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Cooper Tire & Rubber (CTB)

Participants
Jerry Bialek VP & Treasurer
Brad Hughes President and CEO
Chris Eperjesy SVP and CFO
Rod Lache Wolfe Research
Unidentified Analyst KeyBanc Capital Markets
Bret Jordan Jefferies
John Healy Northcoast Research
Call transcript
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Operator

Good morning, and welcome to the Cooper Tire & Rubber Company's Third Quarter 2019 Earnings Call and Webcast. At this time all participants on the call are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

As a reminder, this conference is being recorded. turn over to Bialek. to like would the now conference Jerry I go Please ahead. you. Thank

Jerry Bialek

and joining Financial finance Good This you Chris Chief morning thank everyone Hughes; Brad for here with Bialek, and Vice Executive Officer, I'm our is Cooper's the President, Treasurer. International Chief and Eperjesy, today our Officer. Jerry today. call

over from Tire factors to current a may or on and business results During the in today reports may you on financial projections. these forward-looking results on and company earlier our earnings which information forecasts included the risk company's result Actual hear are issued the of and management future & the Cooper Such conversation differ in has no be Company. control. materially SEC. morning forward-looking with statements statements additional related file release may Rubber operations limited factors and differences we Information this of

we XXXX call, this outlook. will the overview operating of as business well and During as financial third our an quarter provide company's results,

today. reference release link measures linked be information the and note this to summarizes of reconciliation that directly news slides the include SEC in slides we'll financial about call. included to the most a earnings the later with and information GAAP XX-Q that a that in includes filed certain a measures. will measures non-GAAP set Our The Please financial on release these comparable

to open will call we participants a remarks, the prepared our question-and-answer for Following session.

to Now, Brad. the I'll turn call over

Brad Hughes

I taking the about over quarter a begin greater our performance of quarter brief review will of for to Jerry I'll Thank financial conclude third turn few your always we today I the morning and fourth questions. -- by call that for return outlook for in with detail, After and you our a then as Chris a will good everyone. to results. overview our talk will

Unit volume decreased Net net X.X% compared third to of decreased profit the quarter million. sales, to quarter X% Operating XXXX or of improvement X.X% about strong $XXX talk let's million results. quarter. XXXX. compared second a third sales Now $XX was the with sequential

of new from the $XX profit period driven improvement on operating We same pleased by Excluding have margin ago to mix, States XX% end into United products the our which would tariffs sense were quarter of deliver for materials. XX% was and in China, to imported a low in active trends million year operating the target. approached positive this third in profit raw pricing,

in U.S. our challenging As expected actions the by as regions. as market inventory conditions well in volume customer other was impacted

profit operating Americas segment margin was XX.X%.

Our vehicle complete light new international our by forward. process and including in market facility tire is substantially China of a result and should Tire Cooper production phasing conditions in tire segment a that Europe challenged weak remained at market replacement more going Melksham the Europe. competitive The is vehicle out cost

good We diversification. making TBR progress on sourcing are our footprint Global

footprint. plant in opportunities expected to tire We At TBR to on up TBR are with early agreement construction our receive Vietnam our our the Vietnam. next off-take number to sourcing is time with continue Sailun of from we new joint commercial ACTR, the tires we commence the year. production further of commercial Also evaluate same ramping diversify venture track

United manufacturer of in by Blue Speaking TBR excited Corp, the for outstanding Bird we buses named States. XXXX of are school supplier have leading been to an the

to our quality on TBR deliver and Our original Bird Cooper tires brand equipment buses. school Blue designed value,

look great a this customer are continuing pleased serve We from important recognition and them. to to earn forward to

should well add Benz I that going also business our is with expanding. Mercedes relationship and

to Mercedes on the SUV on This last Tires. original this Benz not discover the only SRX Cooper the but now year as equipment second is GLS have now to Cooper proud are model feature model. vehicle also GLE announced We tires

are excited this forward this automaker. opportunity to with We look to continuing luxury about work and

turn I on initiatives which with underperformed U.S. specifically unit the this volume that more the strategic XXXX comment remain result me impact U.S. are not we communicating. have confident the result. make the Chris been to industry. We we executing over growth Before satisfied in Well will let as are we visible it G&A and a

