Titan International(TWI) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q1 2019 were $410 million, a decline of 3.5% year-over-year, but up 13% from Q4 2018 [27] - Gross profit for Q1 was $45.3 million, down from $59.6 million in Q1 2018, with gross margin at 11% compared to 14% last year [30] - The impact of currency devaluation on gross profit was approximately $2.5 million versus the prior year [30] Business Line Data and Key Metrics Changes - Agricultural segment net sales were $192 million, down 1.3% year-over-year, but would have been up 4% without negative currency impact [36] - Earthmoving/Construction segment sales decreased by 6.4% to $177 million, with volume down by 4% [39] - Consumer segment net sales were roughly $42 million, decreasing slightly year-over-year, with gross profit down $7 million from a year ago [42] Market Data and Key Metrics Changes - North American sales were relatively flat year-over-year, with challenges noted in Russia, Europe, and Latin America [29] - Russian agricultural sales were down 26% due to market challenges, while European agricultural sales lagged by 22% [37] - Latin American business faced headwinds, particularly in Argentina and Colombia, impacting export sales from Brazil [33] Company Strategy and Development Direction - The company is focusing on improving its product mix in Russia from 95% aftermarket to more OEM sales [22] - The management team is evaluating strategic alternatives for ITM, the undercarriage business, with potential for a public listing [66][70] - The company is implementing an 80-20 program for North American tire to stabilize sales in a tough market [20] Management Comments on Operating Environment and Future Outlook - Management noted that weather conditions and trade disputes have negatively impacted farmer sentiment and spending [14][24] - Despite a challenging Q1, management believes the fundamentals have not shifted significantly, maintaining 2019 guidance [24] - The company expects to see improved margins and profitability as market conditions stabilize and production ramps up [85] Other Important Information - The company experienced a negative foreign currency impact of $25 million in sales and approximately $2.5 million in lost gross margin [16] - Capital expenditures for Q1 were $9.5 million, in line with expectations for the year [54] - The company has sufficient liquidity and plans to upsize its credit facility to $125 million [63] Q&A Session Summary Question: What is the cash requirement for daily operations? - Management indicated that the company can operate effectively with cash levels between $60 million to $80 million [73] Question: Will the company be cash positive this year? - Management expects to achieve positive cash flow by the end of the year, though not necessarily in the first half [74] Question: What is the status of the $25 million share repurchase program? - The Board will consider stock price and internal cash flow when deciding on the program, which is intended to be managed over time [96] Question: What were the surprises in Q1 results compared to guidance? - Management noted unexpected margin hits and weaker performance in January and February, but sees opportunities for recovery [100] Question: What factors will drive better margins moving forward? - Management expects stronger production in North American tire and favorable raw material prices to contribute to improved margins [106]