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Cooper Tire & Rubber Co (NYSE:CTB)
Q1 2020 Earnings Call
May 8, 2020, 11:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Cooper Tire & Rubber Company's first quarter earnings call and webcast. [Operator Instructions]

I'd now like to 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, International Finance, 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 first quarter 2020 financial and operating results as well as a business update. Our earnings release includes a link to a set of slides that summarize information included in the news release and in the 10-Q that will be filed with the SEC later today. Please note that we will 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. Before we talk about our first quarter, I want to begin this morning by thanking Cooper employees around the world who have made personal sacrifices to help Cooper overcome the impacts of Coronavirus and have responded positively during these unprecedented times. Whether working productively from home, operating under rigorous health and safety measures in our distribution centers, cooperating with temporary manufacturing facility closures or going above and beyond to deliver major donations of supplies and personal protective equipment to hospitals and healthcare workers in our communities, Cooper employees have risen to the challenge. From the beginning of the crisis, our company has consistently focused on the priorities of the health and safety of our people, responsibilities to our broader communities and commitments to our customers and all other key stakeholders. In line with these priorities, we have taken a series of actions that remain in effect across our enterprise ranging from health and safety measures such as travel bans, stay home if sick or exposed orders, social distancing, work-from-home arrangements, additional cleaning and disinfecting of equipment and facilities, visitor restrictions, staggered schedules and many others.

Today, all of our manufacturing facilities around the world are in operation with the exception of our plants in the U.K. and Mexico. Our U.K. facility was temporarily closed as of March 23 and will remain so for now. Cooper's manufacturing plant in Mexico, which you will recall, is now wholly owned, reopened April 13 and was successfully ramping back up. However, due to a recent decision by the federal government in Mexico to classify the facility as nonessential, the facility is again temporarily shut down. Our plants in the U.S. and Serbia restarted beginning last week after being closed for a period of about five weeks. Our facilities in Asia, which temporarily extended their shutdown for the Chinese New Year due to Coronavirus, have been back in operations since mid-February and continued to ramp up to meet improving demand. To continue to meet customer needs, our distribution centers around the globe generally continued to operate throughout the quarter and remain in operation today. In addition to measures taken to protect employee health and safety and to respond to decreased industrywide demand for tires due to Coronavirus, Cooper also took aggressive actions to preserve cash.

While we believe we are in a very strong cash and liquidity position, we felt it was appropriate to take additional measures as a precaution due to the uncertainty of the current situation. In addition to the production curtailments, these actions have included reducing working capital and capital expenditures, as well as discretionary spending. Our executive leadership team has taken a temporary salary reduction of between 25% to 50%, and the majority of our salaried workforce has taken a 10% salary decrease. The members of our Board of Directors have also temporarily reduced their cash retainers by 50%. We temporarily suspended company contributions to employee 401(k) plans and discretionary pension contributions. We also temporarily furloughed a number of hourly and salaried personnel. To help ensure our financial flexibility in these uncertain times, Cooper also drew down $270 million on our revolving credit facilities in the first quarter. We went into these unprecedented times in a solid cash position and -- with a solid cash position and borrowing capacity, appropriate inventory levels and a flexible global manufacturing footprint. Prior to the onset of Coronavirus, we were tracking well against our strategic initiatives and previously stated 2020 financial goals, and we had considerable momentum. Looking ahead to when the economy recovers, we believe Cooper will be in a strong position.

Over the past two years, we have transformed the company into a consumer-driven organization with Cooper products more available where consumers want to buy tires. We believe that our value proposition, high-quality tires at an affordable price, will be even more compelling for consumers in the future economy, and our heritage of manufacturing tires in the U.S. for U.S. consumers will be even more important coming out of this period of great uncertainty. Based on our research, consumer confidence in the Cooper brand continues to grow, and we believe that we stand to be a consumer partner of choice. Again, we believe Cooper entered this unprecedented situation in a position of strength, and we believe that we will emerge from it even stronger.

With that, I will turn the call over to Chris Eperjesy to review our financial performance in more detail.

