Shares in Titan Machinery soared to a 14-month high after the farm equipment dealer flagged long-awaited market improvement, prompting it to curb expectations for the drop in its ag machinery sales this year.
Shares in the dealer in Case and New Holland equipment, which has outlets from New Mexico to Ukraine, touched $14.23 in New York at one point, their highest since September last year, before easing back to stand at $13.98 in lunchtime deals, a 7.9% gain on the day.
The surge followed the US-based group's announcement of results which, while showing a bigger drop in earnings than expected, revealed some improvement in the farm machinery market, which has been undermined by the dent to farm earnings from weak commodity prices.
Separately on Wednesday, the US Department of Agriculture estimated that US net farm income would fall by 17.2% to $66.9bn this year, "the lowest since 2009 in both real and nominal terms".
David Meyer, the Titan Machinery chairman and chief executive - who in August had underlined the "challenging operating environment" for farm equipment dealers – this time flagged a fillip to the market from strong harvests, with US farmers setting record in both corn and soybeans this year.
"During the [August-to-October] quarter our agricultural customers experienced high crop yields," Mr Meyer said.
"Despite continued low commodity prices, the yields improved customer sentiment, which created an opportunity to increase equipment sales."
Titan itself had exploited the improved conditions to "accelerate" efforts to sell second-hand equipment, and boosting efforts to cut inventories, creating cash to reduce debt needs.
By "aggressively retailing our used equipment inventory", the group cut its secondhand machinery stocks by $47m during the August-to-October period – more than twice as much as in the previous two quarters combined.
The price cutting was evident in a reduced expectation for sales margins, now expected to come at 6.2-6.8% for the current financial year, which ends in January, compared with a previous forecast of 7.2-7.8%.
However, the forecast for the decline in like-for-like sales of ag equipment was trimmed to 13-18%, from 17-22%, while the estimate for the reduction in inventories of used machinery was lifted by $25m to $125m.
"Out initiatives have enabled us to repurchase over $50m of senior convertible notes in the current fiscal year, including $24m in the [August-to-October] quarter," Mr Meyer said.
He added that the group remained "optimistic about long-term agriculture trends, and believe that we will be positioned to take advantage of future opportunities to drive improved financial performance".
For the latest quarter, the group reported a 92% slump to $256,000 in earnings, reflecting profitability declines in both US farm and construction machinery divisions.
Earnings per share, at $0.01, fell short of the $0.05-per-share result that investors had expected, despite the group reporting a more modest decline in revenues than Wall Street had forecast, reflecting the drive on used equipment sales.
Revenues, at $332.3m, were down 3.7% year on year, but above the $305.1m that the market had expected.
By Mike Verdin