Shares of Titan International Inc (NYSE:TWI) fell 32.7% in August, according to data provided by S&P Global Market Intelligence, primarily because of a weaker than expected earnings report. The company is growing once again, but not as fast as expected and losses are widening, leaving investors to wonder when the company will see the recovery management has indicated is on the horizon for over a year now.
Second quarter revenue jumped 10.4% to $364.4 million but net loss nearly doubled to $10.3 million, or $0.17 per share. The growth rate was reasonable, but the fact that margins and net income didn't improve significantly in the quarter was concerning.
Losses were explained fairly well by market conditions and one-time events. There was a $5.3 million foreign exchange loss that was due to mark-to-market, not cash, losses. Most of these losses were on loans to subsidiaries, which will be negated over time. Another factor impacting results was a rise in raw material prices, which weren't passed quickly to customers in the quarter. But that will change in coming quarters as Titan International raises prices, which should help margins.
What's really concerning investors is that a recovery management has been talking about for a few quarters never quite seems to become a reality. Mid-2017 was supposed to see a surge in orders as farmers and miners replaced old tires and the company introduced new products like low sidewall technology. But that hasn't been the case and it's unclear when the company will return to solid profitability. While caution is advised given recent disappointment, I think the market is missing a long-term opportunity for growth in the tire business, particularly once current headwinds subside.