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Edited Transcript of CTB.N earnings conference call or presentation 3-Aug-20 2:00pm GMT

Q2 2020 Cooper Tire & Rubber Co Earnings Call

FINDLAY Aug 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Cooper Tire & Rubber Co earnings conference call or presentation Monday, August 3, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bradley E. Hughes

Cooper Tire & Rubber Company - President, CEO & Director

* Christopher J. Eperjesy

Cooper Tire & Rubber Company - Senior VP & CFO

* Gerald C. Bialek

Cooper Tire & Rubber Company - VP & Treasurer

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Conference Call Participants

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* Bret David Jordan

Jefferies LLC, Research Division - MD & Equity Analyst

* James Albert Picariello

KeyBanc Capital Markets Inc., Research Division - Analyst

* John Michael Healy

Northcoast Research Partners, LLC - MD & Equity Research Analyst

* Rod Avraham Lache

Wolfe Research, LLC - MD & Senior Analyst

* Ryan J. Brinkman

JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Cooper Tire & Rubber Company's Second Quarter Earnings Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Jerry Bialek. Please go ahead.

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Gerald C. Bialek, Cooper Tire & Rubber Company - VP & Treasurer [2]

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

During our conversation today, you may hear forward-looking statements related to future financial results and business operations of Cooper Tire & Rubber Company. Actual results may differ materially from current management forecasts and projections. Such differences 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 earnings release we issued earlier this morning and in the company's reports on file with the SEC.

During this call, we will provide an overview of the company's second quarter 2020 financial and operating results as well as a business update.

Our earnings release includes a link to a set of slides that summarize information included in the news release and in the 10-Q that will be filed with the SEC later today. Please note that we will reference certain non-GAAP financial measures on this call. The linked slides include information about these measures and a reconciliation to the most directly comparable GAAP financial measures. Following our prepared remarks, we will open the call to participants for a question-and-answer session.

Now I'll turn the call over to Brad.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [3]

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Thank you, Jerry, and good morning, everyone.

I'll begin the call this morning by thanking Cooper employees around the globe for stepping up to the challenges of the global pandemic and helping us to deliver second quarter results that materially exceeded our expectations. Throughout coronavirus and its impacts, the health and safety of our people has been our first priority, and our teams have done a great job following our very rigorous health and safety standards, while also seizing opportunities to improve and grow our business in this environment.

In fact, while coronavirus significantly impacted our results in the second quarter, Cooper made notable progress on multiple key measures. We generated significant cash flow, in part by taking decisive actions during the early stages of the pandemic, including reducing working capital and capital expenditures and limiting discretionary spending. We grew market share in the U.S. performing better than the USTMA and the total industry. And in Asia, we were able to increase third-party unit sales.

In addition, Cooper was able to continue building momentum for another quarter by executing our strategic initiatives, which are driving the positive transformation of our business even in the midst of this challenging environment. This strengthens our confidence in our strategic plan as well as the power of the Cooper brand and the value that our products deliver to consumers, who are increasingly looking to buy high-quality tires at an affordable price. That's the essence of the Cooper value proposition.

We went into coronavirus with a strong balance sheet and momentum from our strategic plan. And assuming the economy can continue to rebound, we believe we will emerge from this situation in an even stronger position. In short, we are optimistic about our future.

Today, all of our manufacturing facilities around the world are in operation and continuing to ramp up, in line with increasing demand. From a production standpoint, April was significantly impacted as the majority of our plants were shut down. But as we brought plants back online in May, with enhanced health and safety protocols, production continued to increase through the month of June.

We took several temporary actions early on to preserve our cash position including plant shutdowns, salary reductions, employee furloughs and other actions. However, we have reversed many of these actions as our results recovered much quicker than originally expected. Of note, we recently implemented a modest but a permanent reduction in our force at our corporate headquarters and within certain manufacturing plants to help position our business and capabilities for the future.

Before I turn it over to Chris, I want to touch on some recent important and exciting news. In line with strengthening our capabilities, we have made a series of important leadership appointments, including Paula Whitesell as our new Chief Human Resources Officer; as well as Hank Eisenga as our new Vice President of Global Manufacturing.

Just a few days ago, we officially announced that Cooper has earned another OE tire fitment for Mercedes-Benz. The Cooper Discoverer SRX LE will be on the new Mercedes-Benz GLS, which is the automaker's next-generation, full-sized SUV.

