Titan to reduce employee headcount following disappointing Q1 performance
First quarter 2014 financials for Titan International are out, and Maurice Taylor says the company’s performance during the opening three months of the fiscal year fell short of expectations, mainly due to a “nonexistent” mining business, declines in the original equipment and aftermarket agricultural segments, and higher fuel costs. Titan now intends to instigate a series of optimisation measures at its global facilities.
“The Q1 results are disappointing and will be addressed in a very diligent manner by the management team,” commented chief financial officer and principal accounting officer John Hrudicka. “To that end, under the leadership of (Titan president) Paul Reitz, we have embarked on a profit optimisation framework, engaging each of our businesses, identifying development initiatives to drive profitability improvement.”
Titan’s net sales decreased 6.8 per cent year-on-year to US$538.9 million in the first quarter of the year. While net sales actually increased approximately five per cent (when including the $29.6 million from the recently acquired Voltyre-Prom facility) and volume increased four per cent, mainly as a result of increased consumer sales at facilities outside the US, the increase in net sales was offset by a price/mix reduction, mainly from decreased demand for mining tyres, which decreased sales by approximately 14 per cent, and from unfavourable currency translation, which decreased sales by approximately two per cent.
Gross profit for the first quarter of 2014 was $54.6 million, or 10.1 per cent of net sales, compared to $96.8 million, or 16.7 per cent of net sales for the first quarter of 2013. John Hrudicka commented that this change “obviously represents a sizable decline to last year’s performance.” The primary reason for the drop was a large decrease in demand for earthmoving and construction products for the mining industry, a segment that remains in a cyclical downturn.
Income from operations for the first quarter of 2014, was $0.3 million, or zero percent of net sales, compared to $47.9 million, or 8.3 percent of net sales, in 2013. Therefore, basic and diluted earnings per share were $0.04 and $0.04, respectively. During the same period last year, basic and diluted earnings per share were $0.38 and $0.34.
In light of such figures, Titan International has rescinded the 2014 management goals it published on 25 November 2013. Taylor has also expressed a need for the company to “reduce our expenses and work harder during the rest of the year” and he said Titan will adjust employment levels in both its hourly and salaried workforce during the second quarter of 2014. The Titan boss elaborated on these measures during the company’s first quarter earnings call on 24 April: “When you take the volume on certain plants and you bring it down to a level, what you need to do, disproportionately, you’ve got to take a lot of bodies out. And the bodies don’t just come from the hourly guys. You’re going to take it from some of the salaried too because … those facilities are meant to run really on the lean side. You do not want to start building inventory.” Taylor added that reducing the employee headcount in a factory until it is “really lean” is a recipe for improved margins.
Taylor did not name the plants where employee numbers will be lowered, however he indicated that plant restructuring or even closures will take place. “Outside of the continental US, there are some facilities that we are looking to modify or change in a big way,” he shared during the earnings call. “And that means that we have to have teams over there, and it’ll take six to nine months before you can even start to do a closure or to move something, because of the labour laws.”
Going forwards, Taylor said Titan International has “enough cash on its balance sheet” to complete the series of acquisitions it has commenced. “This should leave Titan International with annual revenues of $3 to $3.3 billion once the acquisitions are complete,” he added. “It is management’s goal to streamline these businesses as we have done with the Quincy wheel plant and our Des Moines tyre facility.”