Titan International Inc. announces fourth quarter and 2015 year end results.
Fourth quarter highlights:
- Sales for fourth quarter 2015 were $307.8 million compared to $383.3 million in the fourth quarter of 2014.
- Gross profit for the fourth quarter 2015 was $17.8 million, or 5.8% of net sales, compared to $24.3 million in fourth quarter 2014, or 6.3% of net sales.
- Fourth quarter income from operations was $(18.2) million compared to $(65.9) million last year.
- Earnings per share for the fourth quarter 2015 were $(1.07) and $(1.07) for basic and fully diluted, respectively, compared to $(1.57) and $(1.57) for 2014, basic and fully diluted, respectively. Adjusted earnings per share for the fourth quarter 2015 were $(0.38) and $(0.38) for basic and fully diluted, respectively, compared to $(0.43) and $(0.43) for 2014, basic and fully diluted, respectively.
Full year summary:
- Sales for the full year 2015 were $1,394.8 million, down 26.4% compared to $1,895.5 million in 2014.
- Gross profit was $137.8 million, or 9.9% of net sales for the year ending December 31, 2015 compared to $140.6 million, or 7.4% at December 31, 2014.
- Income from operations was $(24.3) million, or (1.8) percent of net sales for fiscal year 2015 compared to $(97.6) million, or (5.1) percent of net sales for 2014.
- Earnings per share for the full year 2015 were $(1.74) and $(1.74) for basic and fully diluted, respectively, compared to $(2.43) and $(2.43) for 2014, basic and fully diluted, respectively. Adjusted earnings per share for the full year 2015 were $(0.13) and $(0.13) for basic and fully diluted, respectively, compared to $(0.49) and $(0.49) for 2014, basic and fully diluted, respectively.
Statement of Chief Executive Officer:
Maurice Taylor, CEO and Chairman comments, "2015 was a challenging year. Sales dropped $500 million due to reduced demand in the agriculture, construction and mining markets, combined with the substantial decline in currency values in Brazil, Europe and Russia. However, there was also the 'good' reduction in oil, steel and rubber prices, which reduced Titan's costs. Additionally, Titan further reduced headcount expenses in 2015 by approximately 2,500 employees cumulatively dating back to 2014. Titan has continued to make the tough decisions to improve operating profit in every manufacturing facility worldwide.
"I believe the year-end and fourth-quarter results show that Titan is nearing the bottom in its markets. The 2015 reduction in sales was 26%, while fourth quarter sales dropped only 19%. Big iron products consist of combines, large tractors (over 250 hp) and sprayers. For these products, I believe sales in North America will be flat in 2016. In the 100 hp and under segment, we see market growth in 2016, up to 15% over 2015. Titan has a large share of tires and wheels in this market and we look to increase it with new LSW tires and wheels that we have developed.
"I believe Titan's revenue will grow in 2016, driven by LSW products and the addition of the Goodyear brand in Europe and Russia. We are planning for incremental Brazil wheel business in the fourth quarter, with the addition of new wheel manufacturing capabilities at our Sao Paulo tire plant. Our new tire reclamation business in Canada will be operational in April, with a grand opening planned on March 29th. We are also seeing a pickup in ITM aftermarket sales in track in North America, South America and Australia. Despite a 26% ($500 million) drop in sales, our gross margin percentage increased in 2015. I believe with the changes that we have made to the business, even a slight upturn in revenue will produce a disproportionate increase in profitability.
"If you look at Titan's ending cash balance of $200 million, you see that Titan has managed its cash very well. In fact, with deeper focus on working capital, I believe we will manage cash even more effectively in 2016. The 'One Titan' framework will continue to push improvements through our Business Improvement Framework, driving both profit and cash.
"Titan's capital expense in 2016 will be in the range of $30-$35 million. This amount will allow projects that will improve margins to be funded as well as maintain or replace existing equipment.
"Looking ahead is always a guess and looking back is always easy. In the wheel and tire business, I have never seen a period where our markets have dropped like they have, but I have also never seen a time in history where Titan has been this well positioned going forward. This is due to our strong market share, the LSW tire and wheel business strategy, and our exceptional management team. We have worked incredibly hard to make product innovation like LSW such a valuable asset for the present and our future. We believe our end-users are realizing first hand that LSW makes their equipment perform better. So, our job and responsibility is to simply move as fast as possible to spread the word on LSW, develop new LSW products, build quality LSW products, and sell and market the heck out of LSW. It's that simple.
"We have accomplished so much, the new management team has driven a lot of needed change, but we still have a lot of work to do. As Paul Reitz states, 'We are One Titan worldwide and our future growth will be driven together.' I believe he is absolutely right in both his vision and leadership towards this purpose."
Net Sales: Titan recorded sales of $307.8 million for the fourth quarter of 2015, compared to fourth quarter 2014 sales of $383.3 million. For the year, net sales for 2015 were $1,394.8 million, compared to $1,895.5 million in 2014, a decrease of 26%. Year-to-date sales declined across all reported segments. Sales volume was down 11% as both the Agriculture and Earthmoving/Construction segments remained in cyclical downturns. The Consumer segment was affected by the company's exit from various low-margin supply agreements and economic stress in Brazil. Unfavorable currency translation affected sales by 10% and a reduction in price/mix of 5% further eroded sales due to competitive pricing and lower raw material costs passed along to customers.
