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Agricultural and farm machinery company Titan (NSYE:TWI) missed analysts' expectations in Q2 CY2024, with revenue up 10.6% year on year to $532.2 million. Next quarter's revenue guidance of $475 million also underwhelmed, coming in 7.7% below analysts' estimates. It made a GAAP profit of $0.03 per share, down from its profit of $0.48 per share in the same quarter last year.
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Titan International (TWI) Q2 CY2024 Highlights:
- Revenue: $532.2 million vs analyst estimates of $547.3 million (2.8% miss)
- EPS: $0.03 vs analyst estimates of $0.25 (-$0.22 miss)
- Revenue Guidance for Q3 CY2024 is $475 million at the midpoint, below analyst estimates of $514.8 million
- Gross Margin (GAAP): 15.1%, down from 17.5% in the same quarter last year
- Free Cash Flow of $53.25 million is up from -$14.6 million in the previous quarter
- Market Capitalization: $620.1 million
Agricultural MachineryAgricultural machinery companies are investing to develop and produce more precise machinery, automated systems, and connected equipment that collects analyzable data to help farmers and other customers improve yields and increase efficiency. On the other hand, agriculture is seasonal and natural disasters or bad weather can impact the entire industry. Additionally, macroeconomic factors such as commodity prices or changes in interest rates–which dictate the willingness of these companies or their customers to invest–can impact demand for agricultural machinery.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Regrettably, Titan International's sales grew at a weak 3.8% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Titan International's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 6.5% annually.
This quarter, Titan International's revenue grew 10.6% year on year to $532.2 million, falling short of Wall Street's estimates. The company is guiding for revenue to rise 18.2% year on year to $475 million next quarter, improving from the 24.3% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 20.8% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Titan International was profitable over the last five years but held back by its large expense base. It demonstrated paltry profitability for an industrials business, producing an average operating margin of 5.2%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Titan International's annual operating margin rose by 8.8 percentage points over the last five years
In Q2, Titan International generated an operating profit margin of 4.2%, down 5.3 percentage points year on year. Since Titan International's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Titan International's full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it's at a critical moment in its life.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Sadly for Titan International, its EPS declined more than its revenue over the last two years, dropping by 54.1%. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
We can take a deeper look into Titan International's earnings to better understand the drivers of its performance. Titan International's operating margin has declined 8.1 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Titan International reported EPS at $0.03, down from $0.48 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Titan International to grow its earnings. Analysts are projecting its EPS of $0.43 in the last year to climb by 140% to $1.04.
Key Takeaways from Titan International's Q2 ResultsIt was great to see Titan International's strong EBITDA forecast for next quarter, which exceeded analysts' expectations. On the other hand, its revenue guidance for next quarter missed and its revenue fell short of Wall Street's estimates. Overall, this was a bad quarter for Titan International. The stock traded down 5.2% to $8.08 immediately after reporting.
