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Cooper Tire & Rubber Co (CTB) Q2 2019 Earnings Call Transcript

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Cooper Tire & Rubber Co (NYSE: CTB)
Q2 2019 Earnings Call
Jul 29, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Cooper Tire & Rubber Company's Second Quarter Earnings Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded.

I would like to now turn the conference over to Jerry Bialek. Please go ahead.

Jerry Bialek -- Vice President and Treasurer

Good morning, everyone, and thank you for joining the call today. This is Jerry Bialek, Cooper's Vice President and Treasurer. I'm here today with our 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 2019 financial and operating results, as well as the company's 2019 business outlook. Our earnings release includes a link to a set of slides that summarizes information included in the news release and in the 10-Q that will be filed with the SEC later today. Please note that we'll 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.

Brad Hughes -- President and Chief Executive Officer

Thank you, Jerry, and good morning, everyone. I will begin today with a brief overview of our second quarter results. After that, I will turn the call over to Chris for a few of our -- for a review of our financial performance in greater detail. Then I'll return to talk about our outlook. And as always, we will conclude by taking your questions.

Now let's talk about the quarter. Net sales decreased to 2.8% to $679 million. Unit volume decreased 4.9%, compared to the second quarter of 2018. Operating profit was $32 million or 4.7% of net sales, a sequential improvement compared with the first quarter. The Americas segment operating profit was up 16% year-over-year, despite the impact of new TBR tariffs. Our International segment was challenged by conditions within the China new vehicle market, and a weak replacement tire market in Europe.

The process of phasing out light vehicle tire production at our Melksham facility is nearing completion and will result in a Cooper Tire Europe that is more cost competitive. We are now sourcing more tires -- TBR tires from our Vietnam offtake agreement with Sailun, and progress on construction of our new joint venture TBR tire production facility in Vietnam is on schedule. Both actions diversify our TBR sourcing footprint outside of China. And our business relationship with Mercedes Benz is going well.

Let me comment on the unit volume, specifically the U.S. result, which underperformed the USTMA and the industry. Well, we are not satisfied with the result, we remain confident that the strategic growth initiatives we are executing will make a more visible impact in 2020 as we've been saying. Also, we do not believe the second quarter performance is indicative of underlying demand for our products. While industry sell-out data is not complete, with the information we do have, we believe Cooper's sell-out was in line with the overall U.S. market for the first half of 2019. However, as you know, customers make inventory adjustments from time-to-time, which can impact sell-in results as we believe happened in the second quarter.

With that, I'll turn it over to Chris.

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Thank you, Brad. Moving to consolidated second quarter results. Sales were $679 million, down from $698 million in 2018. This 2.8% decrease was driven by $34 million of lower unit volume and $6 million of unfavorable foreign currency impact, which were partially offset by $21 million of favorable pricing mix. Operating profit was $32 million, compared to $33 million in the second quarter of 2018, resulting in an operating margin of 4.7% of sales. This was achieved despite $13 million in costs related to new tariffs on products imported into the United States from China, as well as $2 million of restructured costs related to Cooper Tires Europe's decision to cease light vehicle tire production in Melksham, England.

Let me provide an update with respect to tariffs. Last quarter, we indicated that for the full-year of 2019, we expected the costs of the new TBR tariffs implemented on February 15th to be around $50 million. Our expectation was that there would be price increases on TBR tires in the U.S. market to help offset these costs. While we and others implemented price increases, we have yet to see the broad industry pricing that we expected. Cooper will remain market facing with our TBR pricing, and we continue to believe that strong demand for TBR tires relative to supply will eventually result in industry pricing. However, we do not expect that pricing actions will occur as quickly as previously assumed.

We are making good progress on our TBR sourcing footprint diversification. We are beginning to receive tires and are ramping up the number of tires we received from our commercial offtake agreement with Sailun, Vietnam. At the same time, the construction of the new joint venture TBR plant with Sailun is on track with tire production expected to commence in the first half of next year, and we continue to evaluate opportunities to further diversify our TBR sourcing footprint.

