This Titan story is less about clash and more about cash.
Agricultural and construction equipment dealer Titan Machinery (TITN) has flush farmers kicking the tires on new and used equipment. Armed with cash, plus money raised in last month's follow-on offering, the company could continue its organic and acquisition-fueled growth.
High commodity prices are helping farmers, who are investing much of that money in new equipment, says Andrew Goodman, president and CEO of the Iowa-Nebraska Equipment Dealers Association.
Analysts and industry observers note Titan's deep pipeline of potential acquisitions and say many of the small mom-and-pop operations welcome the offers.
"With businesses of this type you don't have a lot of other opportunities to sell if you want to," said Goodman, who represents hundreds of mostly independent agricultural equipment dealers in the two states.
That offering netted the company $75 million in cash, which it's earmarked in part for acquisitions.
Over more than three decades, that cash-rather-than-clash approach has helped Titan assemble an 87-dealership network clustered in eight Midwest and Western states.
Its dealerships sell new Case and New Holland brand farming and construction equipment, made by Netherlands-based CNH Global (CNH). Its dealerships typically also sell used equipment, as well as offering parts and servicing.
A slew of macro trends are creating what Goodman calls "the best times in our industry."
Not all states are broke. North Dakota, for instance, has plowed a budget surplus into infrastructure projects, boosting demand for earth movers and other heavy equipment there, Titan says. Floods in the Midwest have also contributed to construction-side demand.
But it's an even better time for farmers.
Short inventories and growing grain demands for food and alternative fuel production are keeping commodity prices elevated.
Adjusted for inflation, U.S. farmers collectively could net $94.7 billion in income in 2011, according to the latest USDA forecast. That would be a 19.8% surge from 2010's strong earnings. The USDA says the past few years have been among the most profitable for farmers in the last 35 years.
Interest rates are low, and agricultural banks and other lenders are eager to do business, Goodman says.
And extended federal tax rules will allow farmers to fully deduct the purchase prices of most heavy equipment bought this year, which should spur more investment.
Floods in parts of the country, droughts in others, slowed the planting season early on. But farmers kicked it up a notch as better weather arrived in June and have largely caught up. They leaned heavily on their tractors, spreaders and other gear to get their seed and fertilizer in the ground, to reap those higher prices.
True, farmers' input costs, including fertilizers and fuel, are going up too. But corn and other grain costs are outpacing those increases.
And for Titan, higher fuel prices also give farmers an incentive to upgrade to newer tractors and combines, which meet higher fuel-efficiency standards.
"Our customers are impressed with the increased performance of these new tractors," Titan Chairman and CEO David Meyer told analysts after announcing first-quarter results.
Acquisitions continue to play a large role, too. Titan closed on three deals in the quarter, giving it two more ag dealerships and four equipment rental locations. It has added several more dealerships so far in the fiscal second quarter.
Craig-Hallum Capital Group analyst Steven Dyer wrote in a client note that the secular trends driving the growth appear strong and long-lasting. That gives Titan plenty of runway.
"We believe that (Titan) has the makings and business model of a much larger company that could realistically double its revenue solely in its current geographic footprint to say nothing of growth in other geographies or tangential lines of business," he wrote.
Titan's big worries are some of the same that keep farmers up at night: the vagaries of weather and government programs. Weather problems that hurt crops can pinch equipment sales. And government subsidies and mandates on ethanol are helping keep prices high. If those evaporate, some of the market for corn likely would as well.
Reliance On CNH
The company's relationship with its chief supplier, CNH, is another potential risk, analysts note.
Titan relies on CNH for its inventory and the financing for that equipment. CNH also must sign off on dealership acquisitions, which
Sales in the quarter ended April 30 climbed 55% from a year ago to $318.2 million. Earnings per share soared 344% to 40 cents, from a 10-cent-per-share loss a year ago.
Two-thirds of Titan's growth was organic. Sales at its dealerships open longer than a year climbed 36.9% in the fiscal first quarter. Its ag-equipment dealers saw a 37.6% jump. Construction dealerships climbed 33.1%.
Titan says it's the world's largest Case IH Agriculture equipment dealer, and a major retailer of the company's New Holland lines.
After the strong first-quarter results, the company upped its guidance for the full year. It's calling for 2012 revenue of $1.31 billion to $1.385 billion. Earnings per share should come in at $1.53 to $1.63, factoring in the higher share count after May's offering.
Analysts forecast full-year EPS of $1.63, up 33% from a year ago.