Titan Machinery Inc. Q1 FY2026 earnings call

• Inventory position: Total inventories were $1.1 billion as of April 30, 2025, essentially flat compared to prior year-end. Equipment inventory was reduced sequentially to $913 million, with a cumulative reduction of approximately $46 million from peak levels.
• Customer care initiative: Parts and service provide a stable foundation, making up about a quarter of total revenue mix but over half of gross profit. Recognized with CNH top dealer awards for customer service.
• Domestic ag: Revenue stronger than initially expected due to presold equipment deliveries, but near term challenging with lower visibility and sluggish order activity. Spring planting went well but below-average precipitation in much of the footprint.
• Construction segment: Performance in line with expectations, with modest revenue growth despite economic uncertainty, as infrastructure projects provide base demand.
• European segment: Bright spot, particularly in Romania with EU stimulus funds boosting buying activity. Business in Ukraine continuing to drive growth.
• Australia segment: Navigating market conditions similar to domestic ag, with normalization of self-propelled sprayer deliveries and revising down full-year revenue expectations due to dry conditions and low commodity prices.
• Acquisition: Closed on Farmers Implement and Irrigation acquisition on May 15th, expanding New Holland presence in Eastern South Dakota.

The agriculture segment had a same-store sales decrease of 14.1% to $384.4 million with a pretax loss of $12.8 million. The construction segment saw same-store sales increase 0.9% to $72.1 million and a pretax loss of $4.2 million. The European segment's sales rose 44.2% to $93.9 million with a pretax income of $4.7 million. The Australia segment had a same-store sales decrease of 1% to $44 million and a pretax loss of $0.6 million.

• Domestic agriculture segment revenue expected down 20%-25%, North America large ag industry volume down ~30%.
• Construction segment expected down 5%-10% due to near-term economic uncertainty.
• European segment revenue now expected up 23%-28% due to EU stimulus in Romania.
• Australia segment revenue revised down 20%-25% due to dry conditions and low commodity prices.
• Consolidated full-year equipment margin expected to be approximately 8%.

• Market uncertainties including weak farmer profitability, government support program uncertainties.
• Weather impacts such as below-average precipitation affecting planting and crop development.
• Economic uncertainties impacting construction activity and customer capital expenditure decisions.
• Inventory management risks related to aging equipment inventory post-pandemic supply chain normalization.

Q: I know the agricultural environment is tough. Weather is bad, and at least see the I know government subsidies do not support equipment sales, but is there any positive outlook on the agricultural sector? I mean, are you seeing any positive moves here, or is it still just continues to be tough?

A: Yeah. There have been some of the government payments that have started to come through. So if you look at traditionally, there would be about $10 billion is the traditional level of government payment, which is at this point, what has been approved. Some of our growers are starting to see those checks, Liam. So that is helping provide some stability. Also, as different trade negotiations are going on, you know, and we see more deals get done here, that will further help as well. Recent rains we have received here in the upper Midwest have also helped with sentiment, and that will help with crop development. Australia is at a critical point. There is some rain in the forecast there, so that could help. But, again, if you look at the USDA net farm income projections that they came out with earlier in the year, those were really heavily predicated around the government subsidies, and so that remaining, what they have projected to be up to some billion dollars is still very much an unknown. And so you know, where that falls in, whether it is $10 billion or $45 billion here or where in between is really going to have an impact this year, frankly.

Q: When you go into your commentary, you are actually using the word trough and, you know, instead of, you know, decline. I mean, would you would is there something that you would like in that? Do you feel that at this point, you know, we are, you know, kind of knocking along the bottom of the cycle. I mean, I am not talking for a turnaround, but, you know, that more or less, you know, that there is more I do not know. Maybe predictability. Stability is probably too much of a word, but, you know, predictability or stability with regards to the ag markets in the US.

A: Yeah. I mean, I guess what we would say about that is certainly not trying to call this specific year or specific quarter as being the bottom. But if you are just looking at history, right, and specifically, you know, going back through the year 2000, with large ag expected to be down 30% year over year. That really puts us about 36% below the average from 2024 back to the year 2000. And just a little bit below the previous low point, which was that 2016, 2017 time period. So it certainly aligns with it is at or slightly below the top of the last couple of decades. Which, you know, gives some support to the fact that we are somewhere near that and not operating toward the bottom of the cycle here. Again, whether you know, that changes in the next couple quarters or it is next year, we are not making that call. But that is kind of what we are alluding to. Right? We are comparing that to history seeing that we are at those similar levels. And not necessarily making the call on when it turns upward from here.

Q: I want to go back to discussing inventory. And it was encouraging to see additional progress this quarter, especially on the use side. So I guess I am curious to get an update from you gentlemen in terms of regionally how you think about inventories. You mentioned that for your Europe business, you expect inventories to remain flattish. Maybe give us a little insight on what is going on with Australia, and then as you think about the North American footprint, are there particular areas where you still need to work this down? I mean, are there specific product lines or either regions or states where maybe you have a little more with the chop than others?

