Cooper Tire & Rubber Company (CTB)

CTB 
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Cooper Tire & Rubber Company (CTB)

Q4 2010 Earnings Conference Call

February 25, 2011, 11:00 am ET

Executives

Curtis Schneekloth – Director, IR

Roy Armes – Chairman, CEO and President

Brad Hughes – CFO

Analysts

John Murphy – Bank of America Merrill Lynch

Pat Nolan – Deutsche Bank Securities

Himanshu Patel – JP Morgan

Brett Hoselton – KeyBanc Capital Markets

Ravi Shanker – Morgan Stanley

Saul Ludwig – KeyBanc Capital Markets

Presentation

Operator

Good morning. My name is Patrick, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Tire fourth quarter and year-end results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions)

Thank you. I like to turn the call over to Mr. Schneekloth to begin the conference.

Curtis Schneekloth

Good morning everyone. Thanks for joining our call today. My name is Curtis Schneekloth, and I serve as the company’s Director of Investor Relations. I would like to remind you that during our conversation today, you may hear forward-looking statements related to our financial results and business operations. Actual results can 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 our 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 second quarter operations and results along with some comments on the full year. The press release contains a link to a set of slides that are a summary of information, included in the press release and in the 10-K that we will file later today.

These slides are intended to help investors and analysts quickly obtain information. They will not be used as a focus of today’s call. 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 an overview of the results. Brad will then provide a discussion on some of the details by segment and comments on other matters. Roy will then summarize and provide comments on our outlook. We will then have the Q&A session. Now let me turn the call over to Roy Armes.

Roy Armes

Thanks Curtis and good morning to all. Before I turn our focus to the fourth quarter, I would like to make a couple of comments about the full-year of 2010. It was a year of solid progress for Cooper, during which we continued to build momentum in growing the business, a factor which is critical for our future success. Highlights and notable events from the year include or included record sales of $3.4 billion, an increase of 21% over the prior year, including growth in unit shipments of 8%.

We are in $2.24 per share for the year, which is more than double $1.02 earnings per share in 2009. The year also had challenges with the most notable being rapidly climbing raw material prices. I’m proud of the way the Cooper team faced these obstacles, and continued to make improvements that should provide future benefits.

Now let me provide an overview of the fourth quarter. During the second quarter, we had a net income attributable to Cooper Tire & Rubber Company of $0.64 per share or $40 million. This amount includes $1 million of costs related to restructuring charges and compares with the prior year fourth-quarter net income of $39 million or $0.63 per share, which included $12 million of restructuring charges. Consolidated net sales were a new fourth-quarter record of $920 million, and we saw growth in the top line of 19% as a result of both higher prices and a 2% increase in unit shipments over the prior year.

Our ability to grow in unit sales was limited by our capacity and the inventory we had available for sale during the quarter as demand for our products remained strong. The amount of inventory we had available for sale was impacted by the units we had in transit, held for product launches that will occur in 2011, and inventory mix.

Volume in the North American segment was up 0.5% and the International segment grew by 6%. Within the international segment both Asia and European volumes increased. Operating profit for the fourth quarter was $55 million compared with operating profit of $60 million for the same period last year. The North American segment’s operating profit was $42 million or 6.3% of net sales, while the international segment operating profit was $19 million or 5.4% of net sales.

Results for the total company in the quarter when compared with the prior year were significantly impacted by higher raw material costs of $138 million. We were able to successfully recover $115 million of these increases with improvements in price and mix. We use LIFO for cash flow assumptions, which mean that the impacts of the changes in the underlying raw material costs are visible faster than if we were on FIFO, or weighted average methodology.

Compared to the prior year, our improved manufacturing results benefited the quarter $10 million. We continued operating at very high utilization rates to meet the strong demand for our products, and will be adding capacity throughout the year similar to the actions we took in 2010, and intend to produce at least 10% more units this year. The better sales volumes improved operating profit by $8 million.

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