Will Titan Machinery Earnings Beat Out Deere and Caterpillar?

Heavy-equipment retailer Titan Machinery (NASDAQ: TITN  ) , which has been under pressure for much of the year, will release its quarterly report on Thursday.

With large-equipment manufacturers Deere (NYSE: DE  ) and Caterpillar (NYSE: CAT  ) facing deteriorating conditions in many of its key markets, the question Titan Machinery faces is whether it can buck the sluggish trend and keep boosting its earnings even if the economic and industry environment it has enjoyed in recent years starts to become less favorable.

Titan Machinery has presented investors with a conundrum recently. For years, its share price gained due to high demand for agricultural and construction equipment. But more recently, even though revenue has continued to climb, less of those profits have made it through to the bottom line. Can Titan reverse that trend and get earnings growing again, or will the industry headwinds that have already affected sales at Deere and Caterpillar eventually push Titan's revenue down as well? Let's take an early look at what's been happening with Titan Machinery over the past quarter and what we're likely to see in its report.

Stats on Titan Machinery

Analyst EPS Estimate

$0.48

Change From Year-Ago EPS

(27%)

Revenue Estimate

$613.36 million

Change From Year-Ago Revenue

5.4%

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance

Will Titan Machinery earnings plow up some growth this quarter?
Analysts have severely cut their views on Titan Machinery's earnings in recent months. They've reduced their October-quarter estimates by almost 30%, and longer-term expectations have also declined by 20% to 25% for the current and next fiscal years. The stock has continued its downward move, falling another 4% since late August.

Titan's July quarter results continued the troubling trend that the retailer has seen lately. Revenue jumped 19% for the quarter, with equipment, parts, service, and rental-service segments all adding to growth. But net income fell by more than a quarter, as margins on equipment fell below expectations even as high-margin parts-and-service sales helped offset the negative impact equipment had on the overall business. Titan had to reduce its guidance for the full fiscal year, cutting revenue projections by $100 million and earnings per share by $0.50.

But an even bigger problem for Titan going forward is that it has linked its fortunes to those of CNH Global, which in turn has emphasized emerging markets as the core focus for its own growth. Titan Machinery's stores are located in developed markets in the U.S. and Europe, giving it almost no exposure to the areas where CNH is trying to grow the most. CNH's strategy makes sense, given its lead over Deere in expanding internationally. But for Titan, whose sales of CNH equipment accounted for 82% of its total ag-equipment sales and 64% of its construction-equipment revenue in its most recent fiscal year, CNH's strategy would require it to look at emerging-market expansion of its own to take advantage.

As a result, many investors think Titan's chances of recovering are slim. The company has a huge short interest, and the fact that even the farming sector has started to see some weakness removes what has been a key support to Titan's business over the years. With even Deere feeling the pressure despite its more extensive agricultural focus, Titan needs an upsurge in construction activity to fuel a rebound in that part of its business.

In the Titan Machinery earnings report, look to see how the company's various segments perform. If equipment continues to be a problematic part of Titan's overall business, it could mean a much dimmer future for the retailer in 2014.

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