Cooper Tire & Rubber Company
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[Operator:]

Good morning and welcome to the Cooper Tire & Rubber Company First Quarter 2015 Earnings Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. We also ask that you limit yourself to one question with one follow-up. Please also note this event is being recorded. I would now like to turn the conference over to Christine Hanneman. Please go ahead ma'am.

[Christine Hanneman:]

Good morning everyone and thank you for being with us today. I am Christine Hanneman and I am here with Roy Armes, our Chairman, CEO, and President; Brad Hughes, our Chief Operating Officer; and Ginger Jones, our CFO. 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 forecasts 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. In association with our earnings release we will provide an overview of the company's first quarter and 2015 operations and its results. 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. These slides are intended to help investors and analysts quickly obtain information. They will not be used as a focus of today's call. 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 Roy Armes.

[Roy Armes:]

Yeah, thanks Christine and good morning everyone. I plan to briefly cover our first quarter financial results and then discuss our progress in Asia as well as some of our new product development efforts, then I will turn the call over to Brad and Ginger for discussion of our operations and detailed financial performance. Overall we posted a very good first quarter, sales were less than the prior year because of the absence of CCT, our former joint venture in China that was divested in November of 2014 and excluding CCT our first quarter sales rose 4% as a result of increases in the Americas segment. The Americas had a very strong performance with volume increasing 5% and a record first quarter operating profit of $90 million. The Americas segment posted operating margins of 15%. The higher Americas volume along with lower raw material cost and several successful product launches drove total company operating profit to $70 million or 10.6% of sales. We posted earnings per share of $0.69 just slightly below last year despite the absence of CCT for the full quarter. I am very proud of what our employees have accomplished. Now let me take a minute to update you on the progress in Asia. As many of you know now that we've sold CCT we are actively looking to expand our presence and distribution in Asia and secure additional sources of supply. This could take a variety of forms such as an agreement with another supplier, making an acquisition or joint venture, adding capacity to our other facility in China or a combination of the options. We have cash on hand as well as financing capability or capacity to continue our growth strategy in Asia and worldwide. This remains a top priority for us and we want to make sure that we are prudent in the course that we take. We are assessing our options to best leverage our global footprint and overall strategy and hope to have a plan in place later this year. As we mentioned in prior calls we have offtake rights with CCT for supply through mid-2018 and we continue to source our truck and bus tires that we bring into the US from CCT, which by the way is now called PCT. We have good experience thus far and we anticipate that will continue to be the case. We continue to produce and sell product from CKT our wholly owned facility in China. While the tire market in China is still expected to grow very well longer term at present it is facing an abundance of supply because of the impact of tariffs. Many Chinese manufacturers are no longer able to export cost effectively to the US due to these tariffs and are looking to sell their product domestically. The OE market is critical to our success in China and we continue to focus our growth plans on that aspect to the market. This effort has progress well and we have won several new accounts this year with a sizable number of hard models. As you may recall, we've recently opened our new global technical center in Ohio which continues our on developing advanced and ready to use technology. To give you an example the type of work that we do there, we've received a grant from the U.S. department of energy to develop technology for light vehicle tires that improves fuel efficiency while lowering average tire weight without sacrificing performance, we were successful to developing technologies that exceeded the projects goal, delivering average fuel efficiency improvement of 5.5% versus a goal of 3% and weight reduction of 23% to 37% versus a goal of 20%. This was accomplished without any trade option performance or durability likewise as we mentioned on our last call, the number of new products launched in 2014 was among the highest in Copper's history. We planned to continue down that path again this year and we're focused on developing global platform for products while customizing them to meet geographic requirements and improving our speed and efficiency in product development. In the first quarter we introduced a new Roadmaster tires specifically designed to withstand the demands of drop-decked trailers. The tire feature a new tread design and compounding that provides improved tread wear and protection against cutting and chipping. We also recently extended our adventure touring motor cycle tire line in the U.K. with the launch of new adventurous sport tire the A1 Trail Rider. This tire blends all season road capabilities with a rugged off road style tread pattern with a focus on stability and wet grip without impacting mileage. We'll continue to support our new product launches with a wide variety of activities and in North America we plan to support our house brands in 2015 with programs that resonate with our customers such as sports related advertising and promotions. These include college football through the ESPN halftime sponsorship, all three levels of the Mazda Road to Indi series of racing and the Canadian hockey league. Cooper tire in Europe has recently renewed our association with the Arsenal Football Club as well. Before I turned the call over to Brad, I'd like to mention that our plant in Texarkana, Arkansas has been certified as a Superior Energy Performance facility at the Gold level by the U.S. department of energy. This plan has implemented ISO 5001, which provides a framework of requirements to develop policy for more efficient use of energy and continually improving energy management. Similarly, the Mississippi department of environmental quality has conferred its 2015 enhanced partnership award on our Tupelo facility, enhances is an organization at fosters conservation and environmental excellence and this award is given annually to the member who has contributed most significantly to further the organizations objectives. The Tupelo planned won the award by achieving ongoing environmental improvements in the areas of reducing waste to landfills and energy use reduction. And the rubber manufacturers' association safety and health improvement program has awarded our Clarksdale facility with a SHIP Excellence award; this award recognizes plants that achieve an incidents rate that is both 10% better than its rate in the prior year in the same or better than the RMA average incidence rate. So I want to congratulate all the employees for their hard work in attaining these outstanding accomplishments. Now with that I'd like to turn the call over to Brad to give you more detail review of our first quarter operating performance.

