Titan Machinery Inc. Q3 FY2025 earnings call

• Market Environment: Industry faces softer demand due to challenging agricultural fundamentals, high input costs, and lagging effects of higher interest rates.
• Inventory Management: Aggressively working to reduce inventory, decreased total inventory by ~$115 million in Q3, with majority reductions expected in fiscal 2026. Proactive measures to drive retail demand are compressing equipment margins in the near-term.
• Segment Specifics: Domestic ag in line with expectations; Europe challenged by drought; Australia affected by weather; Construction showed normalized demand with 10% same-store sales increase but inventory levels higher.
• Structural Improvements: Footprint optimization, M&A, and a focus on customer care strategy to build reoccurring revenue through parts and service businesses.

Agriculture Segment: Sales decreased 9.3% to $482 million, with a same-store sales decline of 10.8% in the third quarter. Pre-tax income was $1.9 million compared to $35.1 million in the prior year. Construction Segment: Same-store sales increased 10% to $85.3 million from $77.5 million in the prior year. Pre-tax loss was $0.9 million compared to pre-tax income of $4.1 million in the prior year. Europe Segment: Sales decreased 26.8% to $62.4 million, including a same-store sales decline of 27.1%. Pre-tax loss was $1.2 million compared to pre-tax income of $5.1 million in the prior year. Australia Segment: Sales were $50.1 million and pre-tax loss was $0.3 million.

• Fiscal 2025 full year adjusted EPS midpoint breakeven, with a range of loss of $0.25 per share to earnings of $0.25 per share. Excludes $0.36 non-cash sale leaseback impact.
• Europe revenue revised to down 20%-25% vs prior 12%-17%; Australia revenue expected $220M-$230M vs prior $230M-$250M.
• Equipment margin compression to persist through fiscal 2026, with more guidance on next year provided in March.

• Weather impacts in Europe (drought) and Australia (drought/frost) affecting demand.
• Commodity price fluctuations and elevated input costs impacting farmer sentiment and purchasing power.
• Interest rate risks affecting borrowing costs and inventory financing.
• Inventory reduction challenges impacting short-term financial performance.

Q: Have you seen farmer sentiment change post the election in early November?

A: Good morning, Alex. Yeah, I think, just primarily with any election just the certainty around it being completed now regardless of who the winner is, has provided more certainty for them and allowed them to plan their business better. So improvement around that quite a bit of uncertainty around what will happen with tariffs. So we'll be watching closely to see how that plays out. Also if you recall back the last time President Trump was in office and there was some retaliatory impacts from the tariffs that hit on the commodity prices and he subsidized in the form of payments to the growers, which really in the end played out quite well for overall for the growers and for the equipment dealers. And so certainly if it played out again that way that would be good. But I think that's the main uncertainty. Also some things our customers have talked about regarding some of the potential tax things associated with Tax Cuts and Jobs Act reinstatement of the 100% bonus depreciation would be the biggest one and they're very much hopeful and looking forward to the reinstatement of that. So overall, Alex, I would say positive sentiment across the generally speaking for our customers.

Q: What is your sort of target days of inventory that you're looking for?

A: Yes. So generally what we're trying to achieve over time is get to about a 2. 5 times turn on our inventory give or take. And certainly that will flux a bit prior to different points in the cycle. But on average across new and used about 2.5 times turn. That's not something that we've achieved and sustained over the long period of time historically. Although in recent years, we've certainly been well above that in the mid-3s. But as we look at the efficiency of our footprint and the centralization of our inventory control, we believe we can continue to drive higher turns than we had historically.

Q: In terms of how you think about inventories in the fourth quarter. Should we expect another decline in Q4 or is that all something that's going to happen in fiscal '26? And related to this, when you look at your inventory and the needed reductions, can you comment at all about what's happening in Europe, Australia versus North America? Is this all sort of a North American destock or do you have some work to do in your other geographies as well?

A: Yes, certainly. To start with by geography, I would say overall Australia is in really good shape, not much work to do there. Certainly, probably a little bit, not a whole lot. From a Europe perspective, we do have some work to do there. Dollars wise, obviously significantly less than on the US side. But in terms of where we are today versus where we want to go, I'd probably prescribe about $70 million there in Europe. The rest of it being on the US side, we obviously made about $100 million decrease. It was all on new and that was all domestic in the third quarter. You asked if we expect to see another decrease in the fourth quarter. Yes, and I do. I was simply stating that there's a couple of moving factors there. We'll certainly continue to see sell through of what we have as we have some presales get invoiced to us by the end of the quarter that will partially offset that and then some growth in used will partially offset that. But we'll see another step in the right direction which will put us a little ahead of where we were prescribing to be as we sat here on our second quarter call and said we'd be down about $100 million. So we'll be incrementally better than that and poised to continue to accelerate this thing as we work through next fiscal year. I guess just in between the new and used mix relatively speaking, right, I mean the US is where the used equipment dynamic exists. We don't do a lot of used equipment sales in Europe. So that would be from a new equipment inventory perspective. So, yes, I think I've answered everything there.