Titan International(TWI) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2019, net sales were $302 million, a decline of 17% or $62 million from the prior year, with December sales being the lowest since December 2015 [39][44] - Gross profit for Q4 was $18 million, down from $37 million in Q4 2018, resulting in a gross profit margin of 6.1%, a drop of 400 basis points year-over-year [44][45] - The company reported an EBITDA margin of 2.6% for 2019, significantly lower than the 7.4% margin in 2018 [12][28] Business Line Data and Key Metrics Changes - Agricultural segment sales were $140 million, down 6.6% year-over-year, with volume down 15% but a favorable price and mix of 10.3% [47] - Earthmoving/construction segment sales decreased by $42 million or 24%, with volume down 23% and negligible price and mix impact [49] - Consumer segment sales were $30 million, down from $40 million in Q4 2018, with a gross profit of $2 million, reflecting a decline in volume and mix [52][54] Market Data and Key Metrics Changes - North American wheel volume was down 16%, and North American tire sales were down 15%, primarily due to reduced OEM production [42] - Latin America sales were down 12% from Q4 2018, with all segments showing weakness [42] - Russian market conditions improved slightly, with price and mix positively impacting sales by over 3% despite a slight volume decline [43] Company Strategy and Development Direction - The company aims to improve financial performance in 2020 with a target EBITDA of $75 million on flat sales of $1.45 billion [28][31] - Internal initiatives include operational cost structure actions expected to drive $10 million to $12 million in improvements, and a focus on strategic pricing to enhance margins [18][70] - The company is exploring divestitures of underperforming businesses, which could generate additional cash beyond the $30 million to $50 million from noncore asset sales [17][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged 2019 as a challenging year due to various external factors, including trade wars and market volatility, impacting financial results [7][8] - There is cautious optimism for 2020, with expectations of improved market conditions and better sales volumes compared to Q4 2019 [27][36] - The management emphasized the importance of product development and market intelligence in driving future growth [26][24] Other Important Information - The company generated operating cash flow of $45 million for the year and reduced debt by $31 million in Q4 [58][63] - Capital expenditures for 2019 were $36 million, with plans to hold capital expenditures around $35 million for 2020 [62] - The company has made significant progress in working capital management, targeting another $25 million reduction in 2020 [61] Q&A Session Summary Question: Guidance on flat revenue despite OEM production rates down - Management explained that flat revenue expectations are supported by strong aftermarket business and improved dealer and farmer sentiments, with potential for growth in the second half of the year [78][80] Question: Breakout of OEM versus aftermarket in major segments - Management indicated a roughly 50/50 split between aftermarket and OEM in the U.S. tire business, with variations in South America and Europe [81][82] Question: Changes in pricing strategy in the Ag segment - Management stated that pricing intelligence has improved, allowing for better pricing strategies despite volume declines [85][86] Question: Capacity utilization and potential consolidation plans - Management acknowledged low capacity utilization and indicated that they are exploring various steps to address this issue [88][89] Question: Status of noncore asset sales and liquidity - Management confirmed that $30 million of noncore asset sales have been completed, with another $20 million expected, ensuring adequate liquidity [90][101] Question: Impact of weather on the first half of the year - Management expressed optimism for better weather conditions compared to the previous year, which could positively influence planting cycles and demand [107] Question: OEM order rates and impact of coronavirus - Management noted an uptick in OEM order rates, particularly in agriculture, while acknowledging more volatility in construction due to supply chain issues related to coronavirus [113]