Titan Machinery owns and operates a network of full-service agriculture and construction equipment dealerships in the United States and Europe. The primary new equipment manufacturer partner is the CNHi family of brands.Titan Machinery, a network of full-service agricultural and construction equipment stores, saw equipment revenues increase 11.5 percent, according to its financial results for the fiscal second quarter.
David Meyer, Titan Machinery’s chairman and CEO, says the second quarter results reflect the financial benefits of fiscal 2018 restructuring efforts and “our consistent focus on improving the quality and level of the equipment inventory.”
That’s driven lower operating expenses and improved equipment gross profit margins for the quarter, which ended July 31, Meyer says.
“In the quarter, we also saw our lower expense base provide strong operating leverage as we experienced higher sales volumes. Along with increased equipment revenues, we also saw increased revenues from our parts and service businesses in the second quarter of fiscal 2019, which benefited from the late start to the spring planting season in many of our domestic and European markets,” he says.
“The strength in our parts and services businesses combined with lower operating expenses led to a significant increase in our second quarter absorption rate, from 80.1 percent in the second quarter last year to 88.6 percent in the second quarter this year.”
Fiscal 2019 Second Quarter Results
For the second quarter of fiscal 2019, revenue was $299.9 million, compared to $268.9 million in the second quarter last year.
Equipment sales increased 15 percent to $192.7 million for the second quarter, the company says, while parts sales were up 7 percent to $60 million.
“We are pleased with our performance in the second quarter, particularly with our agriculture and international segments, and we are confident that we will see improved top and bottom line performance from our construction segment in the second half of fiscal 2019,” Meyer says.
“Our second quarter results demonstrate the benefits from the structural improvements we have made to our business over the past couple of years and how those improvements can be leveraged on a growing base of revenues. We are excited to continue delivering earnings growth this year and enhanced profit margins as we look to the future.”
Revenue generated from service was $31.3 million for the second quarter of fiscal 2019, compared to $30.5 million in the second quarter last year.
Revenue from rental and other was $15.9 million for the second quarter of fiscal 2019, compared to $14.9 million in the second quarter last year, a press release says.
Gross profit for the second quarter of fiscal 2019 was $58.9 million, compared to $52.8 million in the second quarter last year.
Gross profit margins remained flat at 19.6 percent with the comparable period last year. The increase in gross profit was driven by higher revenue.
The impact of higher equipment gross profit margins was offset by a higher mix of equipment revenue in the quarter resulting in the overall flat gross profit margin of 19.6 percent, the release says.
Operating expenses decreased by $2.9 million to $47.6 million, or 15.9 percent of revenue, for the second quarter of fiscal 2019. That’s compared to $50.5 million, or 18.8 percent of revenue, for the second quarter of last year.
These decreases are the result of cost savings arising from the company’s fiscal 2018 restructuring efforts that were completed early in the third quarter of fiscal 2018 and greater operating expense leverage on higher sales volumes.
Floorplan interest expense was $1.7 million for the second quarter of fiscal 2019, compared to $2.2 million in the second quarter of last year. The decrease in floorplan interest expense is primarily due to a decrease in the level of interest-bearing inventory in the second quarter of fiscal 2019, the company says.
In the second quarter of fiscal 2019, net income was $5.2 million, or earnings per diluted share of $0.23, compared to a net loss of $5.2 million, or a loss per diluted share of $0.24 for the second quarter of last year.
On an adjusted basis, net income for the second quarter of fiscal 2019 was $6.3 million, or adjusted earnings per diluted share of $0.28, compared to an adjusted net loss of $1.0 million, or an adjusted loss per diluted share of $0.04, for the second quarter of last year.
The company says it generated $16.8 million in adjusted EBITDA in the second quarter of fiscal 2019, compared to $6.5 million in the second quarter of last year.
Segment Results
Construction Segment – Revenue for the second quarter of fiscal 2019 was $79.2 million, compared to $77.9 million in the second quarter last year.
The construction segment was break-even for the second quarter of fiscal 2019, compared to pre-tax income of $0.9 million in the second quarter last year. Adjusted pre-tax income for the second quarter of fiscal 2019 was $0.3 million, compared to adjusted pre-tax income of $1.2 million in the second quarter last year.
Agriculture Segment – Revenue for the second quarter of fiscal 2019 was $152.8 million, compared to $138.5 million in the second quarter last year.
Revenue benefited from increased equipment revenue as well as an increase in parts and service activity due to the late start to the planting season. Pre-tax income for the second quarter of fiscal 2019 was $5 million, compared to a pre-tax loss of $6.9 million in the second quarter last year, the press release says.
Adjusted pre-tax income for the second quarter of fiscal 2019 was $5.2 million, compared to an adjusted pre-tax loss of $1.7 million in the second quarter last year.
International Segment – Revenue for the second quarter of fiscal 2019 was $67.8 million, compared to $52.4 million in the second quarter last year. The International segment revenue increase was driven by higher sales volumes in each of our equipment, parts and service businesses.
Fiscal 2019 First Six Months Results
Revenue was $545.6 million for the first six months of fiscal 2019, compared to $533.0 million for the same period last year. Net income for the first six months of fiscal 2019 was $3.6 million, or $0.16 per diluted share, compared to a net loss of $11.1 million, or a loss per diluted share of $0.51, for the same period last year.
On an adjusted basis, net income for the first six months of fiscal 2019 was $4.7 million, or $0.21 per diluted share, compared to an adjusted net loss of $5.1 million, or a loss per diluted share of $0.23, in the same period last year. The company generated $22.1 million in adjusted EBITDA in the first six months of fiscal 2019, compared to $8.1 million in the same period last year.
As far as balance sheet and cash flow, the company ended the second quarter of fiscal 2019 with $49.7 million of cash. Its inventory level increased to $547.1 million as of July 31, 2018, compared to $472.5 million as of January 31, 2018.
This inventory increase includes a $73.8 million increase in equipment inventory. That reflects an increase in new equipment inventory of $87.6 million, partially offset by a $13.8 million decrease in used equipment inventory.
“The increase in new equipment inventory is primarily in core products for seasonal stocking and purchasing equipment ahead of potential steel surcharges later in the year,” the press release says.
Closing of AGRAM Acquisition
On July 2, 2018, the company completed its acquisition of two commonly-controlled German companies, AGRAM Landtechnikvertrieb GmbH and AGRAM Landtechnik Rollwitz GmbH (collectively, “AGRAM”), which consists of four CaseIH agriculture dealership locations in the following cities of Germany: Altranft, Burkau, Gutzkow and Rollwitz.
In its most recently completed fiscal year, AGRAM generated revenue of approximately $30 million.
The total purchase price was $19.2 million. The company’s preliminary purchase price allocation reflects the acquisition of $38 million in total assets, including a total value of goodwill and other intangible assets of $2.6 million, the press release says.
