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Titan Machinery losses soar as ag slowdown bites

Titan Machinery unveiled a 10-fold rise in losses as it swallowed the costs of staff losses besides of weaker margins in farm equipment sales, and a setback to its Ukraine operations too from the country's political crisis.

The agricultural and construction machinery dealer reported a loss of $4.14m for the February-to-April period, compared with a $409,000 loss a year before, and representing its worst quarter in at least nine years.

The loss reflected in part one-off costs of closing eight, mainly construction equipment, stores and reducing the company's workforce by 4.5%, leading to a $1.9m charge during the period.

However, even after excluding one-time effects, the group's loss per share, at $0.11, was its biggest on records going back to fiscal 2007 and above the $0.09 per share that Wall Street had expected.

Nonetheless, the group stuck by forecasts for the underlying earnings of $14.8m-21.1m in fiscal 2015, which ends in January, equivalent to $0.70-1.00 per share, on revenues of $1.95bn-2.15bn.

The store closures and staff reduction in the latest quarter "improves the overall foundation of our business", said David Meyer, the Titan Machinery chief executive, adding that the impact of cost savings were already being seen.

Titan Machinery shares eased 1.1% to $17.41 in early deals in New York.

'Under pressure'

The group's revenues for the February-to-April period rose by 5.4% to $465.5m, with a jump in construction machinery sales more than offsetting a decline of 2.1% to $352.6m in takings at the core US agricultural equipment operation.

However, the construction business remained in the red, while US ag machinery profits halved to $4.0m, with profitability on equipment sales in particular fading, and offsetting a jump in profits from parts and service, which now account for more than half the group total.

"Solid performance from parts and service was offset by lower equipment margins," said Titan, which sells Case and New Holland machinery.

Prices of used agricultural equipment were "under pressure" in the US thanks to a build-up in levels of inventory held by dealers.

Ukraine hiccups

Titan also noted some setback at its, small, Ukraine operation from the country's political and economic turmoil, which was "impacting" both the group's own operations and those of major customers.

Customers were facing reduced credit and increased credit, with the industry tackling the impact of a strong devaluation in the hryvnia too.

Many former Soviet Union farm operators, such as Trigon Agri and Kernel Holdings, have remained sanguine over the Ukraine crisis, flagging a boost to export takings, in local currency terms, from the weakened hryvnia, balancing the raised costs of imported goods, and some other effects.

Regional breakdown

Titan Machinery forecast a rise of 5-10% in same store sales at its non-US operations, which also extend into the European Union countries of Bulgaria, Serbia and Romania.

Like-for-like sales in US farm equipment, however, will fall by 10-15%, accelerating from a drop of 1.2% in the latest quarter on a same-store basis.

Other observers are also downbeat over North American farm machinery market prospects, as lower crop prices deter farm spending, with Deere & Co, the owner of the John Deere brand, forecasting industry sales in Canada and the US falling 5-10% over its fiscal year, which ends in October.

AgJunction, the farm satellite equipment group, this week blamed "general weakness in the agriculture industry" for a profits warning.

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