Titan International reports first quarter earnings

CHICAGO — Titan International, Inc. has reported results for the first quarter ended March 31, 2022.

“We were able to pick up right where we left off in 2021 with another stellar quarter to begin the year,” stated Paul Reitz, President and Chief Executive Officer.  “All of our business units across all geographies came together to deliver our strongest sales quarter in nearly nine years.  The first quarter experienced strong top line growth, along with excellent conversion to the bottom line, as gross margins were 15.6%, adjusted EBITDA was $57 million, and adjusted EBITDA margin climbed to 10.2%, reaching their strongest levels in close to a decade.  The runway for our business moving forward looks good and remains similar to what we outlined in March, with both our Agriculture and Earthmoving / Construction segments continuing to reflect strong demand driven by solid market fundamentals.

“Earlier this year, we commented on the positive market dynamics creating a tidal wave for Titan to navigate in 2022 and beyond.  We continue to firmly believe this remains the case.  Our first quarter results and our 2022 order books clearly support that, along with elevated commodity prices with solid supply-demand fundamentals, used inventory levels at record lows for larger equipment, and demand for new equipment that remains robust.  Elaborating further, these positive market forces, combined with delays in order deliveries from the OEM’s due to production challenges, provide support and momentum for a multi-year demand cycle.  Aftermarket demand remains very robust reflecting the need for replacement in the midst of shortages of new equipment.  Along with the strong agriculture backdrop, order books are solid in earthmoving and construction and should continue to remain positive as infrastructure spending increases globally.  Our Titan team will continue to work hard to meet our customers growing expectations and with our impressive and extensive manufacturing footprint that produces quality, innovative products, we are a strong solution to meet the needs of our global customer base. 

“Based on the strength of our first quarter performance and a similar expectation for Q2, we are now anticipating full year net sales above $2.1 billion, with adjusted EBITDA to be around $200 million. This revised outlook reflects more normalized demand and production levels in the second half that are in line with our typical seasonality trends for the business.  Based on the increased profitability and strength in the business, our cash flow expectations have also improved, and believe we can deliver between $55 million and $65 million in free cash flow for the full year.

Results of Operations

Net sales for the first quarter ended March 31, 2022, were $556.0 million, compared to $403.5 million in the comparable quarter of 2021, an increase of 37.8 percent.  The net sales increase was across all segments and driven by price/product mix and volume, with price having a greater impact due to rising raw material costs and other inflationary impacts in the markets, including freight.  The contributing factors to the increase in demand were increased commodity prices, improved farmer income, replacement of an aging large equipment fleet, and lower equipment inventory levels.  The increase in net sales was offset by unfavorable foreign currency translation of 4.4 percent or $17.7 million. 

Gross profit for the first quarter ended March 31, 2022 was $86.7 million, compared to $53.3 million in the comparable prior year period.  Gross margin was 15.6 percent of net sales for the quarter, compared to 13.2 percent of net sales in the comparable prior year period.  The increase in gross profit and margin was driven by the impact of increases in net sales, as described previously, primarily reflective of productivity improvements across all production facilities.  In addition, cost reduction and production initiatives continue to be executed across global production facilities. 

Selling, general, administrative, research and development (SGARD) expenses for the first quarter of 2022 were $39.1 million, compared to $36.6 million for the comparable prior year period.  As a percentage of net sales, SGARD was 7.0 percent, compared to 9.1 percent for the comparable prior year period.  The increase in SG&A was driven primarily by an increase in variable costs associated with improved operating performance and growth in sales.

Income from operations for the first quarter of 2022 was $44.7 million, or 8.0 percent of net sales, compared to an income of $14.2 million, or 3.5 percent of net sales, for the first quarter of 2021.  The increase in income was primarily due to the higher sales and improvements in gross profit margins. 

Sale of Australian Wheel Business

On March 29, 2022, the Company entered into a definitive agreement for the sale of its Australian wheel business, to OTR Tyres, a local leading national tire, wheel and service provider. The closing date of the transaction was March 31, 2022.  The sale includes gross proceeds and cash to be repatriated of approximately $17.5 million, and the assumption of all liabilities, including employee and lease obligations.  During the quarter ended March 31, 2022, the Company recorded a loss on sale of approximately $10.9 million which was comprised primarily of the release of the cumulative translation adjustment of approximately $10 million and closing costs associated with the completion of the transaction of approximately $0.9 million.