Gross Profit: Gross profit for the fourth quarter of 2015 was $17.8 million, or 5.8% of net sales, compared to $24.3 million, or 6.3% of net sales for the fourth quarter of 2014. Gross profit for the year 2015 was $137.8 million, or 9.9% of net sales, compared to $140.6 million, or 7.4% of net sales for 2014. During 2014, the company recorded an asset impairment of $23.2 million on machinery, equipment and molds used to produce giant mining tires. In addition, the company recorded inventory write-downs of $16.7 million in 2014 to adjust the value of mining product inventory to estimated market value. After adjusting 2014 for the aforementioned impairments and write-downs, gross profit for 2014 was $180.6 million, or 9.5% of net sales.
Even as sales declined in 2015, adjusted gross margin improved as the company continued to reap benefits from the Business Improvement Framework which began in 2014. After adjusting for the aforementioned impairments and write-downs, gross margin in 2014 was 9.5% compared to 9.9% in 2015, in the face of a 26% decline in sales. The improvement despite the sales decline was driven by initiatives born from the framework resulting in increased productivity, expenditure rationalization, lower material costs, improved quality, lower warranty costs, and pricing optimization.
Warranty Expense: The provision for warranty liability was $9.7 million at December 31, 2015, or 0.7% of sales, compared to $17.7 million at December 31, 2014, or 0.9% of sales.
Selling, general and administrative expenses: Selling, general and administrative (SG&A) expenses for the fourth quarter of 2015 were $31.4 million, or 10.2% of net sales, compared to $47.7 million, or 12.4% of net sales, for 2014. SG&A expenses for the 12 months ended December 31, 2015 were $140.4 million, or 10.1% of net sales, compared to $173.6 million, or 9.2% of net sales, for 2014. The decrease in SG&A expenses was driven from our Business Improvement Framework and currency.
Loss from operations: Loss from operations for the fourth quarter of 2015 was $(18.2) million, or (5.9) percent of net sales, compared to $(65.9) million, or (17.2) percent of net sales, in 2014. Loss from operations for the 12 months ended December 31, 2015, was $(24.3) million, or (1.8) percent of net sales, compared to $(97.6) million, or (5.1) percent of net sales, in 2014. During 2014, the company recorded a noncash charge for the impairment of goodwill of $36.6 million on both a pre-tax and after-tax basis. After adjusting 2014 for the aforementioned asset impairments, inventory write-downs and goodwill impairment, loss from operations for 2014 was $(21.1) million, or (1.1) percent of net sales.
Interest expense: Interest expense was $8.3 million and $9.4 million for the quarters ended December 31, 2015 and 2014, respectively. Interest expense for the year 2015 was $34.0 million compared to $36.6 million in 2014. The company's interest expense for 2015 decreased from the previous year primarily from decreased debt balances at Titan Europe.
Foreign exchange gain/loss: Foreign currency gain was $1.0 million for the quarter ended December 31, 2015 compared to loss of $20.4 million for the quarter ended December 31, 2014. Foreign currency loss was $4.8 million and $31.7 million for the years ended December 31, 2015 and 2014, respectively. Foreign currency losses in 2015 and 2014 primarily reflect the translation of inter-company loans at certain foreign subsidiaries denominated in currencies other than their functional currencies. Since such loans are expected to be settled in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. During 2014, the translation of these intercompany loan balances was significant due to the relative strength of the U.S. dollar in relation to the functional currencies of the loans. Although the U.S. dollar remained strong throughout 2015, foreign currency losses were minimized through offsetting gains relating to derivative financial instruments on such intercompany loans as well as other actions taken to reduce exposures.
Provision (benefit) for income taxes: The company recorded tax expense for income taxes of $38.3 million in 2015, as compared to income tax benefit of $21.8 million in 2014. The company's effective tax rate was (74) percent in 2015 and 14% in 2014. The company's 2015 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of a foreign exchange loss upon the outbound transfer of Brazil assets for U.S. tax purposes (check the box election) offset by an increase in the valuation allowance against deferred tax assets. The company's 2014 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of non-deductible goodwill and the recording of a valuation allowance. Other items contributing to the rate difference are state income tax expense, debt forgiveness, foreign earnings, and non-deductible expenses.
Capital expenditures: Titan's capital expenditures were $13.2 million for the fourth quarter of 2015 and $12.1 million for the fourth quarter of 2014. Year-to-date expenditures were $48.4 million for 2015 compared to $58.4 million for 2014.
Debt balance: Total long-term debt balance was $480.4 million at December 31, 2015 compared to $496.5 million on December 31, 2014. Short-term debt balance was $31.2 million at December 31, 2015 and $26.2 million at December 31, 2014. Net debt (debt less cash and cash equivalents) was $311.4 million at December 31, 2015, compared to $321.3 million at December 31, 2014.
Equity balance: The company's equity was $344.7 million at December 31, 2015 compared to $518.9 million at December 31, 2014.