Titan International Inc. posted net income of $8.1 million on net sales of $497.5 million for the third quarter ended Sept. 30, 2013. That compares to income of $24.7 million on sales of $404.7 million for the same period last year.
Third-quarter operating income was down 52.7%, from $36.2 million to $17.1 million. The company's net income-to-sales ratio was 1.6%.
Sales were up nearly 23% in part due to the addition of recently acquired entities including Titan Europe. Sales were partially offset by 1) a price/mix reduction which resulted largely from decreased raw material prices that were generally passed on to customers and decreased sales approximately 5%; 2) weakened demand in the earthmoving/construction market, which contributed to a 4% decrease in sales volume; and 3) unfavorable currency translation.
Net sales for the first nine months were up 25.8% compared to 2012: from $1,327 million to $1,669.2 million.
"The third quarter has come and gone," says Chairman and CEO Maurice Taylor. "Ag has held steady, earthmoving and construction declined and further decreases in raw material prices have impacted margins," "Some people will say the glass is half full; others say it's half empty. I see the future for Titan as the best I've ever seen. Why? We have many opportunities on the horizon."
Taylor addressed a number of topics relating to Titan's goals.
New agriculture wheels and tires: "Titan's new agriculture wheels and tires are not only the best they've ever been, but we are showing the North American farmers how our new tires can make a 4-wheel tractor compete with a Quadtrac.This saves the farmer $60,000 per tractor and lowers operating costs going forward.
"We are doing the same with combines, sprayers, implements, grain carts, any tire on a piece of farm equipment. The last four years of development, time and money are leading to sales of this new product offering. We are taking this design into our construction and mining tire business."
New radial LSW tires: "In July, Titan's new 58/80/63 radial loader tire was approved by Caterpillar to be used on OEM and aftermarket on the Caterpillar 994 loader. This tire is thousands of dollars less than Bridgestone's 58/57 bias radial tire. If Titan's LSW 58/80/63 works on a Caterpillar 994, then all of our new radial LSW tires will work on the smaller loaders, which are used in mining and construction. The timing of this is perfect because everyone is looking to lower their costs, and the LSW tires can accomplish this."
Tire reclamation: "Titan Mining Services (TMS) has started Titan Tire Reclamation Corp. (TTRC). TTRC will be working with Green Carbon, who has developed a pyrolysis process in which mining tires and belting can be put in a reactor so that, when the process is completed, a 59R63 super giant tire becomes 450 to 500 gallons of oil, approximately 4,000 pounds of carbon black and approximately one ton of steel.
"Depending on the country TTRC is operating in, the company will receive carbon credits. In addition to the return on oil, carbon black and steel, TTRC will be paid a fee. The first system is planned to go to the oil sands in Alberta, Canada, and then Elk River Valley of B.C. (British Columbia), Canada. We are planning units for Elko, Nevada; Gillett, Wyoming; Chile; and Australia.
"Titan has plans to use the reclaimed carbon black in various tire products, which should give Titan a green carbon certificate for tires we produce, even the reclaimed steel counts. There's no question Titan Mining Services will be growing worldwide in the next few years. As TMS expands, each location will have other equity owners operating each facility.
"I know the first question is what would revenue be? The above gross revenue at today's prices should be $250 million for the sites mentioned above. The EBITDA should be between $75 and $100 million gross. Yes, the margins are better turning the tires back into oil, carbon black and steel. Titan has been working on this for the past three years, and we will have our first reactor running in June/July 2014."
Outlook: "The market in construction and mining tires has been soft the last few quarters and, with the lower cost of materials, tire prices will be dropping through the end of the year. The mining companies, I believe, will be dropping their tire inventory from 14 months to 6 months and then buying what they use going forward at lower prices. However, the smaller construction business should expand 20 to 25% in 2014 based on information from OEMs.
"With our new tire acquisition in Volgograd, Russia, the entire Titan team believes we can really expand the output of this facility. I agree, but like everything else, I believe it will take a little longer than what some of our team thinks. The plant has the technical talent. The question becomes how fast they execute the plan.
"You can see why I believe the glass is half full and how we are going to grow. In short, the agriculture market is still strong. Pricing is dropping due to lower cost materials. Our revenue should stay the same because our market share should grow. The construction tire and wheel business should grow double digits in 2014 if the OEM forecasts stay where they predict. As Titan focuses on all the specialty wheels and tires, we should see improvement in margins."
Titan will announce management's goals for 2014 sales the week of Dec.15, 2013.
