QUINCY, Ill.—Titan International Inc. has initiated efforts to cut tens of millions of dollars in operating costs to help it return to the black after falling into the red on an operating and net basis in fiscal 2019.
Titan is targeting pre-tax operating earnings (EBITDA) of $75 million in fiscal 2020 on flat sales, according to Titan President and CEO Paul Reitz, who called 2019 a "challenging year" for Titan and the industry, characterized by "significant volatility and uncertainty" tied to poor agricultural conditions due to North America weather and the China trade battles.
The 2020 target is twice the fiscal 2019 EBITDA, Titan said, which in turn was 68 percent lower than in 2018.
Titan reported a fiscal 2019 loss from operations of $28.4 million on 9.6 percent lower sales of $1.45 billion. The net loss was $50.4 million. In 2018, the profit from operations was $42.2 million and net income was $3.88 million.
Reitz called the fourth quarter "especially challenging" as Titan's primary OE customers reduced their output to below retail demand levels, which drove Titan's sales "well below" profitable volumes.
Commenting on Titan's prospects for 2020 and beyond, Reitz said Titan management is "cautiously optimistic" that the company's key markets will stabilize and, perhaps, improve slightly. At the same time, Titan will "continue to take actions to improve our performance, gain stability and strengthen our financial position."
Calling fiscal 2018 a "barometer for our more recent financial performance," Reitz said Titan management sees a path to perform at 2018 levels and beyond.
"We believe that this will be a significant year of change for Titan," he said, citing the company's capabilities to produce tens of thousands of unique wheels and thousands of different tires and the reality that "people will continue to eat protein-based diets and populations will continue to grow."
Among specific bottom-line improvement targets Reitz cited were:
- more efficient production of wheels and better control of steel purchasing—$15 million improvement;
- tighter control of SG&A and R&D costs of approximately $140 million, which could yield $7 million of profitability improvement;
- improving cash flow through better working capital by more than $25 million;
- improved capacity utilization at the firm's North American tire plants;
- operational cost-structure actions designed to drive improvements of $10 million to $12 million; and
- implementation of "strategic pricing," designed to recognize the value of the firm's various product lines.
Reitz also noted Titan expects its agricultural OE customers in North America to return to normal production levels as well as increases in aftermarket sales, particularly in North American agricultural.
"We believe there are a number of triggers in place that could drive markets to improve later in 2020," he said, noting that the firm hopes to "gain more visibility" for the year over the coming months.
By business unit, Titan reported:
Agricultural segment suffered an 82.2 percent drop in operating income, to $11 million, on 6 percent lower sales revenue of $652.6 million. Tonnage volume fell 13.2 percent, Titan said, but a favorable price/mix component helped offset this to an extent.
Lower sales volumes were caused primarily by "challenging" market conditions and economic softness in most regions as well as ongoing global trade issues.
Earthmoving/construction segment reported an operating loss of $1.9 million on 12.6 percent lower revenue of $648.8 million. Titan registered lower sales volume in most regions except Latin America, and experience a "tightening" in the construction market, which impacted Titan's undercarriage business.
Consumer segment reported an 84.6 percent drop in operating profit, to $1.85 million, on 11.4 percent lower sales of $147.4 million. Sales volumes essentially were flat, with lower volume in Latin America and Russia offset by higher volumes in other geographies, Titan said.