Titan net income down 42.5% yoy in Q1 2013
Titan International has announced “another record quarter” during the first three months of 2012, however the figures behind this impressive-sounding statement make for rather modest reading. While sales are up 24.9 per cent over the first quarter of 2012, the tyre maker only managed a small increase in gross profit, while adjusted net income declined significantly. Earnings per share were less than half what they were a year ago, although admittedly they show an improvement on Q4 2012. Titan says it remains focused on its goals, however, and sees many opportunities in the agricultural and mining sectors where it is most active.
The higher sales levels in the first were primarily due to recent acquisitions, including US$148.7 million at Titan Europe, as well as increased demand in the company’s agricultural segment. Titan Europe contributed $17.9 million, or 12 per cent of net sales in 2013. Sales volume was consistent with the prior year.
Gross profit rose 3.6 per cent to $96.8 million, or 16.7 per cent of net sales (gross profit amounted to 20.2 per cent of net sales in Q1 2012). Adjusted net income for the first quarter was significantly down, however, at $23.3 million, compared to $40.5 million in the first quarter of last year. Basic and diluted earnings per share were $.38 and $.30 respectively, compared with $.84 and $.68 in the same period last year.
“The first quarter of 2013 again was a good quarter with sales over $578 million and gross profit over $96.7 million,” stated Titan International 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 unionised factories in Bryan, Ohio; Freeport, Illinois; and Des Moines, Iowa which are represented by the United Steel Workers. 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,” continued Taylor. “Titan Europe is on track with their first quarter budgeted revenue numbers which is very encouraging. Material costs have stabilised 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.
“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 (selling, general and administrative expenses) to sales to seven per cent in the first quarter 2013, within our range of five to seven per cent,” Taylor continued. “Titan Europe is stepping up to reduce these costs in 2013.”
Regional performance
Based upon his observation of Titan and competitors’ accounts during recent world travels, Taylor reports that Titan International’s North American farm business is “holding high” and will be “up or down one per cent” on the record 2012. “This should allow Titan to increase its market share and improve margins.” South of the border, Titan International expects to increase its business by at least ten per cent. “Titan South America is growing our product line in tyres, track, etc,” the chairman and CEO elaborated. “We expect great progress in South America because we are building a great management team.”
Taylor is even upbeat about Europe: “Titan will expand its European market share because of our new products in wheels, tyres and track. We anticipate Titan Europe will improve in 2013 compared to fourth quarter 2012.” Further east, and the picture looks even better. “We believe that Russia and Ukraine will be a high growth opportunity for Titan over the next ten years,” said Taylor. And down under? “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.”
China and India are described as markets where Titan has “a lot of competitors and a lot of opportunities.” Taylor noted that the tyre maker has been approached by a number of OEM’s with a view to participating in tyre, wheel and joint ventures with them in these regions. “Warren Buffet said Wall Street young bankers should be farmers because that is where the money will be for the next 25 years,” he added.
Compared with global agricultural mechanisation leader Canada, where there are 1,824 tractors for every 1,000 farmers (according to the World Bank’s World Development Indicators), in Russia only 96 tractors are in operation for every 1,000 farmers; in Brazil this figure is 61, while in India it is six. In China, only three tractors are in service for every 1,000 farmers. “I am very upbeat on South America and Russia,” Taylor commented. “Even if crop prices would drop 25 per cent, areas like South America and Russia have a tremendous growth in agriculture equipment and mechanisation. India and China, I believe, will not grow at such a rapid pace.”
Mining services ‘fastest growing’
Taylor projects that Titan’s mining services will be the company’s fastest growing business and he believes it can benefit from the strong production rates in the mining industry by showing mining companies how to save money. Revenue from Titan’s earthmoving/construction tyre business more than doubled to $209.6 million in the first quarter of 2013.
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