Cooper Tire & Rubber Company Reports First Quarter 2019 Results

FINDLAY, Ohio–(BUSINESS WIRE)–Cooper Tire & Rubber Company (NYSE: CTB) today reported first quarter
2019 net income of $7 million, or diluted earnings per share of $0.14,
compared with $8 million, or $0.16 per share, last year.

First Quarter Highlights

• Net sales increased 2.9 percent to $619 million.
• Consolidated unit volume decreased 0.7 percent compared to the first
  quarter of 2018.
• Operating profit was $26 million, or 4.3 percent of net sales, despite
  $10 million in costs related to tariffs enacted in the quarter on
  truck and bus radial (TBR) tires imported into the United States from
  China and $5 million of restructuring charges in Europe.

“Operating profit in the first quarter was higher than we expected due
to stronger than anticipated performance in North America and Asia,”
said Cooper President & Chief Executive Officer Brad Hughes. “Our
Americas segment delivered an operating profit of $39 million, up $8
million from year ago, despite the $10 million impact of new TBR tariffs
in the period this year. For the third consecutive quarter, we achieved
unit volume growth in the U.S. In Asia, our business performed better
than expected in what continues to be a challenging economic
environment. In fact, third-party sales were up year over year in the
region, but this was more than offset by lower intercompany shipments
from China to North America.

“Moving forward, we will continue to make progress on our strategic
priorities during 2019, and believe underlying macro-conditions will
support growth in tire demand, particularly in the U.S. As a result, we
continue to expect modest global unit volume growth for Cooper in 2019
and full year operating profit margin to improve compared with 2018. We
are confident that our strategic plan remains the right path to achieve
our goals and help drive shareholder value.”

Consolidated Results

First quarter net sales were $619 million, an increase of 2.9 percent,
compared with $601 million in the first quarter of 2018. Net sales
included $24 million of favorable price and mix, which was partially
offset by $4 million of lower unit volume and $2 million of unfavorable
foreign currency impact.

Operating profit was $26 million, unchanged compared with the first
quarter of 2018. The quarter included $14 million favorable price and
mix, which was partially offset by $3 million of unfavorable raw
material costs, $3 million of higher other costs and unfavorable volume
of $2 million. Operating profit benefited from manufacturing
improvements, including better utilization, of $5 million and reduced
product liability costs of $4 million. Negatively affecting the quarter
were $10 million of tariffs enacted in the first quarter of 2019 on TBR
tires imported into the U.S. from China and $5 million of restructuring
costs related to Cooper Tire Europe’s decision to cease light vehicle
tire production at its Melksham, England facility.

Cooper’s first quarter raw material index increased 2.4 percent compared
to the first quarter of 2018. The raw material index decreased
sequentially from 165.1 in the fourth quarter of 2018 to 160.4 in the
first quarter of 2019.

The effective tax rate for the first quarter was 46.9 percent compared
to 27.8 percent for the same period the prior year. The tax rate for the
first quarter of 2019 includes the impact of final regulations related
to U.S. income tax reform, while the first quarter 2018 rate included
discrete items related to the accrual of additional uncertain tax
positions pertaining to previous years. The effective tax rate is based
on forecasted annual earnings and tax rates for the various
jurisdictions in which the company operates.

At the end of the first quarter, Cooper had $212 million in cash and
cash equivalents compared with $213 million at the end of the first
quarter of 2018. Capital expenditures in the first quarter were $60
million, which was equal to the same period a year ago.

The company generated a return on invested capital, excluding the impact
of the goodwill impairment charge in the fourth quarter of 2018, of 9.8
percent for the trailing four quarters.

Americas Tire Operations

First quarter net sales in the Americas segment increased 6.1 percent as
a result of $31 million of favorable price and mix, which was partially
offset by $1 million of unfavorable foreign currency impact. For the
quarter, segment unit volume was flat compared to the first quarter of
2018 with a unit volume increase in North America that was offset by a
decline in Latin America.

Cooper’s first quarter total light vehicle tire shipments in the U.S.
increased 1.1 percent. The U.S. Tire Manufacturers Association (USTMA)
reported that its member shipments of light vehicle tires in the U.S.
were up 2.2 percent. Total industry shipments (including an estimate for
non-USTMA members) increased 5.6 percent for the period.

First quarter operating profit was $39 million, or 7.5 percent of net
sales, compared with $31 million, or 6.4 percent of net sales, in 2018.
Operating profit included $15 million of favorable price and mix, which
was offset by $4 million of unfavorable raw material costs. The quarter
also included $6 million of manufacturing improvements, including better
utilization, and $4 million of lower product liability costs. These were
partially offset by $10 million of additional tariffs enacted on TBR
tires imported into the U.S. from China, $2 million of unfavorable SG&A
costs, and other costs that increased by $1 million compared to the same
period a year ago.

