Cooper Tire & Rubber Company (CTB) CEO Brad Hughes on Q3 2020 Results - Quick Version Earnings Call Transcript

Oct. 29, 2020 11:18 AM ETThe Goodyear Tire & Rubber Company (GT)
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Cooper Tire & Rubber Company (CTB) Q3 2020 Results Earnings Conference Call October 29, 2020 9:40 AM ET

Company Participants

Jacob Drerup - Manager, Investor Relations

Brad Hughes - Chief Executive Officer

Jerry Bialek - Interim Chief Financial Officer, VP, International Finance & Treasurer

Conference Call Participants

James Picariello - KeyBanc

Rod Lache - Wolfe Research

Bret Jordan - Jefferies

Ryan Brinkman - JPMorgan

John Healy - Northcoast Research

Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.

Operator

[00:00:03] Good morning and welcome to the Cooper Tire and Rubber Company's third quarter earnings call and webcast at this time, all participants on the call and listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time if anyone should require assistance during the conference, please press stores and zero on your telephone as a reminder, this conference call is being recorded. I would now like to turn the conference over to Jacob Drerup. Please go ahead, sir.

Jacob Drerup

[00:00:30] Good morning, everyone, and thank you for joining the call today. This is Jacob Cooper's manager of investor relations. I'm here today with our chief executive officer, Brad Hughes, Injury Bilic, our interim chief financial officer. During our conversation today, you may hear forward looking statements related to future financial results and business operations of Cooper Tire and Rubber Co. 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 the 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 2020 financial and operating results, as well as a business update. Our earnings release includes a link to a set of slides that summarize information included in the news release and in the thank you that will be filed with the SEC later today. Please note that we will reference certain non financial measures on this call. The link slides include information about these measures and a reconciliation to the most directly comparable gap financial measures. Following our prepared remarks, we'll open the call to participants for a question and answer session. Now I'll turn the call over to Brad.

Brad Hughes

[00:01:47] Thank you, Jacob, and good morning, everyone. I want to start out this morning by thanking Cooper teams around the globe, as well as our customers and partners for continuing to perform through these still uncertain times, showing great resilience as well as a strong commitment and loyalty to Cooper. Our third quarter performance demonstrates a level of achievement that could not be possible without many people coming together to meet the needs of the consumers who travel through life's journeys with confidence. Cooper Tire's. As noted in our news release earlier this morning, we had a very strong quarter that included net sales that increased eight point six percent to seven hundred sixty five million dollars, with increases in both the Americas and international segments, market share gains in the US driven by Cooper's nine percent unit volume growth, which far outpaced the US TMA and was above the total industry, consolidated operating profit of one hundred seventy two million dollars, or twenty two point four percent of net sales and Americas operating profit of one hundred seventy six million dollars, or twenty six point six percent of net sales. Both represent all time records for Cooper in any quarter improved performance in our international segment, with unit volume that increased by over 10 percent and operating profit of nine million dollars, which compared to an operating loss of five million dollars for the same period last year, continued significant generation of free cash flow, ending the quarter with nearly five hundred million dollars of cash and over one billion dollars of available liquidity.

[00:03:28] Any way you look at it, we had an outstanding third quarter and are confident that the strategic initiatives we have been pursuing are taking hold and driving the increased unit volume with more runway for future growth. As a reminder, these initiatives include increasing our retail presence by making Cooper products available at a greater number of retail points where consumers want to shop for tires. This effort is going extremely well. Not only have we entered into relationships with many new retailers, but Cooper has also been able to expand and continue to grow our business with existing customers. As stated previously, Cooper tires are available in all of the top five tire retailers in the U.S., a direct result of our retail expansion efforts. Additionally, we have seen strong growth on e-commerce platforms. We will continue to find ways to provide consumers with easier access to our brands and products, which are increasingly in demand due to our compelling value proposition. Another key strategic initiative is evaluating and upgrading our global manufacturing footprint with a goal to have the right technology and capabilities, with the right production capacity in the right locations with a competitive cost structure. We bought out our joint venture partner in Mexico to take full ownership of the plant there to better leverage that low cost facility.

