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November 21, 2005 01:00 AM

Cooper posts loss in quarter, loses broadline tire share

Lisa Hockensmith
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    Cooper Tire & Rubber Co. posted a third quarter loss of $840,000, saying lower unit sales volume, higher raw material costs and higher interest expense more than offset gains from price hikes during the period.

    For the rest of 2005, Cooper is ``cautiously optimistic'' about the company's chances to increase sales in North America despite what it calls a ``challenging'' operating environment and business conditions that will affect fourth quarter profits negatively, according to Chairman, CEO and President Thomas Dattilo.

    He cited continually rising raw material costs, high gas prices, declining consumer confidence and the lingering impact from this season's hurricanes as challenges in the market.

    Sales in the quarter ended Sept. 30 rose 1.2 percent to $557.8 million. The net loss compares with a profit of $9.87 million for the year-ago period.

    In North America, while Cooper gained market share in light truck and high performance tires, the tire maker shipped 7 percent fewer light vehicle tires, including an 11-percent drop in passenger shipments, according to an analyst's estimate.

    ``We might have lost our focus a little bit on broadline as the market's been moving toward higher performance products, towards light truck, and even forgetting ourselves that the broadline is still an important part of it,'' Mr. Dattilo told analysts during a conference call.

    He added that some of the loss was from some Cooper customers that suffered in the market. He pledged a renewed effort at retail. But some customers had to move away from Cooper products when the tire maker suffered some broadline capacity issues more than a year ago.

    ``You have to win those customers back, and sometimes they don't come back immediately,'' Mr. Dattilo said. ``Sometimes they come back for price, sometimes they come back for relationships, sometimes they come back for supply and sometimes they come back for a combination of all those things.''

    One analyst, Jonathan Steinmetz of Morgan Stanley Equity Research, questioned if Cooper will be able to win back that share.

    ``While we expect (Cooper) to post some rebound in earnings next year, we question whether the company can profitably regain lost market share in the intensely competitive North American market absent discounting, which would seem to go against a strategy of moving the brand up-market,'' Mr. Steinmetz wrote in a report.

    In the company's North American Tire unit, sales rose 2 percent to $509.4 million. Cooper said the increase was driven by improved price and mix but was offset partially by lower unit volumes.

    Operating income in the segment fell 36.8 percent to $16.9 million. The decline was attributed to the lower unit sales-including the loss of broadline market share-and high raw material costs, Cooper said.

    ``Our sales were softer than we anticipated throughout the quarter and lagged the markets in July and August,'' Mr. Dattilo said in a statement. ``We saw improvement and gained market share in September, but it was not enough to overcome the slow start in the quarter. We made good progress in restoring production levels in our plants....

    ``Our order fill rates and the availability of critical, high-demand products continued to improve, and these will be key factors as we work hard to regain business, particularly with our independent dealers going forward.''

    Cooper is operating its North American plants on reduced production schedules as it works to build down inventories, which the company described as high in certain product categories. The company was forced to scale back production during the quarter because of raw material constraints following supplier shutdowns in the wake of Hurricane Rita.

    The reduced production schedules ``obscure the progress we are achieving in production process changes and manufacturing efficiency,'' Mr. Datillo said, and will impact fourth quarter operating profit negatively.

    For the nine months ended Sept. 30, Cooper posted sales of $1.58 billion, up from $1.54 billion a year ago. The tire maker posted a net loss for the period of $2.51 million, down from a profit of $68.1 million last year.

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