Finally, we shared the news of our Serbia plant expansion, which will increase the size of our Krusevac facility to more than 882,000 square feet, add about 1/3 more in annual production capacity and enable the facility to produce new, larger diameter tires demanded in Europe and other global markets. Cooper received $8 million in Serbian government incentives for this project.

Now I will turn the call over to Chris, who will provide more detail on our financial performance. Chris?

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Christopher J. Eperjesy, Cooper Tire & Rubber Company - Senior VP & CFO [4]

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Thank you, Brad.

I would also like to begin my remarks by recognizing the resiliency and adaptability of our teams across the globe during these unprecedented times, and to recognize our supplier partners and, of course, our customers and consumers for their trust in Cooper.

With that, let's take a look at our second quarter results. On a consolidated basis, sales were $496 million, down from $679 million in 2019. This 26.9% decrease was driven by $187 million of lower unit volume and $7 million of unfavorable foreign currency impact, partially offset by $11 million of favorable price and mix.

Operating profit was $5 million or 1.1% of sales compared with operating profit of $32 million or 4.7% of sales in 2019.

Second, second quarter operating profit compared with 2019 was impacted by the following factors, which are summarized on Page 6 of the supplemental slide deck, $44 million of lower unit volume and $39 million of higher manufacturing costs, both attributable to the coronavirus pandemic. This was partially offset by $30 million of favorable raw material costs, $15 million of favorable price and mix, $7 million of lower SG&A expenses and $4 million of lower other costs. Diluted loss per share was $0.12 compared to an earnings per share of $0.18 in the second quarter of 2019.

Now moving on to our segment performance, starting with the Americas Tire Operations. Segment sales for the second quarter were $426 million, down 26.9% from $582 million in 2019, as a result of $183 million of lower unit volume and $2 million of unfavorable foreign currency impact, which were partially offset by $29 million of favorable price and mix. Segment unit volume was down 31.5% compared to the same period a year ago.

Our U.S. light vehicle unit volume decreased 24.1%, while the USTMA decreased 31.0% and the total industry decreased by 31.7% for the period. April was the most challenging month of the quarter as USTMA volumes were down over 50%. There was strong sequential improvement during May and June with USTMA volumes down 33.4% and 6.2%, respectively. Our U.S. light vehicle unit volumes improved throughout the quarter and outperformed both USTMA and the total industry.

Second quarter operating profit in the Americas decreased to $22 million or 5.1% of net sales compared with $47 million or 8.0% of sales in 2019. Operating profit included $41 million of lower volume and $37 million of unfavorable manufacturing costs. This was partially offset by $25 million of favorable raw materials, $18 million of favorable price and mix, $6 million of lower SG&A expenses and $4 million of lower other costs.

Now turning to our International Tire Operations. Net sales for the second quarter were $101 million, down 27.1% from the second quarter of 2019. This result was driven by $23 million of lower unit volume, $11 million of unfavorable price and mix and $4 million of unfavorable foreign currency impact. Segment unit volume decreased 16.4%, primarily driven by lower unit volume in Europe. In Asia, third-party unit sales were up 4.5% versus the prior year.

The second quarter operating profit in our international operations was $1 million compared to an operating loss of $1 million in 2019. The quarter included $5 million of lower raw materials, $4 million of lower SG&A expenses, which was partially offset by $4 million of unfavorable price and mix, $2 million of lower unit volume, $2 million of tire manufacturing costs and $1 million of other -- of higher other costs.

The second quarter of 2019 also included a $2 million restructuring charge related to our decision to cease light vehicle tire production at our Melksham facility, positively impacting the year-over-year comparison.

Moving to raw materials. Our raw material index decreased 15.1% from the second quarter of 2019. The raw material index decreased 8.8% sequentially from 150.7 in the first quarter of 2020 to 137.4 in the second quarter of 2020. This was in line with our expectation to be down on a year-over-year and sequential basis. As we look forward, we anticipate raw material costs will continue to be significantly down on a year-over-year basis and slightly down on a sequential basis in the third quarter of 2020. We remain cautious about our ability to forecast precisely in this period of market volatility.

