September 11, 2012

 

Titan Machinery lowers annual profits' forecast

 

 

After a drop in US farms' spending plans due to drought, Titan Machinery cut its forecast for full-year earnings.

 

Shares in the retailer of Case and New Holland farm equipment tumbled 20% to a nine-month low.

 

Titan Machinery stuck by its forecast for revenues of US$1.95-2.1 billion for the year to the end of January 2013, flagging the underlying financial robustness of US agriculture.

 

High commodity prices and insurance are expected to make up for many growers for losses to the drought, which the sector entered with historically strong balance sheet.

 

However, it cut to US$44.3-48.5 million, from US$53.8-58.0 million, its outlook for full year earnings, citing the hit to margins from what had become a "competitive retail equipment market", as reluctance by farmers to spend prompts dealers to cut prices.

 

The group last year reported earnings of US$43.8 million. In the May-July quarter, "severe drought conditions in the Midwest negatively impacted customer sentiment and associated equipment margins" despite the revival in crop prices, David Meyer, the Titan chairman and chief executive, said.

 

"We were able to maintain sales activity but experienced a compression in our overall equipment margins and in particular our used equipment margins."

 

The group had "adjusted" its inventory strategy as a result of the downturn, meaning it will carry less new equipment, despite a rise in machinery for sale. Nonetheless, its inventory of used equipment "is anticipated to increase" by the end of the company's financial year.

 

The comments are the latest in a series to highlight the impact of the drought on the farm machinery sector, with Deere & Colast month cutting its profit forecasts, while Nebraska University said agricultural equipment activity had fallen to its lowest since October 2008.

 

"The drought is putting a dent in farmland price growth and the purchase of agriculture equipment, including trucks," said Creighton economist Ernie Goss.

 

Titan Machinery said that its sales for the May-July quarter soared 36% to US$306.2 million, lifted by higher takings in equipment sales, parts, servicing and rental operations.

 

However, earnings fell 17.3% to US$5.16 million, reflecting "lower equipment margins, increased floor plan expenses due to higher inventory levels, and higher interest expense due to the company's April 2012 private offering of convertible debt".

 

Earnings per share fell to US$0.25, below Wall Street expectations of a US$0.43-a-share result, missing investor forecasts for a second successive quarter.

 

Titan Machinery shares fell to US$20.25 in early deals in New York, their lowest since November, before recovering some ground to stand at US$20.58 after half an hour of trade, a drop of 18.8% on the day.