[00:04:54] And in Asia, we launched a joint venture truck and bus radial tire plant in Vietnam. Disruptions caused by the coronavirus, including two temporary government-mandated plant closures at the Mexico facility and travel restrictions in Asia have caused some delays in the ramp up of these facilities. But we are pleased with our recent progress at both. During the third quarter, the very strong rebound in demand for Cooper tires required us to draw down inventories to below normal seasonal levels because we temporarily closed our plants for several weeks due to coronavirus to safeguard the health and safety of our employees. We were not producing tires at a time when we normally would have been building inventory to meet higher seasonal demand. As a result of these factors and others, we expect our fourth quarter unit volume performance to be constrained by supply that will fall short of the strong demand we continue to see. In short, we have created a demand engine that will continue to strengthen as we move forward. But in the nearer term, product availability to meet this increased demand will be constrained. Of course, we will continue to leverage and take full advantage of our global production footprint and capabilities as we move ahead and will share more information on our outlook at the end of our call. I will now turn the call over to Jerry for a detailed review of the quarter Jerry.

Jerry Bialek

[00:06:24] Thank you, Brad. Let's take a look at our third quarter results on a consolidated basis. Sales were seven hundred and sixty five million dollars, up from seven hundred and four dollars million in 2019. This eight point six percent increase was driven by fifty five million dollars of favorable price index for million dollars of higher unit volume and two million dollars of favorable foreign currency impact. Operating profit was one hundred and seventy two million dollars, our twenty two point four percent of sales, compared with operating profit of fifty three dollars million or seven point five percent of sales in 2010 19. Third quarter operating profit compared with two thousand nineteen was impacted by the following factors, which are summarized on page six of the supplemental slide deck. Forty eight million dollars of favorable raw material cost. Thirty five million dollars a favorable price and mix two million dollars of lower manufacturing costs and one million dollars of higher unit volume, these were partially offset by five million dollars of higher expenses and two million dollars of higher other costs. The third quarter of 2020 included a forty nine million dollar benefit in operating profits from lower product liability costs related to an adjustment of the company's product liability reserves. A similar review in the third quarter of 2019 resulted in the benefit of four million dollars. This, together with the normal activity and product liability expenses in each quarter, including current case activity and legal fees, resulted in a 40 million dollar. Forty dollars million of lower net product liability expense for the third quarter of 2020.

[00:08:07] Moving forward, we expect an ongoing reduction in our annual product liability expense of around five million dollars per year compared to our historical annual run rate, excluding these adjustments. Diluted earnings per share were two dollars and forty two cents compared to a diluted earnings per share, fifty eight cents in the third quarter of 2019. Now, moving on to our segment performance, starting with America's fire operations segment, sales for the third quarter with six hundred and sixty million dollars, up nine point six percent from six hundred and two dollars million in 2019 as a result of fifty nine million dollars of favorable price and mix and one million dollars of higher unit volume, which were partially offset by two million dollars of unfavorable foreign currency impact segment. Unit volume was up slightly compared to the same period a year ago. Our US light vehicle unit volume increased by nine percent by the US decreased by one point two percent and the total industry increased by eight point one percent for the period, total industry volumes were positively impacted by nine USDA members. In Latin America, unit volume decline due to a challenging market conditions and lower production levels as we ramp up our plant in Mexico are setting US unit volume performance. Third quarter operating profit in the Americas increased to one hundred and seventy six million dollars, or twenty six point six percent of net sales, compared with sixty eight million dollars or eleven point three percent of sales in 2010, 19 operating profit included thirty nine million dollars of favorable raw material costs and thirty four million dollars of favorable price and mix.

