Cooper Tire & Rubber Co. and TBC Corp. saw a bullish third quarter as both companies grew faster than the rest of the industry.
Although its earnings were down during the quarter, Cooper said it gained new business and will source low-cost truck tires from China. TBC's sales and income surged during the quarter as it expanded its Tire Kingdom Inc. and Big O Tires Inc. retailing outlets.
Meanwhile, higher raw material costs caused Group Michelin to struggle during the quarter.
Despite reporting lower earnings in the third quarter, Findlay, Ohio-based Cooper Tire & Rubber Co. is bullish on the rest of 2003 and on 2004 based on rebounding market demand, above-market growth by a number of new customers and new automotive component supply contracts coming on stream.
McDonald Investments has upgraded Cooper Tire & Rubber Co.'s stock rating from ``hold'' to ``buy'' based on this new business and low-cost sourcing from China, among other factors. Analyst Saul Ludwig said he raised the outlook because general tire demand is beginning to improve, and Cooper's 2-4 percent price increase has taken hold. Also, the sourcing arrangement with Hangzhou Zhongce Rubber Co. Ltd., in Hangzhou, China, will garner 250,000-350,000 radial medium truck tires annually, Cooper previously announced.
In a recent conference call, Cooper Chairman and CEO Thomas Dattilo said the tire maker plans to continue increasing Asian sourcing in 2004, and soon the tire maker may buy or produce as much as 20 percent of its products in low-cost countries.
Mr. Ludwig also cited Cooper's involvement in the Ford F-150 platform through its automotive components business. Mr. Dattilo told analysts production of the pickup truck will be about 130,000 units in the fourth quarter, with more than 600,000 in 2004. He said Cooper's content on the upgraded pickup is ``dramatically'' higher than the old version of the vehicle.
``(Cooper) received additional business, which puts them in a very good position for demand and capacity utilization next year,'' Mr. Ludwig told Tire Business.
In general, Mr. Dattilo said Cooper's above-market growth should yield fourth quarter earnings of 40 to 45 cents a share-vs. 24 cents a share in the third quarter-despite ``stubbornly'' high raw material prices. In the conference call, Mr. Dattilo said he expects Cooper's high-performance tire market share to increase to about 15 percent in a few years, up from 3 percent in 2002.
For the third quarter and nine-month periods ended Sept. 30, Cooper saw operating and net earnings slide despite sales gains in both reporting periods. The decreased earnings resulted primarily from lower results in the automotive products sector.
For the quarter, net earnings slipped 23.7 percent, to $17.8 million, and operating profit was down 20.6 percent, to $43.5 million.
On an operating basis, tire segment earnings rose 22.7 percent on record sales, higher production volumes and improved product mix, while those for automotive products plunged 60.9 percent because of lower production volume on existing platforms, pricing concessions to customers and higher scrap rates in sealing operations.
Overall sales for the quarter were up 8.8 percent to $913.2 million. Tire segment sales were up 13.2 percent, to $525.8 million, as Cooper said it gained market share in nearly every light vehicle tire category. In passenger tires, the company increased share in the broadline category to more than 20 percent; P-metric sport-utility vehicle tire share rose to more than 15 percent; and high-performance tire share grew to more than 5 percent.
Net sales of house brand tires increased by 16 percent, with unit sales up 13 percent.
For the nine months, operating profits fell 39.1 percent, to $118.8 million, and net earnings slid 48.4 percent, to $45.7 million. Sales edged up 2.4 percent to $2.55 billion.
Strong retail growth propelled TBC Corp. to a record third quarter with a 37.7-percent increase in net income on a 22.7-percent net sales gain over last year.
The Memphis, Tenn.-based private brand marketer reported net income of $10.5 million, up from $7.65 million for the same period in 2002. Net sales grew to $362.4 million.
Same-store sales in TBC's retail network-consisting of Big O and Tire Kingdom chains-increased 1.7 percent. Retail accounted for 53 percent of consolidated sales, company officials said. Total unit tire sales increased 12.1 percent, compared with tire makers' preliminary reports of a 7.5-percent increase in unit shipments this quarter, TBC said.
