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Why Cooper Tire & Rubber Stock Dropped 10% Today

By Rich Smith – Jul 29, 2019 at 4:26PM

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Tariffs give it a flat in Q2.

What happened

Shares of Cooper Tire & Rubber (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.

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.

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