Titan's Taylor looks to steer business out of slump

QUINCY, Ill.—When Jerry Zubke, who farms 6,000 acres of corn and soybeans near remote Milbank, S.D., was thinking about buying some new tires over the summer for one of his tractors, he was startled to get a phone call from Maurice Taylor, chairman and CEO of Titan International Inc., the leading supplier of wheels and tires to the farming industry.

"Morrie said he was nearby in Fargo and that he was coming out to see me. So I went over to meet him an hour later when his corporate plane landed at our little Milbank airport, and we talked equipment for a while," says Zubke, who ended up spending $15,000 on two tires and rims that day. "He's a very personable salesman who really knows how to take care of his farmer customers."

Those customers have been few and far between the past couple of years as crop prices have nose-dived and farmers have chopped their equipment budgets. Sales of big four-wheel-drive tractors—the bread and butter for Titan, which gets 70 percent of its sales in the agriculture sector—have fallen by a third this year on top of big declines last year, according to the Association of Equipment Manufacturers. First-half revenue for Titan, headquartered in downstate Quincy, fell 16 percent to $652 million. Losses over the period totaled $18.2 million, or 34 cents per diluted share. Wall Street analysts don't see a return to profitability anytime soon.

Taylor acknowledges a sense of urgency, compounded by his mortality. At 72, Taylor—an engineer who worked at General Motors before acquiring bankrupt Electric Wheel in Quincy in 1983 and building it into an industry powerhouse through a string of acquisitions—says he plans to give up the CEO title next year while staying on as chairman. His successor is almost certainly going to be Titan President Paul Reitz, 44, who joined the company as chief financial officer in 2010 from Carmike Cinemas.

This isn't the career climax Taylor had hoped for at the largest industrial employer in Quincy, a Mississippi River city about 110 miles west of Springfield. But circumstances have careened beyond his control.

Corn prices, fed by bumper crops and slumping demand from export markets, have fallen below $3.30 a bushel, leaving the $7 prices of just three years ago a distant memory. Farm incomes, down 13 percent this year, haven't run so low since 2009, according to the U.S. Department of Agriculture. Moline-based Deere, Titan's biggest customer, saw its sales plummet in fiscal 2015 by 20 percent to $28.86 billion.

"For big-ticket tractors and wheels, farmers are finding it easy to put off investment," says Dennis Slater, president of the Milwaukee-based Association of Equipment Manufacturers, noting that the biggest tractors and combines sell for close to $400,000.

It hasn't helped that the other major market for Titan, mining excavators, which use 12-foot-tall tires that weigh more than 5 tons each, has also been laid low by a commodity price crunch. Or that the strong dollar hurts overseas demand. Or that low-cost competitors have emerged from India and China.

And yet investors in Titan International, which has slashed its worldwide workforce to 6,100 from a high of 9,000, have seen something positive. The stock, trading recently above $10, rose 38 percent in August after the company's latest quarterly results were announced and has almost quadrupled since hitting a low of $2.50 in January. In an Aug. 4 conference call, Taylor told shareholders that the farming downturn had bottomed out. He also told analysts: "The order deck, it's nice to see, has increased on our tire side."

Not everybody agrees.

"The ag sector is in a pretty serious recession right now, and we see further declines going into next year," says Lawrence De Maria, an analyst at William Blair.

Still, Wall Street analysts who had loudly worried about Titan's liquidity this year have been silenced as the company has moved to divest a couple of noncore subsidiaries—one producing rubber tracks for tractors (used instead of tires) based in Europe and another reclaiming old tires in Canada and turning the raw product into oil. The track business alone is expected to fetch at least $100 million before year-end, which could pay down some of Titan's $415 million in debt.

Meanwhile, to blunt inroads by Asian competitors as well as global tiremakers Firestone and Michelin, Titan has come up with a new product called LSW, for low sidewall tires. These are wide-track, low-profile tires running on low air pressure and mounted on big wheels. Tests show they compact the soil less than older tires. "These tires also produce a less bumpy ride for the farmer who is driving," says Titan's Reitz. "Nobody else is making these super-flotation tires."

Deere has started to offer LSW on its new tractors. Dealers are selling them into the aftermarket with more conviction lately, too. "There's no question the LSW leaves less imprint in the field, which is important after the rains and flooding we've had here in Iowa," says Don Van Houweling, owner of Van Wall Equipment, which has 16 retail locations around the Hawkeye State.

Taylor, who made a brief run for president as a Republican in 1996, is calling on the biggest farmers himself to sell LSW, he explains, because "the big guys carry a lot of influence in the marketplace. Small farmers look to them for advice on newer products." It's working, he adds in an interview, as "we're now getting calls from farmers who no longer ask us what LSW is but how fast they can get it."

Many farmers still aren't eager to spend, however. Mike Kenyon, who has been farming 1,400 acres near South Elgin for about 50 years, is content with his old Firestones for now.

"I usually look for a real low price first," he says. "And besides, this isn't a good time to be investing in equipment I don't absolutely need."