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Thank you, Brad. Additionally, I would like to recognize the resiliency and adaptability of our teams across the globe during these unprecedented times. I'm going to first review our first quarter results, and then I will discuss in greater detail some of the actions we are taking to keep the business healthy through the crisis. Moving to consolidated first quarter results. Sales were $532 million, down from $619 million in 2019. This 14.1% decrease was driven by $98 million of lower unit volume and $4 million of unfavorable foreign currency impact, partially offset by $15 million of favorable price and mix. Operating loss was $6 million or 1.2% of sales compared with operating profit of $26 million or 4.3% in 2019. First quarter operating profit compared with 2019 was impacted by the following factors, which are summarized on page five of the supplemental slide deck: $30 million of higher manufacturing costs, $18 million of lower unit volume, $6 million of higher restructuring costs and $2 million of higher other costs. This was partially offset by $12 million of favorable raw material costs, $6 million of favorable price and mix and $6 million of lower SG&A expenses. The increased manufacturing costs were primarily related to temporary plant shutdowns attributable to the COVID-19 pandemic. Diluted loss per share was $0.23 compared to an earnings per share of $0.14 in the first quarter of 2019.

Now moving on to our segment performance, starting with Americas Tire Operations. Segment sales for the first quarter were $457 million, down 11.2% from $515 million in 2019 as a result of $61 million of lower unit volume and $1 million of unfavorable foreign currency impact, partially offset by $4 million of favorable price and mix. Segment unit volume was down 11.9% compared to the same period a year ago. Our U.S. light vehicle unit volume decreased 11.9%, while the USTMA decreased 12.3% and the total industry decreased 10.4% for the period. First quarter operating profit in the Americas decreased to $10 million or 2.3% of net sales compared with $39 million or 7.5% of sales in 2019. Operating profit included: $19 million of unfavorable manufacturing costs, $14 million of lower volume and $11 million of higher restructuring costs related to the Mexico transition. This was partially offset by $10 million of favorable raw material costs and $5 million of favorable price and mix. Now turning to our International Tire Operations. Net sales for the first quarter were $102 million, down 28.8% from the first quarter of 2019.

This result was driven by $46 million of lower unit volume and $4 million of unfavorable foreign currency impact, partially offset by $8 million of favorable price and mix. Segment unit volume decreased 31.8%, primarily driven by lower unit volume in Asia, which experienced the impact of the Coronavirus much earlier in the quarter than other regions. The first quarter operating loss in our International operations was $10 million compared to operating loss of $1 million in 2019. The quarter included: $11 million of unfavorable manufacturing, $4 million of volume and $1 million of other costs compared to the same period a year ago. This was partially offset by $1 million of favorable raw material costs and $1 million of favorable price and mix. The first quarter of 2019 also included a $5 million restructuring charge related to our decision to cease light vehicle tire production at our Melksham facility, positively impacting the year-over-year comparison. Moving to raw materials. Our raw material index decreased 6% from the first quarter of 2019. The raw material index increased 0.6% sequentially from 149.8 in the fourth quarter of 2019 to 150.7 in the first quarter of 2020.

This was in line with our expectation to be down on a year-over-year basis, but slightly up sequentially. As we look forward, we anticipate raw material costs will be down on a year-over-year basis and sequentially in the second quarter of 2020. As you are aware, commodity prices, particularly oil, have been impacted by a series of global events, resulting in favorable trends. However, we remain cautious about our ability to forecast precisely in this period of market volatility. Now to some corporate items. Other pension and postretirement benefit expenses decreased $5.1 million versus the prior year. This was primarily due to the company's improved funding position at December 31, 2019, as a result of favorable returns on plan assets. The effective tax rate for the first quarter was negative 5.5% compared with 46.9% for the same period the year prior. The tax rate for the first quarter of 2020 included $4 million of additional unrecognized tax benefit related to the tax deductibility of certain business expenses incurred during the quarter. The tax rate for the first quarter of 2019 included the impact of final regulations related to U.S. income tax reform. 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. Capital expenditures in the first quarter were $55 million compared with $60 million in the same period a year ago. Return on invested capital was 6.3% for the trailing four quarters. At the end of the first quarter, Cooper had $433 million in unrestricted cash and cash equivalents compared with $212 million at the end of the first quarter of 2019. The company drew down $270 million on our revolving credit facilities during the quarter. In addition, the company paid $62 million for the buyout of our partner in Mexico. Excluding these two items, cash would have been slightly up year-over-year in the first quarter. While challenges remain, we do not currently believe we have a substantial cash usage in the second quarter. As Brad mentioned earlier, we have taken the following temporary actions to maintain liquidity: reduced working capital, capital expenditures and discretionary spending; reduced salaries for executive leadership and most salaried employees and reduced cash retainers for board members; suspended discretionary pension contributions and company contributions to employee 401(k) plans; and furloughed some hourly and salaried employees.