[Brad Hughes:]

Thank you, Roy. As Roy mentioned the tariffs have caused disruption in the number of markets and I'd like to begin with an update on the changes that have recently occurred. The U.S. department of commerce is updated the preliminary anti-dumping duties on tire important to the U.S. from China. This update which lower certain tariff percentages was made to address specific computational errors in the initial tariff determination. The combined preliminary anti-dumping and counter availing duties for most companies after the adjustment range from approximately 23% to 30%. Although some companies are subject to combined rate of over a 100%. Cooper's total duty was reduced to 24.52% down from the 33.25%; these amounts are in addition to the regular 4% duty that existed before these proceedings. Due to the time that has elapsed since the preliminary counter availing duties were established, they've now been temporarily suspended until the duties of finalize, which we expect to recur in early August, that means from April through late July companies importing tires from China will pay the standard 4% tariff plus the preliminary anti-dumping tariff, which for most company is as approximately 19%, for a total tariff approximately 23%. Cooper's total tariff during this period will be 23% as well. There was a similar provision for the anti-dumping tariff which is expected to be suspended for a brief period in late July until the duties are finalize in early August. During this very brief window, the only tariff will be the 4% standard tariff when the tariffs are finalized by the department of commerce and the ITC in the summer, we may see further changes, once finalized any tariff will be permanent. However, each year an interested party can request to review of the verdicts and every five years there is a review by the DOC and ITC to determine at the tariff should remain in place. In early January, we saw price increased in the industry and select tires, Coopers also west prices in January with the most recent revisions to our preliminary tariff rates, we believe some companies have lowered pricing. We have and will continue to adjust our prices to ensure that we and our customers remain competitive. The other factor influencing pricing activity is what has occurred with raw material costs. We expect that they will be lowered sequentially in the second quarter from the first quarter, but longer term we think that raw material costs will begin to rise. We will continue to monitor both raw material costs and the overall market with an intention of remaining competitive and helping our customers to do the same. Overall, as Roy noted our strong global footprint gives us the flexibility to determine the best configuration to supply high quality cost competitive tires to the U.S. over the long-term. In addition to our wholly owned facility in China, we have low cost production in Serbia and Mexico and cost competitive facilities in the U.S. This footprint gives us the [indiscernible] to respond to a changing marketplace whether it is due to tariffs or other factors. In fact we have begun to move the manufacturing of some of our tires from China to Serbia and we are on track to import tires from Serbia to the U.S. later this year. As we have previously discussed in response to accelerated demand for higher value, higher margin tires, we have been reconfiguring our Americas manufacturing plans to increase production of these products. We have made good progress with the reconfiguration and expect to be better aligned with industry demand by the end of the second quarter. We will continue to add equipment if needed on an ongoing basis as industry conditions warn. Another area we have been working on to help improve our operating margins is our operational excellence program. As I just mentioned one of our pillars is global sourcing and optimizing our global footprint. In addition, we continue to work on reducing material content in tires without sacrificing performance, finding substitute materials for rubber, investing in U.S. plant automation in order to reduce labor cost, decrease variation in scrap and improve overall quality. The third pillar is reducing manufacturing complexity and consolidating product families. Now I would like to turn the call over to Ginger for an update on the first quarter financials. Ginger?

