated total net sales of $2.49 billion-an increase of 4.6 percent-and net income of $88.4 million, up measurably from the litigation-charge-affected $2.47 million last year.
``We are clearly a stronger company today because of the expansion of our automotive business,'' Mr. Dattilo said in a prepared statement. ``We are more diversified and better able to sustain growth during seasonal or cyclical slowdowns in one business or the other.''
The company's automotive components sector, he said, has a ``steady flow of significant new business coming on stream now and continuing through 2003 and 2004.
All our hard work and preparation over the past 18 months is allowing us to launch and deliver that business successfully and profitably.''
However, the tire industry ``is facing tougher conditions from both a manufacturing and a marketing perspective,'' Mr. Dattilo added.