These actions have helped us maintain our cash position since the end of the quarter. At the end of April, we had $443 million of cash and cash equivalents, further reinforcing our view of the second quarter. In addition, we have over $300 million under our current credit facility still available. Recall, due to the seasonal nature of our business, we would typically use cash in the first nine months of the year and generate significant cash in the fourth quarter, and we expect the same in 2020. Let me provide an update as it pertains to capital allocation. In this environment, our strategic priority is obviously in conserving cash and further protecting our balance sheet. First, we have dramatically scaled back our capital expenditure plans and now expect full year 2020 capital expenditures to be between $140 million and $160 million, but this is dependent on the duration and severity of the pandemic. Second, as it pertains to the share repurchases, we have previously said we would pursue more opportunistically. Again, given our emphasis on liquidity, we will be more prudent in our valuation of share repurchases in the near term. And third, we continue to support our quarterly dividend. While our Board and management will continue to evaluate the dividend on a quarterly basis during the current situation, we expect our Board to declare a regular quarterly dividend of $0.105 per share this quarter. As Brad indicated earlier, we entered the year in a strong balance sheet position. We have taken the necessary steps to ensure this continues, and our financial strength will enable us to emerge from the current crisis in a position to continue to invest in the growth of our business.

I'll now turn the call back over to Brad for our updated outlook. Brad?

Brad Hughes -- President and Chief Executive Officer

Thanks, Chris. Due to the rapidly evolving environment and continued uncertainties resulting from the Coronavirus pandemic, we have withdrawn our previously announced full year 2020 outlook, which was issued on February 24. We cannot, at this time, predict the extent or duration of the pandemic and its impacts on our financial and operating results for the year. Given that the Coronavirus will likely have a significant impact on the second quarter, we believe that will be the most challenging quarter of our year for operating profit. As Chris said, with the actions now in place, we do not currently expect a substantial cash usage in the second quarter of 2020. Overall, we are confident that Cooper will weather the Coronavirus storm. We have dramatically scaled back our capital expenditure plans and now expect full year 2020 capital expenditures to be between $140 million and $160 million, but this will ultimately depend on the duration and the severity of the pandemic. Prior to the pandemic, we were on pace relative to our original outlook, validating that our strategic plan remains the right path for our future. We entered this challenging period with a strong balance sheet and financial flexibility. While we will face uncertainty and many challenges, we believe Cooper will overcome the impacts of the Coronavirus, and we look forward to the opportunities ahead. We expect the economy to improve as the year progresses and that our results will reflect this. For now, we will continue to focus on doing what is right for employee health and safety, our communities, customers and other key stakeholders.

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

Questions and Answers:

Operator

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

Rod Lache -- Wolfe Research -- Analyst

Good morning, everybody. Had a couple of questions. First of all, I know there's a lot of uncertainty about the outlook for the year, but could you maybe elaborate a little bit more about how Q2 is shaping up for you just given that we're kind of halfway through it? You mentioned that it's going to be the toughest, but how are you thinking about how volume is tracking? And just given the ups and downs of manufacturing, what does that look like for right now? And it sounds like from a working capital perspective, you actually will get an inflow to make this a cash flow-neutral quarter or am I hearing that wrong?

Brad Hughes -- President and Chief Executive Officer

Well, what we said, Rod, is that the -- starting with cash and I'll work backwards on. But the -- with regard to cash, that we don't expect there to be a significant cash usage in the second quarter, as you know. The tire industry has a cyclical pattern to the cash flow, where over the first three quarters of the year, you end up using cash as you're building inventories of tires and using working capital and then in the fourth quarter you recover a lot of that through the AR liquidation. And we expect there -- that, that will be similar to what we're going to see this year. But we thought it was important to note a couple of things with regard to the second quarter. First of all, that we don't expect a significant or substantial cash usage in the quarter. However, we do think that as we look at the full year, that the second quarter will be the most challenging, specifically regarding operating profit. And so we're making that statement as part of this. Regarding volume, that is the biggest contributor to the statement I just made around operating profit. When you look at the timing of when economic activity began to shut down due to restrictions and limitations and that caused people to not buy tires, that caused us to close our plants down. Most of that was through the month of April and into close to today's period. From a volume perspective, again, we think this is going to be the most challenging quarter. Having said that, the data that we track would suggest that the second half of April was better than the first half of April. And while we're just into the early part of May, that the early part of May was a little bit better than the last part of April. So long way to go in the quarter until we're through it, but the signs are that there is some return to demand.

