Shares of tire manufacturer Cooper Tire & Rubber (NYSE:CTB) are down 12.2% as of 12:15 p.m. EDT today after the company reported first-quarter earnings results. Needless to say, they weren't what Wall Street was expecting.
Cooper checked with earnings per share of $0.16 for the first quarter compared to $0.57 per share this time last year. That $0.16 EPS result was also well below consensus Wall Street estimates of $0.57. Weak sales from high levels of replacement tire inventories across North America and increasing manufacturing costs were the biggest culprits of this quarter's weak performance.
According to management, it expects these challenging market conditions to ease in the second half of the year as it scales back its unit production and lets these high levels of inventory draw down. Then again, this high level of inventory and weak pricing environment have been going on for several months now, so one has to be a little skeptical about predictions of this inventory reduction that management has been saying these challenging conditions would ease several quarters ago.
With shares down 12% today and 37% over the past year, I don't doubt there are some people out there looking at this company as a value investment. It still has a healthy balance sheet, growing markets in truck and bus radial tires in China, and some strong brands in the aftermarket tire business. So there is certainly something there for investors. At the same time, though, this business has been slogging through a tough period of an oversupplied North American market for more than a year with no clear signs of it letting up despite what management says.
With all that in mind, it's hard to get excited about Cooper Tire & Rubber's stock today, but if management is right and the glut does start to clear in the second half, then it may be worth revisiting down the road.