COOPER Tire & Rubber has posted a 31% drop in the second quarter. It said, its sales declined while costs increased.
Citing its company report, net sales were US$884 million, a decrease of US$174 million compared with the same period a year ago. Operating profit for the second quarter was US$69 million, which is US$26 million lower than the same period in 2012 and 7.8% of net sales.
In its press release, it cited that the company’s net income was at US$35 million, or US$0.55 per share, in the second quarter. This compares with US$52 million, or US$0.82 per share, for the same period last year. For the first six months of the current year, operating profit was US$166 million compared with US$143 million for the same period in 2012.
On June 12, 2013, the company has announced a merger with a wholly-owned subsidiary of Apollo Tyres Ltd. The latter will acquire Cooper in an all-cash transaction valued at approximately US$2.5 billion, and is expected to close before the end of this year.
Cooper’s second quarter operating profit comparison was impacted by several one-time items unique to the period in both 2012 and 2013. In the second quarter of 2012, operating profit included a pre-tax gain of US$7 million related to the curtailment of a pension plan within the company’s UK operations, which was partially offset by US$2 million in start-up costs for the company’s new manufacturing operation in Serbia. In the second quarter of 2013, results included US$7 million in higher costs related to the pending merger with Apollo Tyres, Ltd. The US$7 million included increased accruals for stock-based liabilities of US$3 million, reflecting the stock price appreciation following the acquisition announcement, and transaction related expenses of $4 million.
These non-recurring items account for US$12 million of the year-over-year decline in second quarter operating profit.
In addition to the one-time items, the company’s second quarter 2013 operating profit reflected US$120 million from lower raw materials costs, which was partially offset by reduced pricing and unfavorable mix of $81 million.
Lower unit volumes decreased profit by US$35 million. Selling, general and administrative costs for the period were $10 million higher than second quarter 2012, excluding the merger related costs referenced above.
The higher costs included professional fees related to the company’s ERP implementation and continued investments in brand building initiatives and increasing tyre distribution capability, primarily in China.
Manufacturing costs in the second quarter of 2013 were US$8 million higher than second quarter 2012, driven entirely by US$10 million of cost from production curtailments implemented to adjust inventory levels. Products liability expenses in the second quarter of 2013 were US$5 million lower than the same period a year ago. All other changes were $5 million unfavorable during the quarter, primarily due to higher freight and logistics costs related to managing higher inventories.
For the first six months of 2013, operating profit was US$166 million compared with US$143 million for the same period in 2012. Results for the first half of 2012 also included several one-time items: incremental costs of US$29 million related to labor issues at the company’s Findlay facility, the pension curtailment gain of $7 million referenced above, and $4 million in start-up costs at the company’s Serbia facility, which, in combination, resulted in a net negative impact of US$26 million. Results for the first half of 2013 included US$7 million of incremental costs related to the announced merger with Apollo Tyres, Ltd. Excluding these non-recurring items from both periods, operating profit was US$4 million higher year-to-date in 2013 than the same period a year ago.
“Clearly, the big news in the second quarter was the pending merger with Apollo, a transaction that, subject to customary closing conditions, will create a combined company with approximately US$6.6 billion in total sales and a strong presence in high-growth end-markets across four continents,” said Cooper Chairman, CEO and President Roy Armes.
“We are excited about the long-term growth opportunities the pending merger will create and expect it to close before the end of this year. With regard to Cooper’s second quarter results, the period was one of challenge for the economy, the tyre industry, and Cooper as we continued to navigate through a tough business environment. We are pleased with the initial reaction to the pricing changes we made toward the end of the quarter, but more remains to be seen as we enter the third quarter. While the second quarter was challenging, we are pleased to have ended the first half of 2013 with operating profit that is US$4 million higher than the same time last year, excluding one-time items. Cooper has once again demonstrated an ability to deliver bottom line results across varied industry conditions.”
The company ended the second quarter with US$244 million in cash and cash equivalents, a decrease of US$108 million from December 31, 2012, and an increase of US$3 million from second quarter 2012.