A: Yeah. So just to clarify a couple of points. In that $100 million target, I would say is certainly a minimum that we look to achieve. Certainly looking to do better than that, but we are at expectations through Q1. So you know, let us get another three months in and see what we can do before we would revise that. And what I would say from that hundreds, you know, painting it a little broadly here, CE was in pretty good shape and really within a range overall. Certainly, some optimization, but not really a hundred per I would not prescribe any of that $100 million decrease to them. Australia, also, I mean, you are talking single digits probably in terms of the target. And then, really, mostly, it would be about 60% ag and then 40% in Europe. So we are certainly expecting to see and driving a decrease in inventory in Europe this year. And expecting that to unfold as we work through the rest of the year. Now, you know, within those from an ag perspective, I would say that most of what we prescribe on there is focused on reducing used inventory levels and optimization across new and used. So you are asking areas that you need to focus on. We still have an aging of seasonal products that we, you know, we got large quantity at the same time kind of post-pandemic. Normalizations. We need to work through those so that we can dedicate more of that balance sheet to the, you know, the high horsepower tractors, for example. So that is the optimization that we are talking about. On the Europe side, you know, they do a lot less used business than on the new ag side, so there is not a whole lot there, and it is more about reducing the overall level and also working on that optimization. So, yeah, I guess I would pause there to see if you had a follow-up.

Q: I want to talk a bit about this from the perspective of kind of specifically what you would most like to see the degree to which you have, you know, these embedded in your guidance, and then the degree of confidence you have that these, you know, will come to pass.

A: Sure. Good morning, Ben. Yeah. So, you know, first of all, we are looking at another year of weak farmer profitability as we mentioned. And uncertainty on exports with our global trading partners. And as we see those continue to evolve and as I mentioned, you know, watching moisture levels and crop development and so all that will further determine farmer sentiment and net farm income. But as it currently sits, you know, the net farm income, as we mentioned, is very challenging. So that is where, you know, the OEMs those discussions happen and looking to, you know, pull many different levers whether it is through, you know, financing programs, additional incentives, and what have you. So we will continue to, you know, a lot of the front half of the year is already baked as we have been talking about a lot of those presales coming in. And you heard Bo talk about that. But so we are really looking at the back half of the year and as we get into order boards for next year here. And you know, there have been a lot of pricing increases that have happened with the equipment post-COVID here or even over the last ten years. And there have been a lot of improvements and a lot of technology advancements with the equipment as well that really are driving that ROI on the equipment. So you know, how the OEMs look to pull those different levers to keep their factory set levels, you know, that work for them and also from a dealer perspective, you know, to keep our sales up and keep, you know, the fleet to a certain level of aging as well out there. As we are at, as Bo mentioned, twenty-year trough levels here in demand, the further we go through the cycle at these levels will continue to age the fleet. And continue to increase replacement demand even as you go farther. So we will continue to work with them on just, you know, various incentives to help stimulate demand, help bridge what is currently a gap, for growers as you look at their net farm income levels compared to what the certain payments or cash flow levels of the equipment are in the trade prices right now? So various levers and tools we will pull and look to team up together with the OEMs to bridge that gap right now.

Q: I have a follow-up to this. Maybe more for you both around these initiatives. I mean, it would seem to be that if this does come to pass, it would be an overwhelming positive for you. But I am wondering if you can, you know, outline if there is any kind of, you know, resulting margin compression that you would see, you know, need to lean into the floor plan payable, excuse me, in a more material manner. You know, any offsetting a set that those kinds of initiatives would, you know, provide.

A: Well, to the extent that, you know, there is further support there, again, for a perspective, right, we are talking about historically low equipment margins for ourselves in domestic ag. So to the extent that there is more support there, it helps support the view that we have or potentially a little bit upside in terms of where revenue could be. It could improve margins, you know, coming up off of really the floor of where we have been. But still well below normals that, you know, we should be operating at. So, you know, progress in that direction. And then, yeah, absolutely. You know, as we free up cash flow, one of our main capital allocations is going towards interest-bearing debt. So that could help pay that down faster. Overall, again, the priority is inventory reduction and we are doing what we need to and, you know, just working with our partners on support so that we can all get there as efficiently as possible.

Q: Two questions on parts and service here. Firstly, are we still expecting a slight increase year over year in the service gross margin? And then secondly, Bo, you noted last quarter traffic was a little bit slower to start the year. Any update on how the quarter trended and then any expectations for traffic through year-end?

A: Thanks. Yeah. So from a margin perspective, yeah, similar levels, slightly positive levels, that still remains the expectation. In terms of what unfolded in the first quarter, you know, I recall talking about it. We were expecting parts and service to be down mid to single digits in Q1. Same-store growth last year Q1 was almost 20%. It was, like, 18.9%. So that was part of what was going into it. You know, we ended up down low single digits. So, certainly, with the realm or maybe even on the better side of what our expectations were there, and still expecting, you know, kind of a flattish viewpoint there in a world where equipment is down 30%. You know, to us, that is a real positive in just how sustainable that parts of the service can be as long as it takes a ton of work. So it is not a given at all. But everything that we put behind it to be able to maintain sort of a flattish view there when the equipment is down 30%. Hats off to the team on the great job that they do to execute. A lot of work to still get done this year to make that happen. But, you know, that is an important part of our business. I think we already talked about that, but, you know, a quarter of our revenue, you know, upward to 60% of the gross profit dollars this year. You can see why we talk about it so much, why a customer cash strategy is one of our number one strategic objectives. And why it will be, you know, critically important going forward. As we continue to move the business in the right direction.