[Ginger Jones:]

Thank you Brad and good morning everyone. We started the year well with earnings per share of $0.69 compared with $0.71 in the first quarter of 2014. For comparison CCT contributed $0.17 to first quarter 2014 EPS. Excluding CCT strong operating performance and a lower share count contributed to the improvement in EPS. Sales were 663 million, down from 2014 primarily because of the absence of CCT. Excluding CCT, total company unit volume increased 5% driven by the Americas. Operating profit was 70 million or 10.6% of sales compared with 81 million or 10.2% of sales in 2014. The absence of CCT reduced operating profit approximately $21 million. Excluding CCT operating profit would have increased 17% in the first quarter of 2015. First quarter operating profit compared with 2014 was impacted by the following favorable factors. 46 million from lower raw material cost and 4 million from higher unit volume. These items were partially offset by $16 million of unfavorable manufacturing cost partially due to the previously discussed reconfiguration of our US manufacturing plants to increase production of higher value, higher margin products. We also saw higher costs related to pension expense and technical spending. I will discuss these increases in more detail when I'll talk about the Americas operations. Continuing the items that offset the positive factors we had 15 million of unfavorable pricing mix largely reflecting cumulative price decreases due to lower raw material costs and 4 million from higher product liability costs. As we have previously discussed the timing of product liability expenses is uneven and we do not believe this increase is reflective of a trend. The profit [lock] for the full company can be seen on page 7 of the supplemental slides on our website. Moving to our segment performance I will start with the Americas operations. Segment sales for the first quarter were 599 million, a 6% increase compared with 2014 and unit shipments rose 5%. Total light vehicle tire shipments for the U.S. were up 2.4% during the first quarter compared with an estimated decrease of 7.9% for the industry and an increase of 2.5% reported by RMA members. Much of this increase was a result of strong performance in light truck tires. While our shipments were up and ahead of the industry they couldn’t have been better if not for the pre-buying which we previously have discussed as the customers have stock piled inventory of imported tires ahead of the initial tariff determinations. It now appears that customers have largely worked through their supplies of previous inventories. We expect more normal order patterns beginning with the second quarter. Let me remind you that our second quarter is usually a seasonally weak quarter. We build inventory in the first half of the year that is sold in the second half. Commercial truck tire sales of the Roadmaster brand rose significantly in the first quarter compared with 2014 when we still had supply issues. We reintroduced the Roadmaster brand in the second quarter of 2014 and we have regained a position with all of our top customers. We are pleased with our progress and look forward to continued gains. Total industry shipments within the commercial truck tire segment as reported by the RMA were down 2.6%. Moving on to profitability, first quarter operating profit in the Americas rose to 90 million or 15% of net sales compared with 69 million or 12.2% of sales in 2014. The major drivers of the increase were 37 million of lower raw material cost, 6 million of higher volume and 5 million of lower SG&A cost. These positives were partially offset by $14 million of unfavorable manufacturing costs; 7 million was from manufacturing inefficiencies related to the plant reconfigurations. These inefficiencies should be lessened in the second half. We also experienced higher pension expense due to lower discount rates and new actuarial tables in the US and higher technical expenses related to molds. These higher costs are expected to continue through the rest of the year. We also saw 9 million of unfavorable price mix largely as a result of promotions in response to declining raw material costs. You can see the full profit log for the Americas on Slide 8 of our supplemental side deck. For the rest of the year we expect the Americas' SG&A cost to be higher than in the first quarter but seasonally similar to last year as advertising and promotional spending will increase. Consistent with our comments in the fourth quarter call our raw material index was 159 which was 21% lower than the same period in 2014 and down 14% sequentially. Second quarter 2015 raw material costs are forecasted to be down slightly from the first quarter. And as a reminder in the U.S. we use the LIFO accounting method charging the most recent costs against sales which in turn impacts profits more quickly than other inventory accounting methods. Now turning to our international tire operations, net sales in our international businesses were a 107 million, down from the first quarter of 2014 primarily because of the absence of CCT. The European sales declined as the first quarter of 2014 had very strong sales from our promotion of a product that’s being phased out. Overall, economies in Europe remain soft and we also continue to see weakness in Europe. Volume in our Asian operations decreased significantly principally because of the absence of CCT which contributed 185 million to first quarter 2014 sales before inter-company eliminations. In addition volume at CKT was down because of fewer shipments to the U.S. due to the tariff. Domestic volume was 40% higher mainly because of our increased sales to the OE channel in line with our strategy. International operations posted an operating loss of $3 million in the first quarter. The results primarily were impacted by $11 million from lower raw material cost which was more than offset by 21 million from the absence of CCT and 10 million from lower pricing mix as a result of lower pricing reflecting lower raw material cost. Turning now to some corporate items, our income tax expense in the first quarter was 22 million which is based on forecasted annual earnings and tax rates for various tax jurisdictions. The effective rate was 34.8% for the quarter compared with 30.4% last year. This year's rate was higher because higher tax earnings in the US replaced lower tax earnings largely due to the absence of CCT. We expect our 2015 effective tax rate will be in the range of 30% to 35%. More detail on our taxes is available in our Form 10-Q that will be filed with the SEC later today. Total selling, general and administrative costs were 62 million or 9.3% of net sales in the quarter. This is down $4 million from the prior year SG&A of 66 million. Because of lower sales in 2015 from the absence of CCT as well as the resulting higher relative cost structure in Asia, this is higher than a year ago as a percentage of sales. SG&A in the first quarter was impacted by higher mark-to-market cost of stock based liabilities of $4 million. We expect SG&A expense will be in the range of $260 million to $270 million for the full year. Our pension expense in the quarter was 12 million up from 9 million last year. We expect full year pension expense to be in the range of 45 million to 50 million. Our pension contribution is likely to be between 45 million and 55 million as previously disclosed in our SEC filings. Move on to the cash flows and balance sheet; cash and cash equivalents were 449 million at March 31, 2015 compared 336 million at March 31, 2014. Cash used by operations was $5 million in the first quarter. Accounts receivable of 385 million decreased from the March 31, 2014 balance of 462 million, the decrease is a result of the absence of CCT. Capital expenditures in the first quarter were 48 million. We expect full year capital expenditures to be between 205 million and 215 million. Depreciation and amortization in the first quarter was 29 million, we expect depreciation and amortization to be approximately 120 million in 2015. Turning to our capital allocation policy, we continue to operate within our internal guidelines for the prudent deployment of capital. Our existing cash, cash flows and potential leverage are more than sufficient to support our priorities which we define as supporting our ongoing commitments such as maintenance capital, debt payments, dividend payments and working capitals to support the business, next, capital to support organic growth and margin improvement projects, acquisitions and investments, including those to expand our footprint in Asia and returning excess cash to shareholders. You may recall that we completed our ASR in February. Under that program the company repurchased 6.4 million shares at an average price $31.49. In February we announced an additional 200 million share repurchase program to be completed by December 2016. In the first quarter we purchased 313,000 shares under this program at a cost of 12.4 million or $39.41 per share. Through April 30, 2015 we repurchased a total of 847,000 shares at a cost of 35 million or $41.35 per share under the new authorization. Our balance sheet remains strong and we have ample liquidity. We remain confident in our business model and committed to our overarching goal of delivering value to our shareholders. I’ll now turn the call back to Roy.

