Cooper Tire & Rubber Company
Q3 2016 Earnings Call Transcript

Published: 31 Oct 2016

[Operator:]

Good morning and welcome to Cooper Tire & Rubber Company’s Third Quarter 2016 Earnings Call and Webcast. At this time, all participants on the call are in listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jerry Bialek. Please go ahead.

[Jerry Bialek:]

Good morning everyone and thank you for joining the call today. This is Jerry Bialek, Cooper’s Director of Investor Relations and Strategic Planning and I’m here with our Chief Executive Officer; Brad Hughes, our Ginger Jones, 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 forecast 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 third quarter 2016 financial and operating results, as well as the company’s business outlook. Our earnings release includes a link to a set of slides that summarizes information included in the news release and in the 10-Q that will be filed with the SEC later today. We will reference non-GAAP financials during the call, the reconciliation of which is included in the slides. Following our prepared remarks, we will open the call to participants for a question-and-answer session. With that, I will turn the call over to Brad Hughes.

[Brad Hughes:]

Thanks Jerry and good morning everyone. I am pleased to report that Cooper delivered another strong quarter of operating profit and achieved the best ever operating profile $279 million for the first nine months of any year in our company’s history. This was led by the America segment which generated an operating profit margin of 15% in the third quarter including the impact of the preliminary tariffs on truck and bus radial or TBR tires imported from China to the United States. I want to thank all of our teams worldwide for their contributions to sustaining the strong performance. It’s important to point out that this performance is a direct results of executing our five year strategic plan. We first outlined this plan in 2014 and it has three priorities, first, driving top line profitable growth through many initiatives including mix enhancement. This means focusing on higher margin products and growth of our Cooper brand as well as investing in R&D and technology to continue to launch exciting new products. Second, developing a cost competitive structure by optimizing our global manufacturing footprint, investing in automation, reducing procurement spending and other operating improvements. Third, building our organizational capabilities to support our strategy by investing in people, the Cooper production system and our ERP system. We are also continuing to build our original equipment or OE and TBR business capabilities. We have been executing this plan effectively and are in the midst of what we believe are the middle innings of our business transformation with the strategic plan as our play book. In addition to driving operating profit Cooper remains focused on generating unit volume growth in both the Americas and international segments. There is work to be done but we are making progress. Global unit volumes for the quarter about flat compared with the same period in 2015. As you know, the America segment includes Latin America and we have been very successful in driving higher unit volumes fueled by expanded distribution into new countries along with new products that meet customer demand in the region. Our domestic Latin America unit volume is up more than 40% year-over-year. In fact the strong year-over-year unit volume growth in Latin America in the third quarter partially offset soft unit volumes in the U.S. and by moving to a seven day operation at our operating plant in Mexico, we’ve increased our output while improving our cost structure with minimal capital investment. I mentioned soft volumes in the U.S. In the third quarter, our light vehicle tire shipments in the U.S. were down 4.2%, a larger decrease than the 2.7% decline reported by RMA members and below the industry which had an estimated increase of 3%. Our decrease in U.S. tire shipments was due primarily to a decline in private brand distributor business. This business is typically lower margin compared with our more profitable Cooper brand which had an increase of shipments of 1.5% in the third quarter. Turning to our international segment, I am pleased to say we continue to improve performance as we move from a loss in the first quarter of this year to delivering an operating profit in the second quarter and now delivering a profit again in the third quarter including contributions from both Europe and Asia. Asia has done a great job of driving OE unit sales in the domestic China market. Our team there continues to grow the business – this business by effectively responding to the needs of very demanding vehicle manufacturers. Cooper is providing tires for 28 platforms from 10 automotive companies in China and our OE business in China is up over 90% compared with last year. On the replacement side of our business in Asia, Cooper is expanding into e-commerce by partnering with three leading websites to leverage this fast growing channel and we added another super field retail location to showcase the Cooper product portfolio for China. Overall, in our international segment, unit volume was down 4.7% which was more than explained by lower intercompany unit sales to the U.S. The quarter was also impacted by a special inventory reduction program in Europe that inflated sales in the third quarter of 2015. While we are talking about China, let me give you an update on the TBR tariffs. Preliminary countervailing and anti-dumping duties on TBR tires imported to the U.S. from China were announced and the rate for Cooper 50.17% which is generally consistent with most other Chinese TBR producers. Remember, these are preliminary duties and a final determination is expected in the first quarter of 2017. It is not yet clear how the market in pricing will ultimately be impacted. As we have said before, Cooper believes that there is not enough domestic supply to beat demand for