During its conference call with industry analysts following release of its 3QFY18 earnings report, Titan Machinery commented on the progress the dealership group has made in trimming expenses and increasing its absorption rate.
Absorption is a metric that reflects the ability of parts, service and rental gross profits to cover fixed operating costs. Most dealers consider this to be a critical operating measurement, particularly during cycles characterized by declining wholegoods sales.
“We have reduced our annual operating expenses from fiscal 2014 to the trailing 12 months ended Oct. 31, 2018, by $91 million or 31%,” said Mark Kalvoda, Titan’s CFO. “Over the same time period, we increased our absorption rate from 71% to approximately 83%. Operating at this expense level into the trough of the ag cycle positions us to be profitable during challenging times, while enabling us to significantly leverage our operating expenses when industry conditions recover and revenues increase. Our absorption rate for the third quarter of fiscal 2019 improved to 94% compared to 92% in the same period last year, due to the strength in our parts and service businesses,” he said.
Titan Machinery currently operates a network of 75 North American dealerships in North Dakota, South Dakota, Iowa, Minnesota, Montana, Nebraska, Wyoming, Wisconsin, Colorado, Arizona, and New Mexico, including an outlet store, and 20 European dealerships in Romania, Bulgaria, Serbia, and Ukraine.