In early May, the U.S. administration announced a further increase in Section 301 tariffs from 10% to 25% on certain Chinese imports. Given that Cooper is on the LIFO accounting method in the U.S., we experienced a negative tariff impact immediately. This incremental rate increase was not included in our previous outlook. This tariff applies to both our passenger car and TBR tires imported from China, as well as some raw materials. As we have updated our estimates for recent rate and sourcing changes and other variables, our expectation for the full-year impact of gross expenses for all newly implemented tariffs in fiscal 2019 is $50 million.

As Brad indicated earlier, the Melksham transition is nearing completion a little ahead of schedule, which resulted in approximately $2 million of restructuring charges in the second quarter. This amount was in line with our projections and we continue to expect full-year 2019 restructuring charges to be in the range of $8 million to $11 million. As we approach conclusion of this transition, we experienced slightly more volume in manufacturing disruption than expected. Yet when completed, this action will more fully leverage the remaining plants in our manufacturing network, benefiting Cooper and Europe and globally.

Now, let's take a look at our second quarter operating profit walk. Total company operating profit compared with 2018 was impacted by the following factors. $13 million of new tariffs enacted in 2019 and products imported into United States from China. $2 million of restructuring costs as well as $2 million of restructuring costs related to ceasing light vehicle tire production in Melksham, $17 million of favorable price and mix, $15 million of favorable raw materials, excluding the new tariffs. The quarter also included unfavorable volume of $6 million, higher SG&A of $4 million primarily related to incentive and stock-based compensation, increased product liability costs of $1 million, and $7 million of higher other costs, primarily due to higher distribution costs, including the non-recurrence of the Albany warehouse tornado insurance recovery in 2018. Diluted earnings per share was $0.18, compared to $0.30 per share in the second quarter of 2018.

Now, turning to our Americas tire operations. Segment sales for the second quarter were $582 million, down 0.4% from $584 million in 2018 as a result of $22 million of lower unit volume, partially offset by $20 million of favorable price and mix. Segment unit volume was down 3.8%, compared to the same period a year ago. Our U.S. light vehicle unit volume decreased 4%, while the USTMA decreased by 1.5% and total industry increased by 0.7%. Second quarter operating profit in Americas increased to $47 million or 8% of net sales compared with $40 million or 6.9% of sales in 2018.

Operating profit included, $13 million with new tariffs enacted in 2019 on products imported into the U.S. from China, $22 million of favorable price and mix, $12 million of favorable raw material costs, excluding new tariffs, $3 million of manufacturing improvements, $6 million of unfavorable SG&A costs, $5 million of lower volume, $1 million of higher product liability costs and other costs that increased by $5 million, primarily due to higher distribution costs, including the non-recurrence of the Albany warehouse tornado Insurance recovery in 2018.

Now, turning to our International tier operations. Net sales for the second quarter were $139 million, down 17.5% from the second quarter of 2018. This result was driven by $25 million of lower unit volume and $6 million of unfavorable foreign currency impact which were partially offset by $2 million of favorable price and mix. Segment unit volume decreased 15.1% with unit volume decreases in both Asia and Europe driven in large part by challenging new vehicle market in China and weakness in the European replacement tire business. The second quarter operating loss in our International operations was $1 million compared to operating profit of $6 million in 2018.

The decrease included charges of $2 million related to Melksham, England restructuring, $3 million of lower unit volume, $2 million of unfavorable price and mix, $3 million of higher manufacturing costs, and $1 million of higher other costs, which were partially offset by $3 million of lower raw material costs and $1 million of lower SG&A costs.

Our raw material index decreased 1.2% from the second quarter of 2018. The raw material index increased sequentially from 160.4 in the first quarter of 2019 to 161.8 in the second quarter of 2019. This was in line with our expectation to be up slightly on a sequential basis, but down slightly year-over-year. For the third quarter, we expect our raw material index to be down on a sequential and year-over-year basis.

