Deutsche Bank Global Auto Industry Conference - January 17, 2018 Ginger Jones, Senior VP & Chief Financial Officer Tom Lause, VP & Treasurer ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Deutsche Bank Global Auto Industry Conference January 17, 2018 Ginger Jones, Senior VP & Chief Financial Officer Tom Lause, VP & Treasurer
Safe Harbor Statement
This presentation contains what the company believes are forward-looking
statements related to future financial results and business operations for
Cooper Tire & Rubber Company. Actual results may differ materially from
current management forecasts and projections as a result of factors over which
the company may have limited or no control. Information on certain of these risk
factors and additional information on forward-looking statements are included in
the company’s reports on file with the SEC and at the end of this presentation.
1
Leading Global Tire Company
• More than 100 years in the tire industry
• 5th largest tire manufacturer in North America and 12th largest
worldwide based on revenues
• Externally report two regions: Americas Tire Operations and
International Tire Operations
• Internally organized across four business segments: North America,
Latin America, Europe and Asia
• More than 10,000 employees across four continents
• Focus on replacement Passenger Car Radial (PCR), Light Truck (LT),
SUV and Truck and Bus Radial (TBR) Tires, as well as a growing OE
business in Asia
• Cooper is in the middle innings of a business transformation
– Drive Topline Profitable Growth Mix Enhancement and Investing in R&D,
Technology and New Products
– Build Competitive Cost Position Investing in Automation, Reduction in
procurement spend and other operating improvements.
– Build Capabilities & Enablers to Support Strategy Key investments in
Cooper Production System (CPS), OE, TBR, ERP and Technical & Business
Development
2
Business Overview
Our Value Proposition
Be Our
Customers' Best
Service/Value Supplier
Great Great Great
Products Service Value
4
2016 – A Year of Continued Execution
2014* 2015 2016**
Net Sales $2.9B $3.0B $2.9B
Operating Margin 8.8% 11.9% 13.1%
EPS (diluted) $2.53 $3.69 $4.51
* 2014 Excluding divested JV entity in China (CCT)
** GAAP—includes $12.3 million non-cash pension settlement charge.
5
Three Months Ended September 30
Q3 2017 operating margin increased due to $39 million benefit
from lower product liability costs, but partially offset by higher
raw material costs and lower unit volumes.
Q3 2016 Q3 2017
Net Sales $750.9M $733.8M
Operating Margin 10.4% 13.8%
EPS (diluted) $0.90 $1.18
6
Nine Months Ended September 30
2017 performance reflects continued challenges in the tire industry, including
raw material cost variability, weak trends in retail sell‐out to consumers,
elevated channel inventory and a fluid promotional landscape. Full year 2017
operating margin expected to be near the high end of our previously
announced 8 to 10 percent range.
9 Months 9 Months
Ended Ended
September September
30, 2016 30, 2017
Net Sales $2,141M $2,098M
Operating
Margin
13.0% 10.7%
EPS (diluted) $3.23 $2.59
Tax Reform:
• Lower statutory tax rates will benefit Cooper beginning in 2018
• Impact of tax reform on 2017 not yet quantified
Macro-Economic Environment
Global Tire Demand Continues Positive Trajectory
China Leads Overall Market Growth
China U.S. & Canada Western Europe Latin America
500
438
1.0%
400 7.3%
365 1.4%
36% 348 339
308 310 319 317
20%
M units
300 20% 22%
15% 22% 22%
234 40%
4.2%
200 168
42%
80% 137 26%
64% 85% 80% 78% 121
78% 78% 25%
100 60% 29%
58% 74%
71% 75%
0
2010 2015 2020E 2010 2015 2020E 2010 2015 2020E 2010 2015 2020E
• Robust overall market growth • Conservative market growth • Moderate overall market growth • Solid overall market growth
estimate • Replacement makes up 75% of
• OE makes up 40% of total demand • Replacement makes up 78% of
• Replacement makes up 80% of volume volume
• Replacement growing faster
volume • OE growing faster than
• OE and Replacement growing at Replacement due to increase in
similar rate new vehicle sales
Projected Market Growth Original Equipment Replacement
OE
Replacement China 5% 9%
U.S. & Canada 1% 1%
PCR, LT, and TBR Western Europe 2% 1%
Latin America 5% 4%
Source: LMC Data (Mar, 2017), RMA (Mar, 2017), TRAC (Mar, 2017)
9US Industry Trend Toward Larger Rim Diameters
Historical US OE Tires fitted to New Cars by Size Projected US Replacement Tire Demand by Size Forecast
100% 100%
22%
80% 34% 80% 39%