Rod Lache -- Wolfe Research -- Analyst

Okay. Great. But just to clarify that. So you're saying that, similar to history, you would see some working capital use in Q2, the typical seasonal pattern. Q1 was kind of a break-even quarter, Q2 would be tougher, and yet, you are expecting -- I'm just surprised that you're expecting with that kind of a pattern, without any benefit from working capital, kind of break-even free cash?

Brad Hughes -- President and Chief Executive Officer

Well, again, not a substantial usage of cash were the precise words. But when you -- we are going to be in a quarter that's going to be challenged from a volume perspective. Plants have been down for a while they're largely back up with the exception of Mexico and Melksham. At this point in time, we're starting to build tires and actually do the things that are more normal in the quarter. Having said that, as both Chris and I noted, we took a number of actions to make sure that we were preserving cash during this period, especially given, still, the relative uncertainty about where volume is going to go, how long is it going to take to come back, etc. But having said all that, we think, operating profit, second quarter, most challenging of the whole year. Even with that, we don't expect there to be a substantial cash usage.

Rod Lache -- Wolfe Research -- Analyst

Okay. Just two more. From an accounting perspective, are you booking the low absorbed overhead into the tires that you are producing into inventory? Or are you expensing those in the period? And then, lastly, can you update us on if you were to look at where raw materials are on a spot basis, given where all the -- particularly the oil-derived commodities are, what would your index be at right now?

Brad Hughes -- President and Chief Executive Officer

I think what I'll do is, in a moment, I'll pass you to Chris and so if he could comment specifically on the way that we're recording the manufacturing costs with regard to cost of goods sold and when you can expect to see that impact. I think overall, Rod, the way that I would approach this is when we look at the environment right now, we see pricing on -- that is sticking, including some of the recent actions that have been announced by, not only Cooper, but competitors. We're not seeing a lot of promotional activity. We're still seeing, for the industry, solid mix and we continue to benefit from that as well. And when you look at the markets right now for raw materials, commodity prices are relatively low. So when you put it all together, when we begin to see volumes return, we should see a pretty favorable environment for tire profitability in our industry. And with that, I'm going to pass it over to Chris to respond to the first part of your question.

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Yes, Rod. Obviously, we do everything in accordance with GAAP. When there's a shutdown, some of those expenses, obviously, will be period expenses. But to the extent we're producing and we're operating, those costs would be absorbed in inventory.

Rod Lache -- Wolfe Research -- Analyst

Okay, all right, thank you.

Brad Hughes -- President and Chief Executive Officer

Thanks, Ron.

Operator

And our next question today comes from James Picariello with KeyBanc Capital Markets. Please go ahead.

James Picariello -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. Just curious, starting with your TBR business in the Americas. How did demand -- how did your business -- your TBR business trend in the quarter? And are you seeing any resilience on the TBR replacement side of things? And then can you quantify the tariffs impact in the quarter? And then my follow-on to that. The Sailun JV ramp-up in Vietnam, that was supposed to start production in the second quarter before the pandemic. Just wondering if that's still on track or delayed a bit?

Brad Hughes -- President and Chief Executive Officer

Okay, James. Thank you. Overall, I think that as we look at the TBR business, it's still reasonably healthy and is, as an industry, less affected, particularly in North America than the light vehicle tire part of the industry so far and it looks like it's going to remain that way over the course of the year. People are using equipment, tractors and trailers right now. As we all know, there are -- those are some of the folks that are out in the front lines right now, continuing to do their jobs and that is, to some degree, reflected in what we're seeing in overall TBR demand. Clearly, OE is in a slightly different position than the replacement market, but the replacement market, as we and others look at it, looks like it's going to remain relatively healthy. Quarter-to-quarter, our volumes last year and this year will be a little choppy. But overall, we're expecting still a relatively strong year for our TBR business. Tariffs, again, I'll probably hand that over to Chris to give you the specifics on the tariffs. However, what we are seeing is our joint venture in Vietnam does continue to ramp up. It has been somewhat impacted by the global effects from the Coronavirus, but not substantially. And so that's largely on track to where we thought it was going to be at this point in time, just a little bit lagging behind potentially on the pace of the ramp-up, but it is -- it has essentially stayed on track through this period. And so we are, and we'll continue to begin to bring tires in from that facility as we move through the balance of the year. And then, Chris, I'll hand it over to you on the tariffs.

