Titan International Inc (NYSE:TWI) is a U.S.-based manufacturer of wheels and tires in three segments: earthmoving/construction/mining, agricultural, and consumer. It’s shares are up just 3.5% over the past year, pummeled by a major downturn that began in early June and hit bottom at the end of September. But since then its shares have risen nearly 44%. Can the momentun continue, or is this just a short-term phenomenon?
Titan’s late-year recovery began with release of its third-quarter 2012 results less than a month after its stock hit a 52-week low. In that report, the company said sales rose just 1% year over year, but still set a record. Titan also announced adjusted EPS that beat estimates by $0.03. The company said sales would have been significantly higher if a new IT system hadn’t malfunctioned, causing production at a key U.S. plant to fall far short of orders.
Titan pledged to correct those IT issues during the fourth quarter. It also said it would continue its focus on integrating several new acquisitions, and welcomed a new VP of Sales and Marketing with extensive experience in several needed areas.
As the company prepares to release its fourth-quarter earnings on Feb. 26, here are five things to consider as you ponder how Titan performed at the end of 2012, and where it might be headed over the next several quarters.
1. Farming Remains Strong
This area has been a real ongoing positive for Titan, which produces rims, wheels and tires for tractors, combines, plows, irrigation machinery and other critical farm equipment. Its customers in this segment include the biggest new equipment and aftermarket product dealers in the world, like Deere & Company (NYSE:DE), AGCO Corporation (NYSE:AGCO), CNH Global NV (ADR) (NYSE:CNH), and Kubota Corp (ADR) (NYSE:KUB).
Last year was a very strong one for farmers in the U.S. and a couple of other major markets. Titan expects its domestic business to record comparably strong sales in 2013, and projects decent growth in South America and Russia. The only negative it foresees is Europe, which has been weak since the economic downturn.
2. Construction is Rising
Titan anticipates improvement in construction activity in Russia and Brazil, two major emerging markets where it has competitive advantages. This, therefore, could be another big positive. Russia is always a wild card, and many analysts look skeptically at any projections there, but it has been consistent in providing some solid gains in recent periods.
Few doubt that Brazil, on the other hand, will give anything but a big mid-term boost as it continues its build-out for the 2014 World Cup and 2016 Summer Olympics. Many also see viable upward trends in the U.S. construction market, which could gain an even bigger boost if infrastructure repairs become a priority. And more equipment on wheels means more tire sales.
3. Mining is Declining
This sector could prove problematic for Titan, whose earthmoving/construction/mining division is its most profitable. Sales in the category grew 27% in Q3, but since then, the two biggest companies in the global mining space — Caterpillar Inc. (NYSE:CAT) and Joy Global Inc. (NYSE:JOY) — have reported a continuing demand deceleration in the category and their 2013 projections are soft at best.
Lower commodity prices, slower China growth and a shaky global economy have all conspired to push down demand. Lower demand ultimately means fewer sales for new and aftermarket mobile equipment, and less tire sales as a result.