Titan International Inc. reported its second consecutive quarter of year-over-year growth in net sales. For the second quarter of 2017, the company recorded net sales of $364.4 million, up 10% compared to $330.2 million in the year-ago quarter.
The company reported a loss of $10.3 million in the second quarter versus a $5.2 million loss in 2016’s second quarter.
Net sales for the first six months of 2017 were $721.9 million, an increase of 11% when compared to $652.0 million in the first six months of 2016. Titan recorded a loss of $20.8 million for the first six months of 2017, versus a loss of $23.1 million for the first six months of 2016.
The company’s top line growth of 10% included an 18% improvement within its agriculture (AG) segment, according to Paul Reitz, CEO and president.
“Following a protracted downturn of more than four years, these results continue to demonstrate early signs of a recovery and provide optimism moving into 2018,” said Reitz.
“AG continues to be sluggish at the OEMs, but our moves in the North America aftermarket have benefited Titan thus far in 2017. Along with the AG gains this quarter, we continue to see market conditions improve in aftermarket mining and construction which fits well with our strategy that was launched almost two years ago to position ourselves to capture more of this business.
"The current quarter saw sequential gross margin improvement, up from 11.1% in the first quarter to 12.0% in the second. This improvement was in spite of significant raw material pricing headwinds that negatively impacted gross profit by approximately $11 million during the second quarter. Although we believe that raw material pricing has now stabilized, our OEM contracts in North America did not allow us to fully pass through these higher costs during the quarter. Because of these headwinds, we did not reach the gross margin level we experienced this quarter last year; however, with the increased pricing that has now taken place with the OEMs and the raw material price stabilization, we do not anticipate further negative impacts from raw material prices in the second half of this year.”
Agreements with the United Steelworkers Union at three North American tire plants were among several positive developments in the second quarter, according to Reitz.
"These new five-year contracts provide added profit incentives for our union workforce while providing Titan with more economic flexibility. This will benefit all stakeholders and allow Titan to maintain our position as a leader in the North American tire market.
"We are excited that New Holland recently began offering our Low Sidewall Technology (LSW) tractor setup with LSW1000/40R32 fronts and super single LSW1100/45R46 rears. Last year, a study was conducted by Mark Stallings, a farmer and owner of the Delta New Holland dealership, which compared standard duals to LSWs. As we previously announced, the study demonstrated that LSWs deliver higher yields. Because of this successful study and the efforts of Mr. Stallings, we are now able to offer that same LSW tractor setup to all New Holland customers.
"We recently had a couple of good wins at ITM, our undercarriage business. We obtained 100% of the global forestry business with a major, global OEM. Also, we were named the preferred supplier on D10 and D11 tracks with another major, global mining operator."
Raw material prices hurt margins: Titan said increases in raw material costs across all markets and geographies negatively impacted gross margins during the second quarter of 2017 due to the timing of passing along increased costs to its end customers. Gross profit for the second quarter ended June 30, 2017, was $43.6 million, flat compared with $43.7 million in the prior year period. Gross margin was 12% of net sales for the latest quarter, compared with 13.2% in the prior year period.
Gross profit for the six months ended June 30, 2017, was $83.3 million, up 16% from $72.0 million in the comparable prior year period. Gross margin was 11.5% of net sales for the first six months of 2017, compared with 11% in the comparable prior year period. Titan said the increase in gross profit percentage was primarily related to its Business Improvement Framework initiatives that focus on lowering costs and increasing efficiencies. The company said these efforts more than offset the significant increases in raw material costs experienced in both the first and second quarters of 2017.
Operating income improved: Income from operations for the second quarter of 2017 was $4.0 million, or 1.1% of net sales, compared to income of $2.6 million, or 0.8% of net sales, for the second quarter of 2016, an improvement of 53%.
Loss from operations for the first six months of 2017 was $3.1 million, or 0.4% of net sales, compared to a loss of $8.9 million, or 1.4% of net sales, for the first six months of 2016, an improvement of 65%.
Costs were reduced: Selling, general and administrative (SG&A) expenses and “Profit Leaks” were going to be areas of focus, according to James Froisland, chief financial officer and chief information officer. He said, “We are pleased to see that our efforts are paying off as SG&A costs during the quarter went down nearly $2 million on a year-over-year basis while our net sales increased. We still have work to do and our plan is to not only reduce variable SG&A, but also take a hard look at our fixed SG&A costs.”