Cooper Tire & Rubber (CTB, Financial) recently released unimpressive results for the first quarter of fiscal 2015. The company disappointed investors with a decline in the net income and profit margins. The management states that this decline in the performance was mainly due to divestment of its joint venture in China, which affected its business. However, the company is working on some key elements to uplift its performance. In fact, it has seen a good appreciation in the sales by 4%. According to some analysts, the market is going to improve in the coming quarters. Cooper is preparing itself to be profitable in these positive growth environment in front.
A closer look
North America is among the high potential markets for Cooper and a 4% sales growth indicates that it definitely has much room for improvement in future. To further add value to its North American business, it is planning to increase the production with lower raw material cost and successful product launches. Cooper expects that this will increase its profit margin leading to good growth and the bottom line.
Cooper is also focusing on Asia. It is working on expanding its footprints in these markets. Having sold its CCT joint venture, Cooper is looking to expand its presence and distribution in Asia while securing additional sources of supply. Besides this, the company is thinking to penetrate these markets by putting efforts such as an agreement with another supplier, making an acquisition and a joint venture, adding capacities to its already existing capacities in China. It has generated good cash flow in the past, and, it is now parking these funds to its growth strategy in Asia and other parts.
A look at China
If we talk about market in China in particular, the tire markets seem to be booming and the company expects it to grow well in the long term as well. This is because of the abundance in the supply, mainly due to the impact of tariffs. This has affected many Chinese manufacturers as they are no longer able to export cost effectively to the US. They are now more interested in selling these in the local markets now. In addition, Cooper saw good traction for the new products which it launched in 2014. Expecting this traction to continue, the company will be focusing on bringing in new products in the market, while focusing on developing global platform for products and customizing them to meet the requirements.
Again in the first quarter, Cooper introduced Roadmaster tires which it designed specifically to withstand the demands of drop-decked trailers. This saw robust traction in the market as this tire featured a new tread design and compounding providing improved tread wear and protection against cutting and chipping. To further support this growth, Cooper has recently extended its adventure touring motor cycle tire line in the U.K. with the launch of new adventurous sport tire: the A1 Trail Rider. This tire has a special feature of blending all season road capabilities with a rugged off road style tread pattern, with a focus on stability and wet grip without impacting mileage. This new addition in the product portfolio will surely improve its market presence. Further, Cooper will continue to support its new product launches with a wide variety of activities and in North America.
Conclusion
Now looking at its fundamentals, if we look at the stock performance for the last five years, the stock shows positive growth trend which is a good sign and can help it to gain market share in future. On the other hand the stock is cheap with a trailing P/E of 10.68 while the forward P/E of 11.91 shows good earnings growth in the near term. A profit margin of 6.35% is also impressive and can help it to gain its market share. All these signs depict a positive growth for the company in future. I would like to suggest the investors to definitely include Cooper Tire & Rubber in their portfolio.
