Titan International Inc. announces second quarter revenue and performance results.
Second Quarter Highlights
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Sales for the second quarter of 2015 were $376.1 million, down 28.2%, compared to $523.7 million in the second quarter of 2014.
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Gross profit for the second quarter of 2015 was $51.1 million, or 13.6% of net sales, compared to $20.8 million, or 4.0% of net sales for the second quarter of 2014.
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Income from operations for the second quarter of 2015 was $7.5 million, or 2.0% of net sales, compared to a loss of $(29.5) million, or (5.6)% of net sales, for the second quarter of 2014.
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Adjusted net income for the second quarter was $1.0 million, compared to $1.7 million in the second quarter of 2014.
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Adjusted basic earnings per share for the second quarter 2015 and 2014 were $0.02 and $0.03 respectively, and adjusted fully diluted earnings per share were $0.02 and $0.03 respectively.
Statement of Chief Executive Officer:
CEO and Chairman, Maurice Taylor comments, "This past quarter, like the first, proves that what the management team has done in 2014 and thus far in 2015 is paying off. Titan's agriculture, mining, construction and consumer businesses are all down. Overall sales are off over 25% year over year, yet we have been able to improve our operating margin rate performance. Titan's liquidity remained stable during the quarter, with both cash and debt balances similar to Q1. This demonstrates we are on the right track.
"A significant challenge during the past several years has been trying to drive market adoption of the innovative LSW solution. After creating 'pull' through with the big farmers, large contractors, and mining companies, we are establishing traction and gaining momentum with the OEMs. Titan is converting new customers every day to the LSW technology. While our markets remain soft and our customers seek greater efficiencies, LSW will become a more prominent solution of choice, as it improves every facet of equipment performance. Our LSW Goodyear farm tire offering continues to expand as farmers discover its benefits: low soil compaction, fuel savings and reduced road lope/power hop. We believe the LSW tires can run with the lowest air pressure of any tire produced today. I personally plan to visit the large farms in South America later this year to demonstrate the value that the LSW technology delivers. I'm excited to have the opportunity to meet with and sell directly to super farms, huge contractors and mining companies as this remains an integral part of our adoption strategy.
"We are in discussions with equipment dealers to offer a program by which traditional tires/wheels are exchanged for new LSW technology. We believe this program will potentially drive customer loyalty and ultimately improve their bottom line. A movement is building whereby our end customers will purchase their equipment without tires/wheels, and acquire the LSW technology separately, for the equipment enhancements and potential tax benefits.
"Titan has a number of positive initiatives coming on stream in the next six months. Titan will be producing top of the line ATV Goodyear tires, new underground mining tires/wheels and new super single tires in conjunction with 3-piece wheels for ease of dismounting. We are exploring plans to expand our wheel plant in Turkey; and establish a new wheel presence in Brazil to accompany our existing tire business. Equipment is being shipped and construction has begun in the oil sands for Titan Tire Reclamation. We expect to be operating by April 1, 2016.
"As I've mentioned during the past few quarters, when things get tough, Titan keeps moving. Historically, Titan has successfully navigated through these difficult cycles. The new leadership team is maturing and gaining further 'seasoning' while managing through these difficult markets. I am confident this new management team will ultimately lead and drive this company to new heights."
Financial Summary
Sales: Net sales for the quarter ended June 30, 2015, were $376.1 million compared to $523.7 million in 2014, a decrease of 28%. Overall sales experienced reductions in volume of 11% and price/mix of 7% as the agricultural market remains in a cyclical downturn. Reduced farm incomes result 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 10%.
Net sales for the six months ended June 30, 2015, were $778.1 million compared to $1,062.7 million in 2014, a decrease of 27%. Overall sales experienced reductions in volume of 11% and price/mix of 6%, as the agricultural market remains in a cyclical downturn. Reduced farm incomes result in lower demand for new equipment, primarily high horsepower agricultural equipment. 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 second quarter of 2015 was $51.1 million, or 13.6% of net sales, compared to $20.8 million, or 4.0% of net sales for the second quarter of 2014. In the second quarter of 2014, the Company recorded an asset impairment and inventory writedown of $23.2 million and $11.6 million, respectively. When adjusted to remove these items, the gross profit for the quarter ended June 30, 2014, was $55.6 million, or 10.6%. Despite the large overall sales erosion resulting from the agricultural and mining cyclical downturns, gross margin as a%age of net sales benefited from the Business Improvement Framework instituted in 2014. 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 six months of 2015 was $93.8 million or 12.1% of net sales, compared to $72.8 million, or 6.8% of net sales in 2014. When adjusted to remove the previously mentioned asset impairment and inventory writedown, the gross profit for the six months ended June 30, 2014, was $107.5 million, or 10.1% of net sales.
Selling, general and administrative expenses: Selling, general and administrative (SG&A) expenses for the second quarter of 2015 were $37.8 million, or 10.1% of net sales, compared to $42.8 million, or 8.2% of net sales, for 2014. SG&A expenses for the six months ended June 30, 2015 were $73.5 million, or 9.4% of net sales, compared to $86.7 million, or 8.2% of net sales, for 2014. SG&A expenses decreased nearly $7 million as the result of currency translation. The remaining decrease was the result of lower selling costs and SG&A cost reduction initiatives.
Income from operations: Income from operations for the second quarter of 2015 was $7.5 million, or 2.0% of net sales, compared to a loss of $(29.5) million, or (5.6)% of net sales, in 2014. When adjusted to remove the previously mentioned asset impairment and inventory writedown, the income from operations for the quarter ended June 30, 2014, was $5.3 million, or 1.0% of net sales.
Income from operations for the six months ended June 30, 2015, was $8.3 million, or 1.1% of net sales, compared to loss from operations of $(29.2) million, or (2.7)% of net sales, in 2014. When adjusted to remove the previously mentioned asset impairment and inventory writedown, the income from operations for the six months ended June 30, 2014, was $5.6 million, or 0.5% of net sales.
Interest expense: Interest expense was $8.6 million and $8.9 million for the quarters ended June 30, 2015, and 2014, respectively. Interest expense was $17.4 million and $18.2 million for the six months ended June 30, 2015, and 2014, respectively.
Earnings per share: For the quarters ended June 30, 2015 and 2014, basic earnings per share were $.13 and $(.38), respectively, and diluted earnings per share were $.12 and $(.38), respectively. For the six months ended June 30, 2015 and 2014, basic earnings per share were $0.13 and $(0.34), respectively, and diluted earnings per share were $0.13 and $(0.34), respectively.
On an adjusted basis (see Appendix attached) basic earnings per share for the quarter ended June 30, 2015 and 2014 were $0.02 and $0.03, respectively, and diluted earnings per share were $0.02 and $0.03 respectively. For the six months ended June 30, 2015 and 2014, basic earnings per share were $0.08 and $0.07, respectively, and diluted earnings per share were $0.08 and $0.07, respectively.
Capital expenditures: Titan's capital expenditures were $11.1 million for the second quarter of 2015 and $14.1 million in the second quarter of 2014. Year-to-date expenditures were $22.5 million for 2015 compared to $30.9 million for 2014.
Debt balance: Total long term debt balance was $495.3 million at June 30, 2015, compared to $496.5 million on December 31, 2014. Short-term debt balance was $25.1 million at June 30, 2015, and $26.2 million at December 31, 2014. Net debt (debt less cash and investments) was $332.9 million at June 30, 2015, compared to $321.3 million at December 31, 2014.
Equity balance: The company's equity was $554.5 million at June 30, 2015, compared to $590.1 million at December 31, 2014.
