Titan Internaltional Inc. posted a net loss of $20.5 million on net sales of $523.7 million for the its second quarter ended June 30, 2014. That compares to net income of $23.2 million on sales of $593.3 million for the same period last year.
The company's operating income was down nearly 180%, from income of $36.9 million in 2Q 2013 to a loss of $29.4 million in 2Q 2014.
"Our second-quarter results show that while there are areas of strength, the overall business is impacted by slower demand," says Chairman and CEO Morry Taylor. "Demand for our agriculture, earthmoving and mining products have declined as a result of the uncertainty in the markets.
"Titan's new management team is aggressively reducing cost and adjusting manpower to the current business levels. The impairment charge and inventory writedown ($23.2 million and $11.6 million, respectively) is attributed to Titan's super giant mining products. These non-cash charges are the first step in our transition to make the factory a $250 million operation producing specialized tires for construction, earthmoving and mining segments with operating profit targets of 20%.
"I had previously announced the maximum revenue potential of our mining tire plant in Bryan, Ohio, was between $500 and $600 million," he says. "However, in light of the global downturn in the mining sector, we plan to realign our strategy to market demand. The management of the Bryan facility is moving to bring the operation into a profitable position."
Taylor says innovation is critical in a downward market cycle.
"Titan has leveraged its entrepreneurship to grow the business. Titan's new LSW tires and wheels are now being offered as an option for tractors, sprayers and combines by major OEM's. Titan has established test sites at 180 farms for LSW tires and wheels, which I believe the time and investment will be repaid in the near future. We expect this business to gain traction and expand into all our regions in the next three to four years."
For the first six months of fiscal 2014, Titan recorded a net loss of $18.3 million on net sales of nearly $1.1 bilion. That compares to income of $42.7 million on sales of nearly $1.2 billion for the first half of 2013.
Taylor's views on the market
"The oil sands are having a positive impact in the mining sector," says Taylor. "This past month, Titan announced the signing of a 10-year agreement with Suncor on the new process of TVR (Thermo Vacuum Reactor), which will recycle used OTR tires into 500 gallons of bio oil, carbon black and steel. Titan will continue to expand its Titan Mining Service business in efforts to grow our tire, wheel and track business.
"The farm outlook today is weak from many viewpoints. However, we believe this is a short-term pause in the cycle. The large equipment purchases in the farming sector have declined double digits, and tire prices have fallen due to lower raw material costs that we are required to pass on contractually to OEMs, which negatively impacts our financial performance. Inventory at dealerships remains high but is trending lower each month.
"ITM, which is Titan's track business, has been challenged due to recessed construction and mining markets," says Taylor. "ITM's steel foundry in Spain has just entered into an agreement in principle to provide railroad cast steel brakes. These engineered cast steel products means an expansion to the Spain facilities.
"Titan Russia experienced weaker sales levels than anticipated due to the overall economic factors. In the second half of 2014, we will spend more time on our international facilities. The quality of our tires in Russia is improving and chemical inputs have been modified to reach European acceptance. As we build more effective relationships with the Russian team and customers, we expect to realize the untapped potential in this facility.
"We have a lot to look forward to in the future amidst challenging conditions in our markets," he says. "Our passion for this business will continue to drive positive change."
