Titan International increases sales, reduces net loss in Q1 2017
After 18 quarters of year-on-year declines in a row, Titan International has reported a rise in net sales during the first quarter of 2017. During the three months to 31 March, net sales increased 11.1 per cent to US$357.5 million. A loss was still recorded in the bottom line, however the $10.5 million net loss applicable to common shareholders for the first quarter of 2017 was a 41.4 per cent improvement compared with the first quarter of 2016.
“After eighteen consecutive quarters with year-over-year decreases in net sales, adjusted for acquisitions, it’s great to report a solid performance in the first quarter by delivering 11 per cent top line growth over the same period last year,” comments Paul Reitz, president and chief executive officer of Titan International. “On a sequential quarter-over-quarter basis, we grew net sales over 16 per cent. We are encouraged by these early signs of growth and cautiously optimistic about the future quarters of this fiscal year. While we experienced top line growth in net sales, we also improved our year-over-year gross profit and gross margin. Our gross margin increased 230 basis points to 11.1 per cent of net sales thanks to our Business Improvement Framework.
“Extended downturns always present numerous challenges and the Titan team has done a good job weathering the storm,” Reitz continues. “Through our consistent efforts, we were able to accomplish the noted increases this quarter. A gross profit increase of $11 million this quarter compared to first quarter 2016 was good, especially considering some notable events that adversely impacted our recent performance.”
Regarding the rising raw material costs that impacted Titan International’s net result, Reitz comments that the tyre maker has followed “a disciplined approach to our raw material supply chain that includes the use of forward contracts, volume commitments, and spot buys.” Nevertheless, Titan’s contracts with OEM customers in North America only offer the opportunity to reprice based on fluctuations in raw material costs twice a year: “The bottom line is we are negatively impacted when raw material costs increase as fast as they did recently,” he states. During the first quarter of 2017, escalating raw material costs affected gross profit by approximately $9 million. “The good news is that prices of raw materials are now starting to stabilise at lower levels,” Reitz adds.
Another notable item that adversely impacted Titan International’s performance was that a $6.3 million year-on-year increase in selling, general and administrative (SG&A) expenses. Reitz comments that Titan is “committed to keeping these expenses flat year-over-year” and has been “encouraged by the progress made in the first quarter on identifying major future reductions in SG&A by our ‘profit leak’ committee.”
Dumping: Pleased with ‘strong approach’
In addition to announcing the company’s first quarter results, Reitz commented on the new, increased anti-dumping and countervailing duties that the US authorities introduced last month. These apply to OTR tyres imported from China during 2014 and 2015. “As a result of the increase, US importers of these tyres will be receiving a bill for additional duties owed plus interest from the date of entry. We are pleased that that DOC (the US Department of Commerce) is taking a strong approach toward these companies. We will continue to work with the DOC to ensure that any and all subsidisation and dumping by Chinese producers is met by appropriate duty levels.