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Cooper Tire & Rubber Co. (CTB - Analyst Report) posted earnings of 55 cents per share in the second quarter of 2013, down 33% from 82 cents in the prior-year quarter. The results lagged the Zacks Consensus Estimate of 89 cents by a substantial margin. Net earnings also declined significantly to $35 million from $52 million in the second quarter of 2012.

Revenues of Cooper Tire fell 16.5% year over year to $884 million in the quarter, missing the Zacks Consensus Estimate of $986 million.

Operating profit declined to $69 million (7.8% of sales) from $95 million (9%) a year ago. Operating profit in the quarter includes costs of $7 million related to the imminent $2.5 billion merger with Apollo Tyres Ltd. Operating profit in the year-ago quarter included pre-tax gains of $7 million due to the curbing of certain pension plans in Cooper Tire’s operations in the U.K., partly offset by start-up costs of $2 million related to the new manufacturing operations in Serbia.

Operating profit in the quarter was positively affected by lower material costs of $120 million. This was partially offset by $81 million in unfavorable price and mix, $10 million in higher selling, general and administrative expenses, $8 million in higher manufacturing costs of and $35 million in lower volumes.

Segment Details

The North American Tire Operations recorded a 19% decline in revenues to $623.2 million. Operating profit in the segment declined to $59.2 million (9.5% of net sales) from $65 million (8.4%) in the second quarter of 2012.

The International Tire Operations posted a 15.6% decline in revenues to $353.3 million. Operating profit fell 32.4% to $29.2 million (8.3% of net sales) from $43.2 million (10.3%) a year ago.

Financial Position

Cooper Tire had cash and cash equivalents of $244.2 million as of Jun 30, 2013, up from $240.5 million in the corresponding year-ago quarter-end. Long-term debt stood at $326.9 million as of Jun 30, 2013, translating into a long-term debt-to-capitalization ratio of 32.2%. This compares with $337.1 million or 42.9% as of Jun 30, 2012.


Cooper Tire expects raw material cost to decline sequentially by 4% in the third quarter of 2013. For 2013, capital expenditures are expected between $190 million and $210 million.

Our Take

Cooper Tire & Rubber Company, a Zacks Rank #4 (Sell) stock, believes that an altered business model and efficient execution of the business plan should help the company improve results despite expected volatility in raw material pricing, weakness in tire demand and weak international macro economic conditions. Additionally, the company is expected to witness a surge in growth opportunities following the completion of the merger with Apollo Tyres.

Stocks that are performing well in the broader industry where Cooper Tire operates include Goodyear Tire & Rubber Company (GT - Analyst Report), Continental AG (CTTAY) and Visteon Corp. (VC - Snapshot Report). Goodyear carries a Zacks Rank #1 (Strong Buy) while Continental and Visteon hold a Zacks Rank #2 (Buy).

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