QUINCY, Ill., July 29, 2021 /PRNewswire/ -- Titan International, Inc. (NYSE: TWI), a leading global manufacturer of off-highway wheels, tires, assemblies, and undercarriage products, today reported financial results for the second quarter ended June 30, 2021, highlighted by the strongest quarterly operating performance since 2013.

Results of Operations

Net sales for the second quarter ended June 30, 2021, were $438.6 million, compared to $286.1 million in the comparable quarter of 2020, an increase of 53.3% driven by sales increases in the agricultural and earthmoving/construction segments. Overall net sales volume and product price and mix was up 33.2% and 17.2%, respectively, from the comparable prior year quarter. The increase in net sales was also favorably impacted by foreign currency translation, which positively impacted net sales by 2.9% or $8.2 million. On a constant currency basis, net sales for the second quarter 2021 would have been $430.5 million.

Net sales for the six months ended June 30, 2021 were $842.2 million, compared to $627.6 million in the comparable period of 2020, an increase of 34.2% driven by sales increases in the agricultural and earthmoving/construction segments. Overall net sales volume and product price and mix was up 23.3% and 10.5%, respectively, from the comparable period of 2020. On a constant currency basis, net sales for the first six months of 2021 would have been $839.7 million.

Overall net sales volume and product price and mix improved for both the three and six months ended June 30, 2021 as compared to the prior year periods due to market growth in the agricultural and earthmoving/construction segments. Pricing increases have been implemented because of rising raw material costs and other inflationary impacts in the markets, including freight. The contributing factors to the increase in demand were increased commodity prices, lower equipment inventory levels and pent up demand following the economic impacts of the COVID-19 pandemic during 2020.  Lower sales volumes during the first half of 2020 were primarily caused by continued weakness in the commodity markets and the effect of the COVID-19 pandemic which caused significant uncertainty for customers in most geographies, most notably OEM customers.

Gross profit for the second quarter ended June 30, 2021 was $61.5 million, compared to $29.9 million in the comparable prior year period. Gross margin was 14.0% of net sales for the quarter, compared to 10.4% of net sales in the comparable prior year period. The increase in gross profit and margin was driven by the impact of increases in sales volume, as described previously, favorably impacting overhead absorption.  In addition, cost reduction initiatives have been executed across global production facilities, in the last year, somewhat reflecting COVID-19 pandemic responses.

Gross profit for the six months ended June 30, 2021 was $114.7 million, or 13.6% of net sales, an increase of $57.6 million compared to $57.1 million, or 9.1% of net sales, for the six months ended June 30, 2020. The increase in gross profit and margin was driven by the impact of increases in sales volume and cost reduction initiatives executed across the business. Gross profit was negatively impacted by $2.8 million, as a result of abnormal natural gas price increases for our North American operations due to unprecedented unfavorable weather conditions experienced during a few weeks in February 2021 in large portions of the Southwest and Midwest regions of the United States.

Selling, general, administrative, research and development (SGARD) expenses for the second quarter of 2021 were $35.1 million, compared to $30.6 million for the comparable prior year period. As a percentage of net sales, SGARD was 8.0%, compared to 10.7% for the comparable prior year period. The increase in SGARD was driven primarily by an increase in other employee-related costs on improved operating performance and growth in sales and unfavorable foreign currency impacts primarily in Europe and the United Kingdom. 

SGARD for the six months ended June 30, 2021 were $71.7 million, or 8.5% of net sales, compared to $64.9 million, or 10.3% of net sales, for the six months ended June 30, 2020. The increase in SGARD was driven primarily by investments to improve our supply chain and logistics processes, an increase in other employee-related costs on improved operating performance and growth in sales and unfavorable foreign currency impacts primarily in Europe and the United Kingdom. 

Income from operations for the second quarter of 2021 was $23.7 million, or 5.4% of net sales, compared to a loss of $3.1 million, or 1.1% of net sales, for the second quarter of 2020.  Income from operations for the six months ended June 30, 2021 was $38.0 million, compared to loss from operations of $12.7 million for the six months ended June 30, 2020. The increase in income was primarily due to the higher sales and improvements in gross profit margins.

The Company refinanced it senior secured notes during the second quarter for 2021, and completed a call and redemption of all of its outstanding $400 million principal amount of Titan's 6.50 percent senior secured notes due 2023. As a result, the call premium plus a write-off of previously unamortized costs related to the senior secured notes of $16.0 million was recorded in the income statement for the three and six months ended June 30, 2021.