[Roy Armes:]

Thanks Ginger. In summary, strength in our Americas business largely offset the absence of CCT and some volume softness in our Asian and European operations in the first quarter. And overall we expect that global tire markets will remain highly competitive in 2015 and for our Americas segment, we believe the impact of the pre-buying which we saw ahead of the tariff announcement is largely behind us. And for the full year, we continue to expect to meet or exceed industry unit volume growth in U.S. In the Asia industry growth has been strong and we’re looking for opportunities to invest there to expand our business after the sale of CCT. Until we do that, we’ll see the impact of a higher cost structure on our operating profit there. Our short-term results are likely to be negatively impacted by industry oversupply in China as local manufacturers need to adjust to the tariffs. In Western Europe markets are soft and we expect continued volatility in Russia. Raw material cost continued to be favorable. We are expecting second quarter cost will be down slightly from the first quarter. But think during the year second half of 2015 that will generally trend slightly higher. We’re monitoring the situation along with the industry response to recent tariff reduction and our goal is to maintain our margins but we also recognized we need to be competitive. For the full year, we expect our operating margin to be consistent with our goal of 8% to 10% driven by the Americas segment as we anticipate our international businesses will operate near breakeven this year. The Company’s past record of success gives us confidence, that we can compete well in a volatile economy and industry and our focus in 2015 will be guided by our strategic plan which calls for achieving profitable top line growth, improving our global cost structure and improving organizational capabilities. Now, with those prepared remarks being complete, we’d like to move on operator to the questions if you have some in queue.

[Operator:]

Absolutely. Thank you, Sir. We will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Chris Van Horn of FBR Capital Markets. Please go ahead.

