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Titan Machinery shares jump as profit margins widen

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Titan Machinery shares soared, after a cost-cutting programme helped the group beat earnings expectations, despite disappointing revenues.

The North Dakota-based dealer of Case and New Holland machinery announced that it expects to be profitable over the fiscal year, which runs to the end of January 2016, in the face of continuing "headwinds" for the agricultural sector.

Titan flagged new evidence of the depressed US farm incomes, but said that a cost cutting effort was bearing fruit, as the company unveiled a wider gross profit margin.

Titan shares climbed over 20% in New York on Wednesday.

Better-than-expected income

Titan Machinery reported revenues of $334.2m in the three months to the end of July, down 35% from $451.0m in the same period last year.

The revenues missed analysts' expectations of $358.58m.

But the company managed to increase its profit margin to 18.6%, from 17.7% in the same period last year, allowing earnings to beat analyst's expectations despite disappointing profits.

In the three months to July 31 2015, Titan Machinery broke even, where analysts had expected a loss of $0.03 a share.

This compares to a net income of $0.8m over the same period last year, or $0.04 per diluted share.

Cost-saving bears fruit

David Meyer, chairman and chief executive of Titan, said: "Our agriculture segment continues to be impacted by ongoing industry headwinds."

But Mr Meyer said that Titan had now "substantially completed" cost saving restructuring and inventory reduction programmes.

Titan also got a boost from the stabilisation of the Ukrainian currency, which minimised losses caused by exchange effects from the company's Ukraine subsidiary.

Low prices

Speaking to investors, Mr Meyer said noted the continued prospect of low commodity prices, with high US crop yields on the cards.

Mr Meyer flagged data from the US Department of Agriculture, which showed farm income down 36% in 2015 from 2014, compared to a previous forecast fall of 32%, due to lower crop prices.

"Lower net farm income continues to generate negative sentiment in the market and impact farmer spending,""Mr Meyer said.

Titan Machinery shares were trading up 20% at $12.44 a share in afternoon deals in New York.

By Agrimoney.com

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