[00:09:49] The quarter also included forty million dollars of lower net product liability expense. These were partially offset by three million dollars in higher expenses. One million dollars of unfavorable manufacturing and one million dollars of higher other costs. Even after excluding the forty nine million dollar benefit from the product liability adjustment, this was an all time record operating profit for the Americas segment in any quarter. Now, turning to our international terror operations, net sales for the quarter were one hundred and forty two million dollars, up seven point five percent from the third quarter of 2019. This result was driven by 13 million dollars of higher unit volume and four million dollars of favorable foreign currency impact, which were partially offset by seven million dollars of unfavorable price and mix. Segment unit volume increased ten point one percent. The third quarter operating profit in our international operations was nine million dollars compared to an operating loss of five million dollars in 2019 19. The quarter included nine million dollars of lower raw material, one million dollars of favorable price and mix three dollars million of lower manufacturing costs, one million dollars of higher unit volume and one million dollars of lower fees and expenses. These were partially offset by one million dollars of higher other costs. Moving to raw materials or raw material index decreased thirteen point six percent from the third quarter of 2009.

[00:11:21] The Raw Material Index decreased one point two percent sequentially from one to one hundred and thirty seven point four in the second quarter of 2020 to one thirty five point eight in the third quarter of 2020. This was in line with our expectation to be significantly down on a year over year basis and slightly down on a sequential basis. As we look forward to the fourth quarter, we expect our raw material index to be down modestly on a year over year basis and up modestly on a sequential basis. Raw material prices have begun to increase from the low level during the peak of the global pandemic. We remain cautious about our ability to forecast raw material costs precisely in this period of market volatility. Now to some corporate items. Other pension and post retirement benefit expenses decreased three point nine dollars million versus the prior year. This was primarily due to the company's improved funding position at December 31st, 2019, as a result of favorable returns on planned asset. The effective tax rate for the third quarter was twenty four point six percent, compared with twenty one point zero percent for the same period the prior year. The tax rate for the third quarter of 2020 was primarily driven by the mix of earnings among our different tax jurisdictions. The tax rate for the third quarter of 2019 included two dollars million of discrete items that favorably impact of the tax rate, we still expect the full year 2020 effective tax rate of approximately twenty five percent.

[00:12:53] 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 our taxes will be available in our Form 10. That will be filed with the FCC later today. Turning to cash flows and some balance sheet highlights, capital expenditures in the third quarter were twenty four million dollars, compared to fifty million dollars in the same period a year ago. We still expect full year 2020 capital expenditures to be around the high end of our range between one hundred and forty and one hundred and sixty million dollars. Return on invested capital was ten point two percent for the trailing four quarters. At the end of the third quarter, Cooper had four hundred and ninety six million dollars in unrestricted cash and cash equivalents, compared with one hundred and thirty seven million dollars at the end of the third quarter of 2019. You will recall that the company drew down two hundred and seventy million dollars on a revolving credit facility during the first quarter during the third quarter. The company repaid two hundred and forty million on its revolving credit facilities and has no remaining balance outstanding. The significant improvement in cash was primarily driven by strong operating results, as well as our actions to reduce working capital expenditures and discretionary spending. With that, I'll now turn the call back over to Brad for our updated outlook.

Brad Hughes

[00:14:18] Thanks, Jerry. As we noted in our press release, a temporary plant shutdowns related to coronavirus combined with strong demand for our products, has driven our inventory levels below normal. We are working hard to increase production to help meet demand as we move into the fourth quarter. Still, we expect that the strength of our third quarter performance will affect our ability to meet global demand for our tires in the fourth quarter due to limited inventory. This will result in modestly lower global unit volume for the second half of 2020 compared with twenty nineteen. Yet we expect to achieve an operating profit margin within our stated mid-term target of 10 to 14 percent for the second half of 2020, even excluding the forty nine million dollar benefit from the adjustment to our product liability reserve model in the third quarter. We continue to believe that the Cooper brand in our value proposition resonates strongly with consumers, especially in these uncertain times. Our strategic initiatives are unlocking the relevance of our brand, with customers and consumers creating additional growth opportunities. We are on the right strategic path and our team will continue to drive our initiatives to achieve our long term goals. With that, let's move to your questions. Operator, will you take the first question, please?