Now to some corporate items. Other pension and postretirement benefit expenses decreased $3.7 million versus the prior year. This was primarily due to the company's improved funding position at December 31, 2019, as a result of favorable return on planned assets. The effective tax rate for the second quarter was 13.5% compared with 38.7% for the same period the prior year. The tax rate for the second quarter of 2020 was primarily driven by the lower level and mix of earnings among our different tax jurisdictions as well as unbenefited losses in jurisdictions with valuation allowances.

The tax rate for the second quarter of 2019 included $2 million of discrete items related to the accrual of additional uncertain tax positions pertaining to previous years. The effective tax rate is based on forecasted annual earnings and tax rates for the various jurisdictions in which the company operates. More detail on our taxes will be available in our Form 10-Q that will be filed with the SEC later today.

Turning to cash flows and some balance sheet highlights. Capital expenditures in the second quarter were $17 million compared with $45 million in the same period a year ago. Return on invested capital was 5.1% for the trailing 4 quarters. At the end of the second quarter, Cooper had $541 million in unrestricted cash and cash equivalents compared with $112 million at the end of second quarter of 2019 and compared to $433 million at the end of the first quarter of this year. You will recall that the company drew down $270 million on our revolving credit facilities during the first quarter.

There were no new net borrowings during the second quarter. The improvement in cash during the quarter was primarily driven by our actions to reduce working capital, capital expenditures and discretionary spending, as Brad noted.

Other than discretionary debt paydown, we do not currently believe we have a substantial cash usage in the third quarter. In fact, due to our improving financial position and outlook, as of July 31, we have paid $200 million of the $270 million we borrowed on our revolving credit facilities.

Let me provide an update as it pertains to capital allocation. First, given the improved results and outlook, we now expect full year 2020 capital expenditures to be at the high end of our previously stated range between $140 million and $160 million. Second, as it pertains to share repurchases, we continue to pursue these more opportunistically. And third, we continue to support our quarterly dividend. We ended the year with a strong balance sheet and took the prudent steps to ensure the sustainability of the business. This allows us the ability to continue to support our strategic growth initiatives.

I'll now turn the call back over to Brad for our updated outlook. Brad?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [5]

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Thanks, Chris.

Looking ahead, while coronavirus may present a level of risk going forward, we expect our business to improve in the second half of this year. And further into the future, we are confident in our ability to return to our midterm operating margin target range of 10% to 14%. While this has been a challenging time, and we have taken some difficult but necessary actions to mitigate the impact of coronavirus on our business, we also believe that this is an exciting time for Cooper and that there is runway for further success, especially if the economy continues to rebound.

Our value proposition resonates with consumers. Consumer awareness of our brand is growing, and our strategic initiatives are clearly taking hold.

With that, let's move to your questions. Operator, will you take the first question, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Rod Lache with Wolfe Research.

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Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [2]

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I wanted to just ask about a couple of things as we look out to the second half. Maybe just what your perspective is on industry trends right now. How -- what is the extent to which volumes are recovering? How should we be thinking about these manufacturing costs, which obviously were a pretty big headwind in Q2? And it sounds like -- maybe you can just confirm that, but it sounds like raw materials and pricing continue at least at this pace, maybe better given the sequential improvement into the Q3?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [3]

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So with regard to volume, to start with, I -- and, again, I'll, for the moment, focus on the U.S. But what we saw, what the industry saw during the second quarter was an improvement each month. So April was the lowest. That improved in May. That further improved in June. And so that exit momentum was positive, still down but positive for the industry. And what we were seeing, at least with our customer base, is that the sell-out volume was actually a bit ahead of the sell-in volume that we saw in the second quarter. And that also portends well for the momentum going into the third quarter.

And obviously, there's a lot of unknown with regard to the virus and how that could impact the reopening of the economy and whether or not that slowed at some point in time, but I think it's appropriate to say that exiting the second quarter that momentum was still on the recovery trend in the U.S. market in particular, and we feel really good about our momentum both in the quarter and as we exited the quarter going into the third quarter.

With regard to price and raw materials, the price environment has remained pretty stable. The actions that most folks in the industry took during the first quarter to increase prices seems to have held in place, and that looks to be the case today as well. Raw materials, as we said, we expect to see a small sequential reduction in our raw material index for the third quarter relative to the second quarter. That would represent a similar or maybe slightly larger improvement for the third quarter year-over-year.

