Titan posts weak Q2 earnings

The second quarter of 2014 was, in the words of Titan International’s chief financial officer, “disappointing in terms of performance.” John Hrudicka reports that the 11.7 per cent year-on-year decline in sales to US$523.7 million occurred against a backdrop of price reductions, a downturn in the mining segment and a decline in agricultural markets. Gross profit also decreased 74.0 per cent to $22.6 million and was 4.3 per cent of net sales, as compared to 14.6 per cent of net sales a year earlier. Loss from operations amounted to $29.5 million in the second quarter of 2014, compared with a profit from operations of $36.9 million in the second quarter of 2013. Net income went $20.5 million into the red. Dividend declared per common share was $0.05.

Explaining the drivers behind a drop in sales, Hrudicka shares that Titan’s agricultural sales were down $40 million year-on-year, largely due to lower crop prices, rising agricultural input costs and attempts by North American agricultural dealers to reduce equipment inventories. Titan’s other regional agricultural markets, Europe and Brazil, also experienced the negative effects of lower agricultural segment demand, he added, while very little was seen in terms of growth from the company’s Voltyre-Prom acquisition in Russia.

Sales in the earthmoving/construction segments were down 21 per cent or $44 million year-on-year in the second quarter of 2014, with inventory destocking and pricing just two factors influencing this result. Hrudicka notes however that some of the larger original equipment manufacturers believe that 2014 may have marked the bottom of the mining downturn. Growth in small construction was seen during the quarter.

Titan intends to employ a range of measures and innovations to address its performance. The company’s global headcount was slashed by nearly 800 in the first half of the year and Titan says it intends to continue shedding staff as needed throughout 2014 and into next year. “In addition to the headcount reductions, we’ve embarked on a number of short-term profit optimisation initiatives to address our current profitability challenge,” shares Hrudicka, before touching on the EVA (economic value-added) system that Titan has introduced and commenting that we’ll “hear a lot more about this concept in the near future.”

On the innovations side of the equation, Titan is placing high expectations upon its low sidewall, or LSW technology. Company chairman and CEO Maurice Taylor states “Titan’s new LSW tyres and wheels are now being offered as an option for tractors, sprayers and combines by major OEMs. Titan has established test sites at 180 farms for LSW tyres and wheels, which I believe the time and investment will be repaid in the near future. We expect this business to gain traction and expand into all our regions in the next three to four years.”

John Hrudicka says LSW is “at the core” of Titan’s strategy and opines that it is the development that “generates the most excitement in our company.” He adds: “Its core to our complete wheel tyre assembly system strategy, for which no other competitor possesses this capability. It is really starting to take hold in the marketplace with the OEs and our equipment dealers. And request for drawings, information, meetings are accelerating. The aftermarket is warming to the concept as well. This will allow us to truly realise the rewards of leveraging our core competency as a complete wheel tyre assembly system, differentiating ourselves from our discrete wheel and tyre competitors.”

Other innovations include Titan’s waffle wheel technology, which continues to be adopted by European customers. “We are the only producer in the market to provide this capability and have a patent pending to protect this innovation. Each year, demand has doubled. This technology is truly driving differentiation in the market for Titan,” says Hrudicka. And the company expects its Thermo Vacuum Reactor, or TVR, technology to be operational next year. Using TVR, a single 63-inch tyre produces around 500 gallons (2,273 litres) of oil, 4,000 pounds (1,814 kilogrammes) of carbon black and 2,000 pounds (907 kilogrammes) of steel. Carbon credits will also be generated.