Titan Machinery Inc., a network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal second quarter and first six months ended July 31, 2013.

Fiscal 2014 Second Quarter Results

For the second quarter of fiscal 2014, revenue increased 19.0% to $488.2 million from revenue of $410.1 million in the second quarter last year. All four of the Company’s revenue sources—equipment, parts, service, and rental and other — contributed to this period-over-period revenue growth. Equipment sales were $358.4 million for the second quarter of fiscal 2014, compared to $306.2 million in the second quarter last year. Parts sales were $70.6 million for the second quarter of fiscal 2014, compared to $57.9 million in the second quarter last year. Revenue generated from service was $39.9 million for the second quarter of fiscal 2014, compared to $30.5 million in the second quarter last year. Revenue from rental and other increased to $19.3 million for the second quarter of fiscal 2014 from $15.5 million in the second quarter last year.

Gross profit for the second quarter of fiscal 2014 was $83.5 million, compared to $70.4 million in the second quarter last year. The Company’s gross profit margin was 17.1% in the second quarter of fiscal 2014, compared to 17.2% in the second quarter last year. Gross profit from parts, service, and rental and other for the second quarter of fiscal 2014 was 65% of overall gross profit and increased to $54.2 million from $43.5 million in the second quarter last year. Solid performance from our parts, service, rental and other was offset by softer equipment margins.

Operating expenses were 14.4% of revenue or $70.1 million for the second quarter of fiscal 2014, compared to 13.8% of revenue or $56.5 million for the second quarter of last year. The increase in operating expenses as a percentage of revenue reflects the higher operating expenses as a percent of revenue in the expanded Construction and International footprints.

Floorplan interest expense increased to $3.7 million for the second quarter of 2014 compared to $2.4 million for the same period last year due to increased levels of interest-bearing equipment inventory.

Pre-tax income for the second quarter of fiscal 2014 was $6.6 million, for a pre-tax margin of 1.3%, compared to $8.8 million, for a pre-tax margin of 2.1%, in the second quarter last year. Pre-tax Agriculture segment income was $9.8 million for the second quarter of fiscal 2014, compared to pre-tax income of $10.0 million in the second quarter last year. Pre-tax Construction segment loss was $1.7 million for the second quarter of fiscal 2014, compared to pre-tax income of $0.6 million in the second quarter last year. In the second quarter of fiscal 2014, pre-tax International segment income was $0.1 million, compared to pre-tax income of $0.4 million in the second quarter last year.

Net income attributable to common stockholders for the second quarter of fiscal 2014 was $3.8 million, compared to net income attributable to common stockholders of $5.2 million in the second quarter last year. Earnings per diluted share for the second quarter of fiscal 2014 was $0.18, compared to $0.25 in the second quarter last year.

Fiscal 2014 First Six Months Results

For the six months ended July 31, 2013, revenue increased 11.8% to $929.9 million from $831.8 million for the same period last year. Gross profit margin for the first six months of fiscal 2014 was 16.9%, flat compared to the same period last year. Pre-tax income for the first six months of fiscal 2014 was $5.6 million for a pre-tax margin of 0.6%, compared to $21.1 million, or a pre-tax margin of 2.5%, for the same period last year. Net income attributable to common stockholders for the first six months of fiscal 2014 was $3.4 million, or $0.16 per diluted share, compared to $12.7 million, or $0.60 per diluted share, for the same period last year.

Balance Sheet

The Company ended the second quarter of fiscal 2014 with cash of $102.4 million. The Company’s inventory level was $1.1 billion as of July 31, 2013, compared to $929.2 million at January 31, 2013. This inventory level primarily reflected an increase in new equipment, which increased to $705.4 million at July 31, 2013, from $542.2 million at January 31, 2013, while used equipment decreased to $270.5 million at July 31, 2013 from $275.6 million at January 31, 2013. The increase in new inventory is due to lower than anticipated equipment sales in the first quarter of fiscal 2014, planned seasonal inventory stocking, and the building of inventory to support the Company’s expanded International footprint. The Company had available $130.4 million of its $975 million total discretionary floorplan lines of credit as of July 31, 2013.

Management Comments

David Meyer, Titan Machinery’s Chairman and Chief Executive Officer, stated, “In the second quarter of fiscal 2014, we generated solid sales for our Agriculture segment. Our higher margin parts and service sales performed well during the quarter; however, they were partially offset by lower than expected equipment margins. As we look toward the back half of the year for our Agriculture business, we anticipate a challenging environment given lower commodity prices combined with anticipated reduced crop production in our Agriculture footprint. We believe these factors will affect our customers’ sentiment, resulting in lower equipment revenues and pricing pressure on equipment margins.”

Mr. Meyer continued, “Regarding our Construction segment, we continue to focus on implementing and executing on key initiatives to drive top and bottom line improvements for this segment of our business. Overall industry conditions remain challenging, but we are confident that we are on the right track to improve this segment of our business and continue to believe that it will be a key structural component of our top and bottom line growth long-term.”