51%
59%
69%
60% 60% 84%
94% < 17" 99% < 17"
40% 78% ≥ 17" 40% ≥ 17"
66% 61%
49%
20% 41% 20%
31%
1% 16%
0% 6% 0%
2000 2005 2010 2015 2000 2005 2010 2015 2020E
Examples of tires fitted to top 5 US passenger & light truck 2017* USTMA Industry vs Cooper
models 100%
80% 44% 46%
56%
60%
< 17"
40% ≥ 17"
56% 54%
20% 44%
0%
Industry Cooper Brand Cooper Tire
* YTD as of September 30, 2017
Source: USTMA, IHS, Equity Research, Internal Analysis
10Global P/LT HVA Tire Supply & Demand to Remain Balanced
Through 2020, Supporting Stable Pricing Environment
Units in Millions
Capacity Demand
Capacity Demand
Additions Increases
Additions Increases
HVA 41 13
HVA 18 39
Capacity Demand
Capacity Demand
Additions Increases
Additions Increases
HVA 51 46
HVA 6 10
Within our estimates we take into account known Total Capacity Total Demand
capacity conversions from low‐value add (LVA) tires Additions Increases
to high‐value add (HVA) tires, which we believe
convert at roughly two‐thirds previous capacity. HVA 115 108
‐ Goldman Sachs Research, May 2015
We find no material change in our view that HVA tire supply/demand will With this report, we conclude: net additional capacity stays under
remain balanced in the near term and sustain above‐90% capacity utilization control and plants‘ Capacity Utilization Rate (CUR) should stay at a
rates. That said, there are some regional differences. However, we do not high level during the next few years.
expect to see material impact to pricing so long as demand continues to grow.
‐ Deutsche Bank Research, September 2016
‐ Goldman Sachs Research, January 2016
• Global HVA capacity still below global HVA demand
• Continued trend toward HVA consumes some existing production capacity
• Capacity still well-balanced globally, although capacity is shifting between regions (more additions in NA)
Source: Goldman Sachs Equity Research
11Cooper’s Raw Material Price Index
Raw Material Price Index – The Americas 2002-2017
300
250
200
150
100
Q3 2017 Average = 150.2
50
0
Raw materials began increasing in second half of 2016:
• Cooper’s global operational structure centered around succeeding within an increasingly
competitive environment
• Cooper’s pricing posture market-facing to remain competitive
12Transformation
In the Middle Innings of a Strategic Transformation
Phase I (Progress to date) Phase II (Medium-term) Phase III (Long-term)
Improve Manufacturing Cost Base and Footprint: Drive mix and margin enhancement: $5-6B in net sales
• Opened, acquired and grew plants in Mexico, • Continue transition to HVA/premium brand
China and Serbia products in North America
• Invested in automation • New product launches
• Reduced product complexity Achieve 8% – 10% OP Margin
Enhance Technical Capabilities: Continue global expansion in key target 10+% operating
• Relocated and expanded Asia Technical markets through established footprint: margin on a
Center • Leverage LATAM footprint to grow in region consistent basis
• Established Global Technical Center • Organic and inorganic growth in China
• Reduced product development cycle time • Continue to grow China OE
• Penetrate OE, TBR and premium PCR • Leverage Serbia for growth in Europe
segments
• Continued focus on plant optimization and cost management across
the global footprint
14Strong and Expanding Global Manufacturing Footprint
• January, 2016
signed
agreement to
acquire 65%
ownership of
GRT
• Adds TBR
capacity in
China for global
markets
• Site will
ultimately
produce
approximately
2.0 million TBR
tires annually
• Transaction
closed Dec. 1,
2016
15Investment in R&D and Technology
New Product Launches
• Reduced product development cycle time to launch new products at a faster
Emphasis on Investing in R&D and pace
Technology = Award Winning • Relocated and expanded Asia technical center and refocused R&D agenda
Products and Increased Technical on market needs
Capabilities • Built technical capabilities to penetrate and win in OE, TBR, and premium
PCR segments
The Cooper Zeon RS3‐G1 is an exciting new all‐
season passenger car tire for high performance
The Cooper Discoverer SRX and The Cooper Zeon ECO C1 was vehicles and drivers. Alongside a sleek race‐
Discoverer A/TW received awarded the “Best Energy Saving Tire inspired sidewall, the tire’s tread compound
for 2016” at the Auto Magazine and
“recommended buy” from A Car awards ceremony. and design deliver a host of leading innovative
Consumer Reports December 2015 features to create grip, stability and durability.
