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Cooper Tire (CTB) Q4 Earnings Beat, Raises Repurchase Plan

Zacks Equity Research

Cooper Tire & Rubber Co.’s CTB reported earnings of $1.28 per share in the fourth quarter of 2016 that topped the Zacks Consensus Estimate of 93 cents. Moreover, earnings were higher than $1.04 per share recorded in the year-ago quarter. Reported net income amounted to $69.3 million compared with $59.2 million in the fourth quarter of 2015.

Cooper Tire reported revenues of $784 million in the quarter that surpassed the Zacks Consensus Estimate of $767 million as well as the year-ago figure of $775.5 million. Revenues improved due increase in unit volume, partly offset by the adverse impact of price and mix as well as currency headwinds.

Operating profit was $105 million (13.4% of sales) in fourth quarter of 2016 compared with $103 million (13.2% of sales) a year ago. Operating profit was positively impacted by favorable selling, general and administrative (SG&A) costs, higher volumes and lower product liability cost. This increase was partly offset by unfavorable raw materials cost, higher manufacturing charges and higher other costs.

The company’s shares gained 7.7% to close at $40.60 on Feb 17, reflecting the better-than-expected fourth-quarter results.

Cooper Tire & Rubber Company Price, Consensus and EPS Surprise

 

Cooper Tire & Rubber Company Price, Consensus and EPS Surprise | Cooper Tire & Rubber Company Quote

Full-year 2016

Cooper Tire reported adjusted earnings of $4.66 per share in 2016 that topped the Zacks Consensus Estimate of $4.30. Moreover, earnings were higher than $3.69 per share recorded in the year-ago quarter. Reported net income amounted to $248 million (or $4.55 per share) compared with $213 million in 2015.

Cooper Tire reported revenues of $2.92 billion that surpassed the Zacks Consensus Estimate of $2.91 billion. However, revenues fell from the year-ago figure of $2.97 billion. Revenues were positively impacted by higher unit sales which were more than offset by unfavorable price and mix and currency headwinds.

Segment Details

Americas Tire Operations recorded a 2.4% decrease in revenues to $694 million, due to unfavorable price and mix and negative foreign currency impact, partly offset by higher unit volume. Operating profit in the segment declined 4.6% to $116 million, while the operating margins fell from 17.1% to 16.8% in the quarter. Operating profits declined due to higher manufacturing costs, unfavorable price and mix as well as higher other costs, partially offset by improvement in SG&A costs.

International Tire Operations reported a 23% rise in revenues to $124 million, mainly due to higher unit volume and favorable price and mix, partially offset by negative foreign currency impact. Operating profit amounted to $1 million, against an operating loss of $7 million recorded a year ago. The improvement was backed by favorable raw material costs and higher unit volume, partly offset by higher SG&A and other costs.   

Financial Position

Cooper Tire had cash and cash equivalents of $504.4 million as of Dec 31, 2016, down from $505.2 million as of Dec 31, 2015. Long-term debt was $297.1 million as of Dec 31, 2016, compared with $296.4 million as of Dec 31, 2015.

In full year 2016, Cooper Tire had cash flow of $309.8 million from operating activities compared with $300.3 million in 2015. Capital expenditures decreased to $175 million in the fourth quarter of 2016 from $54 million a year ago.

Share Repurchases

In Feb 2016, Cooper Tire authorized the repurchase of shares worth up to $200 million. During the fourth quarter of 2016, the company repurchased 678,155 shares for $25.5 million. In full year 2016, the company repurchased 3,127,527 shares for $108 million.

From Jan 1 through Feb 14, 2017, Cooper Tire repurchased another 330,277 shares for $12.1 million. Since the company started repurchasing shares in Aug 2014, a total of 12.6 million shares at an average price of $34.15 per share have been bought back.

Cooper Tire’s board has increased and extended its repurchase program by $300 million until Dec 31, 2019. This authorization will replace the earlier program that had $98 million remaining.

Outlook

Cooper Tire expects operating margin to be at the high end of the previously announced mid-term target of 8% to 10%. The first half of the year is expected to see margins at the low end of the guidance with the figure exceeding 10% in the second half. The International Tire Operations segment is expected to improve operating profit this year, including its recent acquisition of GRT in China.

For 2017, capital expenditures are expected between $220−$250 million. The effective tax rate for the year is expected to be 30−33%.

Cooper Tire expects raw material costs to increase 25% year over year in the first half of 2017 along with slight sequential increase in the rest of the year. The company expects global unit volumes from each of its segments to increase in 2017.

Cooper Tire has underperformed the Zacks categorized Rubber-Tires industry over the last three months. The company’s share price rose 5.9% over this period compared to a 17.5% gain recorded by the industry.

Zacks Rank

Cooper Tire currently has a Zacks Rank #4 (Sell).

Some better-ranked stocks in the auto space include Spartan Motors Inc. SPAR, American Axle & Manufacturing Holdings, Inc. AXL and Ferrari N.V. RACE, all sporting a Zacks Rank #1 (Strong Buy).

Spartan Motor has long-term expected growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Axle has long-term expected growth rate of 8.07%.

Ferrari has long-term expected growth rate of 15.15%.

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