For Cooper Tire & Rubber Co., achieving its profitability and growth goals in the coming years could be a case of “less is more.”
Two of Cooper’s key operating targets through 2018 are to reduce labor costs at its three U.S. tire plants while raising output and reducing the number of “product families” by as much as 60 percent, Cooper Chairman and CEO Roy Armes and other executives told investors and financial analysts at a May 15 gathering in New York.
These and other operating metrics should help Cooper solidify its operating ratio at 8 to 10 percent short-term and more than 10 percent long term, Mr. Armes said.
Less than six months removed from the implosion of its planned merger with India’s Apollo Tyres Ltd., Cooper management outlined its strategies for continued strong shareholder value creation. The executives did not dwell on the fallout of the protracted unraveling of the proposed merger or comment on its potential impact on earnings.
Concentrating on its efforts to improve profitability, Mr. Armes noted Cooper trimmed manufacturing costs 16 percent from 2008 to 2012 and expects to cut costs 14 percent further through 2017 through projects that position the company’s plants worldwide “to be even more globally competitive while retaining a focus on safely producing high quality products.”
These efforts include increased automation and the consolidation of product family platforms. The latter is designed to reduce manufacturing complexity and costs, enhance sourcing flexibility and speed up product development, Mr. Armes said, while continuing to allow for product differentiation within global regions.
“Cooper has strengthened the foundation of our business over the past several years by improving efficiencies and enhancing our technical capabilities to launch world-class products in the fastest growing and highest value segments of the tire business,” Mr. Armes told investors and analysts.
Regarding expansion, Mr. Armes said Findlay, Ohio-based Cooper has the potential to add capacity for 17 million to 18 million units a year at its existing factories at about one-third the cost of opening new plants.
Other highlights of the presentation included:
- Cooper intends to pursue additional OE contracts domestically and internationally “when it aligns with our strategic plan,” Mr. Armes said.
- The company remains committed to China — both for growth domestically and as a source of truck and bus radials for global distribution.
- Product line renewal is a high priority — products introduced in the past two years make up about 30 percent of annual sales and 2014 should see a record number of new tires launched.
- The firm’s International Segment is expected to account for half of Cooper’s global revenues, up from about 35 percent currently.
- Cooper plans to continue expanding global manufacturing capacity to low-cost countries; that share hit 43 percent last year.
- Another goal is to strengthen sales efforts in Latin America and throughout Europe.
- The tire maker aims to resolve the ownership issue with Chengshan (Shandong) Tire Company Ltd. (CCT), its joint venture in Rongcheng, China.
“The ultimate ownership of the CCT joint venture may impact specific plans and timing related to our financial targets, as well as our capital deployment plans for 2014,” Cooper CFO Brad Hughes said. “CCT ownership must be resolved before we can be specific about these matters, yet we are confident that with any ownership outcome, Cooper is well positioned to grow and to continue to drive strong shareholder value creation.”