Equipment dealer Titan Machinery increased its floorplan use in the third quarter as rising interest rates and growing inventory put pressure on its floorplan expense.
BY THE NUMBERS: Titan Machinery’s equipment inventory, floorplan payable and floorplan expense increased in Q3 of the company’s fiscal 2023, which ended Oct. 31, according to its earnings presentation released today. Other Q3 highlights:
- Equipment inventory rose to $892 million, up 88.2% year over year;
- Floorplan payables were $705.6 million, up 158.4% YoY;
- Floorplan interest expense was $5.5 million, up 243.8% YoY;
- Equipment inventory turn rate declined to 2.4, down 33.3% YoY.
Q3 product segment results included:
- Agriculture segment revenues increased to $531.4 million, up 7.7% YoY;
- Agriculture same-store sales grew to $510.4 million, up 3.5% YoY.
Q3 construction segment results included:
- Revenues dropped to $77.5 million, down 10.3% YoY;
- Construction same-store sales also dropped to $77.5 million, down 10.3% YoY.
Q3 equipment and rental results included:
- Equipment revenue increased to $521.8 million, up 2.5% YoY;
- Rental and other revenue rose to $12.6 million, up 4.2% YoY;
- Rental fleet assets dipped to $77 million, down 1.3% YoY;
- Equipment inventory turn rate declined to 2.4, down 33.3% YoY
WHAT THEY’RE SAYING: Titan Machinery missed Q3 earnings estimates, but this was the result of production delays and prep work rather than the macroeconomic slowdown impacting the agricultural industry, Lawrence De Maria, group head of global industrial infrastructure research at William Blair, told Equipment Finance News.
“The negative surprise was principally due to timing and the ability to secure OEM inventory in time and prep equipment for customers, which has been an ongoing issue and now is pushing some sales in the fiscal fourth quarter,” De Maria said in Blair’s research note. “The company continues to face supply constraints affecting both new equipment deliveries and pre-sold equipment deliveries from its OEM partner, CNH, which was the primary driver of weaker-than-expected revenue in the third quarter.”
FLASHBACK: Titan Machinery announced the acquisition of Australian Case IH dealer group J.J. O’Connor & Sons in the second quarter.
Titan used its existing $45 million syndicated bank floorplan facility to finance the O’Connor acquisition, Bo Larsen, treasurer and chief financial officer, said during today’s call. Bank of America, Wells Fargo, Regions Bank, BBVA USA, AgCountry Farm Credit Services and Sterling National Bank participate in the company’s syndicated facility, according to SEC filings. The company also has floorplan credit lines with CNH Industrial Capital and DLL Finance, according to a 10-Q filing with the SEC.
FUTURE LOOK: Titan expects the recognition of equipment revenue to still be affected by supply chain and inspection issues in the fourth quarter, Chairman and Chief Executive David Meyer said during today’s earnings call.
“Our recognition of equipment revenue will be dependent on both the timing of new machinery received from the OEMs, as well as our ability to manage service department workflows,” he said. “We expect year-over-year revenue growth in each of our segments in the fourth quarter.”
Demand for high -horsepower tractors and wheel loaders is expected to exceed OEM production throughout the first half of next year, Meyer added.
MARKET REACTION: Shares of Titan Machinery (NASDAQ: TITN) were down 10.28% or $2.62 from market open to $22.86 as of market close today. Titan Machinery has a market capitalization of $575.44 million.
THE BOTTOM LINE: Despite the limitations on revenue growth in Q3, Titan remains optimistic following growth during the pandemic, including the acquisition of O’Connor’s, Meyer said.
“Both our ag and [construction equipment] customers are experiencing the carryover of three exceptionally strong years,” he said. “Over the last 24 months, we have completed some high-quality and strategic acquisitions, which will strengthen our bottom line as they get fully integrated into our system.”
