Zacks Small Cap Analysis – TWI: Titan Worldwide Reviews Robust Free Money Move within the 2024 2nd Quarter – Cyber Tech

By Thomas Kerr, CFA

NYSE:TWI

READ THE FULL TWI RESEARCH REPORT

Titan Worldwide (NYSE:TWI) reported 2nd quarter 2024 monetary outcomes which continued to replicate a tough macro atmosphere in most of its finish markets. Web gross sales for the 2nd quarter have been $532.2 million in comparison with $481.2 million within the prior 12 months interval. The rise was primarily because of the Carlstar acquisition through which the 2nd quarter was the primary full quarter of recognizing Carlstar revenues. Revenues declined within the agricultural and earthmoving/development segments the place decrease ranges of finish buyer demand occurred as a result of macro points together with main financial softness in Brazil.

The Agricultural section confirmed the most important gross sales decline at 19.6% with gross sales of $216.3 million in comparison with $269.1 million within the prior 12 months interval. The gross sales decline was primarily as a result of considerably lowered international demand for agricultural tools, notably in North America and Brazil. Excessive rates of interest proceed to negatively have an effect on massive tools purchases. Excessive-horsepower agricultural tools represents a major buy for farmers, and they’re extremely delicate to larger financing prices. With the potential of rate of interest cuts occurring quickly, many farmers are selecting to defer main purchases. Agricultural gross income declined to $32.3 million from $48.7 million and gross margins decreased to 14.9% from 18.1%. The decline in gross revenue was attributed to lowered gross sales quantity, decrease fastened value leverage, detrimental value/combine, larger materials prices and a list revaluation step-up related to the Carlstar buy value allocation. Excluding the impression of the Carlstar buy value allocation, adjusted gross margins within the Agricultural section have been 15.5%.

The Earthmoving/Building section generated revenues of $165.6 million which was a lower of 5.2% from $174.7 million within the prior 12 months interval. Gross sales quantity was really larger throughout the interval pushed by elevated gross sales within the undercarriage enterprise led by energy within the mining business. There was additionally a constructive contribution from the Carlstar acquisition. Nonetheless, these will increase have been offset by the impression of contractual value givebacks ensuing from decrease uncooked materials prices, notably decrease metal costs in Europe, in addition to the unfavorable impression of overseas forex of 1.5%. Gross income declined to $21.3 million from $29.1 million within the prior 12 months interval. Gross margins deteriorated to 12.9% from 16.7% within the prior 12 months interval. The lower in gross revenue was attributed to decrease gross sales quantity in North America and lowered fastened value leverage.

The Shopper section generated revenues of $150.3 million which was a rise of 302.4% when in comparison with $37.3 million within the prior 12 months interval. The rise was largely attributed to a full quarter of income contribution from Carlstar.

Adjusted EBITDA was $48.8 million within the 2nd quarter in comparison with $59.0 million within the prior 12 months interval. GAAP earnings per share within the 2nd quarter was $0.03 and adjusted non-GAAP EPS was $0.10. Adjusted EPS excludes the Carlstar stock step-up and a property insurance coverage settlement achieve.

The adjusted web earnings of $7.1 million, and adjusted EPS of $0.10 for the quarter have been negatively impacted by larger than regular tax expense of $15.5 million. With decrease profitability within the U.S. operations in 2024, the corporate now faces extra non-deductible curiosity expense. There are non permanent detrimental impacts from the tax construction of Carlstar.

The corporate continues to take care of a protected and liquid stability sheet with money of $224.1 million and complete debt of $550.5 million as of 6/30/24. Working capital was web constructive at $638.2 million on the finish of the 2nd quarter. Working money move was $70.8 million within the 2nd quarter and capital expenditures have been $17.6 million, which produced free money move of $53.2 million. The trailing 12-month leverage ratio declined to 1.8x in comparison with 2.0x within the 1st quarter of 2024. As well as, the corporate bought 775,000 shares of TWI inventory throughout the 2nd quarter. As of 6/30/24, Titan had roughly $9.6 million remaining below the present $50 million share repurchase program.

Present Trade Outlook

Administration additionally commented on present business situations. As talked about above, Rates of interest proceed to weigh negatively on a lot of the industries they serve. Giant horsepower agricultural tools represents a major buy for farmers and they’re extremely delicate to larger financing prices. With the potential of rate of interest cuts on the horizon, farmers are selecting to defer main purchases. Equally, excessive rates of interest additionally impression the price of working capital for each OEMs and Aftermarket sellers who’re being extraordinarily cautious in regards to the ranges of stock they’re carrying.

The decline in farmer incomes can also be negatively affecting the agricultural markets. It’s believed that 2023 and 2024 might symbolize the 2 largest declines ever in farmer earnings. The USDA confirmed in its June 2024 Grain Shares report that farmers are nonetheless holding a lot of their 2023 crop stock. The USDA thinks on-farm storage will be the highest for the reason that Eighties. It is because as commodity costs fall, farmers are reluctant to promote under the price of manufacturing.

On a constructive word, tools at present working within the subject continues for use and can finally should be changed. Moreover, as Agriculture OEMs (Deere, Caterpillar, AGCO, and many others.) proceed to introduce new applied sciences into their merchandise, the Return on Funding that new tools can produce, together with the newest tire expertise, will start to outweigh the upper financing prices and assist drive long run demand.

Valuation and Estimates

The corporate didn’t present 2024 annual steering as a result of business and macroeconomic uncertainties however did present an outlook for the third quarter of 2024. The corporate expects revenues within the third quarter between $450-$500 million and adjusted EBITDA between $25-$30 million. Free money move is anticipated to be between $20-$30 million. Capital expenditures are anticipated to be within the vary of $10-$15 million.

We alter our 2024 estimates as a result of current administration commentary, business situations, and a quickly elevated tax fee. Our 2024 full 12 months EPS estimate is now $0.44 and our complete income estimate is $1.96 billion. That places TWI inventory promoting at 17.5x present 12 months EPS estimates. Our 2025 income estimate is $2.2 billion, and our 2025 EPS estimate is $0.96. The ahead trying P/E ratio is roughly 8.0x.

These transitory depressed earnings within the 2nd half of 2024 usually are not reflective of the regular era of constructive EBITDA and free money move that’s anticipated. The corporate has positioned itself in recent times to not solely survive cyclical downturns however to additionally thrive and proceed to develop superior applied sciences that place them because the business chief.

We alter our value goal to $16.00 primarily based on business and macroeconomic uncertainty in most of Titan’s markets through which it operates.

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