Cooper Tire & Rubber Company (CTB)
Q3 2010 Earnings Call Transcript
November 1, 2010 11:00 am ET
Curtis Schneekloth – Director, IR
Roy Armes – Chairman, President and CEO
Brad Hughes – VP and CFO
Rod Lache – Deutsche Bank
Himanshu Patel – JP Morgan
Ravi Shanker – Morgan Stanley
Brett Hoselton – KeyBanc Capital Markets
Previous Statements by CTB
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Mr. Curtis Schneekloth, Director of Investor Relations, please go ahead.
Good morning, everyone. Thank you for joining our call today. My name is Curtis Schneekloth and I serve as the company’s Director of Investor Relations.
To begin with, I would like to remind you that during our conversation today you may hear forward-looking statements related to the future financial results and business operations of Copper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections as a result of factors over which the company has no control. Information on these risk factors and additional information on forward-looking statements are included in the press release and in the company’s reports on file with the Securities and Exchange Commission.
With me today are Roy Armes, Chairman, Chief Executive Officer and President; and Brad Hughes, who serves as Chief Financial Officer.
In association with the press release, which was sent out earlier this morning, we will provide an overview of the company’s third quarter operations and results. The press release contains a link to set up slides that our summary of information included in the press release and in the 10-Q that will be filed. These slides are intended to help investors and analysts quickly obtain information. They will not be used as the focus of today’s call, so you don’t need them to follow along.
Following our prepared comments, we’ll open the call to participants for a question-and-answer session. Today’s call will begin with Roy providing the overview of our results. He will turn it over to Brad for a discussion on some of the details by segment and comments on other matters. Roy will then summarize and provide comments on our outlook.
Now, let me turn the call over to Roy Armes.
Thanks, Curtis, and good morning to everyone. During the third quarter we had net income attributable to Cooper Tire & Rubber Company of $0.71 per share or $45 million. This amount includes $5 million of costs related to restructuring charges and this compares with the prior year third quarter income of $47 million or $0.84 per share, which included $14 million of restructuring charges.
Year-over-year results were impacted most significantly by the continued high cost of raw materials that was partially offset by price and mix improvements. We also increased utilization rates at our facilities and achieved better overall manufacturing costs.
We saw growth in the top line of 10% as higher prices were implemented to address the higher raw material costs, and while unit shipments were down by about 4% compared to last year, demand for our product remained strong.
A year ago we had high levels of inventory available to support demand, and in contrast, we entered the third quarter of 2010 with lower inventory levels. The net benefit of improved leverage and manufacturing results were a positive $17 million during the quarter versus the prior year.
We operated at very high utilization rates during the quarter as we continued with an aggressive volume ramp up that involves nearly all of our facilities and will continue into next year.
During the ramp-up, there were some temporary additional costs associated with that and we chose to produce units at a premium costs by running over time on some of the holidays. This decision was made to help meet the strong demand of our products. We are confident and committed to further improving the cost structure of our operations moving forward.
Now, with that said, let me present an overview of the operations. On a consolidated basis, sales for the third quarter increased over the prior year third quarter by 10% to $883 million. Volume in the North American segment declined by 3% and the International segment declined by 6.7%.
Within the International segment, Asian operations were up slightly including their inter-company sales, while Europe volumes declined. As mentioned earlier, both of these numbers should be considered with the comments about available inventory levels.
Operating profit for the third quarter was $67 million compared with operating profit of $71 million for the same period last year. Results for the total company in the quarter when compared with the prior year were driven by higher raw material cost of $155 million, partially offset by the improvements in price and mix of $123 million, improved manufacturing, including lower production curtailments, of $17 million and $9 million of lower restructuring costs contributed favorably to our performance, and other cost factors, including currency were better by $7 million and lower volumes were $5 million unfavorable.
The North American segment’s operating profit was $55 million for the third quarter or 8.5% of net sales. This is an increase of $7 million when compared with the same period in 2009. Favorable pricing and mix were offset by higher raw material costs. Improved manufacturing operations, lower production curtailments and decreased restructuring charges improved results for the segment.