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Findlay company cites weakening demand, expensive raw materials
By Alex Ortolani
Bloomberg News
Published on Tuesday, Aug 05, 2008
Cooper Tire & Rubber Co., the second-largest U.S. tire maker, posted a quarterly net loss Monday of $22.2 million on weakening demand in North America and rising raw materials costs.
The deficit of 38 cents a share compares with net income of $17.6 million, or 28 cents, in the second quarter of 2007, the Findlay company said. Revenue rose 5.9 percent to $773 million as Cooper benefited from selling more expensive tires.
It was Cooper's first quarterly loss since 2006. Expenses for production cutbacks totaled $13 million, and price increases for materials such as natural and synthetic rubber reduced earnings by $51 million, Cooper said.
''It's a tough quarter,'' said Tony Cristello, a Richmond, Va., analyst at BB&T Capital Markets. Cooper should be helped by lower commodities costs as gasoline prices ease after the summer travel season, he said. He rates Cooper as ''buy.''
The per-share loss factoring in a tax adjustment was 27 cents, according to Himanshu Patel, a New York analyst at JP Morgan Securities Inc. That matches the average of 5 analyst estimates compiled by Bloomberg News.
Cooper shares rose 27 cents to $9.35 in Monday trading. Shares are down 56 per
cent from a year ago and down 44 percent in 2008.
North American sales volume fell 13 percent, as consumers drove less and delayed tire purchases due to a weakening U.S. economy, Cooper said.
''Developments in the macro economic environment have caused us to be guarded in our expectations of profitability for 2008,'' Chief Executive Officer Roy Armes said in the statement. The tire maker will lose 10 cents a share for the year, based on the average of 6 analyst estimates compiled by Bloomberg.
Cooper will boost prices 10 percent in October to help recoup increased spending on raw materials such as steel and petroleum products, Chief Financial Officer Philip Weaver said on a conference call.
Those expenses rose 23 percent last quarter compared with a year earlier, Weaver said. For the full year, they'll be 25 percent to 30 percent higher, Armes said.
Cooper also is working to pare those costs by shifting work away from North America. On June 18, Cooper said it would invest $31 million in a plant in Guadalajara, Mexico, to add less-expensive production capacity and win more business in Latin America. Five days later, the tire maker said it would curtail second-quarter output in North America.
International sales increased 21 percent in the quarter to $283 million, Cooper said. About 28 percent of the tire maker's revenue came from Asia and Europe last year.
China's replacement tire market is likely to grow in 2009, while Europe is ''holding steady to slightly declining,'' Armes said on the call.
Cooper Tire & Rubber Co., the second-largest U.S. tire maker, posted a quarterly net loss Monday of $22.2 million on weakening demand in North America and rising raw materials costs.
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