Titan International, a leading global manufacturer of off-highway wheels, tires, assemblies and undercarriage products, today reported financial results for the third quarter ended September 30, 2024.
Paul Reitz, President and Chief Executive Officer stated, "I have been spending a lot of time with customers in recent months, and it is clear that Titan's position as a valued partner centers on the innovative nature of the products we have developed and continue to develop. The Low-Side Wall ("LSW") wheel/tire assemblies continue to capture attention in the marketplace and I recently heard that directly from some very large farmers.”
“They raved about the field performance, reduced soil compaction and highlighted fuel savings, according to their records, that far exceeds the 10 to 15% savings that Titan has stated. All of their major equipment on a 25,000 acre farm is using LSWs. This visit made it clear that we have proven that LSW provides improved economics and field performance for the farmer."
Mr. Reitz continued, "We are also working on tooling up to add the deep drop wheel to our LSW tires, which will improve field performance even further. The bottom-line is that I see a big opportunity ahead of us to educate more end-users that LSW is not just for combines and the largest tractors - the technology also works better on almost every piece of equipment, including mid-size tractors.
“That market size is easily another 25,000 new tractors produced annually, so tapping into a fraction of that would move the needle in our sales and EBITDA. There is simply no reason to run duals and we will be increasing our efforts and resources to reach more end-users to create further awareness of the LSW benefits for all sizes of Ag equipment to capture those significant opportunities."
Mr. Reitz added, "Across the entire business we are busy working to drive growth via product development from our flagship LSWs to growth via the Carlstar acquisition – all exemplifying that we are not simply sitting back and going with the flow of the market. We are excited to have recently launched our VPO Technology under the Carlstar brand, which offers a versatile solution as an alternative to tweel wheels and can operate machinery at various inflation pressures — even down to zero psi. We will soon be launching the first Titan branded high speed trailer tire.
“Beyond that we have extensive opportunities via the Carlstar acquisition to bring LSWs into their product mix, allowing us to grow into new geographies and underserved markets. I mentioned last quarter that we see a strong opportunity to gain back military sales that have diminished over the past 10 to 15 years,” said Reitz. “Our product innovations that perform well in Ag and Construction will also make military equipment perform better. We are expanding our outreach with some influential leaders in the military industry and will continue working to capture those sales."
Mr. Reitz continued, "Beyond our focus on growth, we are managing costs and focusing on what we can control. Cashflow was a bright spot for the quarter, driven by our steadfast focus on working capital management. We reduced debt, while continuing to buy back shares and on the whole, delivered solid results within the context of our end market conditions.”
“We have reduced expenses to align costs with lower production schedules, including an approximate 15% reduction in our headcount from the cycle peak in 2022 while still maintaining adequate manufacturing capabilities,” said Reitz. “The integration of Carlstar continues to move forward very well and we have pushed hard on cross-selling opportunities and other top line synergies. Most importantly, we are basing our decisions on our ability to serve our customers when demand for equipment improves. When it does, it is critical that we are there to meet our customers' needs."
Mr. Reitz concluded, "The large Ag OEMs and dealers have been vocal in recent months about their actions to further reduce inventory levels by the end of 2024. This is an encouraging sign as it suggests no further destocking activity of any magnitude entering 2025. Potential interest rate declines represent an additional positive factor, and the trade policy risk tied to the election should also abate as we turn the page to 2025. I remain exceptionally proud of our team at Titan to take actions with conviction to deliver for our customers and believe it is an exciting time for Titan to capitalize on growth opportunities."
Fourth Quarter 2024 Outlook
David Martin, Chief Financial Officer, added, "In the fourth quarter, we expect to see sales between $375 million and $425 million, and adjusted EBITDA at breakeven to $10 million. We continue to be focused on driving free cash flow and we expect to see it around breakeven, reflecting continued solid working capital management. Our profitability profile has been lifted significantly from where we have seen traditional cyclical lows.”
“That ability to hold on to margins enabled us to drive a strong free cash flow of $42 million in the third quarter. We used that cash to continue reducing our debt, with net debt down to $291 million on September 30th, compared with $326 million as of June 30th, while also continuing our share repurchase program, under which we repurchased 1,050,000 shares of our common stock totaling $8.3 million during the three months ended September 30, 2024,” said Martin. “Our financial condition is solid, and it allows for the flexibility to operate more efficiently, invest for the future and wisely allocate capital to deliver returns for the long-term."
Results of Operations
For the three months ending September 30, 2024, net sales increased to $448.0 million from $401.8 million in the same period of 2023, primarily due to higher volumes in the consumer segment and contributions from the Carlstar acquisition. However, this growth was partially offset by decreased sales in the agricultural and earthmoving/construction sectors, attributed to lower global demand. Additionally, the increase in net sales was affected by negative pricing trends and a 3.3% unfavorable currency translation impact. Gross profit also declined to $58.8 million, or 13.1% of net sales, compared to 16.4% the previous year, influenced by a negative price/mix effect, reduced fixed cost leverage and increased material costs.
Selling, general and administrative expenses (SG&A) rose to $49.5 million, or 11.1% of net sales, driven largely by ongoing costs associated with the Carlstar operations. Consequently, income from operations fell to $2.8 million compared to $27.0 million in the prior year, reflecting the lower gross profit. The company reported an income tax expense of $12.9 million for the three months ended September 30, 2024, up from $4.7 million in 2023, with significant variations in effective tax rates primarily due to decreased pre-tax income and non-deductible expenses related to the acquisition. Overall, year-to-date income taxes paid totaled $16.4 million through September 30, 2024.