TBC ended September with 918 Tire Kingdom and Big O retail outlets.
In late September, TBC also announced a $260 million deal to buy Sears, Roebuck and Co.'s 226-store National Tire & Battery (NTB) chain. Tire Kingdom, which will absorb NTB after the deal is closed later this year, also added 112 Merchant's Inc. locations earlier this year.
TBC President and CEO Larry Day said the retail segment opened 12 stores in the third quarter-11 Tire Kingdoms and one Big O-and another 20 to 25 more are likely in the fourth quarter, including as many as 11 Tire Kingdoms and 20 Big O outlets.
By year-end, he said he expects to oversee 580 franchised Big O stores and 590 company-owned stores under Tire Kingdom, including the NTB stores. Those figures represent a 54-percent increase in the company's combined store base from the beginning of the year, the company said.
Long term, Mr. Day said he wants to build Tire Kingdom to the 1,000-store mark and Big O to a total of 800 stores. He also wants to increase private label sales at Tire Kingdom and Merchant's. Since the Merchant's acquisition, those stores increased private label sales to about 30 percent of sales currently, compared with Tire Kingdom's 45 percent, Mr. Day said.
For the first nine months of the year, TBC reported net income of $23.9 million, up from $19.3 million last year. Net sales grew 13.9 percent to $947.8 million.
Group Michelin expects its fiscal 2003 operating earnings to fall slightly short of its 2002 performance because of double-digit increases in raw material costs in the past 12 to 15 months.
Michelin did not project sales for the fiscal year but said sales for the nine months through Sept. 30 were down 4.6 percent, to $12.4 billion, as exchange rate fluctuations more than offset gains in volumes, pricing and product mix.
Tonnage sold for the nine-month period was up 3.1 percent based on strong truck tire sales, primarily in Europe, the firm said.
In the third quarter, sales fell 1.7 percent to $4.2 billion with exchange rates offsetting volume and pricing gains.
In North America, Michelin said its passenger car/light truck tire sales were up 0.6 percent in the quarter but down 1.3 percent for the year-to-date, with truck tire sales up 2.5 percent for the quarter and 3.3 percent for January-September period.
Michelin said it lost market share in the mass market and H-rated segments but anticipated regaining some of this with the September launch of its HydroEdge and latest generation MXVH4 lines. In truck tires, Michelin said it outperformed the market in both new tires and retreads.
Overall, Michelin said it expects increased raw material costs to have a negative impact of $350 million on its operating earnings this year.
The net effect will be to leave the company's operating earnings/sales ratio at slightly below the 7.8 percent achieved in fiscal 2002.
Lower sales in its Tire Distribution Systems Inc. subsidiary and lower unit volume in North America pushed Bandag Inc.'s third quarter sales down 14 percent, leaving net income only 1.9 percent ahead of the year-ago period.
Consolidated net sales for the quarter were $211.4 million, down from $245.9 million in 2002, Bandag said. A 4-percent decline in North American business unit volume also contributed to a 10-percent drop in the unit's operating profit to $27 million. The volume decrease is primarily from flat freight traffic that adversely affected replacement tire purchases, Bandag said. European unit volume fell 2 percent, and unit volume in the International business segment fell 14 percent.
The company said TDS sales fell 42 percent to $60.1 million primarily from the 2002 and 2003 divestitures and closures of several TDS locations. But the closures also reduced Bandag's operating expenses, which fell 14 percent to $53 million in the third quarter.
For the quarter, TDS reported an operating profit of $1.9 million, compared with an operating loss of $1 million in 2002.
Bandag's consolidated net income for the third quarter was $20 million, up from $19.6 million last year. For the first nine months of the year, Bandag reported net income of $31.1 million, compared with a net loss of $14.7 million in 2002. Sales for the period were $590.7 million, down 12 percent from $669.5 million in 2002.