TBR tires in the U.S. and the majority of the excess supply is in China. This contrast with the situation involving passenger care tires where there is ample supply of product outside of China to meet demand. Let me reinforce that Cooper is absolutely committed to the TBR business. Our planned acquisition of the majority interest in GRT, a joint venture in China to produce TBR tires for global market is on track. We expect the transaction to close in the fourth quarter pending certain permits and approvals by the Chinese government. As a reminder, GRT will serve as a global source of TBR production for Cooper including tires for North America as well as Asia and other markets. Passenger car radial or PCR tires may also be manufactured at the facility in the future. This new partnership with GRT is an important step in our strategic plan as it diversifies Copper’s TBR sourcing beyond a single source. We are committed to delivering high quality TBR tires with superior value to our customers. We are extremely happy with the work our partners are doing at GRT and we plan to continue to expand production at GRT while also actively evaluating other options around the globe for additional TBR supply. I want to congratulate our TBR team for a very strong third quarter. In fact TBR shipments for the U.S. were up 25.8% outperforming both the RMA which was essentially flat with a year ago and the industry which was down 4.6%. Moving onto highlights of our third quarter performance, we have provided information on Page 4 of the supplemental slide deck and I will summarize key points for you now. As I mentioned a moment ago, total global unit volume was approximately flat with a year ago. Net sales decreased 4% to $751 million, as we said in our press release this is due primarily to net price reductions related to lower raw material cost as well as negative currency impact. As reported, the third quarter included a non-cash pension settlement charge of $11.5 million related to lump sum distribution of benefits offered to certain former employees. Ginger will have more details about this later in the call, including this charge, operating profit decreased 4.8% year-over-year to $78 million or 10.4% of net sales while diluted earnings per share were $0.90 compared with $0.93 a year ago. Excluding this charge, diluted earnings would have been $1.04 per share. Operating profit would have grown to $90 million or 11.9% of net sales, a result that continues to be above the midterm goal within our strategic plan that I talked about a minute ago. I want to reiterate that our Americas segment generated a very strong operating profit of 15% and this includes the impact of TBR tariffs for the third quarter plus a small retroactive amount for tires imported during the second quarter. We are pleased that Cooper continues to deliver on our overarching goal to generate shareholder returns to our quarterly dividend and share repurchase program. In the quarter more than $28 million in shares were repurchased at an average price of $32.78 per share, and as we continue to demonstrate our commitment to being good stewards of capital, we generated a rolling 12 month return on invested capital of 18.6%. A big part of our ability to achieve the goals of our strategic plan in all of our regions is innovation and technology, continuing to design and launch great new products. Following this call, a few of us from Cooper will be on our way to the SEMA show in Las Vegas one of the most important trade shows in our industry. At SEMA, we will showcase new and important products including the recently introduced Cooper Zeon RS3-G1 which is our new all season ultra high-performance tire. The tire is loaded with innovation and technology and has been given the name G1 because it holds up to 1G and corners. Initial buzz about this tire has been very positive for example AutoGuide.com said that, thanks to the Cooper Zeon RS3-G1, the myth that all season tires aren’t suitable for sports cars is being debunked. In addition to the G1, Cooper is expanding the size range of our Discoverer STT Pro product line. Since its introduction in 2015, the Discoverer STT Pro has been winning accolades from the off-road community for its ability to tackle the toughest terrain, from the thickest mud to the rockiest trails, all while maintaining excellent on road manners not typically found in a dedicated off-road tire. We are excited about these new products and the opportunity to continue to showcase our technology and innovation in a higher value, higher-margin segments of the industry. In addition to products, another key element of our ability to achieve Cooper’s goals is investing in people including the future workforce pipeline. Cooper is certainly not alone among U.S. manufacturing companies faced with the challenge of finding enough people, enough of the right people to fill open positions. To address this, Cooper has been involved for the past two years in an initiative called Dream It. Do It. This effort seeks to enhance the image of manufacturing among young people as well as their parents and teachers. Throughout the month of October, Cooper connected with more than 10,000 students primarily eighth-graders for manufacturing day events in the communities where we have major facilities in the U.S. These highly interactive hands-on events were planned by our dream team, a group of 40 employees from across Cooper who work with students not only in October but all year long. Their goal is to educate and improve the image of careers in manufacturing to help strengthen our workforce pipeline well into the future. I had the opportunity to spend some time at the Findlay Manufacturing Day event and was really impressed with the level of commitment by our employees, the local schools and the students themselves. I want to thank everyone throughout Cooper who played a part in making this initiative successful for the second consecutive year. With that, I will now turn the call over to Ginger for an update on the third-quarter financials.

