Titan Machinery shares drop on margin pressure, weaker ag demand

Shares of Titan Machinery (NASDAQ:TITN) fell as much as 8% on Thursday after the farm and construction equipment dealer reported fiscal second-quarter results that topped Wall Street’s estimates but highlighted persistent margin pressure and weaker demand in its core agriculture business.

The company reported a net loss of $6.0 million, or $0.26 per share, compared with a loss of $0.19 per share in the same quarter last year. On an adjusted basis, Titan (NASDAQ:TITN) posted a loss of $0.26 per share, reversing adjusted earnings of $0.17 a year earlier. Even so, the result was better than Wall Street’s forecast for a $0.48 loss.

Revenue totaled $546.4 million, down from $633.7 million a year ago but comfortably above analyst expectations of $503.8 million.

Margin pressure, agriculture weakness

Despite the beat, investors appeared focused on the underlying negatives. Gross profit margin slipped to 17.1% from 17.7% a year ago, as Titan (TITN) discounted equipment to reduce inventory in the face of sluggish farmer demand.

Management said softer commodity prices and elevated interest rates have crimped farm profitability, leading to an 18.7% same-store sales decline in its agriculture segment, which represents the bulk of its revenue. The unit swung to a $12.3 million pre-tax loss from a modest profit a year earlier.

Bryan Knutson, Titan’s (TITN) president and chief executive, said the company remains focused on its publicly stated goal of cutting $100 million in equipment inventory this fiscal year, a key initiative to lift margins and reduce floorplan interest costs.

“As far as how much we look to exceed the $100 million by — of course, the $100 million is what we're maintaining publicly as our goal,” he said in a conference call with analysts. “Internally, our goals are a lot higher than that. But there’s a lot of variables here for the rest of the year.”

The company narrowed guidance for an adjusted full-year loss of $1.50 to $2 a share from a range of $1.25 to $2 previously.

Other segments mixed

Results elsewhere were uneven. European operations posted a 38% jump in revenue, supported by stimulus programs in Romania, while construction sales fell 10% year over year. In Australia, revenue plunged nearly 49% as sprayer deliveries normalized following a backlog clearance last year.

Titan's dealer network carries brands including Case IH, Case Construction and New Holland.