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Why Is Cooper Tire (CTB) Down 36.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Cooper Tire (CTB). Shares have lost about 36.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cooper Tire due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cooper Tire Tops Q4 Earnings Estimates, Up Y/Y

Cooper Tire reported fourth-quarter 2019 adjusted earnings per share of $1.02, up from the loss of 1 cent recorded in the prior-year quarter. The bottom-line figure also surpassed the Zacks Consensus Estimate of 67 cents. Solid revenues from the American Tire operations resulted in this upside.

The company’s net sales declined 2.6% year over year to $750 million in fourth-quarter 2019, mainly marred by lower unit volume. The reported figure, however, surpassed the Zacks Consensus Estimate of $742 million.

Gross profit amounted to $131.5 million, up from the $124.6 million recorded in the prior-year quarter. Additionally, operating profit came in at $63.6 million, significantly up from the year-earlier quarter’s $24.8. Lower raw-material costs, and favorable price and mix aided the company’s profitability during the reported quarter.

Segment Details

Net sales in the Americas Tire Operations edged down 1.4% year over year to $655 million due to lower unit volume. However, the reported figure outpaced the Zacks Consensus Estimate of $639 million. Operating profit in the segment increased 19.6% to $84 million. This upswing was mainly driven by upbeat price and mix, lower raw-material costs and favorable SG&A. Further, operating margin was 12.9% compared with the prior-year quarter’s 10.6%.

Revenues in the International Tire Operations declined 20.1% to $119 million due to lower unit volume, unfavorable price and mix, and negative foreign-currency translation impact. The revenue figure also missed the Zacks Consensus Estimate of $133 million. Operating loss was $6 million, narrower than the operating loss of $33 million posted in the year-ago quarter. Operating margin was a negative 5% as against a negative 22.2% reported in the prior-year quarter.

Dividend & Financial Position

The company announced a quarterly dividend of 10.5 cents a share, payable on Mar 27, to shareholders of record on Mar 3, 2020.This marks the 192nd consecutive quarterly dividend paid by the company.

Cooper Tire had cash and cash equivalents of $391.3 million as of Dec 31, 2020 compared with $356.2 million recorded in the year-ago period. Capital expenditures declined to $47 million from the year-ago quarter’s $49 million.

As of Dec 31, 2019, long-term debt and finance leases amounted to $309.1 million, down from $121.3 million as of Dec 31, 2018. The debt-to-capital ratio stands at 20.16%.

Outlook

The company projects its operating margin to improve in 2020, with a better second-half, and the full-year margin coming in higher than the 2019 figure of 6.3%. Capital expenditure is expected in the $260-$280 million band this year.

The company expects higher manufacturing costs and SG&A expenses in the first quarter of 2020. Charges related to the restructuring of the company's Mexico manufacturing facility is estimated to be around $10 million in first-quarter 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -88.08% due to these changes.

VGM Scores

Currently, Cooper Tire has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cooper Tire has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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