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Titan shares plunge, as struggle to sell aging tractor stocks tells

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Titan Machinery shares plunged after the farm equipment dealer revealed that a drive to cut inventories, which has seen it sell machinery on the cheap through "alternative channels", had dragged it far deeper into the red than expected.

Shares in the retailer for Case and New Holland equipment tumbled by 11.2% to $11.15 in early deals in New York.

The fall followed the release by the group of a loss of $34.4m for November-to-January period, up from a $27.0m loss a year before, on revenues down 32% to $335m.

The loss was equivalent to $1.31 a share. Analysts had expected the group to report a narrowing in losses to $0.10 a share.

'Alternative channels'

The bigger-than-forecast loss reflected a drive to slash inventories of unsold equipment in the face of a "prolonged" market downturn, as low profitability among Titan's farming, and construction, customers leaving them reluctant to spend.

The campaign - which was expanded to $180m by selling some "aged" equipment "through alternative channels rather than [Titan's] normal retail channels" – came at a cost, with the group unveiling a $27m charge for the likes of discounts needed to secure machinery sales.

"Throughout fiscal 2016, we focused on taking the necessary steps to manage through this challenging operating environment," said David Meyer, the Titan chairman and chief executive.

'Significant headwinds'

He added that the group had "continued to face significant headwinds" in both its agriculture and construction divisions.

"Overall global macro-economic concerns further impacted our customers' spending patterns, resulting in top and bottom line softness in our results" in the latest quarter.

And in the newly-started financial year too, to the end of January next year, the group forecast a continued drop in same-store sales in agriculture, of 13-18%.

However, Mr Meyer remained upbeat over prospects further ahead, saying that "global trends indicate solid long-term demand for agriculture commodities.

Farmers continue to carry strong balance sheets due to record years before we entered the downturn of the current cycle."

Machinery backlog

The gloomy outlook for agricultural machinery dealers is prompting an industry wide drive to cut inventories, which have been bloated by slow farmer purchases.

CNH Industrial, whose products Titan sales, in January revealed a drop of 29% in its inventories over 2015, helped by a drop of 35% drop in combine production in the October-to-December quarter, compared with a year before.


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