FINDLAY, Ohio (May 3, 2016) — Cooper Tire & Rubber Co.'s operating profit, aided by low raw materials costs, jumped nearly 30 percent in the first quarter, but management expects materials costs to be up in the second quarter, eating into the profit margin as the year unfolds.
The Findlay-based tire maker reported operating income of $91.1 million for the quarter ended March 31, on 2-percent lower sales of $649.8, which yielded an operating ratio of 14 percent, up three-plus points.
Sales revenue fell despite 1.9-percent higher unit sales, a shift that Cooper attributed to unfavorable price and mix ($17 million) —which is linked to net price reductions related to lower raw material costs — along with $8 million of negative currency impact.
The unit volume was up internationally but down in the Americas, where Cooper's sales fell 3.2 percent to $579.3 million.
The company's unit sales volume fell 1.4 percent in the U.S., where overall industry shipments were up 6.2 percent, according to the Rubber Manufacturers Association (RMA).
Brad Hughes, Cooper COO and senior vice president, noted in a conference call with analysts that sales of private brand tires contributed to the decline, but stressed that Cooper's house brands outperformed the industry's gains.
Likewise, sales of Cooper's Roadmaster truck tire brand, imported from China, outperformed the U.S. industry, rising 4.1 percent.
In general, he said, profitability of house brands is better than that of the private label business, thus contributing to the operating profit margins.
In North America, new products — those launched in the last two years — represent nearly one-third of sales.
The company's Americas business reported 17.8-percent better operating profit of $106.1 million, which raised the unit's operating margin three-plus points to 18.3 percent.
The higher operating profit reflected $27 million of favorable raw material costs and $6 million of lower product liability costs, which were partially offset by $5 million of unfavorable manufacturing costs, $5 million of unfavorable selling, general and administrative costs, $5 million of negative currency impact and $2 million due to lower unit volume.
The higher manufacturing costs were concentrated in the Americas segment, Cooper said, related to the greater complexity of manufacturing more high-value, high-margin tires along with nonrecurring costs in its Mexico tire plant related to manufacturing process changes implemented in the first quarter.
Sales revenue in the international segment fell 3.6 percent to $103.2 million despite 4.6-percent higher unit sales, driven by higher demand in China for both OE and replacement tires.
The international segment reported an operating loss of $1.77 million compared with an operating loss of $2.79 million in the first quarter of 2015.
Cooper's pending acquisition of 65-percent control of China's Qingdao Ge Rui Da Rubber Co. Ltd. (GRT) is expected to close in the third quarter of this year pending certain permits and approvals by the Chinese government.
For the rest of 2016, Cooper management expects the operating margin, excluding the impact of acquisitions, to be “modestly above” 2015 levels, with the international segment approaching break-even by the fourth quarter.