Q4 2019 Earnings Call

Add our investors significantly contributed to profit Improvement long supported by the continued consumer transition to larger rim diameter tires Cooper enhanced its capabilities to deliver these high value-added products for instance at the end June 2017. 44% of our sales were tire rims with diameters of Seventeen inches or higher at the end of 2019 nearly sixty percent of our sales office in this size category speaking specifically about the Cooper brand it continues to be in line with the overall US market share of high value-added products and approximately 2/3 month. We talked yesterday about selectively pursuing strategic original equipment fitments and have since announced multiple OE fitments with the Luxury Auto brand Mercedes-Benz dead.

We also talked about.

Expanding our truck and bus radial tire light up to include Cooper brand to augment our Roadmaster brand this Cooper brand launched and got off to a strong start. In fact Cooper brand TV off tires are standard original equipment on Blue Bird school buses which transport children to and from school every day across North America.

In 2018 how we were evaluating and upgrading our Global manufacturing footprint to have the right technology and capabilities with the right production capacity that the right locations with a competitive cost structure following this review in Europe. We see slate vehicle Tire production at our high-cost melksham plant and shifted production to other facilities in Latin America. We recently bought out our joint venture partner and Mexico to take full ownership of the plant there to better leverage that low-cost facility. I'm finally in Asia. We watched a joint venture truck and bus tire plant in Vietnam and invest your day. We also talked about accelerating our new product launch Cadence am sure that Cooper has fresh compelling products for key segments and we've been delivering with products like the 83 Solaris and in Duramax building out a digital marketing capabilities.

Which is now up and running.

Building Cooper brand awareness. We know that when Cooper is part of the consumer consideration is set for replacement tires. We win more often than not our consumer brand awareness efforts are in full swing and include television digital and print advertising featuring our new Uncle Cooper scope spokesperson. All of these accomplishments were achieved by our Global team which continues to be strengthened with key management appointments including new leadership of our Global Technical organization and our Asian operations as well. As our finance function. We also made additions to our board of directors to support our board refreshment process as we prepare for for Planned succession Cooper's also making progress on diversity and inclusion. We recently bought a 100% score on the corporate equality index and we were recognized by two different organizations for the representation of females on our board of directors.

We continue to focus on these efforts as well as sustainability initiatives and are proud to be one of the founding members of the tire industry project or tip tip is a global initiative leading tire manufacturers who work together under the world Business Council for sustainable development to support a sustainable Tire industry. Overall. We are very pleased with the momentum of these important strategic initiatives at Cooper and are continuing to pursue them aggressively importantly as our teams were accomplishing all of these improvements to our future business. We would be able to deliver improved Financial results in 2019 compared to 2018 specifically operating profit and operating profit margin improved versus the foyer year despite headwinds from net new tariffs and restructuring costs operating profit margin improved throughout the year from 4.3% in the first quarter to 8.5% off.

the fourth quarter

Reading cash flow improved by thirty two million dollars and we refinanced our $174 million dollars of senior notes which added Financial flexibility as well as interest rates evenings. We will begin to see in 2020 with respect to volume as we have discussed previously customer inventory actions in the US had an impact on our 2019 Volvo Performance, excluding this impact which we believe is behind us. We would have had unit volume growth in 2019 compared with 2018 in Asia a lady challenging passenger vehicle Market are full year 2019 third-party sales and the region were flat compared to the prior-year.

Focusing on the fourth quarter our operating results work in line with our expectations fourth-quarter operating profit margin improved on both the year-over-year and sequential basis. We solve volume declines in all regions in our poor US market light vehicle Tire volume was about flat and in line with the industry in Asia third-party sales wage compared to last year. Let me sum up by saying our team responded well to to a challenging 2019 to deliver progress on our strategic initiatives and improve results compared with 2018 with that I'll turn the call over to Chris eperjesi to review our financial performance in detail. Thank you. Brad. Moving to Consolidated fourth-quarter results sales were 750 million dollars down from 770 million dollars in 2018. There's 2.6% decrease was driven by two million dollars of lower unit volume down.

