Titan Machinery (NASDAQ:TITN) Surprises With Q3 Sales
Heavy equipment distributor Titan Machinery (NASDAQ:TITN) reported Q3 CY2024 results beating Wall Street’s revenue expectations , but sales fell by 2.1% year on year to $679.8 million. Its non-GAAP profit of $0.07 per share was 40% above analysts’ consensus estimates.
Revenue: $679.8 million vs analyst estimates of $675.3 million (2.1% year-on-year decline, 0.7% beat)
Adjusted EPS: $0.07 vs analyst estimates of $0.05 (40% beat)
Adjusted EBITDA: $14.69 million vs analyst estimates of $12.46 million (2.2% margin, 17.9% beat)
Operating Margin: 1.7%, down from 6.7% in the same quarter last year
Free Cash Flow was -$17.09 million, down from $26.75 million in the same quarter last year
Market Capitalization: $351.4 million
"Our third quarter results reflect a market cycle that is largely playing out as we anticipated within our domestic Agriculture segment," commented Bryan Knutson, Titan Machinery's President and Chief Executive Officer.
Company Overview
Founded in 1980, Titan Machinery (NASDAQ:TITN) is a distributor of agricultural and construction equipment across the United States and Europe.
Specialty Equipment Distributors
Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Titan Machinery grew its sales at an incredible 16.3% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.
Titan Machinery Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Titan Machinery’s annualized revenue growth of 14.4% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
Titan Machinery Year-On-Year Revenue Growth
This quarter, Titan Machinery’s revenue fell by 2.1% year on year to $679.8 million but beat Wall Street’s estimates by 0.7%.
Looking ahead, sell-side analysts expect revenue to decline 9.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Titan Machinery was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.7% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, Titan Machinery’s annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, which doesn’t help its cause.
In Q3, Titan Machinery generated an operating profit margin of 1.7%, down 5.1 percentage points year on year. Since Titan Machinery’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Titan Machinery’s EPS grew at an astounding 18.4% compounded annual growth rate over the last five years, higher than its 16.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.
Titan Machinery Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Titan Machinery’s two-year annual EPS declines of 39.9% were bad and lower than its 14.4% two-year revenue growth.
In Q3, Titan Machinery reported EPS at $0.07, down from $1.32 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Titan Machinery to perform poorly. Analysts forecast its full-year EPS of $1.70 will invert to negative negative $0.72.
Key Takeaways from Titan Machinery’s Q3 Results
We were impressed by how significantly Titan Machinery blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA meaningfully outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly. Overall, this quarter had some key positives. The stock traded up 1.4% to $15.63 immediately following the results.
Titan Machinery put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
