Titan International Inc. announces third quarter revenue and performance results.
Third quarter highlights
- Sales for the third quarter of 2015 were $308.8 million, down 31.3%, compared to $449.6 million in the third quarter of 2014.
- Gross profit for the third quarter of 2015 was $26.2 million, or 8.5% of net sales, compared to $43.6 million, or 9.7% of net sales for the third quarter of 2014.
- Loss from operations for the third quarter of 2015 was $(14.5) million, or (4.7) percent of net sales, compared to a loss of $(2.5) million, or (0.6) percent of net sales, for the third quarter of 2014.
- Adjusted net income for the third quarter of 2015 was $(31.5) million, compared to $(7.2) million in the third quarter of 2014.
- Adjusted basic and diluted earnings per share for the third quarter 2015 and 2014 were $(0.59) and $(0.13) respectively.
Statement of Chief Executive Officer
CEO and Chairman, Maurice Taylor comments, "The third quarter for our end markets was worse than anyone forecasted. This was consistent with our large customers and competitors. We continue to be focused on what we can control. This can be seen in our third quarter results. Our Titan employees are dedicated to working very hard to lower manufacturing costs, improve quality and improve how we manage the company. While unfortunate, we continue to make the difficult decisions to reduce headcount as production continues to slow. In addition to our focus on reducing manufacturing costs, we are exploring wheel and tire designs to both reduce cost and improve performance. You will continue to hear about these efforts in the quarters ahead.
"The expansion of the Goodyear-brand farm tires in Europe, the Middle East, Africa, Russia and other Commonwealth of Independent States countries is significant. This includes more than a hundred countries: Albania, Algeria, Andorra, Angola, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Benin, Bosnia and Herzegovina, Botswana, Bulgaria, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Croatia, Cyprus, Czech Republic, Democratic Republic of the Congo, Denmark, Djibouti, Egypt, Equatorial Guinea, Eritrea, Estonia, Ethiopia, Faroe Islands, Finland, France, Gabon, Gambia, Georgia, Germany, Ghana, Gibraltar, Greece, Guernsey, Guinea, Guinea-Bissau, Hungary, Iceland, Iran, Iraq, Ireland, Isle of Man, Israel, Italy, Ivory Coast, Jersey, Jordan, Kazakhstan, Kenya, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Lithuania, Luxembourg, Macedonia, Madagascar, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Monaco, Montenegro, Morocco, Mozambique, Namibia, Netherlands, Niger, Nigeria, Norway, Oman, Palestine, Poland, Portugal, Qatar, Romania, Russia, Rwanda, San Marino, Sao Tome & Principe, Saudi Arabia, Senegal, Serbia, Slovakia, Slovenia, Somalia, South Africa, Spain, Sudan, Swaziland, Sweden, Switzerland, Syria, Tajikistan, Tanzania, Togo, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, United Kingdom, Uzbekistan, Vatican City, Western Sahara, Yemen, Zambia, Zimbabwe (Rhodesia). These countries are in addition to our existing agreements covering North and South America. What this addition amounts to over time is huge.
"From the time Goodyear exited EMEA Farm Tire business in 2014, Titan has suffered the loss of business relating to new equipment being exported from North America to Europe. In fact, we estimate over $100 million in U.S. sales were lost. Titan will work to get all that business back plus more, but it will take time. This agreement (as explained further within a separate news release dated November 6, 2015) is positive for all of our existing tire facilities as they support production of the Goodyear-brand as well as the expansion of Titan's LSW technology to these new regions.
"My second quarter comments indicated my plans to visit large farms in South America. I recently spent a week meeting large farm owners in Brazil. It was a really exciting week for me along with our Grizz Squad and sales team leaders from South America. The first farm we visited was 1.2 million acres consisting of corn, soybeans and cotton. I was surprised to learn this farm group has over 800 machines; with not a single large four-wheel drive tractor on the entire farm. These farmers were interested in our LSW technology and we will be demonstrating how the LSW technology can improve the performance of their equipment. The initial LSW product in Brazil will come from the U.S., but I expect our facility in Sao Paulo will be producing these tires within the next six months. I plan to spend more time visiting these large farmers in the coming months to continue to drive the LSW rollout in South America.