operating profit was

before million dollars or 8.5% of sales compared to $25 million dollars or 3.2% in 2018 fourth-quarter operating profit compared with 2018 was impacted by the following factors, which are summarized on page nine of the supplemental side deck plus $34 billion dollar benefit from non recurrence of a good Goodwill impairment charge and the 4th of 2018 ten million dollar favorable net tariff impact this $20 this twenty million dollar benefit from Duty drawbacks partially offset by 10 million hours of higher costs related to new tariffs on products imported in the US from China compared to the same period a year ago, I will discuss the duty drawbacks in a moment 24 million dollars of Fame material cost excluding the new tariffs and 1 million dollars of favorable price and mix this was partially offset by $19 of higher manufacturing costs $3000000 impact

lower volume

Three million dollars of higher product liability expense 1 million dollars of restructuring and four million dollars of higher other costs diluted earnings per share was $1.02 compared to a loss of $0.01 for quarter in the fourth quarter of 2018. Let me provide a little more color regarding the benefit from Duty drawbacks the duty drawback provision allows a manufacturer to be refunded for the duties or fees. It pays to import Goods. So as long as it also exports the same sort of goods previously. There were very few Cooper products that qualified for Duty drawback. However, there was a policy change in late 2015, that qualified more Cooper products to be eligible. Our team worked hard to analyze this and we were able to submit for Duty drawback stating back 2015 this resulted in a $20 benefit in the fourth quarter with eight million dollars of it applicable to 2019 moving forward. We would expect an annual benefit similar to Age.

portion applicable to 2019

The section 301 tariffs are eligible to be offset under this program, but dumping and countervailing Duties are not now moving on to our segment performance starting America's Tires operations segment sales for the fourth quarter was $655 million dollars down 1.4% from 664 million dollars in 2018 off as a result of $15 of lower unit volume partially offset by five million of favorable price and mix in 1 million dollars of favorable foreign currency impact segment unit volume was down 2.2% compared to the same period of a year ago primarily driven by Latin America are u s light vehicle unit volume decrease 0.1% while the ustma was flat month and the total industry increased by 0.1% fourth quarter operating profit in the Americas increased to eighty four million dollars or 12.9% of net sales compared to with seventy years.

dollars or 10%

10.6% of sales in 2018 operating profit included two million dollars of favorable price and mix $16 of favorable raw material cost excluding new terrorist and 1 million dollars of lower sg&a. The quarter also included ten million dollars favorable net tariff impact resulting from twenty million dollar benefit from Duty drawbacks suck set by 10 million dollars of higher costs related to new tariffs. This was partially offset by 11 million dollars of unfavorable manufacturing due to lower-than-expected production and higher gear and maintenance costs $3000000 of higher product liability expense and 1 million dollars of lower volume compared to the same period a year ago.

Now turning to our International Tire operations net sales for the fourth quarter were $119 down 20.1% from the fourth quarter of 2018. This result was down by $25 million dollars of lower unit volume, three million dollars of unfavorable price and mix and two million dollars of unfavorable foreign currency impact segment unit volume decrease 16.9% with unit volume decreases in both Asia and Europe driven primarily by lower intercompany shipments. In fact third-party sales in Asia were up slightly versus the prior-year.

Fourth quarter operating loss in our International operations with six million dollars compared to an operating loss of $33 in 2018. The quarter included $7 of favorable raw material costs offset by eight million dollars of unfavorable manufacturing primarily due to costs related to our footprint actions in Europe two million dollars of volume, 1 million dollars a price and mix $1,000 of restructuring and two million dollars of other costs compared to the same period a year ago.

The fourth quarter of 2018 also included a $34 million-dollar good where Goodwill impairment charge positively impacting the year-over-year comparison moving the raw material a material index decreased 9.3% from the fourth quarter of 2018 the raw material index decreased 4.6% sequentially from 157.1 month on the third quarter of 2019 with 149.8 and the fourth quarter of 2019 for the first quarter of 2020. We expect our raw material index to be down on a year-over-year basis, but but slightly up sequentially

Now to some corporate items.