Turning now to corporate items. Other pension and post retirement benefit expenses increased $2.3 million versus the prior year. Similar to the first quarter, this increase is primarily the result of lower estimated returns on plan assets compared to 2018. As we have made strides in improving the funding status of our pension plans, the portfolio is taking less risk in order to protect the funding status, which results in a net increase quarterly expense.

The effective tax rate was 30.8% for the quarter -- 38.7% for the quarter, compared to 12.6% last year. The tax rate for the second quarter of 2019 includes $2 million of discrete items related to the accrual of additional uncertain tax positions pertaining to previous years. The second quarter of 2018 included included $1 million of net discrete tax items favorably impacting the tax rate.

In conjunction with the restructuring decision related to the Melksham facility, the company is examining its entity structure in the region in order to ensure effectiveness from a tax planning perspective. We estimate the full-year 2019 effective tax rate, excluding significant discrete items will be in a range between 23% and 26%. 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. Unrestricted cash and cash equivalents were $112 million at June 30th, 2019, compared with $180 million at June 30th, 2018. Capital expenditures in the second quarter were $45 million, compared with $38 million in the same period a year ago. Also as of the second quarter, the company has invested $49 million in its new joint venture with Sailun in Vietnam.

Return on invested capital, excluding the impact of the goodwill impairment charge in the fourth quarter of 2018 was 9.3% for the trailing four quarters. On June 27th, 2019, Cooper executed an amendment to its existing bank credit facility, which extended the maturity date to June 27th, 2024 and increased the borrowing capacity to $700 million. The amended agreement is comprised of a $500 million revolving credit facility and a new $200 million delayed draw term loan. The proceeds from the new loan will be used primarily retire the existing 8% senior notes that mature in December of this year. The amendment provides Cooper with additional financial flexibility to fund some very good opportunities for reinvestment back into the business. At the same time, given the attractive borrowing rates, we will be able to save approximately $7 million of annual interest savings beginning in 2020.

Before I turn it over to Brad, I want to reiterate that returning capital to our shareholders remains an important priority for us. As demonstrated in the second quarter, we are committed to supporting our quarterly dividend, but will pursue share repurchases more opportunistically in the near-term as we balance attractive opportunities to invest in our business.

I'll now turn the call back over to Brad.

Brad Hughes -- President and Chief Executive Officer

Thanks, Chris. Clearly, the industry is facing some near-term challenges as we have described. Yet even with these headwinds, we are able to improve total company operating profit margin from 4.3% in the first quarter to 4.7% in the second quarter. And in The Americas segment, we improved profitability by 16% year-over-year, even after absorbing the impact of the new tariffs. We continued to make progress on executing our strategic initiatives, including our retail expansion efforts and expect that these initiatives will drive more meaningful improvements in our business starting in 2020.

We have work to do, but remain confident about the future and where we are headed. Increased U.S. tariff costs and delayed timing of anticipated commercial truck tire price increases, as well as weakness in the China new vehicle and Europe replacement tire markets are expected to impact the remainder of this year. The Americas segment, excluding TBR tariffs is still generally inline with the previous expectations. On a consolidated basis, we anticipate improvements throughout the year in operating profit margin.

Cooper is adjusting expectations for the full-year as follows. Given first half volume performance and the lack of clarity regarding the China new vehicle market, Cooper no longer expects full-year unit volume growth compared to 2018. Operating profit margin will improve throughout the year with full-year operating profit margin in line with 2018 reported margin of 5.9%.

Capital expenditures will range between $180 million and $200 million. This does not include capital contributions related to Cooper's pro rata share of its joint venture with Sailun Vietnam or other potential manufacturing footprint investments. Our effective tax rate, excluding significant discrete items will ranged between 23% and 26%. And finally, charges related to the Melksham, England restructuring will be in a range of $8 million to $11 million.

In summary, while the short-term outlook has been affected by the conditions we've described, we continue to believe the Cooper is doing the right things to build our business and drive improvement, which will support sequential operating profit margin improvement this year and positive momentum going into 2020.