International Tire Operations

First quarter net sales in the International segment decreased 10.8
percent as a result of $14 million of lower unit volume, $2 million of
unfavorable foreign currency impact and $1 million of unfavorable price
and mix. Segment unit volume decreased 9.1 percent, primarily due to
lower intercompany sales.

The segment’s first quarter operating loss was $1 million compared with
operating profit of $7 million in the first quarter of 2018. The
decrease included charges of $5 million related to the Melksham, England
restructuring. Additionally, the segment experienced $2 million of lower
unit volume, $2 million of unfavorable price and mix, and $1 million of
higher manufacturing costs, which were partially offset by $2 million of
lower raw material costs.

Outlook

“We are pleased that our first quarter results have helped position us
well for the remainder of the year,” said Hughes. “We expect to continue
to improve results, building on our strategic initiatives as we continue
to make tangible progress on the milestones communicated at our May 2018
Investor Day. Importantly, we remain focused on building our team’s
capabilities to advance our strategic initiatives and win in the
marketplace.”

For 2019, management continues to expect:

• Modest unit volume growth compared to 2018.
• Improving operating profit margin throughout the year, with the full
  year exceeding 2018.
• Capital expenditures to range between $190 and $210 million. This does
  not include capital contributions related to Cooper’s pro rata share
  of the previously announced joint venture with Sailun Vietnam or other
  potential manufacturing footprint investments.

For 2019, management now expects:

• Charges related to the Melksham, England restructuring to be in a
  range of $8 to $11 million, including $5 million already incurred in
  the first quarter.
• Effective tax rate in a range between 23 and 26 percent.

The 2019 expectations include tariffs already in place, but do not
include rate changes or additional tariffs that continue to be
considered, but have not yet been imposed.

First Quarter 2019 Conference Call Today at 10 a.m. Eastern

Management will discuss the financial and operating results for the
first quarter, as well as the company’s business outlook, on a
conference call for analysts and investors today at 10 a.m. EDT. The
call may be accessed on the investor relations page of the company’s
website at http://coopertire.com/Investors.aspx
or at https://services.choruscall.com/links/ctb190429.html.
Following the conference call, the webcast will be archived and
available for 90 days at these websites.

A summary slide presentation of information related to the quarter is
posted on the company’s website at http://investors.coopertire.com/Quarterly-Results.

Forward-Looking Statements

This release contains what the company believes are “forward-looking
statements,” as that term is defined under the Private Securities
Litigation Reform Act of 1995, regarding projections, expectations or
matters that the company anticipates may happen with respect to the
future performance of the industries in which the company operates, the
economies of the U.S. and other countries, or the performance of the
company itself, which involve uncertainty and risk. Such forward-looking
statements are generally, though not always, preceded by words such as
“anticipates,” “expects,” “will,” “should,” “believes,” “projects,”
“intends,” “plans,” “estimates,” and similar terms that connote a view
to the future and are not merely recitations of historical fact. Such
statements are made solely on the basis of the company’s current views
and perceptions of future events, and there can be no assurance that
such statements will prove to be true.

It is possible that actual results may differ materially from
projections or expectations due to a variety of factors, including but
not limited to:

