Titan International Inc. reported its gross profit for the first quarter of 2024 was $77.4 million – 16% net sales – compared to $95.6 million or 17.4% net sales for the first quarter of 2023.
Titan says the changes in gross profit were due to the lower sales, which resulted in lower fixed cost leverage.
Titan’s first quarter sales were $482.2 million, compared to $548.6 million a year ago. Titan said the drop was mostly attributed to the agricultural and earthmoving/construction segments.
“Returning to our theme of ‘controlling what we can control,’ during the first quarter we focused on our operating efficiency and other levers at our disposal to maximize our profitability,” says Paul Reitz, president and CEO of Titan International.
“Gross margin was 16.7% on an adjusted basis, with Ag segment adjusted margins expanding to 17.2% from 16.1% a year ago. Consumer segment adjusted gross margin was 21.3%, up from 20.7% last year. Earthmoving/construction adjusted gross margins lagged our other two segments at 14.0%, compared with 18.7%, as OEM volume declines in Europe and Latin America weighed on margins."
Carlstar brand
“The last two months have been exciting for us as we have been running full speed integrating Carlstar into our existing operations,” says Reitz.
“One of the key strategic rationales for the acquisition was our expected ability to be a 'one-stop shop' for customers by delivering best-in-class products with a deep portfolio for both aftermarket and OEM channels."
Titan International acquired the Carlstar Group LLC in Feb. 2024 for $296 million in cash and stock.
Reitz believes that with the combined companies, a typical year would have the earning power of $250 million to $300 million EBITDA with free cash flow of at least $125 million.
“Our team is focused on implementing the short and long-term actions needed to deliver this and more, and while the fiscal year 2024 results will be impacted by soft market conditions, it is good for our investors to have a perspective on the future opportunities and our steadfast focus on building shareholder value," he says.
Upcoming expectations
Reitz says the company is seeing reduced demand in OEMs in all segments and geographies but remains “confident that our end-markets are well supported by farmer incomes and balance sheets along with the global need for long-term infrastructure investments, so we don’t expect a slowdown to be deep or protracted.”
Tire and wheel inventory levels have normalized in the dealer channels, but Reitz says overall sales levels are still running “below our exceptional performance in 2022 and 2023.”
Sales within the ag sector are expected to be directly correlated with the overall market activity in the first half of the year.
The earthmover/construction segment has a favorable long-term outlook although the near-term is less stable.
Reitz says Titan believes this segment will grow in quarter two because of the full contribution of the Carlstar brand compared to only one month of contribution in quarter one.
The consumer sector is also being impacted by environmental factors like interest rate uncertainty, geopolitical instability and an upcoming presidential election, he continues.
However, because Titan’s aftermarket business is less correlated with new equipment sales the company expects this sector to grow, especially because of the new Carlstar brand.
Segment information
The agricultural segment's net sales for quarter one of 2024 were down 21.6% compared to this period last year.
The change was primarily due to lower sales volume in North and South America, resulting in a softness in demand for ag equipment.
Gross profit in the ag segment was down 17.5% in quarter one of 2024 compared to quarter one of 2023. This change is attributed to lower sales volume. However, there was an increase in profit margin due to lower raw materials and other input costs.
Titan’s earthmoving and construction segment net sales were down 16.9% in quarter one in 2024 compared to the comparable period a year ago. This was due to lower sales volumes in the Americas and a slowdown of construction OEM customers.
Gross profit in this segment was down 38.3% in quarter one of 2024 compared to quarter one in 2023. These changes were attributed to the lower sales volumes, which resulted in a lower fixed cost leverage and contractual price givebacks due to lower steel prices, according to Titan officials.
Consumer net sales increased by 76.3% in quarter one of 2024 compared to the same period last year. This increase is driven by the positive effects of the Carlstar acquisition. The increases were partially offset by lower sales volumes – primarily in the Americas – where market conditions were softer.
Gross profit in quarter one of 2024 was also up by 51.6% from the comparable period a year ago – this increase was also driven by the Carlstar acquisition. However, profit margin for quarter one of 2024 was down by 14%due to the effect of inventory revaluation associated with the Carlstar purchase price allocation.
Financial Outlook
Titan International says it is introducing financial guidelines for quarter two of 2024.
The guidelines are:
- Revenues are expected to range between $525 million to $575 million;
- Selling general and administrative (SG&A) plus royalty and R&D expense at 11% of sales;
- Adjusted EBITDA of $45 million to $55 million;
- Free cash flow to range from $30 million to $40 million;
- Capital expenditure ranges between $15 to $20 million.
“As Paul noted, macro uncertainty is acute right now, impacting our end markets as well as many others,” says David Martin, chief financial officer for Titan International.
“With that in mind, we're providing guidance for the second quarter while the lack of adequate visibility leads us to refrain from giving full-year guidance at this time. We are also including SG&A guidance as Carlstar's operating expense profile is different than Titan's, due to their distribution center model."
At the end of the quarter, Titan says its net debt was $370 million, which was in line with the company’s modeling as it closed on the Carlstar acquisition.
Martin says the company is prioritizing debt paydown throughout 2024.
“Based on our current integration progress, we expect to achieve bottom-line synergies of $5 million to $6 million this year and $25 million to $30 million over the longer term,” says Martin.
“We will be opportunistic in allocating cash as we have approximately $15 remaining under the Board authorized $50 million share repurchase program. Our balance sheet strength and cash flow prospects set us up to create value over the long term."