April 2015 The product has been given the name G1
Recommended because it holds up to 1g on corners! The G1
by another was named a 2016 GOOD DESIGN™ Award
leading winner December 2016.
consumer
magazine The Cooper Discoverer STT Pro &
Cooper Discoverer SRX tires won the
2015 GOOD DESIGN™ Award from the
Chicago Museum of Architecture and
The Discoverer A/TW Design and the European Centre for
received Innovator of the Architecture Art Design and Urban
Year award from Canadian Studies.
Cooper Zeon RS3‐A a Tire. December 2015
Consumers Digest Best September 2015
Buy … again!
January 2015
Cooper Zeon 4XS Sport
received ADAC top rating as
Vendor Innovation The Cooper Discoverer UTS & Cooper
with exceptional wet and dry
Award Weather Master Ice 100 tires won the 2015
performance
GOOD DESIGN™ Award December 2015
February 2017
16Exciting New Product Developments
The Start of an Evolution…New Evolution Product Line
• Recently launched Tour, H/T and Winter tires
• New mid‐range line complements top‐tier Discoverer
products in the Cooper portfolio
• Offers consumers choice in the Cooper brand
Cooper Zeon CS8 Selected as OE Fitment for
Volkswagen T‐Roc in Europe
• Cooper’s first OE fitment for VW
• Tire designed by Cooper’s global OE
development team, in collaboration with
VW, for this new compact SUV
Discoverer True North
• Includes our latest technology and premium features that can only be
found in the Discoverer line
• Developed with the input and insight of experienced winter drivers
• Doesn’t give up touring tire responsiveness for great winter gripFinancial Strength and Returning Value to Shareholders
Strong Balance Sheet Provides Financial Flexibility
Ample Financing Flexibility
Healthy Balance Sheet
Cash and cash equivalents ($M) $400M
Cash flow facility
400
+11%
$150M
Accounts receivable
258 securitization program
233
200
Q1 '09 Q3 '17 Credit lines at Global
Operations
Debt/ EBITDA1
2.0
1.5
1.5 -0.9
1.0 Recent Credit Rating Upgrades
0.6
0.5
0.0
2009 2016 Moody’s to Ba3
1. Debt is short-term debt, current portion of long-term debt and long-term debt
S&P to BB
19Balanced Approach to Capital Allocation
ROIC1 Weighted Average ROIC = 16% CapEx M&A Share Repurchases Dividend
25%
$23
20% $26
$24 $108
15%
$200 $109
$86
10%
22% $27
18% 19%
16% 17%
12% 13%
5% 11% $180 $183 $175
$145
0%
2009 2010 2011 2012 2013 2014 2015 2016 2013 2014 2015 2016
Numbers in graph in millions
1.Return on Invested Capital, including non-controlling equity.
Non-GAAP Measure: refer to appendix for definition and reconciliation to GAAP.
Investing for Growth Dividend Share Repurchases
• Completed $487 million in share
• Capital to support organic growth and
repurchases from August 2014 through
margin improvement - plant optimization and • Announced 183rd consecutive dividend
September, 30 2017 (approximately 22% of
operational efficiency payable on December 29, 2017
outstanding).
• Track record of efficiently deploying capital • Continued commitment to quarterly dividend
• Authorized for $300 million through
to return value to shareholders
December 31, 2019
20Why Invest in Cooper?
