Cooper Tire & Rubber Company (CTB)

CTB 
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Cooper Tire & Rubber Co. (CTB)

Q2 2011 Earnings Call

August 4, 2011 11:00 am ET

Executives

Curtis W. Schneekloth – Director, Investor Relations

Roy V. Armes – Chairman, President and Chief Executive Officer

Bradley E. Hughes – Vice President and Chief Financial Officer

Analysts

Patrick Nolan – Deutsche Bank Securities

Ravi Shanker – Morgan Stanley

Vivek Alok – JPMorgan

Brett Hoselton – KeyBanc Capital Markets

Saul Ludwig – KeyBanc Capital Markets

Presentation

Operator

Good morning. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Tire Second Quarter 2011 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. Mr. Curtis Schneekloth, you begin your conference.

Curtis W. Schneekloth

Good morning everyone and 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 financial results and business operations of Cooper Tire.

Actual results may differ materially from current management forecast and projections. Such difference may be a result of factors over which the company has limited or 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 quarterly operations and results. Press release contains a link to a set of slides that are a summary of information, included in the press release and in 10-Q.

These slides are intended to help investors and analysts quickly obtain information and they are available like coopertire.com. 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 the overview of our results. You will then turn it over Brad for discussion on some of the details by segment and comments on other matters. Roy will summarize and provide comments on our outlook afterwards.

Now let me turn the call over to Roy.

Roy V. Armes

Thanks Curtis and good morning. First of all I want to see upfront that this was not the result that we expected for the second quarter given the strength of the market during the first quarter. Industry demand drop more sharply and more quickly then any one anticipated, but having said this we’ve taken the appropriate actions in response to the change circumstances and in our view our underlying business fundamentals remain strong.

Barring any further significant softening to volumes or other unforeseen events such as spikes in raw materials cost et cetera. We expect our margins to improve in the second half of 2011 compared to the second quarter. Now what I'd like to do is to provide you with an overall summary of our business results.

Consolidated net sales were $922 million for the quarter an increase of 15% reflecting higher prices that offsetting 9% reduction in volumes. Demand for our products was strong in several areas including UHP or Ultra High Performance tires, light truck tires and commercial tires.

Year-to-date we are quadruple that industry growth in UHP tires and have grown commercial tire business by over 50% compare to 9% growth by RMA members. Unfortunately weakness in the broad line segment offset these positives. Unit volumes were down 8% for the North American segment and 9.7% for the international segment. In North America the segment performance for the first two months of the quarter was weaker than industry but rebounded to outperform the industry in June.

Within the International segment Asian volumes decreased while European volumes increased. Decreases in Asian volumes were the result of facing out less profitable bias products weakness in the domestic Chinese truck and bus tire market and our decision to prioritize profit over volume and certain export markets.

While volumes during the quarter were lower than expected, there were several positive developments. The negatives were really isolated to broadline tires in the US and the decrease is related to protecting our margins in the international business. We continue to be very optimistic regarding the medium and long-term prospects for the company as we benefit from the actions we have taken to strengthen the company, and there were several reasons for this optimism including the new products we have launched that are receiving very positive reviews, our continued attack on cost and the investments we have made to strengthen our manufacturing footprint.

Operating profit for the second quarter was $24 million compared with operating profit of $34 million for the same period last year. The North American segments operating profit was $4 million or 0.6% in net sales while the International segment operating profit was $23 million or 5.9% of net sales.

And compared to the prior year, lower volumes reduce to total company results by $14 million and products liability costs were $12 million higher. Higher raw material costs of $194 million were only partially offset as we were able to successfully recover a $184 million through improvements in price and mix.

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