So manufacturing -- sorry, with manufacturing, again, we've been ramping up our facilities on -- consistently month-to-month. April was essentially a shutdown month. May, we began to ramp back up. June, that ramp up continued, and, frankly, that ramp up continues today as we continue to ramp up to try and meet the demand that we're seeing for our products.

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Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [4]

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Maybe just to clarify a little bit. So how close to normal levels of volume and -- in manufacturing are you at this point? We're already kind of midway through Q3. Because on the other hand, if you just look at the rate of pricing and raw material declines, I mean, that alone, if it's -- even if it just held at the Q2 level, that's like a 600 basis point margin tailwind. Obviously, you have some headwinds coming from volume and manufacturing to indicate that the 10% to 14% is kind of a midterm target rather than a near-term target.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [5]

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Yes. So with regard to manufacturing specifically, we still have some room to go in terms of the ramp-up. We're largely getting close to normal, but there's still some room there on -- that we have to further recover as we finish off the third quarter here.

And then with regard to margins, I guess the only comment I'd make right now is we feel good about what happened in the second quarter because that also -- we talk about price/mix. And that -- in combination, that was a strong contributor to the -- to what happened in the quarter from a profit perspective last quarter. And we're not seeing a substantial difference as we move into the third quarter, as you outlined.

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Rod Avraham Lache, Wolfe Research, LLC - MD & Senior Analyst [6]

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Right. So maybe just -- I'll just ask this, this way, and then I'll get off the call. But did you mean to imply that the 10% to 14% margin is more of a midterm expectation? Because it seems like there are a number of tailwinds that couldn't try to -- can kind of kick in to get you there relatively near term.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [7]

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Yes. Here's what I would say about that. As we said in the remarks, the opening remarks here, we're obviously confident that the second half is going to be a better half than the first half based on everything we can see right now. There's -- with all the caveating that you need to do today with regard to the virus as it plays out and affects the economic rebound -- or maybe it doesn't, but as we look forward on -- it's -- we're not trying to put a time line on when we get to that 10% to 14%. A lot of it's going to have to do to get to the other side of the virus and its impacts on the economic rebound. But once we get through that, we're confident that we're going to be able to get back to that 10% to 14% target that we'd outlined in May of 2018. So second half better's than first half. We're not trying to put a time line on the 10% to 14% on -- because there's just too many things that are uncertain right now with regard to the sustainability of what we're seeing happening right now. But there are some good things happening right now.

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Operator [8]

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And our next question will come from James Picariello with KeyBanc.

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James Albert Picariello, KeyBanc Capital Markets Inc., Research Division - Analyst [9]

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So just to dig in on the international side quickly, I mean, first quarter of return to profitability in over a year. It sounds as though you're ramping up capacity investments at your Serbia plant. So just wondering what the utilization improvement potential is for your international business going forward. And would you expect to generate profitability through the rest of the year?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [10]

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Yes. So we were pleased with the performance of that business in the second quarter. And as you look at the markets around the world, everybody's at a different stage of reacting to and recovering from the pandemic. And Asia was the first really -- and I'd say Asia, it's really China was the first to emerge. And again, there's bumps in the road in all of these markets as well, but China was the first to emerge, and our business did as well, that, that economy and vehicle industry and tire industry seem to be recovering and stabilizing in that recovery reasonably well. Obviously, still some risk there and challenges on very competitive market. But overall, that market seems to be stabilizing in a recovery mode right now.

Europe is a bit behind. You've got a lot of different markets over there, individual countries that are different places in terms of their response and rebound from the pandemic. And so they're still entering, from our view, the recovery stage, and it's not as clear how quickly that's going to happen. So the timing of that market and our international business recovery in the second half is going to be largely dependent on what's happening with the economic rebound. Does China and Asia continue to stay stable in the rebound stage? And does Europe? We've seen some good signs in Europe. Does that continue? That will have a lot to do with the timing of when we return to profitability on a sustainable basis in Europe. But the signs are pretty good right now. Utilization should be improving here now.

And ultimately, as we begin to bring on more capacity in Serbia, we feel confident that we're going to be able to fill that additional capacity with even more profitable tires. So I think, overall, the international situation, little uncertainty still as we look out over the last half of this year, but the trends are positive in that market. Did I answer everything there, James? I'm sorry.