• Nearly 200 years of combined auto/tire industry experience
Experienced Management Team
• Generating strong total shareholder returns relative to peers
with Proven Track Record
• Positive outlook for global tire demand – CAGR approximately 3.5%
• Majority of Cooper’s growth led by emerging markets, particularly China and
Macro Environment Supportive Latin America
of Strategic Growth Objectives • Continued demand shift to higher value/higher margin products
• Balanced supply and demand, with stable pricing in NA market in recent
years
• Focus on replacement tires in the U.S.
• Capacity additions and manufacturing upgrades make for strong
Middle Innings of Exciting
manufacturing footprint that Cooper is able to leverage globally
Transformation
• New product development, shift to premium/HVA products in key
markets enhance topline performance
• Strong balance sheet, with $258 million in cash and cash equivalents as of
September 30, 2017, and low debt profile provide financial flexibility to
Financial Strength/Discipline & pursue growth opportunities
Commitment to Returning
• Disciplined management team is a good steward of capital - ROIC
Value to Shareholders
average 16% over past eight years
• Company committed to dividend and share repurchase
21Financial Performance
Three Months Ended September 30, 2017
(millions USD, except EPS)
Change
from Prior
Net Sales by Segment Q3 2017 Q3 2016 Year
Americas Tire $ 625 $ 673 (7.0%)
International Tire 163 113 44.8%
Eliminations (55) (35) (59.1%)
Total Company $ 734 $ 751 (2.3%)
Operating Profit by Segment OP % OP %
Americas Tire $ 117 18.8 $ 102 15.1 $ 15
International Tire 1 0.4 3 2.9 (2)
Corporate (16) (26) 10
Eliminations (1) — (1)
Total Company $ 101 13.8 $ 78 10.4 $ 23
Earnings Per Share (diluted) $ 1.18 $ 0.90 $ 0.28
Cash and Cash Equivalents $ 258 $ 450 $ (192)
Amounts are unaudited and may not add due to rounding.
22Risk Factors
It is possible that actual results may differ materially from projections or expectations due to a variety of factors, including but not limited to:
• volatility in raw material and energy prices, including those of rubber, steel, petroleum based products and natural gas or the unavailability of such raw materials or energy sources;
• the failure of the company’s suppliers to timely deliver products in accordance with contract specifications;
• changes to tariffs or the imposition of new tariffs or trade restrictions, including changes related to the anti-dumping and countervailing duties for passenger car and light truck tires
imported into the United States from China; and any duties from the investigation into truck and bus tires imported into the United States from China
• changes in economic and business conditions in the world;
• increased competitive activity including actions by larger competitors or lower-cost producers;
• the failure to achieve expected sales levels;
• changes in the company’s customer relationships, including loss of particular business for competitive or other reasons;
• the ultimate outcome of litigation brought against the company, product liability claims, which could result in commitment of significant resources and time to defend and possible
material damages against the company or other unfavorable outcomes;
• a disruption in, or failure of, the company’s information technology systems, including those related to cyber security, could adversely affect the company’s business operations and
financial performance;
• changes in pension expense and/or funding resulting from investment performance of the company’s pension plan assets and changes in discount rate, and expected return on plan
assets assumptions, or changes to related accounting regulations;
• government regulatory and legislative initiatives including environmental, healthcare and tax matters;
• volatility in the capital and financial markets or changes to the credit markets and/or access to those markets;
• a variety of factors, including market conditions, may affect the actual amount expended on stock repurchases; the company’s ability to consummate stock repurchases; changes in
the company’s results of operations or financial conditions or strategic priorities may lead to a modification, suspension or cancellation of stock repurchases, which may occur at any
time;
• changes in interest or foreign exchange rates;
• an adverse change in the company’s credit ratings, which could increase borrowing costs and/or hamper access to the credit markets;
• failure to implement information technologies or related systems, including failure by the company to successfully implement an ERP system;
• the risks associated with doing business outside of the United States;
• the failure to develop technologies, processes or products needed to support consumer demand;
• technology advancements;
• the inability to recover the costs to develop and test new products or processes;
• the impact of labor problems, including labor disruptions at the company, its joint ventures, or at one or more of its large customers or suppliers;
• failure to attract or retain key personnel;
• consolidation among the company’s competitors or customers;
• inaccurate assumptions used in developing the company’s strategic plan or operating plans or the inability or failure to successfully implement such plans;
• risks relating to acquisitions including the failure to successfully integrate them into operations or their related financings may impact liquidity and capital resources;
• changes in the company’s relationship with its joint-venture partners or suppliers, including any changes with respect to its former CCT joint venture’s production of Cooper-branded
products;
• the ability to find sufficient alternative sources for products supplied by CCT;
• the inability to obtain and maintain price increases to offset higher production or material costs;
• inability to adequately protect the company’s intellectual property rights; and
• inability to use deferred tax assets.