As which last to selling quarter, adjustments from time impact we discussed customers time inventory make can results.

our quarter this quarter. continued third believe performance third underlying in not demand the our indicative selling As Also for do we products. of is expected

quarter. complete, Cooper third While out do with industry we growth we have for industry not was selling sell the information line better than sellout data believe in the is or

Now Chris our financial will performance. review

Chris Eperjesy

profit vehicle a China down foreign Cooper as Starting $X million tire This sales liability X.X% related favorable was $XX of million operating of in the $XX unfavorable well achieved costs mix. were product currency period million quarter imported partially costs the of an Brad. to tariffs consolidated $XX XXXX. of offset of lower million by impact to year million $XX million production in of in England. resulting new Europe's net XXXX products pricing million you on the $X $XX which in million margin to in into compared Thank to decision was higher as profit sales. ago, despite Operating States compared from cease Tire with of quarter third results related This third was $XX and volume million driven unit of by restructuring expense, million United with $XXX Melksham, from same decrease light were $XXX X.X%

related quarter in product product case of liability in of the liability each resulted third the and review model reserve A the from quarter $XX to our of net with resulted in quarter liability million together XXXX. liability expense higher million XXXX liability the similar million. XXXX expenses activity This $XX fees of normal With the including benefit and costs of third a respect product operating in legal profit current in activity product product quarter for reserve increase of liability $X model. adjustment company's the expense in an a included third product to of lower benefit

Let to me with an provide update tariffs. respect

remains the the about expectation for $XX at of million. full tariffs all gross expenses Our year for impact new of

earlier the Melksham As million over substantially and of quarter now approximate in resulted complete and X third restructuring charges year-to-date. million in Brad is the X indicated transition

to range We restructuring expect million $XX charges of $X in full million. year the to be XXXX

As Cooper action we our globally. remaining indicated ultimately transmission in last leverage quarter we this the expected experienced volume more slightly disruption Europe more than this manufacturing fully network and plants transition. manufacturing benefiting in with Yet and -- should

look $XX mix, XXXX favorable $XX following million raw $XX offset compared same material $XX new ago. of factors; by of let's walk. a price in profit our operating manufacturing, profit compared Total operating of This tariffs, quarter volume, third of other excluding to per favorable XXXX. SG&A, million $XX impacted new costs and per period tariffs. was of restructuring, third by million of of to product take of liability, Now $XX of year Diluted million $X the the was with million million $X costs the a and quarter compared $X.XX share the million at share related company million earnings was $X.XX $X million to

lower XXXX ago. of Segment volume tire million the X.X% unit same for as down Americas partially our year compared $XXX of foreign million unit to the in from $XX volume currency mix. was million quarter million and turning to million $X and $XXX a X.X% impact $XX sales third result of was a Segment period of operations. offset price down by unfavorable favorable Now

vehicle U.S. while by increased decreased Our the X.X% X.X% light unit and TMA increased volume X.X%. U.S. the industry total

sales $X or costs XX This profit million of quarter price to of XX.X% $XX product million offset new of Americas million net XX.X% the $XX ago. in included or of related to the favorable million by manufacturing, excluding compared million material sales same compared a profit $XX SG&A, operating liability, $XX decreased of Third to million of million $XX XXXX. million of $X and was million costs in mix, raw new Operating period of other favorable to $XX X.X% year volume, $X tariffs, -- of million and tariffs. net

currency XX.X% of $X were $XXX the XXXX. quarter million price unit operations. was down shipments. $XX and the decreased XX.X% and Now and to unit offset in lower volume Segment volume both foreign lower decreases partially Net for which unfavorable sales million unit our were with This Asia of intercompany international mix. third of third by favorable million by by $X turning tire Europe primarily from impact million driven volume driven quarter result of

fact In versus year. party were the flat third sales prior in Asia

compared of raw unfavorable $X million The material loss price included $X of in profit of XXXX. million costs. $X The million and million operations our to $X mix international quarter and operating favorable third quarter was operating in

