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Titan Machinery shares plunge, as cost cutting drive falls short

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Titan Machinery shares plunged 15% after the machinery dealer ditched expectations of a return to profit, with a failure to meet cost cutting targets leaving the group looking at a fourth successive years of losses.

The US-based group, a specialist in Case and New Holland machinery, forecast a loss of 0.15-35 per share for the year to the end of January 2018, compared with previous guidance of a "slightly positive" result.

The downgrade received a cool response from investors, who had pencilled in full-year earnings for the group of $0.03 per share.

Titan Machinery shares slumped to a five-month low of $13.24 before recovery some ground to stand at $13.50 in late morning deals in New York, down 13.1% on the day.

Cost savings fall short

The group unveiled the reduced guidance as it reported that a cost cutting drive, completed in August, had not cut operating expenses "to the level that we initially projected", said David Meyer, the Titan Machinery chief executive.

The company had, as planned when in February announcing the shake-up, closed 14 agricultural machinery dealerships, following on from the axing of a construction machinery store.

However, a boost to expenses in Titan's eastern European stores from a strengthened euro, and stronger-than-expected sales, plus a decision to allocate extra resources to customer support to the North American agriculture and construction networks, had resulted in "less-than anticipated [cost] savings".

Mr Meyer said that the group was now forecasting its annual cost savings of $20m a year, compared with a forecast in February of $25m.

'Increasing opportunity'

For the May-to-July period, the group's second fiscal quarter, it reported a doubling in losses, to $5.09m, reflecting largely the costs of its restructuring.

Excluding one-off charges, the loss equated to $0.04 per share, below the $0.12-per-share loss reported a year before, but falling short of Wall Street expectations of a $0.01-per-share loss.

Revenues dropped 3.4% to $268.9m, actually beating market expectations by some $9m.

Revenues for the eastern European division soared 26% to $52.4m, with the group also reporting a narrow move into the black, backed by the boost to farm spending from "good crop yields" in many of the countries in which the group operates.

Indeed, Titan flagged an "increasing opportunity in Romania and Serbia, where favourable growing conditions, government funds and ready financing are fuelling growth".

'Ongoing market challenges'

However, in the core North American agriculture segment, revenues dropped by 9.9% to $138.5m amid "ongoing market challenges", including the drought which has threatened yields in the northern US, where Titan is based.

In the market for new equipment, "trade economics and current market conditions [are] dampening demand and margins".

Mr Meyer said: "The overall agriculture and construction markets in our footprint continue to show soft demand."

Industry decline

The US market for small tractors, such as garden vehicles, with power of less than 40 horsepower, has continued to grow this year, by 11.0% up to July, according to the Association of Equipment Manufacturers.

However, sales of more powerful tractors have extended a long-running decline, in line with falling crop prices, including a drop of 5.5% in the key market for high-horsepower tractors beloved of large-scale arable farmers.

US industry sales of combine harvesters has fallen by 5.7%, to 2,079 vehicles.

A farm equipment sales index compiled by Nebraska's Creighton University this month completed a fourth year of unbroken decline, showing reading of 25.

That was the 48th month below the 50.0 level which marks a neutral market.

"We continue to record economic weakness stemming from low agriculture commodity prices and fallout from the drought in parts of the region," said Ernie Goss, the Creighton economics professor in charge of the survey.

By Mike Verdin

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