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Titan International Inc. Struggles With Weak Demand

By Travis Hoium - May 5, 2016 at 1:35PM

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It's tough to make money on tires when farmers and miners aren't buying new equipment.

Image source: Titan International.

There wasn't a lot Titan International Inc. (TWI -6.09%) could do to improve top-line results in the first quarter of 2016. Mining and agriculture, which are its two biggest end markets, are both very weak right now and the only option for management has been to slash costs. Even that, though, wasn't enough to keep the company from a big quarterly loss.

Titan International Inc. results: The raw numbers

 Metric

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Sales

$321.8 million

$402.1 million

(20%)

Net income

($14.4 million)

($2.7 million)

n/a

Adjusted EPS

($0.27)

($0.05)

n/a

Data source: Company earnings release. 

What happened with Titan International Inc. this quarter?
Management remains focused on preparing the business for an eventual turnaround in demand. After all, farmers will inevitably need new tires and the construction and mining markets will pick up again. Here are a few figures that show where the business is today:

  • The decline in revenue was broad across the business. Agricultural revenue fell 21% to $152.8 million, earthmoving/construction revenue dropped 17% to $131.7 million, and consumer revenue was down 25% to $37.8 million.
  • Foreign currency translation accounted for 6% of the sales decline, with a move to cheaper products causing another 3% drop. To be fair, the company did gain some of that back with a $4.8 million boost on foreign currency hedges.
  • Net debt increased from $311.4 million at the end of 2015 to $317.2 million at the end of the first quarter.
  • SG&A expenses fell slightly to $35.1 million, but didn't keep pace with the decrease in sales. This is what led to the bigger loss in the quarter.

What management had to say
Despite the tough operating environment, management tried to be as positive as it could. It said customers are starting to understand and demand the LSW solution, or lower sidewall product. It's supposed to reduce bounce, soil compaction, and power hop in tires.

The company also engaged Goldman Sachs in an effort to sell the Italtractor ITM S.p.A. business. This could help alleviate some of the strain on the balance sheet if the sale happens relatively quickly.

Looking forward
I wouldn't expect a significant turnaround in demand in the near future, but keep an eye on management's cost-cutting efforts as the year goes on. If Titan International can keep close to breakeven with weak demand, it will set the company up for a profitable bounce when demand grows. We just don't know when that will materialize.

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Titan International, Inc. Stock Quote
Titan International, Inc.
TWI
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