Titan International Is Rolling On

| About: Titan International (TWI)

Now that the USW have agreed to a new contract at three of Titan's (NYSE:TWI) plants in the US, production at these important factories can finally achieve their full potential. This dispute had been dragging for two years with the union representing the Bryan and Freeport plants not accepting an offer that was made to them in 2010. This meant they were not operating as efficiently as they could. Other factories had accepted similar offers and have been working as normal. The specifics of the deal are not public, but wages and medical benefits are increased on a plant by plant basis over a number of years. "This is a good contract for Titan employees and shareholders. Bryan and Freeport have been working without a contract for the past two years," comments Maurice Taylor, CEO and Chairman of Titan International.

Maurice Taylor also mentioned in the latest RNS that the 6% increase in staffing costs will be spread over the four years of the contract, and should easily be absorbed with more efficient working practices. An increase in production is also expected to need an additional 300 employees at these factories.

Recent acquisitions include Titan Europe, and Planet Group of Australia. The Titan Europe acquisition had been on the cards for many years, but it was the global recession, and more recently an earthquake in Italy which caused financial issues enabling Maurice Taylor to push through a bottom draw offer. The problems caused by the earthquake have now been taken on by TWI. A new factory had to be built, but while this was going on, inventory had to be sourced from competitors so that continuation of supply could be maintained with important customers. There is an insurance payment in the pipeline that should compensate for losses due to this.

Planet Group being put under the umbrella of Titan Mining Services is a move intended to capitalise on the global increase in mining. Although there is a widely held belief that China is slowing down, and thus the mining boom will come to an end. Spectators do not seem to be accounting for the growth of other major economies in Asia, and South America especially India, and Brazil and the role they will come to play. In fact a mining boom can also fuel an economy for expansion on it's own, as is happening in Chile.

There are other companies on the acquisition horizon. Morry believes he can handle the extra burden on the debt pile, and as long as the figures add up then why not. While we are still in the recovery phase of this latest recession, then it should be possible to buy companies for reasonable prices. I'm sure we all know of companies that have overburdened themselves with acquisitions at the wrong time.

As is seen on the recent balance sheet, sales are well ahead of the previous year. The dampener for the share price was the fall in profit for the final quarter of 2012, and a loss from operations of $1.1m. The quarter sales were up though from $402.9 to $493.6m compared to the same quarter in 2011. Looking at 12 months EPS, 2012 is $2.2 compared to $1.4 in 2011. Taking a fair valuation of 15%, then the share price on last years figures should be $26. This obviously does not account for future earnings. I suspect revenues to be much improved now we are seeing progress towards full integration of the new companies.

Earnings per share history
2008 2009 2010 2011 2012
0.39 -0.71 0.01 1.4 2.2

Figures supplied by Morningstar.

In summary, it would appear that the incorporation of Titan Europe into the fold appears to be the major hurdle to overcome. The increase in debt, plus the addition of shares are holding back the share price. Additional costs relating to the Union problems at the tire plants in the US, and the earthquake in Italy have also impacted the groups revenue. Overall though, it can be seen that these issues are being rectified, leaving the enlarged group in a strong position to capitalise on the global recovery.

Disclosure: I am long TWI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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