Other pension and postretirement benefit expenses increased 6.4 million versus the prior-year. This was primarily driven by pension settlement charges related to our restructuring actions and melksham additionally simmer prior quarters. There was an increase due to the result of lower estimated return on plan assets compared to 2018 as we've made strides in improving the funding status of our pension plans the portfolios take less risk in order to protect the funded status which results in a net increase quarterly expense.

The tax rate for the fourth quarter of 2019 included a $19 discrete tax benefit resulted from planning actions involving the company's European tax structure. As a result of the effective tax rate was a negative 19.3% for the quarter compared with 96.3% last year, excluding this discrete tax item. The effective tax rate would have been 22.7% in the fourth quarter of 2019, excluding the Goodwill impairment charge of the fourth quarter of 2018. The effective tax rate would have been 25.2% 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

Access will be available in our form 10-K that will be filed with the SEC later today.

Turning to cash flow and some balance sheet highlights unrestricted cash and cash equivalents with 391 million dollars at December 31st, 2019 compared with $356 a month December 31st, 2018.

Capital expenditures in the fourth quarter were $47 compared with forty nine million dollars in the same period of year ago. Our full-year Capital expenditures expenditures were 203 million dollars would include investments in Serbia compared with $193 in the same period a year ago.

In addition during 2019. We invested forty nine million dollars into a CPR Company Limited our new joint venture with Saloon Vietnam return on invested Capital wage 8.0% for the trailing four quarters. I want to reiterate that returning Capital to our shareholders remains an important priority for us as demonstrated in 2019. We are committed not reporting our quarterly dividend, but we'll pursue share repurchases more opportunistically in the near-term as we balance attractive opportunities to invest in our business. However, we have extended our thoughts share repurchase program through December 31st, 2021 to allow us flexibility approximately $193 million remains on our boards 300 million dollar existing authorization.

Is Brad indicated?

We end of the year in a strong balance sheet position. I wanted to recognize the hard work of our team and efforts around our working Capital Improvements in refinancing now moving to our full-year results sales for 2019. We're 2.75 billion dollars 2% a 2% decrease from 2.81 billion dollars in 2018. Net sales were impacted by lower volumes of a hundred and ten million dollars and fifteen million dollars of unfavorable foreign currency impact partially offset by 72 million dollars of favorable price and mix

The company's 2019 operating profit was $174 million dollars or 6.3% of net sales this Compares with operating profit of $165 million dollars or 55.9% of net sales in 2018. There were many moving Parts in both 2018 and 2019 that impacted the year-over-year operating profit compact slide six of our supplemental slide deck provides each item, but I will discuss the key items to note in 2019. We experienced favorable Trends and price mix and raw materials. This was a partially offset by lower unit volumes along with coinciding higher manufacturing costs as well as an increase in other costs such as sg&a and distribution factoring in just these items we would have experienced significantly higher higher operating profit compared to 2018.

However, there were two additional.

What unique items negatively impacting our 2019 results in that $32 impact from tariffs in $9 of restructuring costs, even with these items. We delivered higher operating package and higher operating operating profit. Margin. I'll now turn the call back over to Brad to review our 2020 Outlook. Thanks Chris overall. We were pleased with our wage in in 2019 for 2020. We are optimistic about the year ahead is our business model remains strong in our strategic initiatives continue to gain momentum. However, there would be some sneak items. We will need to work through in the beginning of the year. We anticipate operating profit margin to improve throughout the year with the second half better than the first half and the full-year exceeding 2019. We expect the first half of 2020 operating profit. Margin. We expect first-half 2020 operating profit margin to be impacted by typical season wage.

And certain unique items.

