Titan International (TWI) releases earnings before the bell on October 27. Wall Street expects the company to generated $43.8M of EBITDA from $376.2M of revenue. The consensus EPS estimate of $0.377.
Titan manufactures wheels and tires for the off-highway industry. Titan is one of the few companies dedicated to off-highway wheel and tire products. The company sells to original equipment manufacturers and aftermarket customers in the agricultural, earth moving/construction (mining) and consumer markets (all-terrain vehicles and recreational/utility trailers).
Titan has grown via acquisition, including two relatively recent major asset acquisitions. In 2005, Titan acquired Goodyear’s North American farm tire assets. In 2006, Titan acquired the off-the-road tire assets of Continental Tire North America, Inc.
The agricultural market is Titan’s largest with agricultural sales representing 76% of 2010 net sales. Earth moving/construction market made up 22% of 2010 sales with the remaining 2% attributable to the consumer market. At $21.50 per share, Titan has a market capitalization of $1.1 billion and an enterprise value of $1.4 billion.
On September 28 Titan issued revised 2011 guidance. The company increased its 2011 sales projections to $1.4 billion from $1.20 to $1.35 billion, and provided revised EBITDA guidance of $175 to $200mm (from $135 to $155mm). At its midpoint, the company increased EBITDA guidance by almost 30%. In the press release, CEO Maurice Taylor said, “agriculture is booming, mining is hot and construction is rebounding.” Based on the mid-point of the revised EBITDA guidance, Titan is trading at 7.2x 2011 EBITDA.
On October 24 Caterpillar (CAT) released third quarter earnings. With $1.93 per share of earnings, Caterpillar beat the consensus Wall Street estimate by over 9%. Caterpillar had a record quarter, increased their 2011 outlook, and provided a positive preliminary outlook for 2012. In their conference call Caterpillar articulated their 2012 view:
"For 2012, we expect our total sales and revenues to be up 10% to 20% from the outlook for 2011 of $58 billion. Now, that’s based on our view that the developed countries of the world will continue to grow in 2012 a little bit better than 2011, but at a slow rate and below their potential.
In the developing world, we expect overall economic growth at about the same pace as 2011. In the US, we still expect continuing poor housing, a little better than this year but still very weak. We are also not factoring in any new highway build, but we are encouraged that it seems to be gaining some traction in Washington.
In summary; we are still predicting, improving but slow economic growth. In some of our businesses that’s actually good. Well, many of our products were producing full out, we need time to get more capacity in place. Despite the relatively weak economic growth so far this year in 2011, our order backlog has steadily increased throughout the year, it’s in a record level and that will help support next year sales."
Caterpillar is one of Titan’s largest OWM customers, and Titan’s recently revised 2011 guidance is consistent with Caterpillar’s view of the world as articulated in their recent earnings release.
Wall Street analysis current estimate Titan will generated $255M of EBITDA in 2012, which means Titan is trading at only 5.3x 2012 EBITDA. There appear to be positive dynamics in the global agriculture and mining markets, and all of those tractors and trucks need tires. Titan is poised to do very well, and it would not be surprising to hear more positive commentary from Titan when it reports earnings later this week.