Chris Eperjesy -- Senior Vice President and Chief Financial Officer

Yes, James. On the tariffs, year-over-year, it was within a couple of millions. So this year would have been a little bit lower than last year, primarily driven by volume. But you may recall, at the end of last year, we started to have the benefit of duty drawback. So that duty drawback also benefited us in the quarter. So year-over-year, it would have been down in that $4 million to $5 million range.

James Picariello -- KeyBanc Capital Markets -- Analyst

Got it. Okay. That's really helpful. And then just on the dramatic cut to capex, which is completely understandable, but I mean, you did have, before the pandemic, a heavy slate of investments, I think, geared toward the Mexico and the Serbia facilities. So just wondering if this changes your overall -- not changes, but delays your overall strategy maybe in converting more volume through those lower cost facilities? Just curious on your thoughts there.

Brad Hughes -- President and Chief Executive Officer

Yes. I would -- in large part, as we look at the adjusted plan for this year with guidance now of $140 million to $160 million compared to the $260 million to $280 million, the vast majority of that change is timing. And the timing is, number one, as many, many companies are doing, our objective was to make sure that we were going to be in a strong cash and liquidity position to sustain the business through the length of the time that the pandemic is going to affect industry and economies around the world. We feel like that we've done a really good job of doing that. But we also wanted to be prepared to get back on track when we come out of this. We've continued to pursue a number of our commercial initiatives in terms of strategic initiatives and continue to be pleased with the way that those are going. And to the extent that we start to emerge from this from an economic perspective, and that begins to flow through as we expect it will to the replacement tire market and to Cooper tire who we think is uniquely positioned with our value equation to see that early as the tire market demand comes back for replacement tires, we would like to be in a position where we can begin to get right back on track with the initiatives that we had in place that does include some of the things that we were planning for Mexico and Serbia. So we still have a full intent to do that. Some of this, when the plants are shut down, when the equipment manufacturers are shut down, it was going to happen anyway. But we think with what we've done to manage our cash position for the near term and then the medium term is going to allow us to come back strong and get right back on our plans when that opportunity arises.

James Picariello -- KeyBanc Capital Markets -- Analyst

Got it. And does any of the cut tied to your successful renegotiation with the unions at the Findlay facility?

Brad Hughes -- President and Chief Executive Officer

No. There wouldn't be anything -- there wouldn't be anything directly related to that. We're very pleased that we were able to reach that agreement with our steelworkers at the Findlay facility and -- but none of this is directly tied to that.

James Picariello -- KeyBanc Capital Markets -- Analyst

Thank, sir.

Brad Hughes -- President and Chief Executive Officer

Thanks, James.

Operator

Our next question comes from Ryan Brinkman with JPMorgan. Please go ahead.

Ryan Brinkman -- JPMorgan -- Analyst

Hi, good morning, thanks for updating that most of your plants are back up now. I'm trying to think about, though, what level of prepandemic output your plants might operate at going forward in 2Q to better think about shipment volume? I think, typically, a starting point for thinking about shipments is miles driven, which is clearly under pressure. But can you also help us understand what might be happening with inventory in the channel? I'm imagining it was fairly normal headed into the pandemic, after which it began to be seen as excessive in light of the newly diminished demand. Is that the case? And then how has it evolved since then? Because I think supply went down almost entirely during the early part of the lockdowns, right? So even as some demand did continue, so has inventory improved since then? I guess when you add it all up, how does inventory stand now? And what does that imply for how much output is currently called for from your factories?

Brad Hughes -- President and Chief Executive Officer

The inventory levels, and I'm going to talk about Cooper here, and we came into the -- we were coming into the second quarter, and frankly, for the early part of the first quarter, we felt really good about our inventory position. And frankly, not only our inventory positions, meaning the inventory we had on hand, we felt good about where the channel inventory was for Cooper. And so, as this unfolded and you saw the drop in demand, which we all saw and then we saw -- and then we took actions to shut our plants down, we've looked at that. And the timing of when we did that was -- the first priority was to make sure that we were keeping our people safe and healthy, but we also were looking at demand in what we thought we're going to see for demand in the near term and what we had in inventory in our distribution centers, and we felt pretty good about where we were to be able to sustain the demand and the supply to meet the demand that we were seeing from our customers for a period of time.