Question-and-Answer Session

Operator

[00:15:43] Thank you. We will now begin the question and answer session to ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys to withdraw your question, please. Press star then to at this time, we'll pause momentarily to assemble our roster. And our first question will come from James Picariello with KeyBanc Capital Markets. Please go ahead.

James Picariello

[00:16:12] Hey, good morning, guys. On a fantastic quarter here. Can you talk about the quarters price mix, almost an eight point benefit to consolidated revenue, all driven by the Americans. How much of this is attributed to the positive mix as opposed to price? And by follow on the industry pricing front? Are you seeing other suppliers put through increases in the fourth quarter? We saw one formal announcement from a tier two. Just wondering if tougher ones have made a definitive move on pricing, as far as you can see.

Brad Hughes

[00:16:48] Well, with regard to our price and mix, James, and thank you for acknowledging the quarter, we're really pleased with the results and pleased that we think the momentum is going to going to continue on as we. Build up our production capability to meet the demand that we're seeing so on. But with regard to price mix, I mean, we're seeing the advantage or the benefits of the pricing actions that that we, along with the industry, took in the spring on. And there has been a little bit of activity subsequent to that. But I would suggest that from what we've seen, the majority of the pricing activity in the industry is related back to that spring activity. And that's true for us. We did on top of that on have some benefit on the mix side of the equation, as we've been suggesting, we anticipated what's going to happen. And so ours is on a reasonable balance between both the price and the mix.

James Picariello

[00:17:49] Got it. OK. And then you do expect to underperform us today in the fourth quarter due to your inventory shortage, I mean, obviously it's a good problem to have you outperformed, you assume, by nine points this quarter. Just wondering, you know, what your thoughts are there. And I mean, you should get some manufacturing benefit in the fourth quarter, assuming that, you know, you're going to have all of your lines, you know, many of your lines running at full capacity for you to go back these inventory levels.

Brad Hughes

[00:18:20] Yeah. So I without knowing exactly what the ultimate is going to do, we are going to and we have very low levels of inventory right now. We are ramping up production and we're taking full advantage of our global footprint to make sure we can meet as much of that as possible. But based on what we see right now, we think demand is going to exceed the supply that we have. And with the level of inventory that we came into the fourth quarter with, we're likely going to be behind the USG made just because we can't provide enough product to meet the demand that's out there. So it's clearly not a demand situation right now. It's a it's a production and inventory availability issue. It is a good thing. And the better news is that, you know, we're continuing to build up and ramp up our production capabilities, particularly at our Mexico facility. But it's global in terms of the response that we're coming to this with from a production standpoint. And so I think that we may not begin to build inventories in the fourth quarter, but I think we're going to be in a in a position to start on. Moving in that direction as we get to the early part of next year. So for now, we're going to be constrained a little bit. But overall, the great news is the demand and the expectation we have for that to continue.

James Picariello

[00:19:47] But I'll take the rest of my questions offline. Congrats again. That's James.

Operator

[00:19:54] Our next question will come from Rod Lache with Wolfe Research. Please go ahead.

Rod Lache

[00:20:00] Good morning, everybody. I was hoping just maybe you can give us some color from your discussions with the channel on what actually is happening with respect to sell out. So and it's pretty clear that just because of supply constraints and covid shutdowns, that there was a lot of inventory depletion over the course of the past couple of months. But obviously, Miles driven has been low. And, you know, are you are you able to get a sense of what really is happening in the end markets at this point?

Brad Hughes

[00:20:33] Well, I think overall, Rob, that it remains relatively strong. I mean, given the circumstances with covid and the like that on that, I think that it's probably stronger than we as an industry anticipated. I think that started in the second quarter and I think that's continued into the third quarter on you know, from what we can see at an industry level, the channels are still pretty tight on inventory. And that suggests that there is reasonable sellout activity even as we as manufacturers are beginning to catch up a little bit on with the demand side. Now, beyond that, given our outperformance of the USA Today and actually the industry on, we're in a little bit sharper situation right now. But, you know, we feel reasonably good about what we see with regard to industry, Sello.