[Ginger Jones:]

Thank you, Brad. Our third quarter results included earnings per share of $0.90 compared with $0.93 in the third quarter of 2015. This is inclusive of the non-cash pension settlement charge of $11.5 million. Excluding this charge, earnings per share would have been $1.04 a contribution of $0.04 per share came from the lower share count resulting from our share repurchase program. Net sales were $751 million compared with $782 million in the third quarter of 2015 a decrease of 4%. This decrease was a result of $17 million of unfavorable price and mix primarily due to net price reductions related to lower raw material cost, as well as $13 million of negative currency impact including the pension settlement charge, operating profit was $78 million or 10.4% of sales compared with $82 million or 10.5% of sales in 2015. Excluding the pension settlement charge, operating profit would have been $90 million or 11.9% of net sales. Improved operating profit in the International segment and reduced SG&A spend were the primary drivers of this increase in operating profit. Third-quarter operating profit as compared with the same period in 2015 was impacted by the following factors which are summarized on Page 6 of the supplemental slide deck. We saw a positive $9 million of favorable raw material cost net of price and mix. Raw material cost are inclusive of tariffs including the preliminary TBR duties, $8 million of favorable SG&A cost, these positive factors were more than offset by $11 million for the non-cash pension settlement charge, $9 million of higher manufacturing cost. The higher manufacturing cost were primarily experienced in the Americas segment where Cooper incurred cost associated with the greater complexity of manufacturing more higher value, higher-margin tires along with the impact of lower production volumes. While we have experienced increased manufacturing cost associated with producing greater quantities of these tires, we are also seeing the benefit of higher-margins and our improved operating margin results, and finally $1 million of negative foreign currency impact. We continue to experience favorable environment on raw material cost compared to the prior year. As expected, our raw material index was sequentially up during the third quarter from 135.5 in the second quarter to 141.2 in the third quarter as shown on Page 6 of the supplemental slide deck. This was 10% lower than the 156.7 index for the same period of 2015. The raw material trend during the third quarter was up sequentially in July, August and September. As we look forward, we anticipate raw material cost will be up modestly in the fourth quarter of 2016 compared with the third quarter of 2016. Commodity prices have been impacted by global event such as market instability and overall reduced growth expectations for China so we remain cautious about our ability to forecast precisely in this period of volatility. Moving on to our segment performance, I will star with the Americas tire operation. Segment sales for the third quarter $673 million down 4.2% from $702 million in 2015. This decrease was the result of $24 million of unfavorable price and mix reflecting lower raw material cost, $4 million of negative currency impact and $1 million of lower unit volume. Third quarter operating profit in the Americas was $102 million or 15.1% of net sales compared with $102 million or 14.6% of sales in the period last year. Operating profit was impacted by $6 million of favorable SG&A cost, $2 million of favorable raw material cost net of price and mix and as mentioned earlier, raw material cost are inclusive of tariffs including the preliminary TBR duties and $1 million of favorable other expense. The positives were offset by $9 million of unfavorable manufacturing cost which I described in my earlier comment. You can see the full profit lot [ph] for the Americas on Slide 8 of our supplemental slide deck. Now, turning to our international tire operations, net sales for the third quarter were $113 million down 5.1% from the third quarter of 2015. Unit volume in the segment was 4.7% lower in the third quarter of 2016 compared to the prior year which Brad explained earlier. Sales decreased by $6 million as a result of $8 million of negative foreign currency impact and $6 million of lower unit volume which was partially offset by $8 million of favorable price and mix. The international segment improved its operating results compared with last year with an operating profit of $3 million in the third quarter compared to an operating loss of $5 million in the same period a year ago. These results were driven by $8 million of favorable raw material cost net of price and mix and $1 million of favorable SG&A expense which was partially offset by $1 million of negative foreign currency impact. You can see the full profit lot for the International operations segment on Slide 9 of our supplemental slide deck. As Brad said earlier, we expect to close the GRT transaction in the fourth quarter. As a reminder, our investment is for RMB600 million or about $89 million at the current exchange rate to acquire a 65% interest in GRT. This investment includes the acquisition price as well as committed capital and distributions for capacity expansion and working capital. Now turning to some corporate items, the effective tax rate was 32% for the third quarter compared with 31.4% for the same period last year. The increase in the tax rate was primarily due to discrete items which were recorded in the third quarter of the prior year related to research and development tax credit and the release of reserves for effectively settled uncertain tax position. The tax rate is based on forecasted annual earnings and tax rates for the various tax jurisdictions in which the company operate. We estimate the full-year 2016 effective tax rate to be in a range of 32% to 34%. More detail on our taxes is available in the Form 10-Q that we filed with the SEC later today. Moving on to cash flows and the balance sheet, cash and cash equivalents were $450 million at September 30, 2016 compared with $424 million at September 30, 2015. Capital expenditures in the third quarter were $41 million. We now anticipate our full year capital expenditures for 2016 to be between $180 million and $200 million. Cooper continues to invest in organic growth and margin improvement initiative across all regions and this updated projection more accurately reflects expected timing of capital spending for those investments. Depreciation and amortization in the third quarter was $33 million consistent with prior quarters. We expect depreciation and amortization to be approximately $130 million in 2016. Next, I would like to talk a bit more about the proactive thinking and action we have taken with our pensions as noted in our new release and referred to in our remarks earlier on this call. In order to reduce the size and potential future volatility of our U.S. defined benefit pension plan obligation, Cooper offered approximately 1200 former employees who have deferred vested pension plan benefits, a one-time option to receive a distribution of their benefits now rather than over time in the future. About half of the eligible employees elected the distribution of plan benefit by the deadline of July 31, 2016. In the third quarter, the company paid $23 million of lump-sum distributions from planned assets and recognized a non-cash settlement charge or $11.5 million. The company anticipates an additional immaterial charge in the fourth quarter. Moving on to capital returns, in February 2016, our board extended and increased our share authorization, our share repurchase program by authorizing the repurchase of up to $200 million of the company’s outstanding common stock through December 31, 2017. During the third quarter, approximately 865,000 shares were repurchased for $28.4 million at an average price of $32.78 per share. Purchases have continued in the fourth quarter under this authorization with an additional approximately 196,000 shared purchased an average cost of $37.50 per share for $7.4 million through October 26, 2016. The remaining repurchase authorization is $128 million and expires on December 31, 2017. Since share repurchase began in August 2014, the company has repurchased a total of 11.7 million shares at an average price of $33.93 per share. I want to remind you that Cooper believes that our existing cash, cash flows and potential leverage are more than sufficient to support our capital allocation priorities. We define those priorities as supporting our ongoing commitment, capital to support organic growth and margin improvement initiatives, acquisitions and returning excess cash to shareholders. We believe our strong operating performance has sustained high level of ROIC and our demonstrated commitment to delivering on our strategic plan, including a balanced approach to capital allocation, delivers long-term value to our shareholders. I will now turn the call back to Brad for a perspective on the balance of the year.