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

Questions and Answers:

Operator

Absolutely. [Operator Instructions] Today's first question comes from Rod Lache of Wolfe Research. Please go ahead.

Rod Avraham Lache -- Wolfe Research -- Analyst

Good morning, everybody.

Brad Hughes -- President and Chief Executive Officer

Good morning, Rod.

Rod Avraham Lache -- Wolfe Research -- Analyst

Had a couple of questions. One is just kind of high level. If you divide your performance into the variable contribution items. So if you think about volume price mix raw from materials and tariffs on a year-over-year basis, it was actually up $13 million year-over-year, and that was offset by the SG&A, restructuring, distribution and other which was a negative $14 million. I was hoping you can maybe talk a little bit more about how those structural costs, those other items flow as you look into the back half of this year? As you will be comping against, I think it was $5 million of higher distribution costs for distribution facility you had last year on the West Coast and there was a $34 million goodwill impairment in the fourth quarter, which shouldn't recur.

Brad Hughes -- President and Chief Executive Officer

Yeah, that's correct, Rod. And I don't have exactly the math in front of me that you use, but directionally it does seem correct around the variable improvement in some of the structural things that are, many of them are not going to recur as we go forward. So a couple of examples there. Within the distribution cost, there are a $2.8 million, I believe, of non-recurring insurance recoveries that we had in last year's results that we don't have this year. So there's almost $3 million there that's contributing to that distribution. Something else in there that's on a little less obvious on is that, we are actually manufacturing more tires in the United States and Mexico for this region and it actually moves where we reflect those distribution costs into distribution costs were some of the sea freight when they were being imported previously were not recorded in the same category. And not a huge number, but another contributor to that distribution cost there.

And then as you're correct, we began to in the second half of last year and most importantly, I think the bigger piece of that was in the fourth quarter, had the new warehouses online and so began to incur some of those costs and we will not have that difference as we move forward this year. On the SG&A side, I point out that there's a couple of things that are going on in the compensation category. One is with deferred compensation related to stock shares, the price. You look at the move in the price a year ago versus the move in the price of the shares this year, and that was a negative contributor to the SG&A. And frankly, a year ago, we were on adjusting our projection for the full-year payout and incentive comp down and we did not have a similar on reduction this year.

So there are several things in there to your point, that are not recurring as we move into the second half of this year and we would think that we would see a better year-over-year performance.

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Rod, this is Chris. Just one other thing I would add in terms of items that occurred last year that won't be reoccurring in the second half of the year. As you'll recall, in the third quarter, there was a $31 million benefit related to product liability, the adjustment of our model, so that so that kind of rounds out, all the one-time items.

Rod Avraham Lache -- Wolfe Research -- Analyst

Right, right. Okay, that's helpful. And just two other things, one is, can you just remind us on what the aggregate volume will be from the Vietnam offtake agreement once that net ramps. To what extent are you offsetting the million or so units that you're bringing in on commercial tires from China. And any update on what happened to the ramp from ATD, Walmart and some of the other new accounts that seem to be coming in the back half of last year that, wouldn't some of those accounts be ramping up inventory?

Brad Hughes -- President and Chief Executive Officer

Yeah. So on -- first the question on Vietnam. We haven't given specific numbers about the number of tires that we're bringing in. We are ramping up against the commercial offtake agreement that we have, and that will be -- we will have more units coming from that in the second half of the year, certainly compared with the first half. But more meaningfully, as we get into the joint venture next year and begin to produce there, then you'll see a larger number of tires coming from Vietnam over the course of next year and we'll continue to highlight that, because that's a big opportunity against the tariff cost that were impact -- we're incurring right now.

And then with regard to the business that came online last year, we are seeing some of the benefits of that this year, and as we tried to highlight in the comments previously on -- as we look at sell-out, which ultimately determines what the sell-in will be over a longer period of time. We think that actually, we are on increasing at about the same level that the market is in the U.S. Unfortunately on the timing of some inventory adjustments that we're seeing from some customers right now is offsetting a portion of that. But we believe that over the longer term and certainly as we get into 2020 on -- as we get through some of those inventory adjustments will move around from quarter-to-quarter etc. And we've got more impactful contributions from some of the new business that we have been putting on the books that you really start to see that contribute to the bottom line with growth.