Which include higher manufacturing costs related to both market conditions and our footprint actions as previously noted in Latin America. We have acquired full ownership of our Cokes of facility with which previously operated as a joint venture as we assume full ownership of the facility. It is important that we take advantage of the opportunity presented by the conversion. We therefore temporarily shut down the plant after the deal closed and have rehired the workforce as Cooper employees. We are now in the process of ramping production back up as we re-launch the plant as part of this month launched the Cooper production system will be fully implemented requiring employees to be trained throughout the year. We will also be upgrading equipment and processes and adding new employees as a result. We expect some elevated costs as we ramp up production throughout 2020. We also expect to incur approximately ten million dollars of restructuring charges related wage.

the Mexico transition which will primarily occur in the

First quarter and in addition to the manufacturing cost and efficiencies similarly in Europe. We see split vehicle Tire production at our melksham England plant and will produce many of these units may be a plant as we continue to move production to the Serbia facility. We expect student to experience some ramp-up costs longer term. We expect these strategic footprint actions to result in lower manufacturing cost. However, they will be a negative short-term impact particularly in the first half of the year in addition to the higher manufacturing costs and restructuring charges. We anticipate higher sg&a primarily due to the impact of the timing of advertising expenses as we accelerate our new advertising campaign, excluding the medical restructuring charges in the first quarter. We expect 2020 first quarter operating profit and margin to be similar to first quarter 2019 with second-half 2020 operate. Yep.

profit margins to approach

our stated midterm Target of ten to 14%

In addition for the full year, we expect a modest Global unit volume increased compared to 2019 including in the US and effective tax rate wage earning significant discrete items of approximately 25% and capital expenditures that will range between $260 and $280. This includes manufacturing footprint investments in Serbia and Mexico as we enhance enhance both of these low-cost facilities.

At this point we have not attempted to include any Financial impact related to the coronavirus in our Outlook. Our first concern is ensuring the safety and well-being of our employees are GRT manufacturing plant restarted operations on a limited basis on February 10th to support TV our customers meanwhile rckt manufacturing plant restart operations on a limited basis last week while we expect an impact from the coronavirus. We cannot reasonably estimate the nature or size of the impact that this time because the situation is very fluid as circumstances surrounding the coronavirus stabilize. We will provide an update as appropriate with that. Let's move to your questions operator. Will you take first question, please ladies and gentlemen will now begin the question-and-answer session to ask a question. You may press star and then one if you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys dead.

So it's all your questions. You may press.

Start into it again. That is star and then one to ask a question. Our first question today comes from Chris Van Horne from B Riley FBR, please go ahead with your question.

Good morning. Thanks for taking my call for any Chris. So a number of tire manufacturers have talked about price increases coming through the system and and I was wondering you know, how long you've you those and and what you might be using in some of your planning for twenty twenty. Well, I think that the way I describe the the market right now Chris is that the the way the pricing environment has been relatively stable through the fourth quarter and particular and that's talking about both the combination of pricing actions and promotional activities. So I think things that then, you know a market position have supported stability as we move into the first quarter there have been on some announcements regarding pricing. We're always actively looking for opportunities to look at our portfolio for any opportunities to adjust pricing in line with staying competitive with for our customers.

Okay.

And and you know, the retail presence said that you've been able to increase over the past eighteen months is certainly been significant and part of your strategic plan and I'm wondering if as we look out, you know through 2020 and maybe even into 20-21. Is there still a lot of you know space for you to expand that as aggressive as you have in the in the past 18 months.

Yeah, we still believe that we've got good opportunities in front of us. I mean clearly over the course of the last year or two a year and half we've made significant strides. So the base is getting larger as we speak up. There are definitely additional opportunities as we look forward through 2020 and and into twenty Twenty-One at least

Okay, got it. And then and last for me free cash flow, you know really strong for the year, you know and just wanted to know if you know anything to point out there, you know working Capital Management seems to be going well and um, you know anything to maybe maybe site for the the reason that strong free cash flow. Yeah, a lot of on hard work on first of all identifying opportunities for improving our free cash flow position a lot of that by working on working capital specifically reducing our inventories. I'm sure that the folks have noted that in the fourth quarter. We did have an unfavorable contribution to our profitability compared with last year relative to manufacturing, but that was all with very much in mind trying to make sure that we had the right inventory positions coming into 28 22 create an opportunity for growth having said that on, you know, not all of the initiatives that the team has identified have been implemented and so we'll continue working towards improved.

free cash flow on and working capital into twenty-twenty

Okay, great. Thank you so much for the time. Thank you.