of million $X were other by volume, million manufacturing, In of restructuring, addition to period of $X offset million million year compared the more a than million lower which the of $X ago. quarter $X costs $X same of costs included and SGA

our decreased our the quarter was index of Moving X.X% XXX.X raw quarter the line XXXX. X.X% to of materials in materials, from index XXXX. expectations. to third material quarter This from XXXX of in Raw second sequentially decreased the XXX.X in raw with third

raw to sequential quarter basis. and fourth the For year-over-year down material we expect index our be a on

improving XX.X% $X.X and order return last a we the restructuring expense. million compared the we XX.X% pension primarily and XXXX. in Similar examining The the was made as If assure pension to rate corporate the increase status on the facility increased is which our status less planning prior this Melksham of assets compared -- related lower benefit protect company for to the to taking post prior entity In effectiveness effective an made items, planned quarters conjunction risk funding in portfolio order quarterly some its estimated in plans strides expenses increase versus to tax operating Now is funded result structure its tax the retirement perspective. quarter other have is with the in the to year. net from with of the had region to decision year. in results

that on effective and resulting from the between actions is the will continue year detail effective for this a annual SEC earnings operates. Form rate in XX%. with to later based any More company rate taxes filed today. in of items XX-Q other rates our which full on various be jurisdictions will be the tax on the forecasted we range will our available significant tax the be The tax and XXXX Excluding and estimate XX% discrete

Turning third $XXX September $XXX to highlights, a at $XX in some million and the were XX, year period sheet compared million XXXX balance million unrestricted and with the cash expenditures XXXX. XX, $XX cash were at same Capital cash in September ago. quarter flows million with equivalents compared

full We range million. capital expect million between $XXX year and to expenditures $XXX our

include with potential of its or share does rata Cooper's a not venture manufacturing capital As this other any footprint joint investments. pro Vietnam related to reminder contributions Sailun

the company dollars in Sailun invested goodwill reiterate venture quarter priority Vietnam. third As with was quarters. impairment four of remains impact trailing the charge the had $XX want on of the returning ACTR an us. capitals joint XXXX X.X% to in the that quarter the end fourth invested of Return the I important our for its new million excluding to shareholders of for capital

are attractive opportunities our to dividend As the third our in to demonstrated more call back now we'll repurchases share will as in opportunistically we invest committed Brad. in but quarterly I to balance the near-term business. pursue turn supporting the over quarter we

Brad Hughes

Chris. Thanks

but Looking on ahead retail our our we executing we'll volume quarter including fourth headwinds the progress initiatives make continue expect efforts. to expansion strategic continued in

starting in to business like more in XXXX. and We drive others these initiatives meaningful expect our improvements

confident profit the remain margin XXXX be We quarter year expected sequentially. by and where full the above but have materials. X.X% profit year work mix, for Full reported are driven to we operating pricing, improve to slightly expects future is do positive to operating fourth in we Cooper trends raw about headed. margin and

Xst. business that overall pricing see many product expect last were quarter line trends, of in and category. the and competitively with in strong of that of mix an respect the had eye continues we same did recently fourth industry aggregate competitors price October we a to to year. we implementing announced do strong monitor positioned continue remaining year Cooper With to not mix and Cooper mixed by towards adjustments adjustments repeat our this TBR to With while respect to effective

year business profit our take and let's build support which the continue U.S. in by doing momentum into your believe from that In the particularly sequential summary XXXX. the tariffs on will please. drive affected we operating going is right inventory and customer tires we've while first been adjustments improvement described the short-term outlook and move this that to Operator improvement to the has Cooper With margin will questions. things you question positive China conditions

Operator

Instructions]. [Operator

from comes Lache from question Wolfe Rod ahead. First Research. Go

Brad Hughes

morning Rod. Good

Rod Lache

million behind I I increases XXXX. a and XXXX talk what's think Couple the those They of in couple hoping cost dollars in can manufacturing a maybe was $XX million of questions, first numbers. you higher now were about and drag

million what secondly I can So forward, maybe liability because looks before. expense, cumulatively at should about it quite did maybe seen a is trending product a a million this become bit in we those so we And higher then think $XX should than million or $XX was those or a something that How was million address had just year tailwind? $X that like like be you hoping $XX it going quarter, quarter?