Rod Avraham Lache -- Wolfe Research -- Analyst

Okay. Thank you.

Operator

And our next question today come from James Picariello of KeyBanc Capital Markets. Please go ahead.

James Picariello -- KeyBanc Capital Markets -- Analyst

Hey. Good morning, guys. Can we just kind of focus on the operating margin guidance, the revision there. Going from greater than 7.1% to now 5.9% that we've got. If you can help just bridge the items. So we've got lower volume, we've got a raw materials look a little bit better. I'm just curious what the major buckets are in terms of the variance? The gross tariff impact remains at $50 million, so maybe the netting of that has changed. It sounds like pricing is a bit delayed. So yeah, if you could just help walk through this variance in the full-year expectation, that would be helpful. Thank you.

Brad Hughes -- President and Chief Executive Officer

Yeah, that's -- you've just identified one of them, James there, which is the TBR tariffs on. And again, there a lot of moving pieces in there, both in the gross cost and in the pricing side, specifically the timing of one we anticipate there to be pricing. But the combination of those factors, including the 301 tariff going from 10% to 25%. And now a revised outlook is to when we're going to see pricing in that market, even though we continue to believe that the dynamics of that supply and demand situation will ultimately create a very favorable background for price increases, but we are moving those out. So the tariffs, including the timing for the pricing is an element of that.

We are seeing a continued slowdown in the new vehicle market in China, so we've extended that to affect the full-year -- which is a little bit different from we had previously. And then frankly, the slowness, the weakness in the replacement market in Europe is probably the third major factor that I would refer to with regard to the change in the guidance for the full-year.

James Picariello -- KeyBanc Capital Markets -- Analyst

Thank you for that. How about the inventory realignment with the key customer in the U.S., does that persist as well. How's that going?

Brad Hughes -- President and Chief Executive Officer

That's all timing, right? It just can be one quarter. It's not necessarily just one customer on the -- that is a timing element. And I make that comment, because different from what we were saying about the private brand wholesale business which was a structural change to the way that we were going to market and which tires we were selecting to sell and to whom, that is behind us. This sell-in, sell-out on -- as inventories are adjusted from quarter-to-quarter or period-to-period is really a timing and we're trying to become more focused on the sell-out and we feel pretty good about where we're tracking through the first half of the year relative to the market in the U.S.

James Picariello -- KeyBanc Capital Markets -- Analyst

Got it. And just a housekeeping one on the tariff side. So the 301 tariff did step up from 10% to 25%. So what's allowing you guys to keep that gross tariff exposure to $50 million as opposed to something higher?

Brad Hughes -- President and Chief Executive Officer

Well, so -- there's -- again, lot of moving pieces there, and including the fact that we are continuing to resource certain products to new countries that are not affected by the tariffs. And so that -- the volume, which markets we're selling them into all contribute to that. But I wouldn't lose sight of the sourcing changes well within that.

James Picariello -- KeyBanc Capital Markets -- Analyst

Thanks.

Brad Hughes -- President and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Christ Van Horn of B. Riley FBR. Please go ahead.

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

Good morning. Thanks for taking the call.

Brad Hughes -- President and Chief Executive Officer

Hi, Chris.

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

I just wanted to dig a little bit further into the comment around unit growth -- unit volume growth for 2020. Is part of it just a reversal of maybe what you see in the back half of this year? Or is there -- other moving pieces that we should think about on top of that or more weighted than that?

Brad Hughes -- President and Chief Executive Officer

Well, I think there are a couple of things that most importantly is the retail expansion initiatives that the team has been pursuing in North America specifically on are going to begin to show themselves in greater numbers and have more of an impact on the total overall volume and growth next year. That combined with some changes to the -- if we get to a more consistent sell-out, sell-in type of environment which we would expect in certain -- with certain customers next year, that would also give us a little bit of a tailwind as we move into next year with regard to volume.