Our next question comes from James piccirillo from keybanc Capital markets, please go ahead with your question.

Hey bread, you you provided some really important detail. I think at the end of your prepared remarks. I just want to make sure that I heard that all correctly. So in the first quarter if we exclude the ten million of restructuring spend in Mexico margins Consolidated margins will be up year-over-year excluding that spend and then for the second half of 2020 You're Expecting Consolidated margins in a targeted range of 10 to 12:10 to 14% So what what to try and make sure that that I am stating it clearly and I did state it clears it off for the first quarter if you exclude restructuring costs, we think the holiday did margin will be about the same as the first quarter of 2019 wage that the we will have improving profit margins over the course of the year with the second half being better than the first half a lot of that based on the, you know, some of the wage

Kim said I was citing earlier in the call.

And then lastly on full-year up in 2020 relative to 2019 as we you know, reference operating profit margin and in the second half of the year that we're approaching the the ten to fourteen midterm guidance that we provided for operating profit margin.

Okay, did I get you to where you wanted to be? Yeah. Yep. I appreciate that. And then so regarding the the Mexico restructuring spend money, you know, you're obviously renovating that facility. You know what you just your general Outlook in terms of the potential throughput benefits of of transitioning more volumes to that facility, What's the timing look like there? And then can we expect any formal restructuring actions in the US tied to you know, maybe more volumes now flowing through this Mexico facility.

So with regard to the the Mexico facility on it's it's important to understand the process that we were required to go through here in that it was a joint venture the wage employees. They're The Operators the folks that do the hard work on the line every day on we're actually employees of of the Cooperative representing the joint venture. We had to walk, you know, take those people off role and then hire them as Cooper employees on that allowed us an opportunity to begin to better institutionalize the way that we go about ordering products safety processes on the affect the efficiency of the of the plant and so we're going through that rep process right now and as we do that and as we you know are confident that we're making progress we will be in a position to add more employees and to add more volume down.

that facility alongside

Of growing the capability of the team there we will be introducing some new equipment as well the upgrade the capability and expand the portfolio of products if they can manufacture in that in that facility, I think a lot of that on growth and and increase in the portfolio products will happen over the course of the second half of this year on and but we'll bring it over the second half of this year and you know can continue into the future and and into next year. So there's a lot of that going on. We do continue to evaluate what our Point needs to look like on and there's nothing that we're prepared to comment at this point in time and we're focused right now really and making sure that we execute against what we've done in a r k in Serbia and what we're doing in in Mexico right now and if there is anything to to to talk about at some point in the future we certainly will do so

got it, and just to clarify regarding your your

Have guidance expectation the framework there. Would that include any any additional pricing actions for this year and US yeah, that would have any issues are best view on on you know, where we see the market going and and so it would be included. Yes in that second half. Thanks a lot.

Our next question comes from Ryan Brinkman from JPMorgan, please go ahead with your question. Thanks for taking my question for the comments earlier on pricing. I just a couple more questions around that in class. If you could maybe comment on the the step back and your of your benefit to e bit in 4q from Price mixed amidst, I think you called it a relatively stable pricing environment and I recognized the year of your compared to Thursday 3 to 4 to 4, that's likely a component but it mix another component. I I assume mix is positive giving your comments about written size, but I don't know maybe there was a lower mix of TBR tires or something upsetting some pricing tailwind and them so any there would be helpful, but then just going forward to you know, I'm curious if your 2020 margin Outlook if it includes the anticipated impact to the industry of the recently-announced 7% price increase by Michelin Pax to take effect on March sixteen or rip that could provide any additional potential upside to the view being communicated today.

okay, first of all your pretty

Well spot on the the the fourth quarter with regard to pricing mix mix has been a you know, a very strong Tailwind over the course of 2019 compared with 18 in the fourth quarter. We did have a year ago on a fairly High mix of TBR tires, and there's people were responding to be anticipated terrorist terrorists that had been announced etcetera and we did not have a recurrence of that in the fourth quarter of this year on and so we'll be moving into a more stable and a name on comparative Nick's environment as we get into two twenty20. So I think overall your assessment of that situation was correct, you know with regard to purchasing again, we're always looking at at the the market on our competitive set anything that's going on with with those folks that are hoping to drive pricing.