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James Albert Picariello, KeyBanc Capital Markets Inc., Research Division - Analyst [11]

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Yes. No, that's helpful. Just on the Serbia plant discussion. So the investments that you're announcing and making this year, did that fully accommodate the 1 million units that are getting shifted from Melksham to Serbia? Or is there any additional throughput that you're targeting within the investments that you've communicated?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [12]

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Well, I think the -- what we've announced in Serbia, a couple of points there. One is the amount of the $55 million that's been announced. A lot of -- about a little over half of that's already been invested in 2019. So there's about half, maybe a little bit less than half of that to go just to help you with the capital spending side of it.

And then with regard to the -- with the Melksham facility and the cessation of light vehicle tire production there, that's going into our full footprint, a lot of it going into Serbia. This will fully account for that and possibly a little bit more because as we look to our manufacturing footprint, it really is in order to support global markets in the most efficient way. And while we always strive to be near-sourced and to sell units from plants that are close to those markets we're selling into, we will flex the global footprint to support global demand. And we did that with Melksham. And the Serbia will absorb a good chunk of that, and then there's a little bit more there probably.

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James Albert Picariello, KeyBanc Capital Markets Inc., Research Division - Analyst [13]

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Got it. And free cash flow came in much better than expected for the quarter. What were the puts and takes there? And how should we be thinking about, for the second half, working capital in the third quarter versus the fourth? Does the third quarter trend as a use of cash, and then we see that typical seasonal bump in 4Q Color there would be helpful.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [14]

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Yes. I think -- well, first of all, the team continues to do a great job. We started this 1.5 year-or-so, maybe 2 years ago in terms of really putting in an increased focus on making sure that we're being efficient with our working capital. That's a big contributor of what was going on in cash flow. So all the work that they had been doing was a big part of this. We did take some incremental actions, as all companies did, to try and make sure that we were going to make it through a period of great uncertainty in terms of the economy and the industry and Cooper's performance. But the team's done a great job of performing. We've been able to back away from some of the things that we had to initiate as those incremental actions to try and preserve cash. And so a lot of it we turned into working capital.

We do have some wind in the sale there. As we've been ramping our plants up, demand has been recovering very quickly. And as a result, we -- the normal inventory build that you would see in the second quarter in preparation for the larger selling season in the third and fourth quarter was difficult to achieve. So we're basically, at this point, on selling a lot of what we're making. And so that's a good thing for cash.

For the third quarter, we've indicated we don't. And this is what we said for the second quarter, and we'll see how it plays out, but we said we don't expect any significant cash utilization. And so, again, not a big difference from -- on what we said around the second quarter. And then, yes, I think we would expect the fourth quarter to have its typical cash generation. It may be a little bit less this year than it has been in past years because we've pulled forward some of that free cash flow from the way that the working capital and inventory specifically finished tire inventory has been managed through the first half of the year and what we expect going into the third.

So great free cash flow generation, great management of that by the company and the team. Third quarter, we don't expect much usage. And fourth quarter will likely be a cash generation, as it is traditionally, maybe a little bit muted because we pulled some of that forward.

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James Albert Picariello, KeyBanc Capital Markets Inc., Research Division - Analyst [15]

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Got it. Congrats on the great momentum here.

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Operator [16]

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Our next question will come from Ryan Brinkman with JPMorgan.

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Ryan J. Brinkman, JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst [17]

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Are you able to share what trends you've seen since the close of the quarter in terms of volume, particularly with regard to U.S. consumer replacement tire shipments in July? And do you have an estimate for industry volumes in 3Q? Of course, Goodyear on Friday, guided it down 20% in 3Q. I'm just curious if you might have a different view for the industry or expect that Cooper can perform differently than the market, whether due to your different geographic or segment mix, product cadence or some other factor.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [18]

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Ryan, first of all -- secondly, all I would say is, we're early into the third quarter, and there's still a lot of uncertainty around us that could pop up pretty quickly if things were to turn with regard to the way that the pandemic situation is playing out and how state and local governments responded at that effect on the economy. Having said that, I would say that what we saw in July was a continuation of the rebound that we saw towards the end of the second quarter. And I would say that, that was for the industry, and it was certainly for Cooper.

So as we move into the third quarter from a Cooper perspective, I think that what we've seen so far is a continuation of the momentum that we've been gaining and talking about since the fourth quarter of last year. And so without -- if we can continue to perform the way we've been performing, and we can continue to ramp up our manufacturing capacity and productivity, I would think that we're in a position to outperform the market in the near term here in the U.S.