Foreign exchange loss was $0.8 million for the three months ended June 30, 2021, compared to income of $8.8 million for the three months ended June 30, 2020.  Foreign exchange gain was $8.7 million for the six months ended June 30, 2021, compared to a loss of $8.4 million for the six months ended June 30, 2020.  The foreign exchange loss experienced during the three months ended June 30, 2021 is the result of the unfavorable movements in foreign currency exchange rates in many of the geographies in which we conduct business as compared to the same period in 2020.  The foreign exchange gain experienced during the six months ended June 30, 2021 was related to realized foreign currency gains associated with an ongoing initiative to rationalize Titan's legal entity structure and ongoing management of the intercompany capital structure as well as a favorable impact of the movement of foreign exchange rates.  The foreign exchange loss experienced for the six months ended June 30, 2020 were the result of the translation of intercompany loans at certain foreign subsidiaries, which are denominated in local currencies rather than the reporting currency, which is the United States dollar.  Since such loans are expected to be settled at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. During the first quarter of 2020, we had settled a number of intercompany loans as part of a loan restructuring initiative with a resulting foreign exchange loss, which is reflected in the total foreign exchange loss recognized for the first quarter of 2020.

The second quarter of 2021 net loss applicable to common shareholders was a loss of $2.8 million, equal to a loss of $0.04 per basic and diluted share, compared to loss of $5.0 million, equal to a loss of $0.08 per basic and diluted share, in the comparable prior year period.  Net income applicable to common shareholders for the six months ended June 30, 2021, was $10.8 million, equal to income per basic share of $0.18 and income per diluted share of $0.17, compared to a loss of $30.5 million, equal to a loss of $0.50 per basic and diluted share, in the comparable prior year period. 

Agricultural Segment

During the quarter ended June 30, 2021, net sales volume and product price and mix was up 35.8% and 21.8%, respectively, from the comparable prior year quarter due to demand in the market, reflective of improved farmer income, an aging large equipment fleet and lower equipment inventory levels within the equipment dealer channels. Pricing is primarily reflective of increases in raw material and other inflationary cost increases in the markets, including freight. The increase in gross profit and margin is primarily attributable to the impact of increases in sales volume as described previously and cost reduction initiatives executed across global production facilities following the COVID-19 pandemic.

During the six months ended June 30, 2021, net sales volume and product price and mix was up 24.5% and 15.5%, respectively, from the comparable prior year period due to increased demand in the market, reflective of the same impacts described for the second quarter of 2021 and 2020. Pricing is primarily reflective of rising raw material costs and other inflationary cost increases in the markets, including freight. The overall increase in net sales was partially offset by unfavorable currency translation, primarily in Latin America and Russia of 2.6%. The increase in gross profit and margin is primarily attributable to the favorable impact of increases in sales volume as described previously and cost reduction initiatives executed across global production facilities following the COVID-19 pandemic.

Financial Condition

The Company ended the second quarter of 2021 with total cash and cash equivalents of $95.8 million, compared to $117.4 million at December 31, 2020.  Long-term debt at June 30, 2021, was $452.7 million, compared to $433.6 million at December 31, 2020. Short-term debt was $34.3 million at June 30, 2021, compared to $31.1 million at December 31, 2020.  Net debt (total debt less cash and cash equivalents) was $391.2 million at June 30, 2021, compared to $347.3 million at December 31, 2020.  The increase in net debt during the first six months of 2021 was primarily due to managed investments in working capital to support the business growth as well as approximately $19 million paid in connection with the refinancing of the senior notes during the second quarter and a $9.2 million legal settlement paid in February.

Net cash used by operating activities for the first six months of 2021 was $17.5 million, compared to net cash provided by operations of $5.5 million for the comparable prior year period. Capital expenditures were $14.6 million for the first six months of 2021, compared to $8.4 million for the comparable prior year period.  Capital expenditures during the first six months of 2021 and 2020 represent equipment replacement and improvements, along with new tools, dies and molds related to new product development.  The overall capital outlay for 2021 is expected to increase as the Company seeks to enhance the Company's existing facilities and manufacturing capabilities and drive productivity gains following suppression of capital outlay in 2020 as a result of the COVID-19 pandemic and reduction of business activity.

 

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