Rod Lache

[00:21:31] Interesting, and I was also hoping just if you've kind of analyzed the drivers of your performance, there are probably a number of different things. You've had been talking for a while about new distribution channels. Do you have a sense of how much that contributed? And there was also at least part of the quarter? I think that there were some unusual circumstances with some of the large mass merchants being shut down and independents taking a lot of market share. So is that something that that you feel is maybe aberrational and that would reverse or is there is this something that's more sustainable for you?

Brad Hughes

[00:22:17] So we clearly think this is sustainable when we look at that, the volume and where it's coming from, it's really across the board, right. So we've as you know, our teams have been working really hard to expand our retail distribution points. And that's with our traditional customers and through our traditional distributor channels out to our partners and some of our program retail programs on. But it's also with the larger national retailers, whether they be mass or tire retailers and so on.

[00:22:51] You know, with the work that our teams have been doing on, we're really starting to see all those things begin to contribute to better demand. And frankly, we're hearing again, from different types of customers and through different channels that where our product is positioned with the value proposition, that in particular our Cooper brand offers, that we are really well positioned for, where consumers want to want to buy tires from a price and performance perspective right now. So we feel really good about what we're seeing and we think it's sustainable.

Rod Lache

[00:23:29] Terrific. Thanks for that.

Operator

[00:23:35] Our next question will come from Bret Jordan with Jefferies. Please go ahead.

Bret Jordan

[00:23:41] Hey, good morning, guys.

Brad Hughes

[00:23:42] Morning, Brett.

Bret Jordan

[00:23:44] As we look at the inventory availability and its relative tightness, how do you think about maybe price increases in the balance of the year as the fires across the board?

Brad Hughes

[00:23:56] Well, we'll continue to monitor what is happening in the industry and make sure that that we're remaining competitive for our customers and with consumers and but certainly will be monitoring to see if there is activity and if it and if it's up, we certainly will be prepared to take advantage of that on. And we'll watch. I mean, there's a lot there's some recent volatility around raw material prices and that we'll have to see how that influences pricing activity. We are always at the ready, but our primary on objective is to ensure that, you know, with the value proposition that we offer, which I was just alluding to, how well that's playing in the marketplace right now, we're going to want to make sure that we're staying where we need to be competitively for our customers and with consumers and feel like we're in a good position to do that.

Bret Jordan

[00:24:52] Ok, and then I guess the follow up and you think about the U.S. unit growth and you did comment about the expansion of your distribution channel, sort of a follow up on the last question, because you got a bucket, the unit growth from new customers versus legacy customers year over year.

Brad Hughes

[00:25:07] Yeah, we're not going to dimension it other than to indicate that it was it's across the board. So, you know, we really are seeing on growth from all of those, whether it be the big national retailers, including the mass merchants. E-commerce is, you know, contributing more every quarter. And we're seeing increases in our in our traditional distributor channels. So on the balance is important because it positions us to continue with this demand engine that we've created and to sustain it.

Bret Jordan

[00:25:44] Great thank you.

Operator

[00:25:50] Our next question will come from Ryan Brinkman with JPMorgan. Please go ahead.

Ryan Brinkman

[00:25:56] Hi, thanks for taking my question. You know, you've discussed that your own inventories are lower. This will constrain, you know, temporarily constrain your shipments. What do you think, though, that the inventory picture looks like for the industry as a whole? You know, what do you think the balance of supply and demand for tires generally means for pricing for the industry or for Cooper and for you and beyond? And then also, what is your ability to replenish inventories look like, you know, beyond for Q4? Should we think about there being a tailwind in one? Q Does it last for, you know, dissipate kind of the first half of next year to catch back up, you know, in terms of your ability to, you know, ship more tires than would be ordinarily indicated by the retail demand in that period?