• volatility in raw material and energy prices, including those of
  rubber, steel, petroleum-based products and natural gas or the
  unavailability of such raw materials or energy sources;
• the failure of the company’s suppliers to timely deliver products or
  services in accordance with contract specifications;
• changes to tariffs or trade agreements, or the imposition of new or
  increased tariffs or trade restrictions, imposed on tires or materials
  or manufacturing equipment which the company uses, including changes
  related to tariffs on automotive imports, as well as on tires, raw
  materials and tire manufacturing equipment imported into the U.S. from
  China;
• changes in economic and business conditions in the world, including
  changes related to the United Kingdom’s decision to withdraw from the
  European Union;
• the inability to obtain and maintain price increases to offset higher
  production, tariffs or material costs;
• the impact of the recently enacted tax reform legislation;
• increased competitive activity including actions by larger competitors
  or lower-cost producers;
• the failure to achieve expected sales levels;
• changes in the company’s customer or supplier relationships or
  distribution channels, including the write-off of outstanding accounts
  receivable or loss of particular business for competitive, credit,
  liquidity, bankruptcy, restructuring or other reasons;
• the failure to develop technologies, processes or products needed to
  support consumer demand or changes in consumer behavior, including
  changes in sales channels;
• the costs and timing of restructuring actions and impairments or other
  charges resulting from such actions, including the possible outcome of
  the recently announced decision to cease light vehicle tire production
  in the U.K., or from adverse industry, market or other developments;
• consolidation or other cooperation by and among the company’s
  competitors or customers;
• inaccurate assumptions used in developing the company’s strategic plan
  or operating plans, or the inability or failure to successfully
  implement such plans or to realize the anticipated savings or benefits
  from strategic actions;
• risks relating to investments and acquisitions, including the failure
  to successfully integrate them into operations or their related
  financings may impact liquidity and capital resources;
• the ultimate outcome of litigation brought against the company,
  including product liability claims, which could result in commitment
  of significant resources and time to defend and possible material
  damages against the company or other unfavorable outcomes;
• a disruption in, or failure of, the company’s information technology
  systems, including those related to cybersecurity, could adversely
  affect the company’s business operations and financial performance;
• government regulatory and legislative initiatives including
  environmental, healthcare, privacy and tax matters;
• volatility in the capital and financial markets or changes to the
  credit markets and/or access to those markets, including access for
  refinancing the company’s unsecured notes due in December 2019;
• changes in interest or foreign exchange rates or the benchmarks used
  for establishing the rates;
• an adverse change in the company’s credit ratings, which could
  increase borrowing costs and/or hamper access to the credit markets;
• failure to implement information technologies or related systems,
  including failure by the company to successfully implement ERP systems;
• the risks associated with doing business outside of the U.S.;
• technology advancements;
• the inability to recover the costs to refresh existing products or
  develop and test new products or processes;
• the impact of labor problems, including labor disruptions at the
  company, its joint ventures, or at one or more of its large customers
  or suppliers;
• failure to attract or retain key personnel;
• changes in pension expense and/or funding resulting from the company’s
  pension strategy, investment performance of the company’s pension plan
  assets and changes in discount rate or expected return on plan assets
  assumptions, or changes to related accounting regulations;
• changes in the company’s relationship with its joint venture partners
  or suppliers, including any changes with respect to its former PCT
  joint venture’s production of TBR products;
• the ability to find and develop alternative sources for products
  supplied by PCT;
• a variety of factors, including market conditions, may affect the
  actual amount expended on stock repurchases; the company’s ability to
  consummate stock repurchases; changes in the company’s results of
  operations or financial conditions or strategic priorities may lead to
  a modification, suspension or cancellation of stock repurchases, which
  may occur at any time;
• the inability to adequately protect the company’s intellectual
  property rights; and
• the inability to use deferred tax assets.

It is not possible to foresee or identify all such factors. Any
forward-looking statements in this release are based on certain
assumptions and analyses made by the company in light of its experience
and perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Prospective investors are cautioned that any such
statements are not a guarantee of future performance and actual results
or developments may differ materially from those projected.

The company makes no commitment to update any forward-looking statement
included herein or to disclose any facts, events or circumstances that
may affect the accuracy of any forward-looking statement. Further
information covering issues that could materially affect financial
performance is contained in the company’s filings with the U.S.
Securities and Exchange Commission (“SEC”).

Non-GAAP Financial Measures

This press release includes non-GAAP financial measures as defined under
SEC rules. Non-GAAP financial measures should be considered in addition
to, not as a substitute for, operating profit, net income, earnings per
share or other financial measures prepared in accordance with generally
accepted accounting principles (“GAAP”). The company’s methods of
determining these non-GAAP financial measures may differ from the
methods used by other companies for these or similar non-GAAP financial
measures. Accordingly, these non-GAAP financial measures may not be
comparable to measures used by other companies. As required by SEC
rules, detailed reconciliations between the company’s GAAP and non-GAAP
financial results are provided on the attached schedule. The company
believes return on invested capital (“ROIC”) provides additional insight
for analysts and investors in evaluating the company’s financial and
operating performance. The company defines ROIC as the trailing four
quarters’ after tax operating profit, exclusive of certain items
affecting comparability of results from period to period and utilizing
the company’s adjusted effective tax rate, divided by the total invested
capital, which is the average of ending debt and equity for the last
five quarters. The company believes ROIC is a useful measure of how
effectively the company uses capital to generate profits.

About Cooper Tire & Rubber Company

Cooper Tire & Rubber Company (NYSE: CTB) is the parent company of a
global family of companies that specializes in the design, manufacture,
marketing and sale of passenger car, light truck, medium truck,
motorcycle and racing tires. Cooper’s headquarters is in Findlay, Ohio,
with manufacturing, sales, distribution, technical and design operations
within its family of companies located in more than one dozen countries
around the world. For more information on Cooper, visit www.coopertire.com,
www.facebook.com/coopertire
or www.twitter.com/coopertire.

Contacts

Investor Contact:
Jerry Bialek
419.424.4165
[email protected]

Media Contact:
Anne Roman
419.429.7189
[email protected]

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