23Available Information
You can find Cooper Tire on the web at coopertire.com. Our company webcasts earnings calls and presentations
from certain events that we participate in or host on the investor relations portion of our website
(http://coopertire.com/investors.aspx). In addition, we also make available a variety of other information for
investors on the site. Our goal is to maintain the investor relations portion of the website as a portal through
which investors can easily find or navigate to pertinent information about Cooper Tire, including:
• Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we electronically file that material or
furnish it to the Securities and Exchange Commission (“SEC”);
• Information on our business strategies, financial results and selected key performance indicators;
• Announcements of our participation at investor conferences and other events;
• Press releases on quarterly earnings, product and service announcements and legal developments;
• Corporate governance information; and,
• Other news and announcements that we may post from time to time that investors may find relevant.
The content of our website is not intended to be incorporated by reference into this presentation or in any report
or document we file with or furnish to the SEC, and any references to our website are intended to be inactive
textual references only.
24Appendix
Non-GAAP Measures
Non-GAAP financial measures should be considered in addition to, not as a substitute for,
net earnings, earnings per share, total debt or other financial measures prepared in
accordance with generally accepted accounting principles (“GAAP”). The company’s
methods of determining these non-GAAP financial measures may differ from the methods
used by other companies for these or similar non-GAAP financial measures. Accordingly,
these non-GAAP financial measures may not be comparable to measures used by other
companies.
Pursuant to the requirements of SEC Regulation G, detailed reconciliations between the
Company’s GAAP and non-GAAP financial results were posted by incorporation within the
appendix to this presentation. Investors are advised to carefully review and consider this
information as well as the GAAP financial results that are disclosed in the company’s
earnings releases and annual and quarterly SEC filings.
26Non-GAAP Measures
Return on Invested Capital (ROIC)
Management is using non-GAAP financial measures in this document because it considers them to be important
supplemental measures of the company’s performance. Management also believes that these non-GAAP financial
measures provide additional insight for analysts and investors in evaluating the company’s financial and operating
performance.
The company defines ROIC as the trailing four quarters’ net income from continuing operations before interest, after
tax, divided by the total invested capital, which is the average of ending debt and equity for the last five quarters. The
company believes ROIC is a useful measure of how effectively the company uses capital to generate profits.
Calculation of Return on Invested Capital October 1, 2016 –
September 30, 2017
Operating profit $ 330
Effective tax rate 31.6%
Income tax expense on operating profit 104
Operating profit after taxes $ 226
Total invested capital $ 1,485
Return on invested capital 15.2%
27Non-GAAP Measures
Calculation of Trailing Four Quarter Income and Expense Inputs
(millions USD)
Operating Provision for Income before
Quarter-ended: profit income taxes income taxes
September 30, 2017 $ 101 $ 32 $ 95
June 30, 2017 $ 75 $ 22 $ 68
March 31, 2017 49 13 42
December 31, 2016 105 29 100
Total $ 330 $ 97 $ 305
Trailing Four Quarter Effective Tax Rate
Income before income taxes $ 305
Provision for income taxes 97
Effective income tax rate 31.6%
28Non-GAAP Measures
Calculation of Total Invested Capital Trailing Five Quarters
(millions USD) Current
Portion of Short-term Total
Long-term Long-term Notes Invested
Equity Debt Debt Payable Capital
September 30, 2017 $ 1,232 $ 296 $ 1 $ 36 $ 1,566
June 30, 2017 $ 1,193 $ 296 $ 2 $ 38 $ 1,529
March 31, 2017 1,156 297 1 15 1,469
December 31, 2016 1,130 297 2 26 1,456
September 30, 2016 1,097 296 1 12 1,405
Average Balance $ 1,162 $ 296 $ 1 $ 26 $ 1,485
29You can also read
