Cooper Tire & Rubber Company: 1Q06
The RocksandBoulders Commentary on CTB
Cooper’s net loss of eight cents per share does not appear to be discouraging investors. Indeed, the company maintains there are still improvements in North America that can aid operating income, and there were trade related difficulties that prevented the newly consolidated Chinese operations from contributing fully to net sales.
By consolidating its Chinese factories and making additional Korean investments, Cooper is poised to benefit from substantial revenue growth in those Asian markets. In addition, those manufacturing facilities can provide low cost exports for the company’s markets around the world. During the past quarter operations were a net user of cash, but Cooper has significant liquidity available through its line of credit and cash on the balance sheet. Although management was recently forced to tighten the purse strings, in the past year the company has demonstrated its commitment to pay down debt and repurchase shares.
Management has commented that industry-wide price increases have held in both North American and International markets. Unfortunately, input and energy costs are a significant headwind to Cooper’s continued turnaround. Management also commented that growth in its North American market was below expectation during the 1st quarter, and the company was unable to project sales growth should further price increases be necessary.
Cooper’s domestic and international operations continue to require significant capital expenditures. At the same time, the Asian operations could provide both growth and operational leverage should inputs improve even slightly. Beyond commodities, the operational cash burn, high interest costs, and potential for over capacity in North American markets appear to outweigh the positives at CTB. The market, however, appears to be calling the bottom in Cooper Tire & Rubber’s share price.
Cooper’s net loss of eight cents per share does not appear to be discouraging investors. Indeed, the company maintains there are still improvements in North America that can aid operating income, and there were trade related difficulties that prevented the newly consolidated Chinese operations from contributing fully to net sales.
By consolidating its Chinese factories and making additional Korean investments, Cooper is poised to benefit from substantial revenue growth in those Asian markets. In addition, those manufacturing facilities can provide low cost exports for the company’s markets around the world. During the past quarter operations were a net user of cash, but Cooper has significant liquidity available through its line of credit and cash on the balance sheet. Although management was recently forced to tighten the purse strings, in the past year the company has demonstrated its commitment to pay down debt and repurchase shares.
Management has commented that industry-wide price increases have held in both North American and International markets. Unfortunately, input and energy costs are a significant headwind to Cooper’s continued turnaround. Management also commented that growth in its North American market was below expectation during the 1st quarter, and the company was unable to project sales growth should further price increases be necessary.
Cooper’s domestic and international operations continue to require significant capital expenditures. At the same time, the Asian operations could provide both growth and operational leverage should inputs improve even slightly. Beyond commodities, the operational cash burn, high interest costs, and potential for over capacity in North American markets appear to outweigh the positives at CTB. The market, however, appears to be calling the bottom in Cooper Tire & Rubber’s share price.
