Titan International (NYSE:TWI) reported 4th quarter and full year 2024 financial results which continued to reflect a difficult end market environment in most of its markets as the OEM destocking story continues to evolve.
However, management commented that there may be reasons to be optimistic about Titan returning to growth at some point in 2025. From an internal perspective, the company has continued to invest in product improvements while also boosting one-stop shop offerings, all of which enables the company to offer its customers the widest and best selection of products.
An important part of that dynamic is the expanded aftermarket business, which has been a big positive as it has helped reduce the level of cyclicality across all three reporting segments. The company is believed to have the broadest and best product offerings in its markets, which enables them to build strong relationships with customers, OEMs and in the aftermarket business. As market conditions improve in 2025, we believe Titan can maintain and possibly improve its market share in the industries it serves.
In addition, there are signs that farmer income will increase and remain strong in 2025. This is driven by higher market prices for commodities, particularly corn, and an expectation of higher levels of government support for farmers under the new presidential administration. This would likely lead to the greater ability and willingness to invest in ag related capital equipment.
Another leading factor in the company’s positive outlook for 2025 is the current market activity level in Brazil, where Titan maintains a leading position in ag tires. Demand in Brazil for the 1st quarter of 2025 is expected to increase nicely in both OEM and Aftermarket channels when compared to the 1st quarter of 2024. This positive news in that region has traditionally been followed by a turnaround in U.S. markets
Financial Results
Net sales for the 4th quarter were $383.6 million compared to $390.2 million in the prior year period. The sales decline was driven by declines in the agricultural and earthmoving/construction segments due to weakened global end customer demand. The sales decline was partially offset by the net sales from the Carlstar acquisition which occurred in early 2024. A 4.3% unfavorable currency translation impact also occurred which was primarily due to the depreciation of the Brazilian real and Argentine peso.
The aftermarket business continues to be a strong point and represents about 45% of total revenues. The company indicated that number could increase in the near term until OEM sales enter a recovery phase.
The Agricultural segment showed a sales decline of 18.4% with sales of $157.1 million compared to $192.5 million in the prior year period. The sales decline was primarily driven by lower global demand for agricultural equipment, particularly in North America and Europe. There was also an adverse foreign currency translation effect of 6.2%, primarily due to the depreciation of the Brazilian real and Argentine peso.
Despite recent interest rate cuts, higher than average interest rates continue to negatively affect large equipment purchases. High-horsepower agricultural equipment represents a significant purchase for farmers, and they are highly sensitive to higher financing costs. Agricultural gross profits declined to $14.3 million from $28.0 million and gross margins decreased to 9.1% from 14.5%. The decline in gross profit was attributed to reduced sales volume, lower fixed cost leverage, negative price/mix, and higher material costs.
The Earthmoving/Construction segment generated revenues of $116.3 million which was a decrease of 26.9% from $159.1 million in the prior year period. The decrease was primarily due to softer demand from its end markets in North America and Europe. There was also a 1.8% unfavorable impact from foreign currency translation. Gross profits declined to $6.9 million from $22.1 million in the prior year period. Gross margins deteriorated to 5.9% from 13.9% in the prior year period. The decrease in gross profit was attributed to lower sales volume in North America and Europe as well as reduced fixed cost leverage.
The Consumer segment generated revenues of $110.1 million which was an increase of 185.8% when compared to $38.5 million in the prior year period. The increase was largely attributed to the revenue contribution from Carlstar. Gross profits increased to $19.9 million from $8.2 million in the prior year period. Gross margins decreased to 18.1% from 21.3%. The gross profit and gross margin changes were primarily due to the impact of lower volumes in the Americas and loss of leverage on fixed costs.
We believe approximately 75% of Carlstar revenues generated during the quarter were in the Consumer segment and 20% in the Agricultural segment with the remaining in the EMC segment.
Adjusted EBITDA for the 4th quarter was $9.2 million compared to $38.1 million in the prior year period.
The adjusted net income of $5.8 million in the quarter was negatively impacted by higher than normal tax expenses. With lower profitability in the U.S. operations in 2024, the company faced additional non-deductible interest expense. There are also temporary negative impacts from the tax structure of Carlstar. GAAP earnings per share in the 4th quarter were $0.02 and the adjusted non-GAAP EPS was $0.09. Adjusted EPS excludes foreign exchange, investment, and restructuring items.
In addition, the company commented that it is largely immune to headline tariff issues as it maintains a large international manufacturing base for its key agricultural markets. Therefore, it is not a major importer or exporter of ag products. However, Carlstar maintains a manufacturing base in China but the company indicated it can onshore Carlstar manufacturing to its low-cost manufacturing facilities in the U.S. if necessary.
The company continues to maintain a safe and liquid balance sheet with cash of $196.0 million and total debt of $565.5 million as of 12/31/24. Working capital was net positive at $524.7 million at the end of the year. Operating cash flow was $141.5 million for the full year and capital expenditures were $65.6 million, which produced free cash flow of $75.9 million. Operating cash flow was boosted by effective working capital management which included a $31.0 million improvement in accounts receivable due to effective collections efforts, and a $19.8 million reduction in inventory. The trailing 12-month leverage ratio at year-end was 2.9x.
Valuation and Estimates
The company provided preliminary 1st quarter 2025 guidance which included revenues between $450 million and $500 million and Adjusted EBITDA between $25 million and $35 million. We update our 2025 EPS estimate to $0.22 per diluted share based on a stronger than expected sales recovery in the 2nd half of 2025. Our 2026 EPS estimate is $0.55. Our 2025 EBITDA estimate is approximately $114.2 million.
The transitory depressed earnings experienced in 2024 are not reflective of the steady generation of positive EBITDA and free cash flow that is expected as the cycle turns around. The company has positioned itself in recent years to not only survive cyclical downturns but to also thrive and continue to develop advanced technologies that position them as the industry leader.
We maintain our price target of $16.00 as we believe 2025 will be the beginning of a more normalized operating year and possibly the return to revenue growth at some point throughout the year.
The company recently provided a framework for what a normal year could look like financially when a sustained rebound in its end markets happens. Adjusted EBITDA could range between $250-$300 million and free cash flow of at least $125 million could be generated.
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