And I think that proved to be true. I would say as we look at it now, if we see demand return in the market, we're going to need to build back some inventory levels. We would typically have been at a higher level of inventory than we're at right now as we begin to approach what is the stronger selling seasons for tires, replacement tires, specifically. And so that -- we have that in mind as we're ramping our plants up. The plants will take a little bit of time to ramp up. It's a longer shutdown period than we would typically take in a normal course. And so it'll take a little bit longer to ramp them up. But we're looking at being in a position where we can ramp the plants up fully and achieve spacing, the social distancing that we need to achieve, and bring them back up to -- along with demand. And so I think that we're going to see them return probably not to full production during the second quarter, but they're going to return to reasonably good utilization rate as we exit the second quarter.

Ryan Brinkman -- JPMorgan -- Analyst

Okay. That's good to hear. And then, clearly, the decline in oil and gasoline price is great news for you, primarily from an input cost perspective, but hopefully, eventually in terms of miles driven once things can start to normalize. I heard you say that prices are sticking in response to, I think, it was Rod's question. Do you expect that prices can continue to hold up amid all these unabsorbed overhead cost that tire makers are now calling out? And are you able to dimension what the possible price versus raws earnings tailwind could possibly be should prices, in fact, hold steady or decline only modestly in relation to raws? Would you expect that price versus raws will replace volume and manufacturing overhead as the biggest driver of -- in your EBIT walk at some point here, maybe by the end of the year?

Brad Hughes -- President and Chief Executive Officer

Well, I think a lot of those are difficult on forecast and projections to really lock into right now, Ryan. I do think that it's a positive sign that we have seen the industry maintain the pricing that's been put into the market and it appears, at this point, that there isn't a lot of new promotional activity coming into the marketplace. So that is a positive without a doubt. I think mix, as I mentioned earlier, there's going to be a natural improvement in mix that's driven by what types of tires have been going on to vehicles that are entering the car park or have entered and are reaching a replacement stage now. And so I think that for the industry and for Cooper, that will continue to be a bit of a tailwind. And then if raw materials stay where they are now, that creates a positive scenario for the profitability of the tires that hopefully we'll see demand come along with so that the volume then combines with the profit margins that we are seeing today with regard to the price/mix versus raws relationship. And I do think -- I think that as we get into future quarters that I think that we will see the industry hold on to a lot of this.

Ryan Brinkman -- JPMorgan -- Analyst

That's helpful. Thank you.

Brad Hughes -- President and Chief Executive Officer

Thanks, Ron.

Operator

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

Chris Van Horn -- B. Riley FBR -- Analyst

Good morning everyone, thanks for taking my call, and hope everyone is doing well. So you talked about expanding market channels, and so I'm just curious how this disruption may be affecting that? Are you hearing from potential customers or customers that you're rolling out with that things are shifting to the right or cancellations and how that's playing out?

Brad Hughes -- President and Chief Executive Officer

No. I'd say, if anything, Chris, we continue to feel very good about the progress we're making on the commercial strategic initiatives the teams had been pursuing successfully and that they're continuing to pursue it. One of the bright spots, I'd say, is that even though the folks are working from home, etc., they've continued to be working directly with existing customers and potential new customers. And we feel like we are well positioned, when we get to the other side of this, that we're going to continue to see the positive momentum that we felt like we were carrying into the early part of this year. That's with regard to building out some of the new opportunities that we've had and that we continue to build on. We've talked about what we've done in OE, that's continuing. What we've done in the retail -- with big retailers, we're now in the top 5. I think it's probably worth noting that we won a very prestigious supplier award from Walmart based on our overall omnichannel support of them.

So not only what we were doing with them over their e-commerce platform, but also the in-store work and the pilots that we've launched with them. Team continues to just make me very proud in terms of what they're doing to enter some of these new businesses that we hadn't been a part of before. And we did add, and we're continuing to focus on adding more retail locations where we're available around the country, and that work continued even during this period where there has been some restrictions. Now it may take a little bit longer to roll it out. But in the end of all that, the point is we still feel like we've got momentum and that when the economy begins to improve, that we're going to see Cooper improve and that we are going to gain back that momentum or return to that momentum we felt we had, not only in the fourth quarter, but particularly as the first quarter was starting out.

