FINDLAY, Ohio (Nov. 8, 2006) — Cooper Tire & Rubber Co. posted a 28.3-percent gain in net sales in the third quarter—primarily from its Chinese acquisition—yet the firm's net loss and loss from continuing operations steepened significantly.
For the third quarter, Cooper posted a net loss of $25 million vs. a net loss of $840,000 for the same period in 2005. The loss from continuing operations also deepened to $23.4 million from $1.09 million a year ago. Sales in the period rose to $715.8 million from $557.8 million in 2005.
Cooper said the operating losses were the result of $10 million in unabsorbed overhead from reduced production levels; $5 million in severance costs relating to the departure of former Chairman and CEO Thomas Dattilo; and $2 million in restructuring expenses relating to the closure of the company's Athens, Ga., plant and a management reorganization in Europe.
Cooper said its sales gains were primarily attributable to its February purchase of Cooper Chengshan (Shandong) Passenger Tire Co. Ltd. and Cooper Chengshan (Shandong) Tire Co. Ltd. in China. Improved sales volume in Europe and improved product pricing and mix in North America and Europe also contributed to the increase in revenue.
The company said its North American tire segment was successful in reducing inventory by 1.3 million tires during the quarter, generating $53 million in cash.
For the nine months ended Sept. 30, Cooper's sales rose 22.4 percent to $1.94 billion vs. $1.58 billion a year ago.
The firm's loss from continuing operations deepened to $48.3 million vs. $8.55 million a year ago as did the net loss, falling to $50.9 million from $2.51 million in 2005.
In North America, Cooper posted sales gains of 8.4 percent to $551.7 million in the quarter and 5.6 percent to $1.51 billion in the nine months. Cooper attributed the sales gains to improved pricing and mix as well as a “small improvement” in tire unit sales.
But the segment's profits turned into losses in both periods, falling to a net operating loss of $3.29 million from an operating profit of $16.3 million in the previous quarter and an operating loss of $39.1 million from an operating profit of $24.1 million in the nine months. The losses came from the $10 million in unabsorbed overhead as well as a negative impact of $34 million from higher raw material expenses and $5 million from higher products liability expense. Increased scrap from a recall of certain products produced in the company's Albany, Ga., plant also reduced operating profit by $4 million.
“This was a tough quarter with some of the operating challenges and continued dramatic raw material cost increases we faced,” said Byron Pond, interim CEO. “It was made even tougher with some of the unusual expenses we incurred. But excluding those non-recurring items, you can see signs that we are headed in the right direction.”
Mr. Pond added that the company is making progress in its “soft restructuring,” aimed at reducing inventory, reducing complexity and reducing costs. The company identified projects that could yield $34 million of the $70 million cost cutting goal he announced in September. Cooper also implemented projects that should drive $35 million of the firm's $100 million profit improvement goal.