Brad Hughes

them Let order me in Rod. take

plants to will the had negative less on Americas were the quarter look consolidated this what to was the pieces; we've the when fourth in that The basis. cost about first me and manufacturing quarter related which XX a is we a contributed into the showed one let in into as increases, that with we regards Those it produced we of think on of split recently year-over-year relative basis. to in you to half items increases performance two units move the volume the one that mitigate at

see corner benefits increase with change So essentially to in Serbia of operations some what to was Serbia from Europe challenges international beginning we've and think do Americas. start will to has the cost the the it lower Melksham production that and of year In by that there to the we'll turned next we of yes, get we year. the we to of cost the been in the and all time footprint that the saw into start have migrating we this that carrying a relative -- into that

think So about Chris X and I on thinking maybe let chime you're pretty close that's what but go were product in with the manufacturing expense a cost minute I'll Chris. million the but you liability ahead the directionally

Chris Eperjesy

typically correct mean imagine that roughly show expense of as when quarter liability I Rod we predict challenging in is terms that's But are quarter-to-quarter trying you pension don't. think directionally exercise you the liability this will in I million product up adjust Yeah, X in you the a expense correct P&L. actual very to was so can which

Rod Lache

a that by that within or there a XX is increases, you unusual increase, looks think like way pretty this feel quantify big you Okay, to manufacturing -- what million. is year is two is in correct something cumulatively these could a

Jerry Bialek

the is, it I all move turn do to substantial Rod in right footprint it we have as begin produced we plants we definitely increases in should to think and now. will begin the of a begin that things terms that precisely volume improvements though see take -- manufacturing accumulate units changes, as see those may to we when a position pretty cost. Calling and to I'm the efficiencies, a not of that of both into the next and while combination in year

Rod Lache

companies have of like a volumes for do your October just that lastly so do the called did vehicle couple customer, had that prices you've you excluding a inventory secondly forward? what looked is what customer of what magnitude before price it number expect going just raised tires then stronger And significant was a that things, performance specific that? would and effective Cooper light adjustment, X, Okay, out of tire housekeeping and

Brad Hughes

that a said think and customer talked we specific the customer. in best does to which on believe individual be around the comment we and the it about narrowed to haven't there's of need have because we made customers I on that demand any for extrapolate we based inventory sell we as terms to is that to and information the think adjustments data as on sellout. in regard -- So indication I specific customer, the plural with Having quarter Cooper is out because not about wouldn't we've how Rod mean complete

maybe for industry the Our at least sell a in up sellout more. much as bit and the was as

we should indication. out and to -- an things in balance as sell give that sell about dynamic, as begin So think you that as out you

Rod Lache

And pricing?

Brad Hughes

always ongoing Xst, adjust last rest that It and announcements with to happening to industry October make also make have with to the what On was in is quarter adjustments. sure did monitor We industry on backdrop to the and the of and pricing we that competitive we announce and in nice go prices. continue process of we're staying will opportunity we ongoing an took the us. that's for regard

Rod Lache

Great, thank you.

Operator

ahead. James comes Go question KeyBanc. from Our next Picariello from

Unidentified Analyst

for James. taking is Hi Jake on for my guys, question. Thanks this

manned So in up industry. and the September X% ins significant of pretty we saw a step sell about

pre-buying and think how placement helped you could increases the your was to for tell this volume the consumer So you quarter? related expectations fourth of us are much what price

Brad Hughes

with is getting the regard was traditionally included So and with there quarter were to volume. volume I with regard that types operating that profit that Cooper is on some price guidance regard metrics. where which that stay third affected Without the to have margin of the in specifics typically for improvement into impact announcements the we to what would say anything provided guidance we've all is sequential in terms of would

We're So the may have is operating the there to for fourth look higher been relative at as profit pricing, the margins for fourth some to us industry in the we guiding people third. the quarter. there

expansion to initiatives the to that will the talked us begin flow be will there think quarter then that's we us. line. at U.S. And now even through that we in to we last confident as with regard time get bottom that still I relatively behind have, the the these we will and We're particularly And to retail by backdrop end in with XXXX XXXX were U.S. momentum than inventory do volume think our the some good we challenging. more is enter the we've that adjustments behind the of about

