Why Titan International Inc's Shares Surged 39% in August

A strong earnings report helped Titan International Inc last month, but there's a lot of work left to turn the company around.

Travis Hoium
Travis Hoium
Sep 9, 2016 at 5:15PM
Industrials

Big tires are big business for Titan International. Image source: Getty Images.

What happened

Shares of tire manufacturer Titan International Inc (NYSE:TWI) jumped 39% in August, according to data provided by S&P Global Market Intelligence, after the company reported second quarter earnings that may show a bottom in demand.

So what

Sales fell 12% to $330.2 million and Titan International swung from a profit of $9.4 million to a loss of $3.8 million. But gross profit margin increased 10 basis points to 13.7% as cost reductions started to take hold.

What really got investors excited is management saying that big tire demand is at a trough and will start to turn higher in the back half of the year and in 2017. If that happens, Titan International's lower cost structure should lead to strong margin and earnings growth, potentially leading to a lot of upside for investors.

Now what

The big move in Titan International was partly due to how far the stock had fallen. The company was worth about $125 million at its low, which implied that investors were losing faith that the company could simply survive.

If demand does turn higher over the next year, we could see a strong increase in net income, which would be a big payoff for investors. But the company has missed expectations by a wide margin before, so don't bet too much on a recovery -- there's not a lot of evidence one is here just yet.