[Chris Van Horn:]

Could you just comment a little bit on the Latin America opportunity for you guys going forward?

[Brad Hughes:]

Chris this is Brand Hughes, as you know we’ve got a facility in Mexico and we’re making good strides in the Mexico market as part of that strategy but we’re also starting to make inroads in South America with a focus on markets like Brazil, Columbia and Chile. And with the plant that we have in Mexico and the tariff arrangements; the bilateral trade agreement between those markets and Mexico we have a really strong cost opportunity from a production standpoint because there are no tariffs on those tires that are going from Mexico into those markets. So it’s just starting in South America right now we’re continuing to grow in Mexico and we feel good about that opportunity.

[Chris Van Horn:]

And then if could comment quickly it’s on the subject of kind of tariffs and trade. Are you guys affected at all by the debate going on in Washington around the Trans-Pacific trade deal?

[Roy Armes:]

We have been directly involved in that Chris. I mean I thought you were going to ask the question about the tariffs itself. But we haven’t been involved with the trade pack in Washington, the discussion debate that’s going on now. We historically, in some of those events will give a paper with our position and that sort of thing but in this particular case we haven’t been directly involved.

[Brad Hughes:]

I just would add to that really quickly that as we typically know we feel really good about our manufacturing footprint and our strategy to be near sourced with high quality cost competitive tires and we think that while it might be a little bit disruptive to start or it will change the scenario little bit that overall that overarching capability and sourcing footprint will continue to benefit us.

[Roy Armes:]

And a good example is taking some of the tires we’ve been importing from China and having the flexibility to move those to Serbia in a very cost competitive manner.

[Chris Van Horn:]

And then just quickly if you don’t mind, could you give us a sense of the puts and takes between the guidance range for margins between the 8% and 10%. What gets us to 10 and what maybe hold us back a bit from reaching the double digits?

[Ginger Jones:]

Hi Chris I can take that one. We had very strong performance in the first quarter and I’d say that if that were to continue we would expect to be at the top end of the range and that’s our position I think that’s what we’d say today.

[Roy Armes:]

And let me just add to that one Chris is that I know there is going to be questions about this we feel very confident about what we’ve committed to in terms of our margins as Ginger said, all else remaining the same like we see in the first quarter we definitely should be looking at the top end of that range. I think there is a lot of caveats here and that is the tariffs, the impact of those tariffs, what that’s going to be doing to margins, pricing and that sort of thing. You’ve got raw material cost that basically have been favorable here in the first quarter first half; we do see that changing in the second half. So I think we’re getting ourselves prepared to be able to see what influences all those have on the market and be ready to respond accordingly.

[Operator:]

And our next question comes from Robert Higginbotham of SunTrust. Please go ahead.

[Robert Higginbotham:]

My first question is on the pricing environment, you talked to talked to having the capacity, some of the lower raw materials in the formal promotions, you also talked about some observations with people lowering price after the tariff for recalculated downward a little bit, as we sit here today, how would you characterized the environment -- or do you expect continued downward pressure now that we're seems like we're going to pass the pre-buy and I don't know that was have a pricing impact on selling at this point but is there any reason with that behind as that are pricing could get better on little bit?

[Roy Armes:]

Let me start with that, I'm going to have Brad to come in and talked about the operations and how they're handling that. Robert, we started of the year with increasing prices actually in that opening price point category, which is the ones that we're offsetting the tariff, if you would coming into the country. So we've raised prices there and as raw materials continue to go down, there was some movement when these tariffs are announced and there was some movement with raw materials continued to go down with downward pressure on pricing. So we had to respond to that as well. That's the volatility that we're trying to deal with right now. There’s going to be a period of time here were the tariffs will be set aside until a final ruling is made and we're anticipating that being late summer. So, we're at position to be able to deal with that. Broad, you have any more to add to that?

[Brad Hughes:]

Not a lot, I'd say that when you look at the U.S. market in particular which is obviously our largest market and there has continued to be good industry discipline with regard to pricing. Raw materials have moved and there has been some response, there is a little bit of noise around what's happening with some of the tariffs and the holidays we've talked about but overall when you looked at it, the pricing has been selective and it's been in concert with some of those other variables sort of moving around. So overall it's been a disciplined market and I think based on what we're seeing, we would continue to believe that would be the U.S. environment. China and Asia they continue to move with raw materials as they have, there have been some indications from the backside of the tariff in the U.S. and in the China market where some of the product that have been target at the U.S. market is now remaining in that domestic market, having said that, our performance in the first quarter excluding CCT we were up 40% year-over-year in the domestic China market, we feel good about our delivery to complete there. Europe continues to be a very competitive market and on top of what's happening with raw materials, you have some currency influences there as well, that’s a relatively smaller exposure for us. So that would be my summary of what's happening in our main markets.

