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Why Cooper Tire & Rubber Stock Dropped 10% Today

Rich Smith, The Motley Fool

What happened

Shares of Cooper Tire & Rubber (NYSE: CTB) plummeted in Monday trading to close the day down 9.6% after the company reported big misses on both sales and earnings for its fiscal second quarter 2019.  

Expected to earn $0.50 per share on sales of $718.1 million, it instead reported only $0.18 in EPS on sales of $679.1 million.  

Old man changing a flat tire

Image source: Getty Images.

So what

Nor was an earnings miss Cooper's only problem. The $0.18 per share profit the company reported represented a 40% drop from what Cooper had earned in the year-ago quarter, despite sales falling only 3% year over year. Unit volumes of tires shipped declined 5%.

Management blamed "new and incremental tariffs this year" along with a related "ongoing decline within the new-vehicle market in China and a weak replacement-tire market in Europe," but promised that it will return to unit volume growth in 2020.

Now what

Unfortunately, shareholders have to wait through two more quarters before 2020 arrives -- and these could be rough quarters. "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 the year," CEO Brad Hughes said.

Cooper no longer expects unit sales to grow this year -- in fact, they may well decrease. And management's forecast of a 5.9% reported margin on those sales that it does make this year implies a sizable decline from the company's 7% operating profit margin of 2018.

No wonder investors sold the stock off today.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.