[Brad Hughes:]

Thank you, Ginger. All of us at Cooper are very pleased to have delivered another strong quarter, which puts us in good position for the full year 2016. Looking ahead, we expect that the benefit of lower material cost will moderate and global markets will continue to be very competitive. Cooper remains focused on continuing to drive strong profit performance and unit volume growth across the business. Our cadence of innovative new products, expectations for unit volume growth and improving mix of sales focused on higher value and higher margin tires positions us well in such an environment. For the remainder of 2016, we expect global unit volume growth excluding the impact of acquisitions and the non-cash pension settlement charge, we continue to expect full year 2016 operating margins to be modestly above 2015 levels. This projection includes an updated estimate for the impact of the preliminary TBR duties. With that, we will close the formal remarks and move on to your questions, operator, will you take the first question please.

[Operator:]

Yes. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ryan Brinkman of JPMorgan. Please go ahead.

[Unidentified Analyst:]

Hi, good morning, this is Samik [ph] on behalf of Ryan. The first question that I had is you had a great performance in commercial truck shipments this quarter up 25.8% in the quarter, so can you help us with was there a tailwind from the pre-buy ahead of the tariff implementation in that number maybe if you can quantify what that was like the tailwind and maybe also in relation to that relative to 2Q? In 2Q, you had put in some estimates for a full year impact from the tariff, so you just mentioned that there is an updated estimate you put in right now. So is that tracking favorable relative to your estimate in 2Q and maybe what are the moving pieces there?

