In an early look at its first quarter of fiscal 2014 earnings, Titan Machinery advised investors that it would fall short of its revenue estimates for the period. The company said the first-quarter miss was “primarily a timing issue.” The company will issue its full earnings report on June 6.
In a release last Thursday, Titan said for the first quarter of fiscal 2014, preliminary revenue is expected to be approximately $440 million compared to revenue of $421.7 million in the first quarter last year. First quarter fiscal revenue is expected to be approximately $50 million less than the company previously anticipated; reflecting approximately $35 million less from agriculture segment revenue and $15 million less from construction segment revenue. Titan said, “The lower than expected revenue was primarily due to abnormally delayed spring weather combined with cautionary agriculture customer sentiment and the continued challenging industry conditions in the construction segment.”
Titan, based in West Fargo, N.D., is Case IH’s largest dealership group with 106 North American dealerships in 11 states, outlet stores in Minnesota and Iowa, and 14 European dealerships in Romania, Bulgaria, Serbia and Ukraine.
The company is updating its annual fiscal 2014 guidance based on preliminary first quarter fiscal year results. It adjusted its annual earnings per share range of $1.70 to $2.00 from the previous range of $2.00 to $2.30, primarily reflecting the lower operating margins in the construction segment. But Titan reiterated its previous revenue range of $2.35 billion to $2.55 billion.
David Meyer, Titan Machinery’s chairman and CEO, said, “Both segments of our business were impacted by the abnormally late spring weather which extended through the end of our first quarter. We expect the agriculture segment revenue that was delayed in the first quarter will be realized in the coming quarters because we believe the revenue impact in the first quarter was primarily a timing issue.
“In addition to the late spring weather, our construction segment was also affected by the challenging conditions in this industry and the cost of expanding our network,” Meyer said. “To achieve our operational targets we are continuing to focus our efforts on the plan we began implementing a few months ago and discussed on our fourth quarter conference call. I believe we will see improvements in our construction segment in the second quarter and throughout the remainder of fiscal 2014. We remain confident that our construction segment will be an integral part of our company’s long-term growth strategy and will contribute to our top and bottom line growth.”
At least two analysts following Titan lowered their earnings per share estimates for the company.
Mircea (Mig) Dobre, analyst for RW Baird, said in a note, that he was lowering his FY14 EPS estimate by $0.35 to $1.80. “Our estimate reflects lower revenue and margin estimates in the construction segment, with ag revenue and operating income largely unchanged as revenue delays related to late plantings are likely to be made up in subsequent quarters.”
Dobre added there are uncertainties surrounding North America ag equipment demand coupled with continued underperformance in the construction segment. “An important element of our investment thesis was growth in the earnings contribution of the construction segment, which along with growth in Eastern Europe and additional M&A could have potentially offset ag equipment demand headwinds.
He also noted that Titan’s pace of North American ag acquisitions “has slowed meaningfully.”
In his note to investors, Rick Nelson, analyst for Stephens, said, “Titan pre-released 1Q well below our estimates, and the full year guide range was reduced more than the 1Q miss. Delayed spring weather, more cautious ag customer sentiment and continued challenges in the construction segment were cited.
“We are reducing our F1Q14 EPS estimate from $0.18 to a ($0.03) loss and our full year F14 EPS estimate moves down from $2.10 to $1.80,” Nelson said. “We also lowered our F15 EPS estimate from $2.35 to $2.11.
According to the Stephens analyst, Titan anticipates ag sales will shift to later periods and changes in the construction segment will lead to a recovery. “We think investors will wait for evidence of this recovery before taking a more bullish stance on the stock.”