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Cooper is reporting a loss of $143 million, or $2.43 per share, for the final quarter of 2008. Sales for the period were $636 million, down $130 million from 2007’s figures. The decreased revenues were driven by volume declines offset by improved pricing and product mix, according to the company.
Throughout 2008, Cooper generated sales of $2.9 billion, down slightly from 2007. Losses were $219 million for the year, compared to a 2007 income of $91 million.
“The tire industry and our business are under intense pressure from several angles,” says CEO Roy Armes. “These include volatile raw material costs, decreased global demand and more intense competition. We are proactively taking steps to implement elements of our strategic plan and at the same time address market conditions.”
He goes on to note how “we are focused on improving our global cost structure and are beginning to see some of the benefits from these actions; unfortunately much of what we have done is camouflaged by current market conditions.”
A better financial picture is anticipated down the road. “While the near term outlook is pressured by macroeconomic events around the globe, we believe the actions we are taking are appropriate and will strengthen our business longer-term,” Armes says.
“We have been able to maintain considerable cash reserves to support our plans, and we maintain unused existing credit facilities. We are repositioning Cooper to emerge from the current recession a stronger competitor,” he notes.
Cooper’s results from the fourth quarter of 2008 included pretax restructuring charges of $76 million related to the impending shuttering of its Albany, Ga. plant. The company also had a $31 million pretax charge for “impairment of goodwill” within the international segment. Results were pressured by high raw material costs plus production curtailments as the company strives to align inventory with demand.
North American tire operations generated sales of $511 million during the final months of 2008, down from 2007’s record fourth quarter. Losses were $109 million, compared with a profit of $45 million during the same period in 2007.
“Sales were affected by weak demand in North America as consumers reacted to the credit crisis and increased gas prices.” The most significant volume decreases were in the broadline and light truck product segments, and were particularly acute in the private brand distributor channel.
“The Cooper brand continued to perform well in the U.S. market compared to the Rubber Manufacturer Association’s (RMA) reported shipments. The company also had success in expanding its market presence in Mexico and Canada.”
Its North American profits declined during the fourth quarter, year over year, as a result of several key factors, says Armes. Raw material cost increases during the quarter negatively affected results by $79 million, compared to 2007’s fourth quarter. This was partially offset by price and mix increases of $49 million. Volume decreases impacted profits by $33 million.
The curtailment of production resulted in unabsorbed fixed overhead amounting to $20 million. Manufacturing operations improved by $6 million, despite increased utility costs, as a result of the company’s continued focus on improvement in this area, according to Armes. Restructuring charges came to $76 million during the quarter. The fourth quarter of 2007 included an $8 million last-in, first-out (LIFO) inventory benefit, which did not repeat in 2008.
High prices for raw materials, coupled with the use of LIFO cost flow assumptions for inventory accounting in North America, have contributed to decreased earnings, he notes. The LIFO accounting method charges the most recent costs against sales and, in periods of rising raw material costs, results in lower profits compared to other inventory accounting methods.
When costs moderate, in the short term, the North American operations will experience lower charges to cost of goods sold than would be reported under other inventory costing methods, explains Armes.
On Dec. 17, the company announced the impending closure of the Albany plant. The total restructuring charges were estimated to be $150 million to $175 million, of which 50 percent to 60 percent would be non-cash. The equipment write-down charge taken during the fourth quarter of 2008 was $76 million. Armes now estimates that the total charge will be slightly lower, somewhere in the range of $120 million to $145 million. The non-cash portion of the total is now estimated to be 60 percent to 70 percent.
Cooper’s international tire operations had sales of $176 million in the fourth quarter, a decrease from 2007’s final accounting period. This decrease is attributed to decreased volume offset by improved price and mix. Expansion of the facilities in China was partially affected by the decrease in global tire demand.
The company continued to implement price increases along with cost savings measures across its international operations in an effort to offset increased raw material costs, Armes says. The segment was also negatively impacted by the $31 million charge for impairment of goodwill. For 2008, the international segment reported sales of $975 million, an increase of 11 percent over 2007.
For more information, visit www.coopertire.com.
