Cooper Tire & Rubber Company Reports Record Third Quarter Sales
Third Quarter Highlights
-- Net sales increased 9 percent to a new third quarter record -- Tire Group sales increased 13 percent to all-time record -- Tire Group operating profit increased 23 percent -- Automotive Group sales increased 3 percent to a third quarter record
FINDLAY, Ohio, Oct. 16 -- Cooper Tire & Rubber Company today reported a 9 percent year-over-year increase in net sales, achieving a third quarter company record. Total net sales for the company increased to $913 million in the quarter ended September 30, 2003 compared to $839 million in the same period last year as the Tire Group achieved an all-time sales record and the Automotive Group achieved a third quarter record.
(Logo: http://www.newscom.com/cgi-bin/prnh/20010404/COOPERLOGO )
From the record sales, the Company generated net income of $18 million, or earnings per share of 24 cents. Excluding restructuring expense of $5 million or 5 cents per share, the company earned 29 cents per share. This result compares to reported earnings of $23 million or 31 cents per share in the third quarter of last year.
For the first nine months of the year, Cooper generated net sales of $2.5 billion and net income of $46 million, compared to net sales of $2.5 billion and net income of $88 million in the first nine months of 2002.
Automotive Group Operations
The Automotive Group's third quarter sales totaled $392 million, an increase of 3 percent compared to last year's third quarter sales of $381 million. A significant increase in new business and positioning on platforms with strong volumes outweighed the impact of lower overall light vehicle production in North America and pricing concessions on sales. Foreign currency exchange rates also had a positive impact on sales. In North America, the Automotive Group's sales declined by approximately 1 percent, outpacing the industry overall in which light vehicle production declined by 5 percent.
The Company's international automotive component sales increased by 15 percent during the quarter while light vehicle production in Europe and South America declined by 3 percent and 5 percent, respectively. New business and the impact of foreign currency exchange rates drove international sales higher and more than offset the impact of lower vehicle production.
New business and products accounted for $43 million in sales during the quarter.
Automotive Group operations generated operating profit, pre-restructuring of $16 million during the quarter compared to $29 million one year ago. The lower profitability was largely the result of lower overall production volume on existing platforms, pricing concessions to customers who are increasingly aggressive in their demands of suppliers, and higher scrap rates in the Company's sealing operations. These were partially offset by the incremental profit generated from new business and continuing cost savings through lean initiatives.
Tire Group Operations
The Company's Tire Group reported all-time record net sales of $526 million in the quarter, up 13 percent compared to $464 million in the third quarter of 2002. Total tire unit sales increased by 11 percent.
The Company gained market share during the quarter in nearly every category of light vehicle tires. In passenger tires, the company increased share in the broadline category to better than 20 percent, P-Metric SUV tires to better than 15 percent and high performance tires to a market share now in excess of 5 percent. In light truck tires, the Company's market share exceeded 21 percent in the quarter. Sales of Cooper's high performance tire lines, including the Zeon 2XS and the Zeon XST sport truck tire, increased significantly as did the sales of P-Metric SUV tires, which improved product mix. Overall, net sales of the Company's house brand tires increased by 16 percent and unit sales increased by 13 percent.
Third quarter operating profit for the Tire Group was $34 million, compared to $27 million in the same period last year. The improvement was the result of record sales, higher production volumes and improved overhead absorption, and improved product mix. These were partially offset by higher raw material costs, higher labor and overtime expense, an increase in the provision for customer volume rebates and higher freight costs.
During the quarter, the Company reviewed its reserves for tire product warranties. This review resulted in an increase to our regular warranty accrual and a reduction of the estimated enhanced product warranty costs established in connection with the settlement of class action suits during 2001. The net impact of this review was a reduction of total warranty accruals of $1.6 million.
Cost Savings and Lean Initiatives
Continuing focus on lean initiatives resulted in savings of $37 million during the quarter. Additionally, Cooper continues to progress in its restructuring projects in order to optimize its cost structure. Restructuring charges, related primarily to the Company's decision to close two automotive plants, totaled $5 million during the quarter.
Commenting on the quarter's results, Cooper's chairman, president and chief executive officer Thomas A. Dattilo said, "Tire demand picked up late in the second quarter and continued strong right through the third quarter. As we have been saying, we expected the market to turn around in the second half of the year and it certainly has. In fact, orders throughout the quarter were so strong that our fill rates were below our target of 95 percent, leaving some additional sales to carry into the fourth quarter. Following this strong quarter, we have now gained market share on a year-to-date basis in light truck tires and we have closed the gap significantly in passenger tires."
