Q4 2005 Cooper Tire & Rubber Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Pleased be advised that this conference is being recorded. Good morning and welcome to the Cooper Tire & Rubber Company fourth quarter results conference call, for March 1, 2006. Your host for today will be Roger Hendriksen. Mr. Hendriksen, please go ahead, sir.

ROGER HENDRIKSEN, IR, COOPER TIRE & RUBBER: Thank you. Good morning, everyone, we appreciate you joining our call again today. As you know a press release was sent out earlier today detailing Cooper Tire & Rubber Company's financial results for the fourth quarter of 2005. We hope you have all had a chance to review that report. And if any of you are out there that have not received it and would like a copy, you can call your communications office at 419-420-6165 and we'll get one sent to you right away.

The members of our management team who will be speaking with you are Mr. Tom Dattilo, Chairman, President, ad Chief Executive Officer; and Mr. Phil Weaver, Vice President and Chief Financial Officer. During this call, management will provide an overview of the Company's fourth quarter results and then open it up to participants for questions and answers. Before we begin, I'd like to remind you that during our conversation today you may hear forward-looking statements related to future financial results and business operations for Cooper Tire & Rubber Company. Actual results may differ materially from current management forecast and projections as a result of factors over which the Company has no control. Information on these risk factors and additional information on forward-looking statements are included in the fourth quarter press release and in the Company's reports on file with the Securities and Exchange Commission. That being said I'll turn the call over to our Chairman, Tom Dattilo.

TOM DATTILO, CHAIRMAN, PRESIDENT, CEO, COOPER TIRE & RUBBER: Thank you for Roger, good morning everyone. Thanks for taking time to join us. We appreciate your continued interest in Cooper Tire & Rubber Company. I'll begin the call today with a brief overview of the key factors affecting Cooper as a whole during the quarter, and I'll follow that with a review of tire operations. Following my discussion on operations, Phil will take a few minutes to walk you through some of the key financial points for the quarter. Then we'll conclude the prepared comments with some discussion on our views and plans for the first quarter and general thoughts on the rest of 2006. And, of course, as usual following those comments we'll have time for questions and answers.

Let me start by reviewing some of the key elements of our consolidated results. On the top line our sales increased 6% over the fourth quarter of last year, to $572 million. That's an all-time record for any quarter of tire operations. The increase was driven almost entirely by improvements in price and mix as unit shipments globally were down just very slightly. Total operating profit for the quarter was $6 million. This is down from last year, but includes several noteworthy items, both positive and negative as we outlined in the press release.

Let me just reiterate these items and they include a $12 million positive impact from a settlement with raw materials suppliers, an $8 million negative impact from planned reduced operating levels in our North American plants which was intend to do reduce inventory. We had a $6 million negative impact from product recall issues. A $3 million negative impact from asset write-downs. And a $2 million negative impact in severance costs. Of course there were other factors more of a kind we would expect on an ongoing basis that came into play in the quarter's results. I'll go over some of those as we go through our discussion of operations.

The bottom line results for continuing operations were a net loss of $6 million. This also includes in addition to those that I mentioned earlier, includes the positive impact of $4 million after-tax gain on the repurchase of publicly traded debt and the negative impact of $9 million in taxes imposed on earnings repatriated to the United States from foreign operations. So on a per-share basis, we had a net loss of $0.11 including the $0.07 gain on debt repurchase and the $0.14 negative impact from taxes on repatriated earnings.

Moving on to operations. In our North American tire operations our sales were $525 million. This was an increase of 7% compared to the fourth quarter of '04. It was driven by improved pricing and better product and customer mix. Our total unit shipments in North America were essentially flat but we saw increases in volume and increases in market share in certain key areas. Shipments of peat metric, SUV, and light truck tire products increased by more than 8% year-over-year. Shipment of high performance and ultra high performance tires increased by more than 37%.

Shipments of economy and broad line tires were down slightly more than the industry. Our operating profit for our North American tire operations were $9 million in the quarter compared to 14 million in the fourth quarter of 2004. The items I mentioned earlier combined to decrease operating profit by $7 million and were pretty much all in our North American operations. Beyond these, some of the more usual and ongoing changes to operating profit include $18 million improvement from net price increases, $8 million from improved product and customer mix, $26 million decrease from raw material prices as raw material purchases were up by about 13% year-over-year. $5 million decrease from lower sales volume within our commercial products division. And $7 million improvement from lower SG&A costs.

During the quarter we again saw positive signs of improvement in productivity and efficiency in our plants as a result of the investments we made over the past year, and we are --and as we expected we would once -- as we expected we would, once we get beyond the major transition programs. We increased cure efficiency and manufacturing effectiveness and reduced scrap. The improvements in efficiency were obscured by our decision to operate at lower mode levels during the quarter in order to adjust inventory levels. But we certainly believe and expect that improvements in our manufacturing operations will be more clearly evident in the coming quarters. Through the combination of reduced production levels and improving sales inventory was reduced by 1.3 million units in the quarter.

In our international tire operations, sales were down by about $2 million or approximately 3% compared to last year. The decrease is more the result of difficult year-over-year comparisons and currency exchange rates than operational issues. In the fourth quarter of '04 Cooper year up sales increased 24% while unit ships were up 9% so that was a very tough comparison, tough act to follow. From those record levels sales were down about $2 million about 3% in this year's fourth quarter, as I said, and units shipped were down by about 2%. Lower unit ships accounted for about $2 million in lower sales. Price index improvements added $2 million in sales, but this was offset by a $3 million of impact in currency exchange rates as the dollar strengthened against the euro and the British pound since late in '04.

Operating profit of our international operations was down by approximately $4 million in the quarter, the key drivers of this were the following. Lower unit volume which decreased operating profit by about $1 million, higher raw material costs which impacted us negatively about $2 million. Plant labor and scrap costs were up about $1 million and start-up costs in Asia were up about $2 million and these were partially offset by the positive impact of price increases. That's a …