So around fourth some in terms the quarter market of market. still globe challenges to

a vehicle Europe be to You sell due that in bit still and passenger market a weak impacting seems have replacement weak which market regard to volumes. is China with

So see more and executing looking forward the and some line. operating the we're challenges to been bottom where improvement that to the project contribute still to against we've we out sequential going profit margin initiatives, of we see XXXX there will

Unidentified Analyst

gets half Great, quarterly that we in step roughly within with which specifically up your cut tariffs assumption then tariff in the thanks. million million implies saw XX expense XX expense to a And next quarter. the

So estimate? underlie of the us could that some tell assumptions you that just

Brad Hughes

going what I confirm about let we've regard I entered overall with tariffs we're as to thinking will be about on -- the spoken to we Chris some about in and was as been that talked year about calls. portion there those of we you pricing to while offset belief talking previous And know we that has on a tariffs. tariffs. and been a there mean when pricing have

environment from is pricing comment. and as had out I let expectation anticipating going tires for a around future initial is that that the what pricing of think softer discussion see is But further the opportunities I'll the for but demand into It's the than I think different pickup until at And that be we now tariffs. into look we we the will we thought. U.S. in coming to do portion some thought our or than probably that is so be TBR we there point the TBR year had future pricing that we at Chris this when what for the the in market are delayed in overall probability

Chris Eperjesy

assumption Jake, directionally reported first is three of the QX. for Yeah quarters what for based we've correct your just the math on

Unidentified Analyst

great congrats that's on quarter and great guys. Alright, a

Brad Hughes

you. Thank

Operator

Jefferies. question ahead. from next Go Jordan Our from comes Bret

Bret Jordan

guys. Hey, good morning

Brad Hughes

Good morning Bret.

Bret Jordan

obviously your growth and channel? could the the seeing up about buyer you're whether maybe that year-over-year some some online about talk and you're you're picked on pick obviously on there impact through Goodyear talk but guess volume away we going ATD what maybe probably [ph] Bridgestone there, channels new you fully Can penetrated, of up that tire as moved the you volume I

Brad Hughes

were with the across channel we ago an aggressive so by the dealers. increases to ups and around at sign starting to to of when go up year more the it Yeah, landscape those talked We with volume tire going now of terms look independent see and some about hub program the retailers in that out that, did you conquests of we net a that in try announcement we entire channel flowing market. sign part through benefits of are

-- we've for in go Some some that expect terms forward. that of fair as that the seeing in we a to amount certainly legs ATD are that positive that looking even increases we're year-over-year, of very area and a have by that amount a would supported is we seen it substantial of on benefit

to independent just signing there since wholesalers than it doing these dealers that an but opportunity and been an So clarify ATD and done trying more is than that the ATD was the we've ATD is story that and at team was new broader outset sees up successfully. so

more We in e-commerce national we've in And the efforts because units strong. that expansion it is next volume to particularly be general talked only should we're contribute able about we we merchandisers, as in not our are presence. revenue into opportunity on very growth profit continues to e-commerce also online are those and year. that a seeing talked seeing We've seeing sales, sales, and retailers. and move continue is but unit growth retail be about Those exciting

in from seeing about for sell of we're all inventory these. in So talked seeing Unfortunately a yet. we've it of we adjustments the couple with progress aren’t the quarters

it seeing sell in that are out. data we have on We the

Bret Jordan

in Okay, do and what a I bigger in of Amazon getting you you guess, brought obviously see as question then a pricing the result as up space. e-commerce

X lower, are in people you deflation price that Tier I about at competitive holding general environment see there in think generally and do is or the broader reported week Munroe last market talked online? a fairly pricing and the retail

Brad Hughes

volume pricing consumers decisions is few early there positive has The pricing pricing the of e-commerce One the think see quarter what consumers industry with to on you those about power a ability industry what dynamics go levels fourth mean pricing had we where that actions overall about took giving make environment sign the consumer and across regard we're that on to early as market. going the point it is platform to having they're is deflationary the talked more a is But digesting that to signs pricing to more see can that not seeing late I'm we making industry and are their here. third, and number -- Yes, transparency the two going pays with we that pricing just the purchases very in with while not which the I pricing impacting that a minutes overall thing which from sure a of get absorbing overall is is just ago across the is which this industry. terms them transparency to is regard with see place effect as I in it. affecting for but

Bret Jordan

you. Okay, great. Thank

Brad Hughes

you. Thank

Operator

[Operator Instructions].