But the most important thing is that the efforts around retail expansion are going to contribute more next year than they have to date just as we grow into those new relationships.

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, got it. And then, you've identified $8 million to $11 million of additional spend on the Melksham restructuring. Can you remind us on what you foresee that being as a benefit in the out years in terms of cost savings and controls etc?

Brad Hughes -- President and Chief Executive Officer

Yeah, we haven't given specific numbers on that yet, but clearly it is going to contribute a benefit to the bottom line removing out of our highest cost facility into one of our lowest cost facilities Melksham to Serbia, which is going to absorb the most of that volume that's being moved. But it's also going to put additional volume into the rest of the footprint, which will benefit our overall utilization. So we haven't quantified that yet, and you'll begin to see more of that as we get into next year, obviously. But it clearly will contribute to lower cost for total company and most importantly for Europe.

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, got it. And last for me, just maybe an update on the OEM launch here in the U.S. Any foreseen unexpected costs or is it going as planned? Just any update there.

Brad Hughes -- President and Chief Executive Officer

No, going largely as planned. The relationship is very good with Mercedes, we're adding additional platforms as we move along here and continue to seemingly performed pretty well based on all the feedback that we've received.

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

Okay, great. Thanks again for the time.

Brad Hughes -- President and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Bret Jordan of Jefferies. Please go ahead.

Bret David Jordan -- Jefferies -- Analyst

Hey, good morning, guys.

Hi, Bret.

John Michael Healy -- Northcoast Research Partners -- Analyst

Just a question on the timing of the new relationships. I mean, obviously, I guess, you expanded your volumes with ATD at Walmart, you picked up Monro. As far as the fill-in as most of loading up those new relationships done, and now it's a matter of selling out or are they are incremental new customers that you're adding to the list going forward?

Brad Hughes -- President and Chief Executive Officer

Well, I think there is two categories here. There's on -- the first category or some of the new opportunities that we started to experience through our conquest program last year when there were some changes in the distribution landscape and we went out and tried to use that as an -- and successfully use that as an opportunity to increase the number of selling points that we had -- primarily with the independent dealers and retailers that are serviced through some of the large national distributors. On that, the initial sell-in that resulted from that is largely in place right now. And now it's a matter of growing the number of tires that we're selling through those retail points that we added last year. Again, the smaller independent retailers and dealers that are serviced by those large wholesale distributors.

Then you've got some of the newer, larger retail, national retail, general merchandiser accounts, where we are adding additional opportunity to sell-in different parts of the U.S. and those are still building right now. You go through the pilot phase, which can last different lengths of time depending on which one you're talking about on, but seemingly, we are progressing with those, and those will continue to grow on this year. At more importantly, we really think next year, is when you're going to start to see some of that new activity show up on the bottom line.

Bret David Jordan -- Jefferies -- Analyst

Okay, great. And then a question on -- the commentary about being more opportunistic in the near-term on the share repurchase program, is that more -- as that being more aggressive? Because I think you've said it in conjunction with a discussion about reinvesting in the business which would theoretically take away from the buyback. What is your thought on the share repurchase going forward here?

Brad Hughes -- President and Chief Executive Officer

Yes. So, we've been saying for a few quarters now that we think that there are new and good opportunities to reinvest in the business and so that will be something that we're considering to do. We obviously are going to need to continue to look at where the share price is as we look at the -- any opportunity to buyback. But for right now, we do think that there are some new and better opportunities that we've had over the last couple of years with regard to reinvesting in the business.

Bret David Jordan -- Jefferies -- Analyst

Okay, great. Thank you.

Operator

And our next question today comes from John Healy of Northcoast Research. Please go ahead.

John Michael Healy -- Northcoast Research Partners -- Analyst

Thank you. Wanted to ask a question about the Americas segment. I think you guys called out the $1 million of SG&A cost in terms of the operating income for the segment. It seems like a big number to me just given the relative size of SG&A for you guys. I was just hoping you could give us a little bit more color what was going on there?

