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Titan's Taylor describes 1Q results as 'good'

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Titan International Inc. recorded net income of $19.5 million on net sales of $578.4 million for the first quarter ended March 31, 2013. That compares to income of $35.4 million on sales of  $463.1 million for the same period in fiscal 2012.

Operating income for 1Q 2013 was $47.9 million, down 18.4% from the prior year. The company's income-to-sales ratio was 3.3%.

Titan's 25% increase in sales were primarily the result of recent acquisitions including $148.7 million at Titan Europe plc, as well as increased demand in the company’s agricultural segment. Sales volume was consistent with the prior year.

"The first quarter of 2013 again was a good quarter, with sales over $578 million and gross profit over $96.7 million," says Chairman and CEO  Maurice Taylor. "Could Titan have done even better? Yes.

"What was good about the quarter? We signed a new four-year agreement with our unionized factories in Bryan, Ohio; Freeport, Illinois; and Des Moines, Iowa, which are represented by the United Steelworkers. These talks have been going on since September of 2012. We believe that the increase in costs will be offset with productivity increases and we have begun to see such evidence in March 2013.
“Our gross margin has improved over the fourth quarter, which we expect to continue," he says. "Titan Europe is on track with their first quarter budgeted revenue numbers, which is very encouraging.

"Material costs have stabilized, and we don’t see any further cuts coming in the near term. In a period of falling raw material prices, our sales and profits are impacted."

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 "Buy."

"While we are hesitant to call this a solid operating quarter given expectations earlier in the year, considering the headwinds in the quarter from the union negotiations as well as forex/raw materials, this was certainly a good showing, in our view."

Taylor breaks down the global farm tire market
“I appreciate there has been much speculation recently about the North American farm outlook and the same about South America, etc.," he says. "I have been traveling around the world visiting Titan accounts as well as accounts who buy our competitor’s products."

His findings are as follows:

1. "North American farm is holding at a high level. I do believe 2013 will be up or down 1% from the record farm year 2012. This should allow Titan to increase its market share and improve margins."

2. "South America will increase at a minimum of 10%. Titan South America is growing our product line in tires, track, etc. We expect great progress in South America because we are building a great management team."

3. "Titan will expand its European market share because of our new products in wheels, tires and track. We anticipate Titan Europe will improve in 2013 compared to fourth quarter 2012.

4. "We believe that Russia and Ukraine will be a high growth opportunity for Titan over the next 10 years. Australia is still growing in mining and farming and so is Titan. We believe that sales this year will exceed $150 million in 2013 and we have the chance to do $250 million plus in 2014.

5. "China and India have a lot of competitors and a lot of opportunities. Titan has been approached by a number of OEM’s to have joint ventures with them for tires, wheels and tracks in these regions."

Taylor says he is very upbeat on South America and Russia.

"Even if crop prices would drop 25%, areas like South America and Russia have a tremendous growth in agriculture equipment and mechanization. India and China, I believe, will not grow at such a rapid pace.

"If you look at this data you notice that Canada has the most tractors per farmer with the U.S.A., France and Germany close behind. This shows how farming is a real export business for these countries. If you look at China and India, they have a real problem in feeding their own people.

"Russia and Brazil will grow their agriculture business. It will take time and it will not be all new equipment. Those countries will be buying up the Canadian, U.S.A., French and Germany used equipment as they grow their manufacturing base. Titan will benefit from this growth."

In conclusion

"The expansion of Titan’s mining services will be Titan’s fastest growing business, and I believe we can benefit from the strong production rates in the mining industry by showing the mining companies how to save money," says Taylor.

“Titan is staying focused on our goals and even with all the noise of the fourth quarter 2012, we have been able to reduce the percent of SG&A to sales to 7% in the first quarter 2013, within our range of 5–7%.  Titan Europe is stepping up to reduce these costs in 2013.”

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