[Brad Hughes:]

Okay, so the first part of the question with regard to potential tailwinds from prebuy. For us on, I think clearly that there are going to be some market implication from the implementation of the tariff and it will impact volumes probably starting earlier this year and that may continue for a few quarters. For us, we have had continued strong performance each quarter this year relative to last year and frankly, we continue to feel very good about where our TBR business in the U.S. has headed on as we move forward. Regarding, the estimate for the tariff, we did update our estimate when the preliminary tariffs were announced on earlier in the quarter and we are not quantifying that but we continue to confirm that that’s not only included fully obviously in the third quarter but we have included our estimate of the impact of that for the balance of this year. So we have fully reflected the 50.17% in our view for the quarter and for the full year.

[Unidentified Analyst:]

Okay, okay and just to follow-up. So looking at the North Americas EBIT throughout [ph], you had a price mix headwind of $28 million on this quarter and when I go back and look at 2Q, it was I think a $3 million headwind to the EBIT walk there. So I am just wondering, is this sort of a reflection of the market becoming more competitive some on the lines of what you were mentioning or is it sort of just timing related and maybe what are your expectations for price mix headwinds in to 4Q as well if you can specify that?

[Brad Hughes:]

So when we look at price and mix, pricing frankly continues to be relatively disciplined in the markets as we look at what’s happened this year and including through the third quarter. Most of what you are seeing in that number for the Americas is pricing, and one thing that I would like to point out because it’s important why as you look at this in the context of raw materials as well. As Ginger pointed out that raw material number includes the full impact of the tariffs, both PCR which were in both last year’s and this year’s number but also the TBR tariff that was included in this quarter. So when you look at the decline in raw material cost, and you look at the change in pricing, I don’t think that we are looking at anything that’s substantially different from what we have been experiencing up until now.

[Unidentified Analyst:]

Got it, got it. Thank you. Thanks a lot.

[Brad Hughes:]

Thank you.

[Operator:]

Our next question comes from Rod Lache of Deutsche Bank. Please go ahead.

[Rod Lache:]

Thanks. Good morning, everybody. Just wanted to just following up on that question, wanted to understand, it looks like you have a 4% price mix decline in North America based on the flat volumes and what you’ve quantified in terms of the dollar impact. Mix, I would have imagined would have been a positive with the 26% rise in commercial vehicles and private label being down. So just if you can maybe just help us reconcile what actually is happening to pricing in the market?

[Brad Hughes:]

So couple of points, Rod. The, one is again I think pricing is what you need to be thinking about when you are looking at the price mix variance for the third quarter compared with last year as opposed to mix. And I would just point out that as Ginger commented, raw material costs were down, raw material index which is reflective of our cost was down 10% year-over-year. So, again as we continue to look at this, there has been some change in pricing in the U.S. market, as we have gone through the declining raw material environment, but it continues to be at a relatively moderate pace on the price side relative to what’s been happening on the raw material side.

[Rod Lache:]

Okay. And I know you are not quantifying exactly what the magnitude of the tariffs was maybe you can just give us some characterization of how it looks Q3 and Q4, it seems like you are implying more substantial or a fairly substantial margin decline in the fourth quarter based on the full year being up just modestly, the first three quarters obviously are very favorable?

[Brad Hughes:]

Well related to the TBR tariff, the third quarter included the full impact of the preliminary tariffs, and also included relatively small but it also included a retroactive amount for tires that had been imported in the second quarter. So when you look forward, we will only have the impact on the tires that we are importing during the four quarter. As we have highlighted in the past, we continue to believe that from a supply and demand perspective related to TBR tires that there, it’s not the same environment that it was for PCR and that there isn’t enough excess supply outside of China to meet the demand for tires on that is required in the U.S. market. So you can’t fully replace what’s coming from China. It may take a while to see how the market shakes out relative to that supply and demand equation from a pricing perspective especially given that the tariffs are preliminary right now, won’t be finalized until the first quarter of next year. So we still think that it’s something that we are – is evolving, it’s disruptive in nature but it will take a few quarters to sort itself out. But the supply and demand equation should have some implication on how the pricing occurs in the TBR market in the U.S. as we move forward.

[Rod Lache:]

Right, but your margins year-to-date are up over 200 basis points and you are suggesting up slightly for the full year, so it would sort of imply that the margins could be down few hundred basis points in the fourth quarter, is that, it sounds like you are saying that’s not directly a reflection of the tariffs?

[Brad Hughes:]

I would say that the tariffs are not a huge factor on anything that we are projecting for the full year margins in our guidance on, I would stress continues on to include, it continues to be up modestly so its unchanged from where it was last quarter. We are not updating our guidance as we describe it that way for the full year. So no change now that we’ve got the full knowledge of what the tariffs are going to be at least on a preliminary basis on and I wouldn’t from a materiality standpoint on the impact of the margins in the fourth quarter on – it’s an impact but it’s, I don’t think I take it where you are going with it right now.