Brad Hughes -- President and Chief Executive Officer

I'll let Chris supplement this a little bit as we -- if I missed something here. But again, a couple of big pieces there are, one, the two pieces of what I will describe as compensation. One is, anything that's related to deferred stock compensations is, you market-to-market, period-by-period and so the change in the first quarter to the second quarter in terms of the share price a year ago, compared with the magnitude of the change in the share price from quarter-to-quarter this year is a meaningful contributor to that. In addition to that, we also a year ago adjusted our accrual for the full-year incentive compensation based on our outlook for the year relative to our targets. We aren't doing that this year at this point.

And so that was a reduction in SG&A last year, that a credit if you, albeit, call it and we don't have that this year. So those were two big pieces of it. Chris, anything else worth noting in there?

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

No, that was the majority, Brad. It was the stock-based comp and the overall incentive compensation, and the adjustment of the accrual last year.

John Michael Healy -- Northcoast Research Partners -- Analyst

Got. And I just want to ask maybe just kind of on a broader base picture standpoint. If you look at the Americas segment and we think about ATD and Monro and Walmart just at a surface level most of us think it should be a really good thing for Cooper and then you guys should be growing volumes and the volumes are there still on the soft side. Can you help us just close that gap and maybe provide a timeframe for when do you think that we might be done with kind of some of this overhang of the private label business. Just trying to understand when you think it's a reasonable time that Cooper should start to perform in line with the USTMA members or maybe even better than them, given some of these share opportunities?

Brad Hughes -- President and Chief Executive Officer

Well, I think on -- it's hard to call a quarter-to-quarter, John, but I would certainly indicate and confirm, as we've been saying, that we think as we get into 2020 that you're definitely going to start to see on a different level of performance as this new business begins to contribute more. Before that, it's just, again, as you move quarter-to-quarter and you look at on sell-in activity which is what we're measuring as opposed to sell-out activity with the numbers that the USTMA reports and that we compare ourselves to is can move up and down quarter-to-quarter based on some of the buy-in and sell-out timing. We think that as we get through the balance of this year, that will kind of even itself out.

We have a lot of customers out there that -- and we're not alone. I'd say the industry is doing a much better job of managing their inventories both for which will better align the sell-in to the sell-out on -- and so as that begins to trickle through, it'll be reflective of what these sell-out demand is for our products in terms of the sell-in that we're reporting. And we think through the first half of the year, we were about the same as the industry on in the U.S.. And we think as we move forward with some of the new initiatives as we get into 2020, that should improve and show itself on the sell-in data that we report against.

John Michael Healy -- Northcoast Research Partners -- Analyst

Great. And then just last question for me on the Vietnam opportunity. When you look at the TBR -- is it reasonable that most of those tires that you're bring into the U.S. can be sourced through Vietnam in 2020? Or do you think you'll still be using a dual region approach to bringing those tires into the U.S?

Brad Hughes -- President and Chief Executive Officer

Its -- there's definitely going to be a continued transition during 2020. As we exit the year, there's no doubt that we will be in a position where the majority is coming -- assuming everything stays on track and we're well on track right now. So I should say -- could use the term no doubt, but we're highly confident that, that by the time we exit 2020, the majority of those tires will be coming from outside of China. Whether or not we get there for the full-year, I don't know, but it's on -- everything is on track and that will be a big help next year if the current tariff environment remains in place.

John Michael Healy -- Northcoast Research Partners -- Analyst

Great. Thank you, guys.

Operator

And our next question today comes from Ryan Brinkman of JPMorgan. Please go ahead.

Rajiv Gupta -- JP Morgan -- Analyst

Hi, good morning. This is Rajat Gupta on for Ryan. Just had a question on the manufacturing improvements bucket and the margin bridge, particularly in Americas. I mean, you continued to see some good improvement there. Last quarter, you had highlighted some easy compares you saw from the inventory draw down efforts. How do you feel about the inventory levels currently? And then, how should we think about benefits from manufacturing going forward, especially in the second half in this weak volume growth environment? And I have a follow-up.