Marketplace and looking for opportunities

I it's you know again, we're in a good stable environment in the North America market right now. And so it creates a backdrop where the industry off can consider pricing some people have acted and we will we will do the same as we as we think we can making sure that we're keeping our competitive position for our customers.

Okay, thanks. That's very helpful. And then just finally from me, you know certainly back to the comments on coronavirus, which I know it's not in the guide. Could you talk about what impact if any you're seeing on the ground there in terms of demand or interest or ability to Source tires for export elsewhere and then could you also just remind us cuz I know there have been some changes over time in terms of what is the latest when it comes to the sourcing of your TV our tires from North America from different Asian countries. Thanks. Okay. So with regard to I think it's important to make a couple of points here one is Asia is an extremely important part of our business, especially when you look at the opportunity for growth in the future right now. It is a relatively smaller contributor to our overall business and financial results. And so we want to keep that in perspective as as we're looking at that market also over time the plant that that our our plant see Katie which makes white vehicle tires on has become much more money.

the plant to to support the local market, so it is

Most of the production there is for sale in China and other parts of Asia as opposed to being exported to other Cooper markets. And so the impacts that that we we will understand better over time from the coronavirus will likely be mostly affecting the the Asia business there with regard to what we can see we've got a good line of sight on our plants. Now, I talked about the fact that our GRT facility which produces truck and bus radial tires as a joint venture is up and running as of February 10th. I'm c k t r white vehicle plan. I just referred to in in Coon Sean went back to produce starting to produce and ramp up last week. So we've got good life site on our facilities and feel relatively confident that we've got a good handle on how we can bring those online the other parts of this with regard to the demand environment over their dead.

Some of the supply chain elements of of what will affect business over all over there are not as clear right now in in or what it what makes it quite difficult to put a reasonable estimate on it at this point. So that's coronavirus with regard to our TV our footprint. We do continue to bring tires to the United States from our GRT Life Adventure in in China. However, we are in the process of beginning to ramp up the tires that were bringing to the US from Vietnam on both on the off-take agreement that we've had in place there on for a period of time and importantly as we ramp up the joint venture that we have in Vietnam. We had begin to receive more and more tires from that facility over the course of the year. So I hope that answers your questions. Yes a very helpful. Thanks so much. Thank you, ma'am.

Custom John Healy from North Coast research, please. Go ahead with your

Question, I think you wanted to ask just a question on global manufacturing. I feel like you guys have had a lot going on over the last twelve months. So when I think about the moves in Mexico when I think about what's going on in this is Ruby in marketing with the UK a facility and then even the kind of the the movement of volumes from from China to Vietnam. If you kind of put it all together from what do you think? The net impact is in terms of costs for 2020. Will it on a net basis still be a negative or what these manufacturers alignments being that positive and at what point do you think will be in the net positive camp?

Okay, well overall. Obviously we think these are going to be favorable towards the the future of our of our footprint as we laid out at our investor day. We were really focused on making sure that we have the right capabilities in our plants on that. We have the right plants servicing the right markets. We are trying to make sure that we've got a diversified Footprints soul. But whether it's terrorists or earthquakes or or viruses that we've got a footprint that we can flex and continue to support our customers with great products that are cost-competitive on and each one of these is give making a step in that direction. I think as we look through the first half of this year on that we're still going to be getting over the hump with regard to be having some in efficiencies related to some of these movements on but as we get into the second half of the year that we should start to see those flow through in terms of positives relative to where we've been with are dead.

