Cooper Tire (CTB) Q1 Earnings & Revenues Miss Estimates

Cooper Tire & Rubber Co. (NYSE:CTB) recorded earnings of 57 cents per share in the first quarter of 2017, which missed Zacks Consensus Estimate of 69 cents. Net income came in at $31 million compared with $59 million in the first quarter of 2016.

Cooper Tire’s revenues decreased 1% to $643 million in this quarter from the year-ago figure of $650 million. The figure also missed Zacks Consensus Estimate of $687.9 million.

Operating profit was $49 million (7.6% of sales) in the first quarter of 2017 compared with $91 million (14% of sales) a year ago. Operating profit was negatively impacted by unit volume decline in North America, as well as volatile raw material costs and product pricing environment. This decrease was partly offset by unit volume increase in the International segment and Latin America.

The company’s shares lost 9.8% to close at $39.15 on Apr 27, reflecting worse-than-expected first-quarter results.

Segment Details

Americas Tire Operations recorded an 8.3% decrease in revenues to $531 million due to lower unit volume, adverse impact of foreign currency translations and unfavorable price and mix. Operating profit in this segment declined 40.4% to $63 million, while operating margin fell from 18.3% to 11.9%. Operating profits declined due to higher raw material costs, manufacturing costs, unfavorable price and mix as well as higher other costs, partially offset by improvement in tariff reversal and lower SG&A costs.

International Tire Operations reported a 37.5% rise in revenues to $142 million, mainly due to higher unit volume as well as favorable price and mix, partially offset by a negative foreign currency impact. Operating profit came in at $2 million against an operating loss of $2 million a year ago. The improvement was backed by higher volumes as well as favorable manufacturing and other costs, which was partly offset by higher SG&A expense and negative foreign currency translation.

Financial Position

Cooper Tire had cash and cash equivalents of $365 million as of Mar 31, 2017, down from $434 million as of Mar 31, 2016. Capital expenditures in the first quarter increased to $45 million in the first quarter of 2017 from $36 million a year-ago quarter.

Share Repurchases

In Feb 2017, Cooper Tire increased the share repurchase program by $300 million and extended it till Dec 2019. During the first quarter of 2017, the company spent $17.8 million on repurchasing 472,967 shares at a price of $37.63 per share. Since Aug 2014, Cooper Tire has bought backa total of 12.7 million shares at an average price of $34.21 per share.

Outlook

Cooper Tire expects unit volume growth in the U.S to improve relative to the industry in the second quarter and be in line with the industry from the second half of the year.

Cooper Tire expects operating margin of the full year 2017 to be at high end of the previously announced mid-term target of 8% to 10%. First half of the year is expected to see margins at the low end of the guidance with the figure exceeding 10% in the second half. The International Tire Operations segment is expected to see improved operating profit this year, including its recent acquisition of GRT in China.

For 2017, capital expenditures are still expected between $220−$250 million. The effective tax rate for the year is expected to be 30−33%.

Price Performance

Cooper Tire underperformed the Zacks categorized Rubber-Tires industry over the last three months. The company returned 11.9% over this period compared with a 16.4% gain recorded by the industry. The share price weakened due to the lower-than-expected earnings in the last reported quarter.

Zacks Rank & Key Picks

Cooper Tire currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Some other stocks worth considering in the auto space are Cummins Inc. (NYSE:CMI) , CNH Industrial N.V. (NYSE:CNHI) and Delphi Automotive PLC (NYSE:DLPH) , each holding a Zacks Rank #2.

Expected long-term growth rates for Cummins, Delphi and CNH Industrial are 9.84%, 13.54% and 20%, respectively.

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