Brad Hughes -- President and Chief Executive Officer

Okay. Well, on the manufacturing question and specifically, well one thing to note is that when you look at it on a consolidated basis as we were working our way through the tail end of the cessation of light vehicle tire production in Europe, we did experience a minor complications relative to what we thought we were going to incur. Now we are pretty much done with that. That along with making sure that we're not overbuilding China relative to the OE market caused us to adjust our production schedule there. And in combination, those did have an offsetting impact on what we're able to achieve in the Americas. As we look forward, we still think for the balance of the year, when you look at it in total, that we will continue to have better utilized facilities in North America. And so, when we get into the second half of the year, we do see that continuing.

Rajiv Gupta -- JP Morgan -- Analyst

Got it. And then just on the margin guidance for the full-year, what kind of industry or company-specific volume expectation is that based on? I mean, is there -- could you give us a range or sensitivity as to how that margin might move if volumes come in better or worse than expectations?

Brad Hughes -- President and Chief Executive Officer

Well, those are global expectations, so we need to think about it globally. And as we indicated, we are now viewing that the China OE market, the new vehicle market and then the European replacement market will remain soft for the balance of the year. The severity of that continuation and how that happens could have some impact on the guidance that we provided. I would suggest that if we stay in the range that we're in right now for an industry -- replacement industry volume in North America that would, there wouldn't be any change to our guidance relative to what we've just provided. So I would say kind of as is in the Americas and continued weakness in Europe and China with the one caveat there that China, if it were to continue to be really, really severe through the balance of the full-year might have some further impact.

And then, just lastly, Chris noted this earlier, last year in that 5.9% for the full-year there were two offsetting -- almost offsetting equally one timers with regard to the product liability, benefit and the goodwill write-off, $31 million and $34 million, respectively. This year, we've got not only the restructuring costs that we've indicated for Melksham of $8 million to $11 million as the range and the new TBR tariffs that we are incurring of $50 million roughly in the profits that we are talking about, those are two pretty big hurdles to be overcome -- overcoming and still to achieve the same report of operating profit margin guidance, which just highlights that there's progress being made in the underlying business.

Rajiv Gupta -- JP Morgan -- Analyst

Got it. Makes sense. Than you.

Brad Hughes -- President and Chief Executive Officer

Thank you.

Operator

And this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Brad Hughes -- President and Chief Executive Officer

Thank you very much. And before we close, I want to reiterate some key points. First, as I was just describing, the new TBR tariffs in Melksham restructuring costs have negatively affected our near-term results. Excluding these, our operating profit and operating profit margin would have improved year-over-year for both the second quarter and the first half. Regarding our TBR business, we've sourcing initiatives well under way to mitigate the current tariff impact as we move into 2020 and we believe market conditions will be favorable in the future for pricing.

In China, while there has been near-term weakness in the new vehicle market, we continue to believe that China is a strategically important part of our business given the size of the car park and the growing what should be a growing replacement market. Moving to Europe, we believe near-term softness in the replacement market will ultimately improve and the actions we've taken at Melksham will make us more cost competitive, particularly in Europe. Lastly, as we said in North America, our retail expansion plans are moving forward and we expect to see more from them in 2020. We will continue to implement our strategic initiatives, while evaluating incremental opportunities to improve our business and results going forward. Thank you for being on the call today.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Jerry Bialek -- Vice President and Treasurer

Brad Hughes -- President and Chief Executive Officer

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Rod Avraham Lache -- Wolfe Research -- Analyst

James Picariello -- KeyBanc Capital Markets -- Analyst

Christopher Ralph Van Horn -- B. Riley FBR, Inc. -- Analyst

Bret David Jordan -- Jefferies -- Analyst

John Michael Healy -- Northcoast Research Partners -- Analyst

Rajiv Gupta -- JP Morgan -- Analyst

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