"In our Automotive Group, new business contributed $43 million in sales to the record quarter," Dattilo continued. "We had a solid quarter and were able to grow our total sales even though light vehicle production was down."
Outlook
"We are optimistic about improving conditions in the tire industry. We expect the improving economy and consumer confidence to spur increasing replacement tire demand. We expect those same factors to support light vehicle production at current levels through the end of the year and increasing in models that are important to us next year. As the market comes back, we are finding ways to outpace our competitors and our industries. We have outstanding relationships with some of the best customers in the industry and we are growing our business as they grow theirs. This should result in an additional 4 - 5 million unit sales next year.
"Continued market share gains will push us to near or beyond our existing tire production capacity in several product lines. We will continue to advance our Asian strategy to meet the capacity shortfall and keep our costs down.
"In our automotive components business we will continue to benefit from new business and our restructuring and lean initiatives. As always, our plan is to continue to grow by outpacing our competitors and our industry. As we execute our plans, we should have a solid fourth quarter with earnings in range of 40 - 45 cents per share, despite stubbornly high raw material prices," Mr. Dattilo concluded.
Cooper's management team will discuss the financial and operating results for the quarter in a conference call today at 11:00 a.m. Eastern time. Interested parties may access the audio portion of that conference call on the investor relations page of the Company's web site at www.coopertire.com .
Company Description
Cooper Tire & Rubber Company, headquartered in Findlay, Ohio, specializes in the manufacture and marketing of products for the global automotive industry. Products include automotive, motorcycle and truck tires, inner tubes, tread rubber and equipment, as well as sealing, trim, NVH control systems and fluid handling systems. Cooper has more than 20,000 employees and 52 manufacturing facilities in 13 countries. For more information, visit the Company's web site at: www.coopertireandrubber.com .
< (Statements of income and balance sheets follow ... )
Cooper Tire & Rubber Company
Consolidated Statements of Income
(Dollar amounts in thousands except per share amounts)
Quarter Ended Nine Months Ended
September 30 September 30
2002 2003 2002 2003
Net sales $839,277 $913,236 $2,488,329 $2,547,646
Cost of products
sold 729,500 806,464 2,116,486 2,237,835
Gross profit 109,777 106,772 371,843 309,811
Selling, general
and
administrative 53,096 61,969 174,031 185,774
Adjustment for
class action
warranty - (3,900) - (3,900)
Restructuring
charges 1,915 5,191 2,882 9,145
Operating profit 54,766 43,512 194,930 118,792
Interest expense 18,718 16,752 57,289 51,859
Other - net (873) (984) (2,597) (4,413)
Income before
taxes 36,921 27,744 140,238 71,346
Provision for
taxes 13,661 9,987 51,888 25,684
Net Income $23,260 $17,757 $88,350 $45,662
Basic earnings per
share $0.32 $0.24 $1.21 $0.62
Diluted earnings
per share $0.31 $0.24 $1.19 $0.62
Weighted average
shares
outstanding
Basic 73,534 73,723 73,251 73,629
Diluted 74,354 74,293 74,128 74,010
Depreciation $43,692 $46,380 $129,598 $135,256
Amortization of
intangibles $1,128 $1,101 $3,496 $3,326
Capital
expenditures $36,644 $34,090 $93,480 $107,494
Segment
information
Net Sales
Tire $464,401 $525,847 $1,311,470 $1,353,504
Automotive 381,477 392,159 1,196,871 1,209,518
Eliminations (6,601) (4,770) (20,012) (15,376)
Segment profit
Tire 27,367 33,591 107,708 63,482
Automotive 27,424 10,732 92,911 59,520
Unallocated
corporate
charges and
eliminations (25) (811) (5,689) (4,210)
CONSOLIDATED BALANCE SHEETS
September 30
2002 2003
Assets
Current assets:
Cash and cash equivalents $180,129 $37,385
Accounts receivable 519,507 670,403
Inventories 299,095 284,714
Prepaid expenses, deferred income
taxes and other 59,958 51,810
Total current assets 1,058,689 1,044,312
Property, plant and equipment 1,173,291 1,194,573
Goodwill 427,895 429,369
Intangibles and other assets 179,869 200,019
$2,839,744 $2,868,273
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $17,323 $18,816
Trade payables and accrued liabilities 466,302 492,736
Income taxes 256 -
Current portion of debt 128,942 15,179
Total current liabilities 612,823 526,731
Long-term debt 899,164 876,654
Postretirement benefits other than
pensions 207,233 217,720
Other long-term liabilities 110,728 247,667
Deferred income taxes 20,179 6,786
Stockholders' equity 989,617 992,715
$2,839,744 $2,868,273
These interim statements are subject to year-end adjustments.