[Roy Armes:]

And I think with the exception of Europe and China being -- and Asia being a little bit different with how their pricing in their markets, if you look at specifically in the U.S. I'd say Robert; we're not anticipating anything crazy to happen with the pricing in the market.

[Robert Higginbotham:]

Okay, that's helpful. And my next question on SG&A, it looks like your forecasting or budgeting something pretty flattish versus last year even though CCT is no longer there. And 1Q was down despite what seem to be a pretty sizeable comp accrual and some tension increases. What's going to happened from here to the rest of the year that sounds like it's going to pull that SG&A run rate up?

[Ginger Jones:]

The major drivers there for SG&A for the year I think you captured obviously we have less SG&A because we do not have the CCT portion of that, that we had last year. But there are some upward trends and that we're capturing and we saw some of those in the first quarter. So to the extent that the share price is stronger we will see some mark to market expenses on some of our compensation expense. We also have higher pension expense than a year ago driven by the structural changes in the discount rate and the actuarial table and we will see some additional spending in the U.S. on some technical issues, particularly some investments and some molds. So all of that gets us to the -- what we guided which was the range we've guided.

[Brad Hughes:]

I think, just to quick add on that is typically on our advertising is bit higher on the second half for the year to match some other retails sell out programs that our comment in the industry.

[Roy Armes:]

I think some of this with -- what goes along with this -- with brand and advertising as the new production introduction that we have, we're really supporting with additional spending there. But you also have the China piece here, we're caring additional cost or more cost in preparation for what we want to do there to build that business back or find a substitute or alternative sourcing there. So we're continuing to keep that cost and plan anticipating something happening there sometime this year.

[Operator:]

And our next question comes from Ryan Brinkman of JP Morgan. Please go ahead.

[Unidentified Analyst:]

This is [indiscernible] on behalf of Ryan Brinkman. So firstly maybe a bit more clarification as that was I looking for on the temporary discussion on the temporary suspension of big tariffs and I think you mentioned April to July and you said it will be a volatile period which you have to manage through but in terms of thinking of, what is probably likely impact here on maybe volume and pricing that you're thinking of during that period, is it a period where you're seeing may be you know volumes are being underperforming the market and pricing being under pressure, what is probably the likely scenario that you're thinking of here?

[Brad Hughes:]

So, so what's going with those tariffs is there is actually a window during which they are supposed to go for being temporary to final and because the periods extended beyond that window they actually have a holiday or a suspension of, of those duties during that period until they become permanent. So all of this is temporary in nature, so the countervailing portion of it is from about now into summer or the middle of the summer and then there will be a really short period potentially if the same thing happens with the countervailing duties where that also goes away for a short period of time into early August. Unlike what was going on is the duties were being implemented where there was a significant pre-buying event, we don’t think that's going to be the major outcome of these windows, there may be some pricing reaction which we have seen a little bit of here on with the announcement of these holidays or suspension of the duties, again that will likely be relatively short in duration as the duties are finalized by the time we get into the summer period but it's less of a volume event we think, more of a potential pricing and again probably only on select parts of the market, in terms of the types of products that are most affected by the duties.

[Unidentified Analyst:]

Okay, okay, well played. And then my follow up is more on the international segment here. You are guiding to breakeven in 2015 and I am sort of thinking about the moving pieces here, obviously pricing seems to be following raw materials here in terms of getting back that benefit. So when you're thinking about this improvement going through this year and may be looking out into 2016 as well, are volumes the only driver here of improving performance or are they cost actions as well that will drive some of that?

[Brad Hughes:]

Yeah it's a combination of both I mean clearly volume is going to be one contributor as we move through the year and you know we're starting to see that traction in the domestic China market, Europe continues to be a tough market but as we have a number of product introductions coming over the course of this year that are going to be important for European market and we are continuing to leverage our European -- our Serbian facility to support the European market. So volume will be a contributor but at the same time we are also focused on cost improvement actions in our international business as well. That's more of a global effort on, with some of the major initiatives that we have going on there.

