Sometimes a downturn in end markets is too much for even the most well-run company to overcome, and for Titan International Inc. (TWI +6.29%) it seems like every possible end market is in a down cycle. Mining is struggling due to low commodity prices, and low crop prices have caused farmers to cut back on new equipment purchases and even put off maintenance spending.
Titan International Inc. results: The raw numbers
| Metric |
Q3 2015 Actuals |
Q3 2014 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Sales |
$308.8 million |
$449.6 million |
(31.3%) |
|
Net Income |
($31.5 million) |
($7.2 million) |
(338%) |
|
Adjusted EPS |
($0.59) |
($0.13) |
(354%) |
Data source: Company earnings release.
What happened with Titan International this quarter?
The weakness in mining and agriculture are the general themes this quarter, but here's some more granularity on how those factors affected the raw numbers:
- Volume fell 14% in the quarter and price/mix contributed 5% to the decline in revenue as well.
- Unfavorable currency movements (i.e., a strong dollar) negatively affected sales by 12% in the quarter.
- Reduced farm incomes were blamed for a reduction in new equipment purchases, which drive Titan International's sales.
- Since the start of the year, cash on hand has only fallen slightly to $193.8 million and debt has fallen 2% to $513.5 million, so the losses haven't been to the detriment of the balance sheet as of yet.
- Along with earnings, management announced a licensing agreement with Goodyear Tire & Rubber Company (GT +3.11%) to distribute and sell Goodyear-brand farm tires in Europe, the Middle East, Africa, and Russia, as well as manufacture those tires in certain areas. Since Goodyear exited its EMEA Farm Tire business in 2014, Titan's management estimates it lost out on more than $100 million in sales, so this could have a big impact on earnings in the future.
What management had to say
The first comment from CEO and Chairman Maurice Taylor was telling:
The third quarter for our end markets was worse than anyone forecasted. This was consistent with our large customers and competitors. We continue to be focused on what we can control.
With a few sentences, Taylor outlined the macro problems that led to declining revenue and growing losses. And there's only so much he can do to cut costs near term given the fixed capital it requires to manufacture large equipment like farm tires.
Looking forward
When the mining and agriculture markets turn around, Titan International will be able to leverage that growth on the bottom line, but right now the macro environment is holding back operations. While the market may not be happy with the results today, the fact that management has been able to maintain a strong balance sheet and control costs will prove to be good for long-term investors.
Sometimes negative results are out of management's control, and Titan International looks to be a victim of factors that no one can control on their own.