[Rod Lache:]

Okay. Just one last thing within North America, there has been a lot of talk lately about how mix is going to evolve with significant growth in 17-inch and greater tires and declines prospectively in the markets for less than 17-inch tires, can you just talk a little bit about how Cooper Tires is positioned, what your exposures are for those different sizes and how you are expecting to manage through that?

[Brad Hughes:]

Well, we see a lot of the same emerging trends that we have seen and heard and read about on for the tire industry that others are talking about, we see similar trends on and we are preparing for those trends, you know, we talked over the course of the last couple of years about changing what we are doing in our plants in order to be able to produce the quantity of high value add tires that are being demanded from Cooper. In addition, we will need to respond to the fact that the tire industry is trending towards larger sizes and we expect to be strong participants in the high value add and the higher rim diameter tire segments of the market.

[Rod Lache:]

Okay. Can you share any quantification or ranges on what your exposures are to those HVA or 17-inch and greater?

[Brad Hughes:]

Not at this point, I mean, we have been talking right about on how we have been moving towards high value add tires and that’s become on – gone beyond being just a majority of the tires that we are selling and it’s closing in on being close to 70% of the tires that we are selling and we expect that that would continue to move in that direction.

[Rod Lache:]

Okay, great. Thank you.

[Operator:]

[Operator Instruction] Our next question comes from Chris Van Horn of FBR. Please go ahead.

[Chris Van Horn:]

Good morning guys, thanks for taking my call.

[Brad Hughes:]

Hi, Chris.

[Chris Van Horn:]

So I just want to go over to the international side for a minute and obviously it looks like price mix was a tailwind here, could you break that down a little bit maybe by region Europe and China and what you were seeing in those areas and then maybe can you comment was it a particular product, was it a particular market segment that really was driving that?

[Brad Hughes:]

Well overall, again, I would reiterate that we are really pleased with the pace of improvement that we are seeing in our international business. I made the comment in the script that we had contributions from both Europe and Asia towards the profit that we achieved in the third quarter which was following on the profit that we achieved in the second quarter. I think of note the OE business in China is a big contributor to what we are seeing in terms of our business in Asia and we are looking forward to watching that continue to grow as we move forward and that’s a positive contributor to all aspects of the business in Asia. In Europe, we talk and we didn’t make as much noise about it in this quarter but we’ve done a lot of good things with our product portfolio in Europe and clearly that’s contributing to some of the things that we are seeing in the market over there. The pricing dynamics of the market in Europe for us have been relatively positive in the last quarter given our – the markets that we participate in most actively. So when you look at markets over there and how pricings affected Cooper as you noted it was for the international segment a relative positive and that was true for Europe as well within that.

[Chris Van Horn:]

Great. And then just as a follow-up, the profitability obviously is increasing sequentially here in International and are you, does this feel like just in your gut does this feel like an inflection point if you will of just kind of continuing along that path, you know, based on what you saw in the quarter that we can see profits kind of rise sequentially as we move through the next year and half?

[Brad Hughes:]

Well I think we are becoming a lot more confident that that business is going to be – will continue to be profitable as we look over the next few quarters, hence we talked about that for the full year now as well that we expect to achieve a profit for the full year. So we are – it’s, we like what’s happening in that business. We think that there is more room to go and that should show up on the bottom line.

[Chris Van Horn:]

Great, thanks for the color. And then just one quick another question is how about Latin America and Fate, were there any revenues during the quarter and then just any update on how you see that progressing?

[Brad Hughes:]

On what’s really the most important thing about what’s going on in Latin America is the organic growth that the business is achieving down there on we are probably just going to start seeing any – the initial benefits from the Fate relationship on as we start moving forward at this point. What you are seeing in Latin America is largely attributable to the organic growth that we have been achieving in those markets.

[Chris Van Horn:]

Okay, great. That’s it for me. Thank you so much.

[Ginger Jones:]

Thank you, Chris.

[Operator:]

This concludes our question-and-answer session. I will would to turn the conference back over to Brad Hughes for any closing remarks.

[Brad Hughes:]

Okay, thank you operator and thank you to all of you around the call with us today. We are looking forward to seeing and talking with you as Cooper presents and participates in conferences on our schedule in the coming months. As always, please contact Jerry with any additional questions. Thank you very much.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.