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Cooper Tire (CTB) Beats on Q3 Earnings, Misses Revenues

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Cooper Tire & Rubber Co.’s CTB shares gained 7.1% to close at $36.75 on Oct 31, after the company reported adjusted earnings of $1.04 per share in the third quarter of 2016 that topped the Zacks Consensus Estimate of $1.01. Moreover, earnings were higher than 93 cents per share recorded in the year-ago quarter. Reported net income amounted to $49 million (90 cents per share) compared with $53 million in the third quarter of 2015.

Cooper Tire reported revenues of $751 million that fell short of the Zacks Consensus Estimate of $791 million as well as the year-ago figure of $782 million. Revenues declined due to the adverse impact of price and mix, currency changes and decrease in unit volume.

Operating profit was $78 million (10.4% of sales) in third-quarter 2016 compared with $82 million (10.5% of sales) a year ago. Adjusted operating profit excluding a non-cash pension settlement charge of $11.5 million was $89.7 million. Operating profit was negatively impacted by higher manufacturing costs and currency headwinds, partially offset by favorable selling, general and administrative (SG&A) costs as well as beneficial raw materials cost.

Segment Details

Americas Tire Operations recorded a 4.2% decrease in revenues to $673 million, due to unfavorable price and mix, negative foreign currency impact, and lower unit volume. Operating profit in the segment remained flat year over year at $102 million, while the operating margins improved from 14.6% to 15.1% in the quarter. Operating profits were driven by favorable raw material and SG&A costs as well as an improvement in other costs, which offset higher manufacturing costs.

International Tire Operations reported a 5.1% fall in revenues to $113 million, mainly due to lower unit volume and negative foreign currency impact, partially offset by favorable price and mix. Operating profit amounted to $3 million, against an operating loss of $5 million recorded a year ago. The improvement was backed by favorable raw material costs and SG&A expenses, partially offset by currency headwinds.   

Financial Position

Cooper Tire had cash and cash equivalents of $450 million as of Sep 30, 2016, up from $424 million as of Sep 30, 2015. Long-term debt was $296.5 million as of Sep 30, 2016, compared with $297 million as of Sep 30, 2015.

In the first nine months of 2016, Cooper Tire had cash flow of $176.7 million from operating activities compared with $133.2 million in the year-ago period. Capital expenditures increased to $41 million in the third quarter of 2016 from $40 million a year ago.

Share Repurchases

In Feb 2016, Cooper Tire authorized the repurchase of shares worth up to $200 million. During the third quarter of 2016, the company repurchased 865,163 shares for $28.4 million.

From Oct 1 through Oct 26, 2016, Cooper Tire repurchased another 196,138 shares for $7.4 million. The remaining authorization of $128 million for repurchase expires on Dec 31, 2017. Since the company started repurchasing shares in Aug 2014, a total of 11.7 million shares at an average price of $33.93 per share have been bought back.

Outlook

Cooper Tire expects operating margin, excluding the impact of acquisitions and non-cash pension settlement charges, to increase marginally from 11.9% recorded in 2015. The International Tire Operations segment is expected to perform better than originally anticipated and generate modest profits this year.

For 2016, capital expenditures are expected between $180−$200 million, lower than the previous expectation of $210−$240 million.

Cooper Tire expects raw material costs in the fourth quarter to increase modestly from the third quarter of 2016. The company expects unit volumes to increase globally in the fourth quarter.

Cooper Tire’s plan to acquire a majority interest in GRT, a joint venture in China, to produce TBR tires for markets worldwide, remains on track. It expects the deal to close in the fourth quarter of 2016, subject to receiving certain permits and approvals from the Chinese government.

COOPER TIRE Price, Consensus and EPS Surprise

 

COOPER TIRE Price, Consensus and EPS Surprise | COOPER TIRE Quote

Zacks Rank

Cooper Tire currently has a Zacks Rank #2 (Buy).

Some other well-ranked stocks in the auto space include Spartan Motors Inc. SPAR, Gentex Corp. GNTX and Standard Motor Products Inc. (SMP - Free Report) .

Standard Motor has a long-term expected growth rate of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spartan Motors, carrying a Zacks Rank #2, has a long-term expected growth rate of 15%.

Gentex, also a Zacks Rank #2 stock, has a long-term expected growth rate of 10%.

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