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A 29% sales bump doesn't boost Titan's income

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Titan International Inc. posted net income of $23.2 million on net sales of $593.3 million for the second quarter ended June 30, 2013. That compares to income of $44 million on sales of $459.2 million for the same period last year.

Operating income was down 54.4%, from nearly $81 million to $36.9 million. The company's income-to-sales ratio was 3.9%.

(Titan says its adjusted net income for the second quarter was $13.7 million, compared to $28.8 million in the second quarter of last year. For more information, click here.)

"Titan continues to execute our business strategy through acquisitions and product innovation," says Chairman and CEO Maurice Taylor. "Titan is making the focused investments needed to deliver the long term growth opportunities to the company.

"Titan is planning to close on the purchase of Voltyre-Prom, which is the leading producer of agricultural and industrial tires in Russia, no later than Sept. 1, 2013. This acquisition will increase our international footprint and be Titan's base for other acquisitions in the CIS region.

"The South American farm tire market is getting stronger for Titan, and we look to establish wheel manufacturing in the region to complement the tire offering in the coming year.

"Along with these strategic moves, we continue to tighten costs across the company," he says. "As a result of acquisitions, Titan will see record revenue in the second half of 2013. If the markets remain as they are, Titan will continue its growth similar to the last few years. As we grow the business, there has been a learning process involved in Titan's young management team, but they are improving each month. There is still work to be done to reduce our SG&A under 7% and we continue our efforts to lower these costs.

"Titan's primary business is farm tires and wheels where volume has remained strong.  Titan has been building the Goodyear farm tire brand since 2006 as represented by our leading market share in North America. We believe that this American brand will allow Titan to gain greater market share in the coming years, although the construction market continues to show signs of weakness."

Taylor adds that there has been a negative impact on pricing in all of Titan's markets due to:

1. raw material price decreases passed along to the company's customers, and

2. excess supply of product.

C. Schon Williams and Aaron Reeves, analysts for BB&T Capital Markets (a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.), listed Titan's stock as "Hold," in part because of modestly lower than expected sales, weak gross margins and heavier than expected overhead pushed operating income below their estimate.

"Even with union issues fully behind them in the second quarter, more problems seem to be popping up, including high inventories, new warranty expenses, weak pricing (deflation and OEM dumping) as well as a tepid construction environment. In our view, there was not much to like in this release other than the fact that management seems a bit closer to completing a Russian ag/industrial tire acquisition -- nearly nine months after it was first announced."

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