WEST FARGO, N.D., April 10, 2014 — Titan Machinery Inc., a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal fourth quarter and full year ended January 31, 2014.

Despite a year-over-year decline in quarterly revenues, the company’s shares rose 14.8% on the day to $18.14. It beat Capital IQ fourth quarter fourth quarter EPS estimates of 20 cents per share by 15 cents, reporting an EPS of 35 cents for the quarter.

Fiscal 2014 Fourth Quarter Results

For the fourth quarter of fiscal 2014, revenue was $708.6 million, compared to $784.5 million in the fourth quarter last year. Equipment sales were $587.9 million for the fourth quarter of fiscal 2014, compared to $679.0 million in the fourth quarter last year. Parts sales were $61.4 million for the fourth quarter of fiscal 2014, compared to $53.5 million in the fourth quarter last year. Revenue generated from service was $36.6 million for the fourth quarter of fiscal 2014, compared to $34.2 million in the fourth quarter last year. Revenue from rental and other increased to $22.8 million for the fourth quarter of fiscal 2014 from $17.8 million in the fourth quarter last year.

Gross profit for the fourth quarter of fiscal 2014 was $97.0 million, compared to $104.5 million in the fourth quarter last year. The Company’s gross profit margin was 13.7% in the fourth quarter of fiscal 2014, compared to 13.3% in the fourth quarter last year. Gross profit from parts and service for the fourth quarter of fiscal 2014 was 41% of overall gross profit and increased to $39.5 million from $35.5 million in the fourth quarter last year. Solid performance from parts and service was offset by lower equipment sales and margins.

Operating expenses were 10.9% of revenue or $77.1 million for the fourth quarter of fiscal 2014, compared to 9.2% of revenue or $72.2 million for the fourth quarter of last year. The increase in operating expenses as a percentage of revenue reflects higher operating expenses related to expanding the distribution network in the Company’s Construction and International footprint as well as negative operating leverage resulting from decreased same-store sales.

In the fourth quarter of fiscal 2014, the Company is recognizing a non-cash impairment charge of $10.0 million (or $6.1 million after-tax), primarily related to goodwill and other intangible assets associated with certain of the Company's underperforming dealerships in the Construction and International segments.

Floorplan interest expense increased to $4.8 million for the fourth quarter of 2014 compared to $4.3 million for the same period last year due to increased levels of interest-bearing equipment inventory.

Pre-tax income for the fourth quarter of fiscal 2014 was $2.8 million. Excluding the aforementioned non-cash impairment charge, adjusted pre-tax income for the fourth quarter of fiscal 2014 was $12.8 million, for a pre-tax margin of 1.8%. This compares to pre-tax income of $25.8 million, for a pre-tax margin of 3.3%, in the fourth quarter last year. Pre-tax Agriculture segment income was $25.1 million for the fourth quarter of fiscal 2014, compared to pre-tax income of $33.7 million in the fourth quarter last year. Adjusted pre-tax Construction segment loss was $8.2 million for the fourth quarter of fiscal 2014, compared to a loss of $5.5 million in the fourth quarter last year. In the fourth quarter of fiscal 2014, adjusted pre-tax International segment loss was $2.3 million, compared to a loss of $0.9 million in the fourth quarter last year.

Net loss attributable to common stockholders for the fourth quarter of fiscal 2014 was $0.4 million, or a loss per diluted share of $0.02. This net loss includes the after-tax impairment charge of $6.1 million and tax valuation allowance on certain deferred tax assets of its International dealerships of $1.7 million. Excluding these non-cash items, totaling $7.8 million (or $0.37 per share), adjusted net income attributable to common stockholders for the fourth quarter of fiscal 2014 was $7.4 million, or $0.35 per diluted share. This compares to net income attributable to common stockholders of $15.4 million, or $0.73 per diluted share, in the fourth quarter last year.

Fiscal 2014 Full Year Results

For the full year ended January 31, 2014, revenue increased 1.3% to $2.23 billion from $2.20 billion last year. Gross profit margin for fiscal 2014 was 15.6%, compared to 15.4% last year. Pre-tax income for the fiscal 2014 was $18.4 million. Excluding the aforementioned non-cash impairment charge of $10.0 million, adjusted pre-tax income was $28.4 million, for a pre-tax margin of 1.3%. This compares to pre-tax income of $70.7 million, or a pre-tax margin of 3.2%, last year. GAAP net income attributable to common stockholders for fiscal 2014 was $8.7 million, or $0.41 per diluted share. Adjusted net income attributable to common stockholders for fiscal 2014 was $16.5 million, or $0.78 per diluted share. This compares to $42.0 million, or $2.00 per diluted share, last year.

Fiscal 2015 Outlook

The Company evaluates its financial performance based on its customers’ annual production cycles as opposed to a quarterly basis, due to weather fluctuations and the seasonal nature of each customer's business. For the full year ending January 31, 2015, the Company expects revenue to be in the range of $1.95 billion to $2.15 billion. The Company expects adjusted net income attributable to common stockholders to be in the range of $14.8 million to $21.1 million, and adjusted earnings per diluted share to be in the range of $0.70 to $1.00 based on estimated weighted average diluted common shares outstanding of 21.1 million.

The Company expects GAAP net income attributable to common stockholders to be in the range of $12.2 million to $18.6 million, and GAAP earnings per diluted share to be in the range of $0.58 to $0.88 based on estimated weighted average diluted common shares outstanding of 21.1 million. GAAP net income and earnings per diluted share guidance includes the impact of the $4.2 million pre-tax charge, or $0.12 per diluted share, associated with the Company’s realignment that it expects to realized in the first quarter of fiscal 2015.

The Company expects to generate Non-GAAP cash flow from operations in the range of $60.0 million to $80.0 million for fiscal 2015. This reflects an improvement of $110.8 million to $130.8 million compared to Non-GAAP cash flow from operations of $(50.8) million in fiscal 2014. The primary driver of the improved cash flow is the Company’s anticipated reduction in equipment inventory level of approximately $250 million in fiscal 2015. 

Management Comments

David Meyer, Titan Machinery’s CEO provided additional color on the company’s outlook for both agriculture and construction equipment markets. “Although we are facing some headwinds, in the agricultural business, it’s important to remember our customers benefit from low interest rates and their balance sheets remain very strong. We’re confident in the long-term strength of the ag industry and increasing global demand for agricultural production.”

He says that Titan will continue to look for opportunistic acquisitions of ag equipment dealerships in fiscal 2015.

On the construction side, Meyer commented, “The positive fourth quarter construction same-store comps we achieved are reflective of some early signs of improvement in our markets and we continue to see growth in rental equipment demand, which is aligned with industry forecasts.”