Brad Hughes

[00:26:38] So to the first question on, you know, based on the information that we say, I would suggest that as an industry, inventory levels are tight. I think they continue to be tight. There may be certain pockets where that's not true. But I think an overall assessment is that that they remain tight and we all are trying to ramp up to meet the demand that is occurring, which is great. And again, we're a little bit ahead of that in terms of the demand side of that equation. You know, when I went to go to school, they used to say that if you've got more demand, then supply that that that is not a bad position for pricing. So we'll continue to monitor. I think the industry will continue to monitor what's happening with raw materials and on as an industry. You know, again, on I've been in this now for a decade and it's remarkable to me how disciplined the approaches to costs that affect all of us. When that happens, there seems to be on a response from the pricing side and with low inventories right now would probably suggest that that the industry's in a position to do that if it's warranted with regard to our production and supply.

[00:27:58] You know, I think we're going to begin to round the corner in the fourth quarter. You know, we've been ramping up. We've gotten over the two mandated shutdowns in Mexico and are ramping up that facility and making it truly a Cooper production facility. Now that we own 100 percent of that, we've been ramping up in in the U.S. facilities, adding bulbs on as quickly as we can to help meet demand. And frankly, we're leveraging our global footprint. You know, we announced that we're expanding our Serbia facility. So we're looking at positioning products in a way through our network globally to ensure that we're going to be able to ramp up as quickly as possible. So I think that we will begin to turn that corner on inventory going into the beginning of next year. And that'll be dependent on the demand side of the equation. And you know how fast that continues to move forward relative to that production. But I think we'll be turning the corner in the fourth quarter and we'll start to be positioned better with inventory at the beginning of next year. But it may take a little while.

Ryan Brinkman

[00:29:02] Ok, great, thanks. And I was going to sort of next to ask you to kind of unpack the price mix, raw materials spread. You've already made a number of comments on pricing, but just maybe as a result to mix and raw materials, I mean, is big a spread. If it had to go back to third quarter of 2012 to find as big of a positive contribution relative to romance, imagine continued tailwind but grows increasingly less positive but remains positive, at least for a couple quarters. How should we think about that? And then with regards to mix, what do you think there over the next few quarters?

Brad Hughes

[00:29:38] Yes, I on the raw material side of the equation that you started with, you know, our guidance is that our expectation for the fourth quarter is up sequentially, but that would still be down year over year on based on what we can see right now. And so, you know, that is a bit of a tailwind there. And, you know, our teams do on our focus is always on making sure around availability. We don't see any issues there around availability of raw materials. And then they want to make sure that that we're buying at or below the prices that we think our competitors are buying yet. And so, you know, they're continuing to do things to try and protect our position there. And I think they've done a good job on with regard to mix. You know, we still we still have on opportunities that, you know, they move quarter to quarter. But we still think there are opportunities for us over, you know, the next several quarters to continue to advance. Next, it may not be every quarter, but in you know, when you look at it over on a continuum and a longer period of time, we think that there's more runway on mix as well.

Ryan Brinkman

[00:30:51] Ok, great, thanks. Then just lastly, from me, relative to any potential change or not change in the administration's and the U.S., the presidential election here, you know, it could be a number of changes, tax, regulatory, etc.. Just thought to ask on tariffs, though. Can you remind us the latest that you're seeing on tariffs, including with regard to possible tariffs from Southeast Asia? And then, as you know, if there were a change, you know, is it just the case that right now the case, you know, rests with this international trade court, the composition of the members of which have already been decided, and so there's really no impact there? Or does the administration have some sort of, you know, influence on, you know, how that court or others could rule?