factoring cost footprint

You know in in clearly the more tires that we bring from Vietnam for the TV our Market in the United States the better because they will not be affected by the heavy duty on those tires coming out of China. So again to see benefits over the course of the year, I think first half yet it all up. It's still going to be a little bit of a drag but as we get to a second half we do begin to see the favorable contributions from the footprint great and wanted to ask a little bit about some of the growth initiatives you had mentioned to some of the Box you haven't been having on the e-commerce platforms. Can you maybe talk to what the e-commerce partners are sharing with you in terms of how Cooper, you know potentially is performing relative to other brands and then additionally the birth of my relationship. Um, I know you know walmart.com has been a a place for you guys and maybe some stores but it was kind of curious to know if how broadly the store base of Walmart is is now off.

hang with with Cooper product

And that space and and I would just say that overall we feel very positively about that business. We feel positively about the types of tires that were selling on that. We feel positively about the mix of products that were selling on those platforms and we feel positive about the the the revenue and profit that those are generating even by comparison to our base wage of business. So that's you know, it's it's it's exciting. I mean to watch that happen as as it grows continues to be a positive for us back to get into a lot of specifics in terms of the in-store activities of any of our big Retail Partners suffice to say that we we have made stepped forwards intentions of our presence in in with some of those big customers relative to where we were a year ago. We continue to believe that that's going to

Can you win the 2020 and Beyond and so that there's good growth opportunities for us on with those Partners as we look forward and and we're excited to watch 8003. Thank you guys. Thank you.

with regard to the to the e-commerce platforms. We do receive some information from the from the partners that we have.

Next question comes from from Wolf research, please. Go ahead with your question.

Good morning. Everybody had a couple of questions first, you're clearly expanding vary significantly from a district distribution perspective and I could sense the the excitement that you guys have about that. But you know at a high level, can you just give us a sense of what is the reason then why the volumes in the US are just walk in line with the industry. Um, should they be actually outperforming the industry just based on the the the the magnitude of your expansion and if you could be didn't also clarify that these new accounts that a new points distribution have they contributed any unusual volume tail when just from Channel filling at this point.

Yeah, so the you know again as we as we have restructured our business beginning back five, six seven years ago where we wanted to exit off some of our non-strategic private label brand business on that obviously was a a big impact millions of tires in terms of on volume off the books that we were fighting against last year. We had a relatively unique situation with regard to some inventory adjustments in our customer base. Both of which we think are behind just at this point in time. So we now feel like we are in a position and and I think that we were pretty consistent over the course of last year that we were indicating that the volume growth. We begin to materialize as we moved into twenty-twenty and so actually getting an inflection point where we were with the market in the fourth quarter on WE view as a positive step as we track

into the opportunities that we

In front of us in 2020 on part of the I wouldn't say that there's any significant on inventory loading that page we seen or are going to see a lot of these uh ads whether they're independent retailers or if they are some of the big retail customers, but neither one of those the independent retailers that just happens one small piece at a time but builds over a period of time to be something that's a meaningful contributor and with some of the large retailers on they do an outstanding job of managing their inventory. And we do a great job with some Wholesale Distributor Partners in terms of managing that inventory to make available to them so that their meeting consumer requirements, but that none of us are over overloaded on any kind of Tire inventories relative to what might have been the practice even just three or five years.

to go

Thanks for that verification. And um, could you just also maybe talk a little bit about these Manufacturing in efficiencies. Um, if you exclude the the game will from last year's fourth-quarter and the duty drawback from this year's fourth-quarter looks like you're either would have declined about fifteen million, but that's more than explained by this twenty million of manufacturing efficiencies wage. If you take a step back for the year, what was the magnitude of what you would consider to be unusual in efficiency and and uh, does that represent a significant tail-end as you look in to Thursday? We we haven't done externally Quantified specifically what I would describe as unusual efficiencies over the course of the year, but I would like to highlight that

the Europe situation with what we went through at the UK facility at melksham in terms of that line down in building inventories there and I'm moving product into the rest of the footprint with a lot of it going into our Serbia facility clearly created some

some might

In efficiencies within our manufacturing cost footprint. And again, we do think that there'll be a little bit more of that in the first half of this year. And then we've got a new on situation that will end up being a very good thing off Cooper beginning in the second half of the year. But with the Mexico facility that we now Own 100% of that's clearly going to be unusual. So I guess I just reiterate what I said earlier that we do have a little bit of a headwind in the first half of this year on but these actions are going to start to contribute positively when we transition into the second half of the year.