"As I mentioned, I was really shocked by the absence of large four-wheel drive equipment in South America. I've talked with U.S. dealers about taking used machinery to South America, reconditioning the equipment, and then getting local dealers to work with U.S. dealers to sell the equipment. This would be great for the OEMs because that market could absorb a large portion of the used machinery located in the U.S. I believe that a few U.S. dealers with entrepreneurial drive could make this happen.
"I was recently at the Sunbelt Ag Expo in Moultrie, GA. One of our customers came to me about some tires they would like to put on new, larger size tractors (over 100 hp). When I explained to him how our new LSW technology could solve the issues they were facing, he wanted to get the wheel and tire assemblies as soon as possible. The compact tractor business is also growing and we expect to capture additional market share with our LSW assemblies for these smaller size tractors. I believe Titan will expand the LSW technology on many of these compact tractors within the next 9 to 12 months.
"Titan Tire Reclamation Corporation is on track for the expected start up on April 1, 2016. One of the reactors has now been relocated to our site in Fort McMurray, Canada. The remaining five reactors are expected to arrive within the next two weeks, which is the time it takes to transport them up there.
"Titan has improved our cash position during the quarter despite the challenges we faced. I believe that we have set up all of our facilities to be the most competitive in the world. Shareholders are welcome to visit any of our facilities and our employees would be proud to show you our operations. While no one can predict the future, we will continue to lower costs and make Titan a better company. After the markets start the climb up, we will strive to hit new highs in our sales and profit as the world leader in farm. I believe 2016 will be a much better year for our shareholders with the strengths of Titan clearly demonstrated."
Financial Summary
Restatement: On November 2, 2015, the Audit Committee of the Board of Directors of Titan International Inc. concluded that the previously issued consolidated financial statements for the years ending December 31, 2013 and 2014 and quarters ending March 31, 2014 and 2015, June 30, 2014 and 2015 and September 30, 2014, should no longer be relied upon due to errors in the accounting for the shareholders' agreement and related redeemable non-controlling interest in the company's investment in Voltyre-Prom. The company's Russian partnership agreement contains a settlement put option which may require Titan to purchase the shares of the minority shareholders at a value set by the agreement. The company did not correctly classify the redeemable non-controlling interest on the balance sheet as mezzanine equity, which is presented below liabilities and above equity. The earnings per share calculation is affected due to the redeemable non-controlling interest balance exceeding the carrying value of the investment.
The company filed an amended Form 10-K for the fiscal year ended December 31, 2014 and amended Form 10-Q's for quarters ending March 31, 2015 and June 30, 2015 to restate the accounting for this agreement on November 6, 2015. The corrections to earnings per share will not affect revenues, operating expenses, net income or cash flows.
Sales: Net sales for the quarter ended September 30, 2015, were $308.8 million compared to $449.6 million in 2014, a decrease of 31%. Overall sales experienced reductions in volume of 14% and price/mix of 5% as the agricultural market remains in a cyclical downturn. Reduced farm incomes resulted in lower demand for new equipment, primarily high horsepower agricultural equipment. In addition, competitive pressures and lower raw material prices, particularly in tire manufacturing, negatively impacted sales. Unfavorable currency translation decreased sales by 12%.
Net sales for the nine months ended September 30, 2015, were $1,087.0 million compared to $1,512.3 million in 2014, a decrease of 28%. Overall sales experienced reductions in volume of 13% and price/mix of 5% as the agricultural market remains in a cyclical downturn. Reduced farm incomes resulted in lower demand for new equipment, primarily high horsepower agricultural equipment. The demand for the company's products was further reduced as the result of inventory reduction efforts at OEMs and their dealers. The mining industry remains in a cyclical downturn as well. These decreases were partially offset by stable demand for products used in the construction industry. In addition, competitive pressures and lower raw material prices, particularly in tire manufacturing, negatively impacted sales. Unfavorable currency translation decreased sales by 10%.