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Ryan J. Brinkman, JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst [19]

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Okay. That's great. And then just what is your current outlook for potential tariffs on tires imported from China to United States? Are there any milestones we should be looking for or time frame that you expect? And can you remind us of your own import of tires from China, which types of tires would you expect could be impacted versus what you import? And do you expect to be a net beneficiary of any potential tariffs?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [20]

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Yes. So I mean, a lot of that time line on -- is also moving around a little bit. The most recent news that we've heard is at the more important part of that tariff decision-making process, which is the anti-dumping tariffs. That's likely to happen around the early part of next year, which is a little bit delayed compared with what the original time line was. But the preliminaries, we're expecting sometime early next year and then the finals maybe second quarter of next year.

We continue to optimize our global manufacturing footprint, and that includes adjusting where we make tires for the markets we sell them in. And if tariffs have a significant impact, that's something that will continue to move around. So the number of tires that we bring in light vehicle tires specifically that we bring in to the U.S. market from China is pretty low in terms of a percentage of the total these days. And again, we're doing -- everything that we're doing is to optimize that equation from a -- what is a terrific footprint, we believe, for the markets that we're selling in. So not much of an impact today on what's coming out of China, which is the one market that is affected by tariffs. We don't bring light vehicle tires in from any of the 4 markets that are being evaluated right now as part of the petition.

If you look back to what happened 2009, '10, '11, that time frame when the initial tariffs were put on light vehicle tires coming in from China, we think that might be a reasonable proxy to look at for what might happen here because the number of tires that are imported are sold in the United States that come from these 4 markets is 25-plus percent of the tires sold in the U.S. And it would be really difficult for those tires to find a new manufacturing home really quickly to avoid the tariffs. And so what happened in a similar situation, when they put the tariffs on light vehicle tariffs from China, again, about a decade ago, it became more of a pricing event, where the industry increased prices to offset a portion of the tariff costs that was applied at that point in time. As we look at this situation, that seems to be the most likely outcome from our perspective.

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Operator [21]

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And the next question will be from John Healy with Northcoast Research.

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John Michael Healy, Northcoast Research Partners, LLC - MD & Equity Research Analyst [22]

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I wanted to ask a little bit about the performance relative to the USTMA members. When you look at the catch-up in performance and the outperformance this quarter, how would you kind of bucket that? I know in quarters past, there's been noise in the numbers with private label and things like that, that have kind of worked against you guys. I was just trying to understand, when you look at the data, is this an acceleration in terms of Cooper's performance if you kind of adjusted for those outlying factors? And really, what do you think's driving it?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [23]

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Well, I really do think that -- and we've said this for a few quarters that the -- our effort to exit some of the nonstrategic private label business, what is behind us. And so the work that our teams have been doing to grow in different channels, to grow our retail presence, which has grown significantly in the United States, our ability to be available to consumers that want to buy Cooper are beginning to show. When they are within these numbers, the specific things that the team has been working on are coming to fruition and beginning to contribute to this growth relative to the market, I should say. I mean, it's -- I want it to be growth. Right now, it is -- we're down less than they are, but I think that the momentum that's there and the work that the teams have done really are going to position us well for performance going forward.

The -- I think one of the things that may be happening as a result of the COVID situation is people are becoming more value-conscious. That doesn't just pertain to tires. We're seeing that in a lot of consumer durable industries. And so we do believe that, that may be one thing that is -- has changed a little bit is putting more focus on a brand -- a value brand like Cooper. I mean, it just fits very, very well with the value that we provide to consumers and to our customers with a great product. And so we think that, that is a -- maybe a little bit of an accelerant here.

Beyond that, there's a lot of things that are happening behind the scenes that are maybe pluses or minuses in the short term here, but we think that this is real sustainable change in the trajectory of our performance relative to the USTMA and the industry.

