FINDLAY, Ohio (March 20, 2006) — Standard & Poor's Rating Services downgraded Cooper Tire & Rubber Co.'s credit rating further into “junk” status to “BB” from “BB+.”
S&P, which had Cooper on CreditWatch since the tire maker released its 2005 earnings this month, said the downgrade on corporate credit and senior unsecured ratings is in response to “poor near-term earnings and cash flow prospects.”
Cooper is no longer on CreditWatch, though S&P holds a negative rating outlook.
Cooper Chairman and CEOTom Dattilo told Tire Business recently that the tire maker remains a financially sound company. “(Analysts) have to act and react in a certain way,” he said. “Our balance sheet is the strongest balance sheet in the tire industry, there is no question about that.”
S&P analyst Martin King noted Cooper's total debt of about $540 million and unfunded employee benefit liabilities of about $400 million. He also said while Cooper's sales in 2005 rose 4 percent its operating income fell 58 percent.
“Cooper reported depressed operating results during 2005 and is expected to continue to experience earnings pressure for at least the next few quarters,” Mr. King said.
The 2005 results were dampened by operating inefficiencies, reduced unit sales in passenger tires, high raw material costs, costs associated with the company's new joint venture plant in China and a strike at the Texarkana, Ark., plant early in the year. Mr. King expects Cooper to see some improvement from increasing efficiency and more sales of higher-margin tires, but raw materials and the cost of integrating Cooper's purchase of a Chinese tire maker may still play a negative part. Mr. King also doubts if tire makers will be able to increase prices this year as much as they had last year.