Chris Van Horn -- B. Riley FBR -- Analyst

Okay. Got it. And then how about from a supply chain perspective, are your suppliers weathering the storm? And are you seeing any impacts there?

Brad Hughes -- President and Chief Executive Officer

No. So far, so good there. Supply chains around the globe, to this point, have held up well. And I think it's going to get tested now. I think we feel confident based on the work that we've done with our supply base, but the test is going to be now as we and others begin to ramp up production. But so far, through this, through our ramp-ups and through our conversations with our supply base, we feel good about their ability to continue to support us.

Chris Van Horn -- B. Riley FBR -- Analyst

Right, that's all I had. Thank you so much for the time and stay safe and healthy.

Brad Hughes -- President and Chief Executive Officer

Yeah. Same thing. Great, thank you.

Operator

Our next question comes from Bret Jordan with Jefferies. Please go ahead.

Bret Jordan -- Jefferies -- Analyst

Good morning guys. Do you have any sort of POS visibility as to whether or not this shock is driving maybe a trade-down, what we saw in '08, '09, sort of a pickup in Tier two volumes as people look for lower-priced alternatives?

Brad Hughes -- President and Chief Executive Officer

Yes. We have better POS data today. Certainly, from a vignette perspective, what we're hearing from a number of our large customers is that there is -- it appears that people are looking for a better value, and we feel like that is the sweet spot for us. We have great tires at a great value. And that as people return to buying tires, that we're going to be positioned well to -- with that value proposition to really participate well. And so we'll see. But that is -- it's hard on the POS data right now because it's a little thinner than it normally might be as we've gone through this period. But certainly, what we're hearing from multiple customers is that they are seeing that and that their expectation is that when there's real volume and demand returning into the market that, that will continue.

Bret Jordan -- Jefferies -- Analyst

Okay. And then I guess from a distribution standpoint, obviously, a huge volume shock in a short period of time. Do you see anything changed? I mean, obviously, ATD or whether the Tirehub initiative is stressed given volume turned down. And I guess maybe even further down channel, as you look at the tire shop level, do you think there's going to be any change or contraction in the space just given the shock?

Brad Hughes -- President and Chief Executive Officer

Yes. I don't have specific or examples that I could point to, but I think it's hard to imagine that going through this kind of an economic shock that there isn't going to be some implications that whether it ends up, be consolidation where stronger partners take on partners that were really challenged during this period or there's some rationalization, it's hard to imagine that there won't be some. Frankly, we have not seen a lot of that in our customer base at this point in time, any of that really at this point, not that we're all the way through it. But I mean you have to expect that this is going to be another bit of a jolt to the industry and that you're going to see some fallout. And so that will remain to be seen. I take a step back, though, and believe that this is a time when Cooper has a chance to really win with being smaller, being more agile, with the team that we have, the capabilities that we have, I think we saw some of that a couple of years ago when we saw some consolidation within the industry where our team turned that into an opportunity, and I think this is another opportunity for the Cooper team to shine, not only because of the value proposition we offer. But when there is -- when there are big changes or small changes happening in the industry, I think our team knows how to respond to that.

Bret Jordan -- Jefferies -- Analyst

All right, thank you.

Brad Hughes -- President and Chief Executive Officer

Thanks, Bret.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Brad Hughes for any final marks.

Brad Hughes -- President and Chief Executive Officer

Okay. Thank you, everybody, for participating today. I also want to use this as an opportunity to thank all of the first responders and the people on the front line out there as we all work our way through this Coronavirus pandemic and thank them specifically for their work and sacrifice. And I also want to reiterate the thank you to the Cooper team. Our purpose is that everyone deserves to travel through life's journeys with confidence, and Cooper is there at every turn. Our recent journey has been -- had a number of twists and turns that were probably not expected, but the Cooper team continues to give us all confidence that we're going to be there for our customers and our consumers and our other key stakeholders. And so I want to thank them as we conclude this today. And then for all of you on the line, thank you for your time, and please stay safe and stay healthy. Thanks, operator.

Operator

[Operator Closing Remarks]

Duration: 47 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 Lache -- Wolfe Research -- Analyst

James Picariello -- KeyBanc Capital Markets -- Analyst

Ryan Brinkman -- JPMorgan -- Analyst

Chris Van Horn -- B. Riley FBR -- Analyst

Bret Jordan -- Jefferies -- Analyst

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