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Cooper Tire (CTB) Down 14.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Cooper Tire (CTB). Shares have lost about 14.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Cooper Tire Lags Q2 Earnings and Revenue Estimates

Cooper Tire reported second-quarter 2019 adjusted earnings per share of 18 cents compared with 30 cents recorded in the prior-year quarter. Also, the bottom line missed the Zacks Consensus Estimate of 51 cents.

The company’s net sales declined 2.8% year over year to $679 million, which missed the Zacks Consensus Estimate of $719 million. Gross profit amounted to $99.1 million, down from $94.2 million recorded in the prior-year quarter.

Also, operating profit was $31.7 million compared with $32.8 recorded in second-quarter 2018.

Segment Details

Net sales in the Americas Tire Operations declined 0.4% year over year to $582 million. Operating profit in the segment rose 15.6% to $47 million despite new and incremental tariffs this year. Also, operating margin was 8% compared with 6.9% in the prior-year quarter.

Revenues in the International Tire Operations declined 17.5% to $139 million. Operating loss was $1 million against operating income of $6 million in the year-ago quarter. Operating margin was a negative 0.9% against a positive 3.4% in the prior-year quarter. The segment witnessed challenges from the ongoing decline within the new vehicle market in China and a weak replacement tire market in Europe.

Financial Position

At the end of the second quarter, Cooper Tire had cash and cash equivalents of $112 million compared with $180 million in the year-ago quarter. Capital expenditures increased to $45 million from $38 million in the year-ago quarter. At the end of the second quarter, the company had invested $49 million in its new joint venture with Sailun Vietnam.

Outlook

For 2019, the company reiterated its expectation of modest growth in unit volume compared with the actual figure in 2018.

It projects operating margin to improve in 2019. Capital expenditure is expected in the band of $180-$200 million, excluding capital contributions related to Cooper’s pro rata share of its joint venture with Sailun Vietnam or other potential manufacturing footprint investments.

The company expects effective tax rate, excluding significant discrete items, in the range of 23-26%. Charges related to the Melksham, the U.K. restructuring is expected in the band of $8-$11 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -39.5% due to these changes.

VGM Scores

At this time, Cooper Tire has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise Cooper Tire has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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