[Operator:]

And our next question comes from David Tamberrino of Goldman Sachs. Please go ahead.

[David Tamberrino:]

Just following up on that, you mentioned you're shifting some equipment from you CKT facility up into your Serbia facility, is that to continue to service the market there locally, is that so you can import into the U.S. and sidestep the tariffs if they are ultimately finalized. And what type of time frame is that going to take and what type of costs are going to be incurred?

[Roy Armes:]

Well first of all, Dave that's exactly what we're doing, we're moving it there primarily for import into the U.S. and we can do that very competitively coming from Serbia. Now having said that there were also some products that we had been building in China for the European market and we'll be doing most of that work out of Serbia as well. Timing wise that's going to be into the second, third quarter, I think we should have that transition done, may be a little bit sooner but that's in process as we speak. I don’t know Brad you have anything to add to that?

[Brad Hughes:]

Yeah just one clarification Dave, we're not actually moving any equipment from our China facility to Serbia to support that, this is being introduced largely into the equipment it's already in Serbia and is part of the ongoing ramp up of that facility.

[Roy Armes:]

That's moving product versus moving molds.

[Brad Hughes:]

Yeah, it's just moving the products that we're producing.

[David Tamberrino:]

Okay, I mean is there any associated cost with that or I mean is that de minimis?

[Brad Hughes:]

It's de minimis.

[David Tamberrino:]

Okay. And then for your manufacturing shift you know in North America to more HVA, I think you outlined it should complete by the end of this quarter here in 2Q '15, is the drag you know supposed to be similar in the second quarter as it was in the first quarter as we saw in kind of manufacturing cost?

[Brad Hughes:]

Yeah with the accelerated portion of that reconfiguration of our plants will be largely done in the second quarter. We will see a less, a lesser effect in the second quarter, there still will be some as we're completing that accelerated portion of the reconfiguration and then as we transition into the second half of the year I think the manufacturing cost implications of that will be largely behind us.

[Operator:]

[Operator Instructions]. Our next question comes from Brett Hoselton of KeyBanc. Please go ahead.

[Brett Hoselton:]

Wanted to ask you just about your margin guidance and you know 8% to 10% for the year and it sounds like you are kind of thinking it might be towards the upper end of that range. Typically, seasonally I think in the past you've seen an improvement in margins in the back half of the year, your guidelines kind of implies that your margins potentially going to see some compression throughout the remainder of the year, I understand there is a lot of things influx, but what would you say be the primary maybe one or two drivers of your expectation for some margin deterioration through the remainder of the year?

[Roy Armes:]

Well I think first of all I don’t know that the rest of the year is typical in our business for the last several years and you’re right that in the second half you would normally see some margin improvement because it’s a season high, if you would. So, having said that though, I think the question really here is what’s going to happen with raw materials and what’s going to happen with these tariffs and what do we have to do to respond to that. And that’s really the questions in our mind, that’s why we’re feeling confident saying hey we’re guiding to the high side but I don’t think we’re assuming that everything is going to be exactly the same as it is in the first quarter. Now having said that, if you assume everything is going to remain the same as it is in the first quarter with the rest of the year, yes I think you’ve got a good point and a good argument there. But we’re not going to -- at this point in time we’re not predicting that’s going to happen that way. There is just too much of volatility that’s -- that we potentially could see that’s out there, if it doesn’t happen I think we’re going to be in very good shape.

[Brett Hoselton:]

And so there is nothing particularly abnormal in the back half of the year this year that you might call out and say this is kind of unique or unusual that is potentially going to impact us in the back half of the year. It sounds like it’s more -- there is some uncertainty on the pricing on raw material spread and so we’re going to kind of we’re not sure exactly where that’s going to go. So this is what we’re thinking at this point?

[Roy Armes:]

And with the tariffs obviously that impact to the pricing. The other thing I would add here that might be unique here Brett would be the -- our additional cost that we’re carrying in China to be able to support some acquisition or some investment in China or in Asia to continue our growth plans there. That’s something that’s probably a little more unique this year versus what you’ve seen in the past.

[Brett Hoselton:]

And then timing on that decision is that still in your mind kind of a 2015 decision or is that something you kind of extent that into 2016. What are your thoughts and just kind of the timing of the direction you’re planning on going?