John Healy, comes next from ahead. Research. Our Northcoast Go question

John Healy

it just a about the Thank little just you. of mix broadly market Brad, on OE exposure and XXXX speaking TBR kind relates there hoping of the over truck and wanted takes and I we outlook some impacting to could for year? how next as that might you for just to heavy your and kind kind bit replacement of of the business puts the was end the see go ask the

Brad Hughes

as likely to backlog units so seeing appears back that we exposure the It OE lot that you demand the production been like months exceptionally time. see and be market data has result at has trailer of that have get the this on do. meet filled, the to to volume appears Okay, years. two slowing in point orders market. of it The particularly do the XX of industry in goes perspective OE needed that's that an production we that orders slowing you to all there in this end and been of filled are so strong a from to We some

that. removed is market the bus think bit little from I a

at talking I market in year-to-date. time. So am the point at The you vehicles market as about demand down commercial largely U.S. has this double-digits look been in replacement

to of replacement is tires. that faster the for point know you period that's than begins market it the passenger this all of requirement new gets into that remain much is some expect We to to for equipment time a weak probably those until a going which come of vehicle get types as into

So that as patch a we an perspective in we North probably bit from and TBR industry year are the soft regard a America. for in think U.S. with to of tires

more Cooper I perspective a industry. From to relative a feel think little we bit the positive

We as replacement down year-to-date. much the on are industry is not as

as so just in the the replacement elements brand better which strong in the in a some allowing -- in market while other we've opportunity TBR new have We and specifically business us to the that Cooper OE of out the introduced parts our brand. get particularly build into starting brand the of and Cooper was the these of accounts replacement at Roadmaster market targeted OE into to U.S. larger with with fleets remaining we're

to demand avoid from months tires market. just Vietnam are all plus we the XX on add about than Then feel we China people to light softer our coming U.S. we're attracted the just still lieu tires good year business have quite a ramp taking a we for the those to which of TBR have to mentioned that of a that China story So industry the see us thought are to that are or tariffs on impact me obviously ago. you XX of as we a what point perspective from beginning that of tires profitability comments TBR add in the my be significant up even when going as that of tariffs in might up might number is the complete the let in I business

John Healy

was And and you Vietnam. Europe then same talk just could hoping about bit little I on lines the a

with of kind you as in in those to XXXX terms manufacturing? much tailwinds of then think Just efforts benefit conceptualize way the restructuring the production, kind there restructuring or and of potential a realignment kind might just how of the there of about be those changes is

Brad Hughes

the those of see begin in portfolio have into happen better to will moving we but over But up happen over Vietnam, have that of or the in begin course that there They we'll so the that as year last the going better that to right for should in we U.S. base year. of of build to facility facing Serbia ACTR now of we'll of last out benefit I we're benefits production that is to XXXX cost portfolio a in agreement able facility the pieces have market as that take higher that the over product to off course the tires the later of the course venture we ramp a the will similarly we the XXXX. think from both with of We're ramp joint you from to out that will coming both see products And have and build new and still the Well, actions. and so be then that that the more it's volume those. year

to part. year but will and we Did part see certainly half next there. begin latter I than second you be sleep it of more prevalent to put the will first So, next year

John Healy

Oh you no, thank guys.

Brad Hughes

John. Thanks

Operator

conference concludes back question-and-answer I'd closing the turn our remarks. session. to Brad Hughes any to like This for over

Brad Hughes

consumers, globe a and shareholders. you which Okay, to our call today's thank our Cooper great executing joining for thank around and our focused team staying our supports have want closing customers, for you. thank With entire the on I that strategy day. In our

Operator

concluded. for now Thank today's The conference presentation. you attending is

You may disconnect. now