Cooper Tire & Rubber Co. expects volume this year to outpace industry growth, but the firm cautioned that raw material costs are so hard to predict that it can't offer earnings guidance.
Nonetheless, Cooper anticipates improved results over the 2005 net loss of $9.36 million on the positive effects of improvements in manufacturing efficiencies, product and customer mix, fill rates and increased product sourcing from low-cost sources as well as profitable international operations.
Cooper posted higher sales for the fourth quarter and full year in 2005, both corporatewide and in its North American tire operations, but reported losses in both periods.
Following the financial report, Cooper was placed on CreditWatch by Standard & Poor's and downgraded to ``hold'' by analyst Saul Ludwig.
In the fourth quarter, Cooper's sales grew 5.7 percent to $572.4 million, but the Findlay-based tire maker posted a loss from continuing operations of $6.5 million compared with earnings of $3 million in the 2004 period.
Cooper said operating profit was affected negatively by higher raw material costs, $6 million in scrap charges from a voluntary recall and $8 million from reduced operating levels at some North American plants, among other factors. Quarterly operating profits also were impacted positively by improved pricing and mix and by a $12 million gain from a settlement dispute with certain suppliers.
In the quarter, Cooper's overall net loss of $6.9 million contrasted with net profits of $133.2 million a year ago. The 2004 results included a $112.4 million gain from the sale of the company's non-tire automotive operations.
For the year, Cooper's sales rose 4.8 percent to $2.16 billion as the company posted a loss of $15 million from continuing operations, down from earnings of $27 million in 2004.
The firm said sales rose on higher prices and better product mix, but operating profit fell because of higher raw material costs, lower unit volumes and plant inefficiencies.
Cooper's net loss of $9.36 million for the year compares with profits of $201.4 million a year ago, which were also impacted by the fourth quarter gain from the sale of the automotive unit.
In its North American Tire operations, Cooper's quarterly sales rose 6.9 percent to $524.6 million but operating income fell 35.7 percent to $9.16 million. For the year, sales in the North American segment rose 4.4 percent to $1.96 billion, while operating income plummeted 52.8 percent to $35.8 million.
``There were many items, both positive and negative, that obscured our actual results and make it difficult to immediately recognize the improvements and progress we have achieved in our operations,'' said Thomas Dattilo, chairman, president and CEO.
Mr. Ludwig in a report said he expects Cooper will post a loss in the first quarter based on the combination of soft volume in the industry and high raw material costs.
Cooper expects to grow in North America above the projected industry growth of 2 percent, based on ``certain customer agreements and the enthusiasm and support from our dealers overall,'' according to Mr. Dattilo, who said Cooper's sales outpaced the industry in January.
In addition, Cooper's acquisition of majority ownership of Cooper Chengshan (Shandong) Tire Co. in China will add approximately $500 million in profitable sales annually, he said.
Mr. Ludwig expects Cooper to outpace the industry in terms of volume, but the industry itself is off to a slow start this year, he wrote. He said shipments were down 5 percent in January, and he believes February also was soft.
``(Cooper) is not faring poorly relative to the industry,'' Mr. Ludwig wrote, referring to volume. ``However, we estimate that their volume will be off 2 percent in (first quarter 2006). The combination of soft volume and high costs is what leads us to now expect a loss in (the first quarter).''
Mr. Ludwig said he does not expect meaningful improvement until the third quarter, ``thus suggesting little in the way of a catalyst to excite the shares until there is clarity of meaningful earnings progress.''
Standard & Poor's Rating Services also put Cooper's corporate credit rating on CreditWatch with negative implications.
In October the rating group downgraded Cooper to ``junk'' status-a rating that can make borrowing more expensive for a company. With the latest action, Cooper's rating remains BB+ but with the CreditWatch.
In the action, S&P cited the tire maker's weak operating earnings and cash flow generation as well as the ``likelihood that future financial results will fall short of previous expectations.''
S&P also noted that sales in the fourth quarter grew 6 percent, but operating income fell 18 percent. For the year, sales increased 4 percent yet operating income dropped 58 percent.
``We expect Cooper to see some benefits from improved manufacturing efficiencies and increased sales of its high-margin products,'' said S&P analyst Martin King. ``But it is unclear whether the improvements will be sufficient to strengthen operating results so that the company's credit protection measures are consistent with the current rating.''