Brad Hughes

[00:31:33] Yeah, there's a lot there. And I I'm not going to suggest. That I'm smart enough to get it all the pieces there, I would say in the near term, you know, what we know is that there's a very near term ruling to be coming out on the countervailing duty as it applies to Vietnam, which is one of the four Asian countries that is in question here. That could be as early as tomorrow. And then by around the end of the year or early next year, we're expecting the first round of preliminary duty rulings to be coming on the antidumping portion of that. That will include Vietnam, plus the other three countries of Thailand, Taiwan and Korea on historically on changes in administration have not had a significant impact on the members of that decision making body. But, you know, who knows? But I mean, I would say historically that has not been something that that changes or changes right away, certainly.

Ryan Brinkman

[00:32:38] Okay. Very helpful. Thank you.

Operator

[00:32:43] Again, if you have a question, please press star, then one, our next question will come from John Healy with Northcoast Research. Please go ahead.

John Healy

[00:32:52] Thank you. Congrats on the great quarter, guys. I wanted to ask about just kind of the margin outlook for Q4. My math could be wrong, but that's often the case. But if I back out, the product liability adjustment kind of implies a high teen operating profit level in Q3. And you guys are saying in your 10 to 14 range for the second half, to me that implies like mid single digits to low double digits. But is there any reason you fall outside of that 10 to 14 for Q4? Do you think.

Brad Hughes

[00:33:27] Well, again, the guidance that we've given, we thought it was more appropriate given how much on sellout we had from inventory during the third quarter, which generally from a seasonality perspective would have been spread over the third and the fourth quarter on. But because we weren't able to replenish that with the shutdowns that were appropriate, given the health and safety considerations for our people during the second and third quarters and the ramp up that subsequently occurred, we just had to put in perspective the strength of the business right now. We thought it was more appropriate to look at it on a second half basis. And I'm going to I'm going to stick to that in this instance, John, and to indicate that we're going to be in that 10 to 14 percent range on, because we think that's the best indicator of how the business is trending now as we are able to begin, you know, or reach those on ramp up positions where we're meeting the demand side of the equation and able to build back on some additional inventory again will be able to look at a clearer picture as we get into next year. But I really think on just to understand, because we feel very good about how the business is performing right now. And when you look at it in the you know, the time space of the second half, that's really indicative of where we're at right now with the demand engine that's still going.

John Healy

[00:34:56] And I just wanted to ask kind of how you interpreted some of the industry statistics and in Q3 with USA Today being down but the imports being up meaningfully, do you think that was pull forward of imports, maybe trying to get ahead of the tariffs, or was that more reflective of, hey, you know, the legacy domestic manufacturers? We're struggling with a you know, largely a production standpoint. How do you interpret that, that big pickup in imports that we saw in the quarter?

Brad Hughes

[00:35:28] Yeah, I mean, again, one person's view. But I you know, we I would suggest that we look at that as a combination of both. I do think that, John. Number one, tire demand returned more quickly than we were able as an industry, particularly in North America, to ramp our production up to meet it. And so people would be looking for alternatives to meet consumer demand. So that would be an impact on. But I think clearly there were some import activity taking place to try and get ahead of the tariffs on that that many are anticipating are going to occur. I mean, when you look at those four Asian countries, I mean, I think we've said it this way before, but that represents about 28 percent of the total units that are sold in the United States. And so it's a big piece of the market. And so I would expect that, you know, wholesalers and distributors are going to try and get a little bit ahead of that to the extent that they can. You know, I think the good news for us is even in that environment on where there might be some stock build that, you know, we were still ahead of the industry and see real, you know, sustainable growth with our demand.

John Healy

[00:36:45] Great. Thank you, guys.

Operator

[00:36:51] This concludes our question and answer session. I would like to turn the conference back over to Brad Hughes for any closing remarks. Please go ahead, sir.

Brad Hughes

[00:36:59] Yes, thank you and I just want to reiterate the thank you to the Cooper team and their families around the globe, along with our customers and our suppliers, for coming together to contribute to a great result and for their ongoing efforts to support our drive towards delivering this winning strategy that's taking hold right now. So thanks to all of you for participating today. And please stay safe and stay healthy. Thank you.

Operator

[00:37:30] The conference has now concluded. Thank you for attending today's presentation, you may now disconnect.

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