Cooper Tire & Rubber Company (CTB): Shakedown in the Tire Industry

Titan International Inc (NYSE:TWI) is also a strong player in the off-highway wheel, tire and undercarriage market. The company is focused on the agricultural market, with this segment representing 59% of net sales in 2012 while the construction and earth-moving segment only represented 28%. The company posted solid first quarter results for 2013: sales were up 25% and it improved its gross margin, though it could have done better. Titan International Inc (NYSE:TWI) is geographically diversified and in good position to gain market share in Europe, but it still has to develop its Chinese and Indian market through a joint venture. The firm is exposed to risks in the agricultural equipment market, however; this could pose a threat considering the global crisis and cuts in expenditures on new equipment in the agricultural or mining industries.

Final comments

The problem most companies in this industry face is that they produce tires for the market they serve: cars, trucks, agricultural machinery or mining. The tire companies’ costs are heavily tied to raw materials and labor costs as well. Raw materials account for 50 to 55% of the cost of goods sold while labor accounts for 20 to 30%. That is why a company that can drive down labor costs or supply a portion of its raw materials can be in pole position in a sector that is fiercely competitive.

Therefore, Apollo’s acquisition of Cooper Tire & Rubber Company (NYSE:CTB) will not generate a complete change in the US tire market. As some big countries are recovering from the global economic crisis, Apollo could take advantage of this by expanding its footprint through the Europe and North American markets that could drive profits up. Also, this could lead to tougher competition and lower margins that could affect some other tire companies’ earnings.

Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Shakedown in the Tire Industry originally appeared on Fool.com and is written by Vanina Egea.

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