Where's thank you. And then just lastly wanted to just phone in on the the TBR Market. What was the volume of of tires? You took out of Vietnam last year? And what do you expect the ramp to be this year? And then more broadly when you when you think about the dbr market a lot of that Supply comes from China including yours, but um any thoughts on just the state of the market with the inventory position is and whether there's any broader industry implications of what we're seeing, um within China again, we we had been specific about the number of tires that we brought in last year and and wouldn't do so this year again from Vietnam. However, I would say that we would we definitely believe that we will bring you be bringing in more money from Vietnam without the impact of the duty this year relative to to last year and that the number of those tires will grow over the course of the year as the production capacity comes off.

My at our joint venture in Vietnam, so you're over a year. It should.

Be a benefit to us in terms of the volume unaffected by tariffs on overall the TV our Market on went through a year last year with the OE part of that market began a slow over the course of the year and starting off, you know, similarly this year that it's not going to be a it's not been a very a real strong on I-40 be our tires in the and so that will have some impact but as the the tires on these vehicles begin to wear because they are being used on all that new equipment that had brand new tires on it. We do think that there should be some building demand in the replacement Market this year and that, you know, we're well-positioned to participate in that way. It doesn't sound though like you expect any significant Supply disruptions for the US market from coronavirus just broadly aside from

Super this point no on, you know based on on what we've been able to accomplish both in in Vietnam and and importantly at our facility, but we're going to have to take you to monitor because again, that's a pretty fluid environment right now that that may change right? Thank you. Thank you.

our next question

Custom brag Jordan from Jefferies, please. Go ahead with your question. Good morning guys. I guess we're here and talk about the tier-one guys, maybe looking at some price increases. Do you see anything? I guess in the back to some of the Imports that have been kind of aggressive like a Hankook or Yokohama looking at taking prices up.

We we have not seen any thing specifically from those two yet on but we have seen some pricing from from other tier twos wage. And so again, I think the good news is that that the market is either. I mean worst case you're saying it's stable, maybe our conservative position on it at this point in time. But as we start to see these actions, it gives us opportunities to look at our portfolio and making sure that you know to the extent that there are opportunities for Cooper or other nations within our portfolio that we're able to to do that without disrupting our competitive position with our customers.

okay, and

It's a question on the marketing focus. It sounds like you're going to go a new program and are you thinking about new channels as well? I think a lot of your support has been through like things like the Professional Bull Riders historically, but are you thinking sort of major media programs in the first half of 20? Yeah again, as we as I was saying that we are looking at a multimedia approach including you know, television digital and and other forums where we think that this new ad campaign that we have which so far seems to really be hitting the mark on we want to get it out there in places that we're going to we're going home folks. You know, we are looking at pulling ahead some of the spending on that relative to what are typical calendar ization might look like we've got a a big political season coming at us later in the year and getting it out in front of that or at least trying to is is part of the strategy as we look at that.

Okay, thanks and had you said what the unit capacity of Mexico was? I think maybe an investor day years ago. You might have talked about what your expansion of potential was there, but it just sort of size now that you own all of what you could put out of that plant. I don't think we've size that in the past there clearly is opportunity within the footprint that we have today with with some additional people and an upgrade the equipment base that we have there on and I would suggest that there's probably more opportunity there today given We Own 100% of the relative to what it looked like previously. Okay. Great. Thank you God. Thank you. Ladies and gentlemen at this point. We'll end today's Q&A session. I'd like to turn the conference call back over to management for any closing remarks. Yeah, just met briefly again. We feel very positively about the the accomplishments that we've had against this rata G that we laid out at investor Day in 2018 home.

And with all the work that was being full.

Focused on those efforts to be able to improve our financial results last year and to project that that's what we're going to expect to see this year. We feel very positively about so thank you for your time as always Jerry and and Jacob are available if you have follow-up questions.

Ladies and gentlemen that will conclude today's conference call. We do. Thank you for joining today's presentation. You may now disconnect your lines.