Cooper Tire & Rubber Company has reported an increase in net sales for the first quarter of 2008. Despite the increased cost of raw materials and decreased volumes in North America, the company also saw record sales overseas and a company-wide operating profit of $10 million.
The company reported net income of $2 million, or 3 cents per share, for the quarter ended March 31, 2008. Net sales for the period were $679 million, an increase of $10 million over the prior year. The increased revenues were driven by volumes in the International segment. Net income for the quarter includes $344 thousand of income from discontinued operations net of income taxes compared to $1 million in 2007.
Cooper Tire repurchased 803 thousand shares for $14 million. This brings the company's total shares repurchased in the last six months to 3.8 million, or six percent of the company's outstanding shares. Debt repurchases during the quarter totaled $14 million.
North American Tire generated sales of $498 million, down 3 percent from 2007's record first quarter, and $8 million in operating profit which was considerably below the first quarter of 2007. The segment's decrease in sales, compared to the first quarter of 2007, was the result of lower unit volumes partially offset by improved mix. The largest volume decreases were in the areas of economy passenger and light truck tires. While this shortfall was greater than industry declines as reported by the Rubber Manufacturers Association, a portion of the decline was a result of the company's strategic decisions to eliminate one brand and to exit sales of certain less profitable lines. The company had also benefited during the first quarter of 2007 from the strike of a competitor.
Operating profit for North American Tire declined year over year as a result of several key operating factors. An improved price to raw material relationship of $7 million compared to the first quarter of 2007 was offset by the decreased volumes, affecting operating profit by $12 million. Plant operations improved sequentially as the benefits from projects implemented in the second half of 2007 were delivered. Products liability expense for the quarter was $14 million higher, mostly related to revised estimates on existing reserves.
The declining dollar's impact and other factors are driving record-high raw material prices, specifically, in natural rubber and oil-derived materials. The LIFO accounting method results in the most recent costs being charged against sales. When costs moderate, the North American operations will experience lower charges to cost of goods sold than would be reported under a first-in, first-out accounting method.
The North American segment was successful in rebuilding inventories to more acceptable levels while maintaining industry leading fill rates for its customers.
Cooper Tire's International Tire Operations reported sales of $232 million in the quarter, an increase of 27 percent compared with the first quarter of 2007. The segment's operating profit improved by 13 percent to $7 million from the prior year. This increase was driven by higher unit volumes and pricing, offset by increased raw material and advertising costs in China as market development activities continue.
Recent changes in macroeconomic conditions in North America have created a new set of challenges for our Company. Consumers have reduced the number of miles driven in reaction to the economic slowdown, and subsequently are delaying tire purchases. Raw material costs have continued to climb and show no signs of declining in the near term.
"Despite these headwinds, we are well-positioned and fully committed to our long-term strategy to build a sustainable and cost competitive supply of tires, profitably grow our business, and increase our organizational capabilities," says Roy Armes, the company's chief executive officer. "We are fortunate to be in a position to deal with this current economic environment with a strong balance sheet, high liquidity levels and the anticipated sale of our investment in Kumho Tire Company. We have the financial strength to pursue these goals going into the second quarter, the rest of the year and beyond."
The company's plans for the coming months include increasing its focus on delivering cost improvements with the many initiatives it has already put in place. These effords, along with seasonal volume increases and good order patterns across specific profitable tire lines, are projected to produce favorable results as the economy improves.
For more information about Cooper Tire & Rubber, visit the company's Web site.