[Roy Armes:]

I would hope at this point in time Brett that we could -- we would have a decision on our direction this year 2015. As I’ve mentioned before, it could carry into 2016 but the one thing that we want to be cautious of here is, we are being a little cautious going into this to make sure that we’ve done the proper due diligence and make sure we’re assessing the risk appropriately because what we’re finding is we’ve got a lot more companies that want to work with us and do business with us versus we’ve got to go through that and do the right selection. So it just takes a little time for that. But our plan right now is to try to get to a decision yet this year.

[Brett Hoselton:]

And one final question, just on the share repurchase, you authorized an additional $200 million share repurchase in February. How do we think about the pace of share repurchase kind of go forward, is there kind of an expectation of consistent pace or is volatile if there is a consistent pace, is it in a particular range of 50 million or 25 million per quarter or something along those lines?

[Ginger Jones:]

We’ve not given any guidance about how we expect to do that. You can see from what we announced today that we’ve done 35 million through today. And we’ll continue to make that decision based on market conditions.

[Operator:]

And our next question comes from Bret Jordan of BB&T Capital Markets. Please go ahead.

[Bret Jordan:]

Question as it comes back around to this tariff and maybe Brad’s comment that you maybe didn’t expect as much stockpiling, if there is going to be a potential of 4% for a period of timing, is there a structural reason why people would not be making major volume buys there at that low price or is it just -- is it limited by their time available to take inventory or why not?

[Brad Hughes:]

Yes Bret, it’s really that, it’s -- our expectation is it’s going to be a pretty narrow time window and there is -- it’s based on when those tires are brought into the market, et cetera. So it’s such a narrow window we think it would be difficult for people to do what they did a year ago with regard to the pre-buying activity. Could there be some, possibly but it’s just because of the short duration of the window. We think it’s unlikely that that’s going to be a significant factor.

[Roy Armes:]

I think there could be some opportunistic buying out there but we certainly aren’t expecting it to be like what happened last year because of that time frame. We are monitoring that and making sure that we’re on top of anything that’s going on in the market there that would have an impact on our business but that’s our current anticipation anyway.

[Bret Jordan:]

And then I think you talked about maybe some higher promotional spend on SG&A in the second half of the year. Are your channels all the same? I think maybe last year’s Investor Meeting you talked about sort of Professional BullRiders association some of your marketing partners. Is there anything that you’re doing differently as far as promoting or sort of brand building this year?

[Roy Armes:]

Not a lot. Those have been pretty effective for us. When you think about the ESPN half time show in the fall here on NCAA Football and those type of things that we’re involved with, the PBR which is really kind of ongoing for the year, the Arsenal investment that we renewed this year it’s been very popular for us. So we -- the Canadian Hockey League -- I mean to build our brand we’ve done a really good job of building our brand in Canada and making some -- getting some traction there. So we’re going to continue with those until we see something shift there, Bret, but those have been fairly successful for us.

[Bret Jordan:]

And then one last housekeeping question, just on the inventories just maybe an apples-to-apples year-over-year, Could we get a feeling for maybe what north -- what the Americas inventory is versus last year? Just because, I mean obviously [620 going to 474], as a certain amount of Chinese product that isn't comparing anymore.

[Roy Armes:]

I'd say this without getting into specific numbers because I don't think really share that in the past. But right now where our inventories are in the Americas' we're slightly below where we would like to be right now. So we're going to continue to our manufacturing as we make this reconfiguration to continue to get the levels we think it's going to take to support a very good fuel rate in the third and fourth quarter. But we're little bit behind where we would like to be right now.

[Operator:]

This concludes our question-and-answer session. I'd like to turn the conference back over to Roy Armes for any closing remarks.

[Roy Armes:]

Thank you everybody for being on the call with us today and I'd like to reiterate that I'm confident in the worldwide growth strategy that we have planned and the management team just in place to direct that growth. You heard a lot today on our comments and how we're doing in the business, I think our strong balance sheet enables us to meet all of our obligations as well as to support the growth that we're pursuing and it also allows us to continue to return cash to the shareholders. And we're focused on implementing our growth strategies across the world while reaching our target operating margin range of 8% to 10%, as we've mentioned earlier we feel that all things remaining equal in this first quarter, we certainly should be at the high end of that range. But we appreciate the interest that you have in Cooper Tire and we look forward to see many of you in person and if there is follow up questions or needs there, certainly you can get to hold Christine Hanneman to continue to answer the question you might have as you sort through your models and analysis. So, with that, thank you very much.

[Operator:]

Thank you Sir. The conference is now concluded and we thank you all for attending today's presentation. You may now disconnect and have a great weekend.