Titan International, Inc., a leading global manufacturer of off-highway wheels, tires, assemblies, and undercarriage products, today reported results for the fourth quarter and year ended December 31, 2022.

"The Titan team executed at a very high level once again and closed the year by delivering record fourth quarter results. This strong performance supported annual records for sales, profitability and cash flow for the full year 2022 and allowed us to deliver on our previously stated outlook," stated Paul Reitz, President and Chief Executive Officer. "The entire One Titan team's tireless commitment to developing and manufacturing market-leading products, which improve the performance of off-road equipment, positions us for continued long-term growth. We serve a broad base of OEMs and dealers around the world, and consistently exceed expectations through the intimate connection we have developed with customers and their end-users. I am extremely proud of the resilience and determination of our team over the past few years."

Mr. Reitz continued, "This quarter we experienced year-over-year sales growth of 10%, excluding foreign exchange impacts and the sale of the Australia wheel business. We expanded gross margin to 15% during the quarter, a 220 basis point improvement year-over-year, as all our global business units performed at a high-level during the quarter. We have a lot to be proud of as we close the books on 2022 and I commend the One Titan team for the exceptional performance and tremendous focus as we look to 2023."

Mr. Reitz added, "2022 was also a banner year for cash flow as we set records for both operating and free cash flow, generating $44 million in free cash flow during the fourth quarter and $114 million for the full year. As a result of our strong cash flow generation and selective debt paydown, our net debt to full year adjusted EBITDA leverage ratio fell to 1.1 times. Additionally, our cash position increased to $160 million at the end of the year, up $62 million from a year ago. We are extremely pleased with the strength of our balance sheet, which is a testament to the strategic actions of this management team. We have truly transformed our financial position, and are now in a position of strength to support future growth."

Mr. Reitz concluded, "There continues to be a lot of noise around supply chains and inflation, but the encouraging sign for Titan is that farmer income remains healthy globally, with grain markets that are well supported by strong supply and demand economics. Farmers remain in solid financial position, and sentiment is improving, with some input costs coming back in line. The recent USDA reports show that corn and soybean supply-demand will support current pricing into 2024, at a minimum, and this dictates farmers' decisions to purchase new equipment and drive robust aftermarket tire sales. Large Ag retail demand continues at strong levels, driven by precision farming, replacement equipment and good farmer income. Weather conditions are unpredictable and our LSW's continue to be the perfect solution for farmers battling tough conditions or farmers looking to make their equipment perform better and more efficient. Small ag equipment inventory levels have returned to pre-Covid levels, and along with the effects of inflation slowing demand in the low horsepower range and some OEM's drawing down internal inventory, we expect a tapering of demand in this segment. The construction and earthmoving markets are in a good position to start 2023 with infrastructure support and solid commodity prices driving activity. Coming off a record 2022, we expect this year to be an upbeat year with our financial performance remaining at a high level. As the year progresses, we'll provide more information about our forecasted performance."

Financial Summary

Net sales for the fourth quarter ended December 31, 2022, were $509.8 million, compared to $487.7 million in the comparable quarter of 2021, an increase of 4.5 percent driven by sales increases across the Agriculture and Earthmoving / Construction (EMC) segments. Excluding the sale of Australian wheel business and foreign exchange impacts, net sales increased 10% compared to fourth quarter 2021. Overall net sales were influenced by both increased volume from higher demand in the EMC segment, along with price increases across all segments. The contributing factors to the increase in demand in the EMC segment were recovery in construction markets, including the return to normalized supply and demand levels in the market. Price increases have been implemented due to rising raw material costs and other inflationary impacts in the markets, including freight and energy.

Gross profit for the fourth quarter ended December 31, 2022, was $76.7 million, compared to $62.5 million in the comparable prior year period. Gross margin was 15.0 percent of net sales for the quarter, a 220 basis point improvement compared to 12.8 percent of net sales in the comparable prior year period. The increase in gross profit and margin was driven by the impact of increases in sales volume and favorable impact of fixed cost absorption within the EMC segment, as well as production efficiencies. In addition, cost reduction initiatives were executed across the Company's global operations.

Selling, general, administrative, research and development (SGARD) expenses for the fourth quarter of 2022 were $33.3 million, compared to $35.6 million for the comparable prior year period. As a percentage of net sales, SGARD was 6.5 percent, compared to 7.3 percent for the comparable prior year period.

Income from operations for the fourth quarter of 2022 was $40.9 million, or 8.0 percent of net sales, compared to $24.3 million, or 5.0 percent of net sales, for the fourth quarter of 2021. The increase in income was primarily due to the higher sales and improvements in gross profit margins as well as lower SGARD expenses.

The income tax benefit for the fourth quarter of 2022 was $16.0 million as compared to $8.8 million for the fourth quarter of 2021. The increase in the income tax benefit was primarily due to the favorable impact of the domestic federal and state valuation allowance release, which is primarily the result of continued domestic profitability and the ability to utilize the remaining historic net operating losses in the future. The income tax benefit was partially offset by incremental income tax expense in foreign tax jurisdictions associated with the improved profitability in the fourth quarter of 2022 as compared to the fourth quarter of 2021. The Company excluded the impacts of the income tax benefit within both adjusted net income applicable to common shareholders and adjusted EBITDA.

Agricultural Segment

(amounts in thousands)
Three Months Ended December 31
Twelve Months Ended December 31

% Increase/ Decrease
% Increase
Net Sales $274,796 $264,764 3.8% $1,192,239 $949,400 25.6%
Gross Profit $37,791 $37,513 0.7% $193,585 $135,807 42.5%
Profit Margin 13.8% 14.2% (2.8) % 16.2% 14.3% 13.3%
Income from Operations $24,348 $23,438 3.9% $130,474

During the quarter ended December 31, 2022, net sales in the Agricultural segment increased 4 percent due to pricing, which was implemented to offset increased raw material and other cost inflation, while volume was down slightly as customers returned to more normalized seasonal order patterns.  The slight increase in gross profit was due to higher pricing levels, which were almost entirely offset by higher input costs, resulting in profit margin declining slightly year-over-year.

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