Cooper Tire & Rubber Co.'s first quarter sales rose 16.1 percent to a record $596.6 million, but high raw material costs and reduced production drove both the company and its North American tire division to a loss.
Cooper said its acquisition of majority ownership in Cooper Chengshan (Shandong) Passenger Tire Co. Ltd. and Cooper Chengshan (Shandong) Tire Co. Ltd.-finalized in February-increased quarterly sales by $48 million. Higher prices, improved product mix and higher unit volumes in North America and Europe added $39 million in sales.
Overall the company posted a net loss of $5.15 million, vs. a net profit last year of $5.22 million. The loss from continuing operations also deepened to $5.47 million from $1.04 million last year.
In North America, net sales rose 7.1 percent to $495.9 million, but the unit posted an operating loss of $5.91 million, down from earnings of $6.45 million a year ago.
Cooper said in North America it was hit by $29 million in higher raw material costs and $5 million in higher utility costs. In January and February Cooper also reduced mold and production levels at its Texarkana, Ark., plant because of weak market conditions. Also, in late February Cooper converted its Findlay plant to five-day operation from seven-day operation. These production changes cost about $6 million, the tire maker said.
Cooper's unit sales overall were up 1 percent in North America. Unit sales of sport-utility vehicle, performance and light truck tires grew 15, 17 and 2 percent, respectively. Cooper said it gained share in all replacement tire categories during the quarter.
In a conference call with analysts, Chairman and CEO Tom Dattilo said the market share gains included the broadline category. He declined to predict whether Cooper will continue to gain share in broadline though ``we'll be fighting for it,'' he said. Mr. Dattilo did assert that the company's gains in the other segments will continue.
But Jonathan Steinmetz, an analyst with Morgan Stanley, said he would like to see Cooper translate market share recoveries into earnings.
Mr. Steinmetz, who retained his ``underweight'' rating of Cooper's stock, also said Cooper has too little premium product or participation in attractive segments to compete against Bridgestone/Firestone, Michelin North America Inc. and Goodyear, yet it also has too high of a cost base to compete against low-cost imports.
``While the company has made strides to rectify this situation, so have the other tire companies and it is not clear to us that the competitive gap is narrowing,'' Mr. Steinmetz wrote in a note to investors.
He added he remains concerned about operational inefficiencies in North American plants and ``spiraling'' commodity prices.
Cooper also pointed out these headwinds.
``We had good momentum in terms of sales for the quarter as we outpaced the industry, increased market share and improved our overall product mix in North America,'' Mr. Dattilo said. ``...However, the North American replacement tire market remains very competitive, and raw material prices continue to impact our results. The price increases we have instituted in the past several months have fallen short of covering rising material costs.''
Mr. Dattilo said Cooper raised prices effective April 1, but more increases will be necessary if natural rubber and oil prices remain elevated.
Asked by an analyst whether price increases would stick in the larger picture of high gasoline prices, Mr. Dattilo indicated Cooper doesn't have many other options.
``At a certain point in time the expenses of the raw materials demand that the price increases continue forward and stick,'' Mr. Dattilo told analysts. ``When the dollars increase this much, there doesn't appear to be a whole lot of choice. To sell that product at a significant loss is not an attractive answer for us. I can only answer for us.''