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John Michael Healy, Northcoast Research Partners, LLC - MD & Equity Research Analyst [24]

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Great. And then just one follow-up question on the costs. I think you mentioned in the prepared remarks that you've recently started to maybe reverse some of the furloughing or wage actions, but you've also had some headcount alignment, both at the corporate and in the factories. Can you kind of talk about kind of what we might expect in Q3 from an incremental expense standpoint of some of those abated costs or kind of deferred costs coming back online? And then how much are you going to be saving with this recent realignment?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [25]

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Yes. I -- with the recent reduction in force on -- while there'll be a small positive on positive -- small reduction in our SG&A costs related to that, I wouldn't call that material. And frankly, that's as much about positioning the company to make sure that we've got the right skill sets going forward to continue to drive our strategy forward.

I think, also, as we return to a more normal environment from an SG&A spending perspective, I think it's beginning to go back and look at on a year-over-year basis as opposed to a sequential basis might be a good way to do it. I don't know that we'll get all the way back to what I would call a normal seasonal SG&A spend for the third quarter. So that's probably a better reference point than the second quarter because we are beginning to move back in that direction of what I would expect our ongoing SG&A trend to look like.

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Operator [26]

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(Operator Instructions) The next question will come from Bret Jordan with Jefferies.

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Bret David Jordan, Jefferies LLC, Research Division - MD & Equity Analyst [27]

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On the market share gains, I mean, obviously, starting to pick up some share against USTMA, do you see that being in new channels, whether it's national accounts or more online? Or is that also evenly spread across your legacy smaller dealership networks?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [28]

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Yes. I would say that we're seeing contributions from some of the newer channels and from some of the more traditional channels. It's -- as we -- as the team, particularly in North America, which is the focus here for this part of the discussion, has been working on ensuring that we are more present where people want to buy us, but also trying to make sure that we've got the right partners going forward. And those that are going to help us to grow our business, we're seeing contributions from both sides of the business. And so the new business development's definitely contributing, no doubt about that. But some of the traditional channels, whether it's retailers that we've got a long history with or it's the wholesale distribution part of our business, we're seeing contributions from both.

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Bret David Jordan, Jefferies LLC, Research Division - MD & Equity Analyst [29]

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Okay. Great. And then one question. I mean, obviously, this is tough to answer, but what's your take as far as the tariff potential on the new 4 markets? You commented it's more of a price impact than actual change of where the tires are going to come from, but I think the last data was like $900,000 cost per job saved on the first China tariff. Do you think the ITC is leaning towards the tariff? Or do you think it's going to be more of attached to the consumer and they pass on it?

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [30]

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Yes. Again, I don't -- well, first of all, we -- as we always, we have a fairly general statement that we make that we would like the markets to be free and fair. And that's the way we look at trade. We continue to look at any activity in this arena from that lens. And so we'll see how this plays out when they get to an actual decision and whether they move forward, and if they move forward, what kind of tariffs they actually put in place. But at the end of the day, we don't know what they're going to do. The petition's out there. They're moving forward with it. We know what the time line generally looks like at this point. So early next year, we should have a read on if it's going to happen and how material it is.

The big thing is, is it's such a big -- when you're talking about over 25% of the tires that are sold in this country today coming from those 4 markets, it's just hard to see a quick response in terms of moving at some place. And so as a result, there's going to be a lot of the tires that are coming into this market that are going to have that incremental cost on it. And I think that there is the market's going to look to price to recover that cost impact, and, again, largely based on the experience that we saw from the tariff impact in '09, '10, '11 or '10,' 11, '12, I can't remember what it was, '10, '11, '12, I think, on Chinese light vehicle tires.

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Operator [31]

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Ladies and gentlemen, this concludes our question-and-answer session, so I'll turn it back to Mr. Hughes for any closing remarks.

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Bradley E. Hughes, Cooper Tire & Rubber Company - President, CEO & Director [32]

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Okay. Thank you very much. In our first quarter call, I made a remark that I thought this could be a time when the Cooper team would really shine. And I have to say that they've exceeded even my expectations. When you look at the first 6 months of this year and think about all that's transpired, for our team to have been able to deliver a small operating profit if you exclude the restructuring charges, while, at the same time, continuing to move forward our strategic initiatives, a lot of that related to our manufacturing footprint, but, clearly, also the progress being made on the commercial end and creating more demand for our product. And all the -- all the while doing that while maintaining a very strong cash position, which is going to position us well as we move into the second half of this year and going forward, I think it's a testament to our plan, to the execution of that plan, but mostly to our team.

All right. With that, I want to thank everyone for participating today, and please stay safe and stay healthy.

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Operator [33]

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Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.