Gross profit: Gross profit for the third quarter of 2015 was $26.2 million, or 8.5 percent of net sales, compared to $43.6 million, or 9.7 percent of net sales for the third quarter of 2014. In response to significantly lower demand from customers, the Company extended production shut-downs reducing manufacturing output which negatively impacted production capacity leverage and gross profit. Despite the large overall sales erosion resulting from the agricultural and mining cyclical downturns, the Business Improvement Framework instituted in 2014 has helped to soften the margin impact. Initiatives born from the framework helped to drive headcount reductions, expenditure rationalization, increased productivity, lower raw material costs, lower warranty costs, and pricing optimization.
Gross profit for the first nine months of 2015 was $120.0 million or 11.0% of net sales, compared to $116.4 million, or 7.7% of net sales in 2014. When adjusted to remove the asset impairment and inventory writedown which occurred in the second quarter of 2014, the gross profit for the nine months ended September 30, 2014, was $151.2 million, or 10.0% of net sales.
Selling, general and administrative expenses: Selling, general and administrative (SG&A) expenses for the third quarter of 2015 were $35.5 million, or 11.5% of net sales, compared to $39.2 million, or 8.7% of net sales, for 2014. SG&A expenses for the nine months ended September 30, 2015 were $109.0 million, or 10.0% of net sales, compared to $125.9 million, or 8.3% of net sales, for 2014. SG&A expenses decreased as the result of currency translation and SG&A cost reduction initiatives.
Loss from operations: Loss from operations for the third quarter of 2015 was $(14.5) million, or (4.7) percent of net sales, compared to a loss of $(2.5) million, or (0.6) percent of net sales, in 2014.
Loss from operations for the nine months ended September 30, 2015, was $(6.1) million, or (0.6) percent of net sales, compared to loss from operations of $(31.7) million, or (2.1) percent of net sales, in 2014. When adjusted to remove the asset impairment and inventory writedown which occurred in the second quarter of 2014, the income from operations for the nine months ended September 30, 2014, was $3.1 million, or 0.2 percent of net sales.
Interest expense: Interest expense was $8.3 million and $9.0 million for the quarters ended September 30, 2015, and 2014, respectively. Interest expense was $25.7 million and $27.1 million for the nine months ended September 30, 2015, and 2014, respectively.
Earnings per share: For the quarters ended September 30, 2015 and 2014 (as restated), basic and diluted earnings per share were $(0.79) and (0.47), respectively. For the nine months ended September 30, 2015 and 2014 (as restated), basic and diluted earnings per share were (0.67) and (0.85), respectively.
On an adjusted basis, basic and diluted earnings per share for the quarter ended September 30, 2015 and 2014 were $(0.59) and $(0.13), respectively. For the nine months ended September 30, 2015 and 2014, basic and diluted earnings per share were $(0.50) and $(0.06), respectively.
Capital expenditures: Titan's capital expenditures were $12.7 million for the third quarter of 2015 and $15.4 million in the third quarter of 2014. Year-to-date expenditures were $35.2 million for 2015 compared to $46.3 million for 2014.
Debt balance: Total long-term debt balance was $492.4 million at September 30, 2015, compared to $496.5 million on December 31, 2014. Short-term debt balance was $21.0 million at September 30, 2015, and $26.2 million at December 31, 2014. Net debt (debt less cash and investments) was $319.7 million at September 30, 2015, compared to $321.3 million at December 31, 2014.
Equity balance: The company's equity was $413.4 million at September 30, 2015, compared to $518.9 million at December 31, 2014.
