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Why Is Cooper Tire (CTB) Down 2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cooper Tire (CTB - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cooper Tire due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cooper Tire Tops Q3 Earnings Estimates, Sales Lag

Cooper Tire & Rubber Company reported third-quarter 2019 adjusted earnings per share of 58 cents, down from the $1.07 recorded in the prior-year quarter. However, the bottom line surpassed the Zacks Consensus Estimate of 47 cents. This decline resulted from lower-than-anticipated revenues from both American and International Tire operations. Precisely, the firm reported revenues of $602 million and $132 million from American and International Tire operations, lagging the Zacks Consensus Estimates of $631 million and $153 million, respectively.

The company’s net sales declined 4.5% year over year to $704 million. This downside stemmed from unfavourable foreign-currency impact and lower unit volumes, partly offset by improvements in price/mix. The reported figure also missed the Zacks Consensus Estimate of $732 million.

Gross profit amounted to $114.4 million, down from the $139.9 million recorded in the prior-year quarter. Additionally, operating profit came in at $52.8 million, significantly down from the year-earlier quarter’s $81.2. Higher costs related to new tariffs on products imported into the United States from China dampened the company’s profitability during the reported quarter.

Segment Details

Net sales in the Americas Tire Operations declined 4.3% year over year to $602 million. Operating profit in the segment decreased 22.2% to $68 million due to increase in product liability, SG&A and manufacturing costs, along with new and incremental tariffs, this year. Further, operating margin was 11.3% compared with 13.9% in the prior-year quarter.

Revenues in the International Tire Operations declined 18.6% to $132 million. Operating loss was $5 million as against operating income of $6 million recorded in the year-ago quarter. Operating margin was a negative 3.7% as against a positive 3.7% reported in the prior-year quarter. The segment countered challenges from lower intercompany shipments, and higher restructuring and manufacturing costs, among other costs.

Dividend &Financial Position

The firm announced a quarterly dividend of 10.5 cents a share, payable on Dec 27, to shareholders of record on Dec 2, 2019. Notably, this represents the 191st consecutive quarterly dividend paid by the company.

At the end of the third quarter, Cooper Tire had cash and cash equivalents of $137 million compared with $209 million recorded in the year-ago quarter. Capital expenditures flared up to $50 million, from the year-ago quarter’s $46 million. At the end of the third quarter, the company invested $49 million in its new joint venture (JV) with Sailun Vietnam.

As of Sep 30, 2019, long-term debt and finance leases amounted to $121million, down from $295 million as of Sep 30, 2018. The debt-to-capital ratio stands at 25.08%.

Outlook

The company projects its operating margin to improve sequentially in the fourth quarter of 2019 on the back of upbeat trends in pricing, mix and raw materials. The full-year operating profit margin is projected at 5.9%, suggesting a year-over increase. Capital expenditure is expected in the $180-$200 million band.

The company expects effective tax rate, excluding significant discrete items, in the range of 23% to 26%. Charges related to the Melksham, the U.K. restructuring are estimated in the$8-$10 million range.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.95% due to these changes.

VGM Scores

Currently, Cooper Tire has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cooper Tire has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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