The industrial sector has been hot this year, always a percent
or two ahead of the broad market. The reasons for optimism have
been sound, from a turn-around in the Chinese economy to the US
housing recovery gaining steam.
But that optimism may be cooling off and we need look no further
than two big name equipment manufacturers to see it unfolding:
Caterpillar (CAT) and Deere (DE).
And one company in the direct line of fire of a machinery slow-down
), a global manufacturer of off-highway steel wheels and tires in
the agricultural, earthmoving/construction and consumer markets.
The mining industry, from metals to iron ore, has also seen
earnings and outlooks take a hit recently, with names like Cliffs
Natural Resources (CLF) and Joy Global (JOY) being sold as
estimates soften. The gold miners are currently one of the lowest
ranked industry groups in Zacks classification of 265 industries.
Titan generally manufactures both wheels and tires for these
markets and provides the value-added service of assembling the
completed wheel-tire system.
They offer a broad range of different products that are
manufactured in relatively short production runs to meet original
equipment manufacturers' specifications and/or aftermarket customer
Earnings Picture Rolling the Wrong Way
Despite reporting record annual results on February 25, 2013, the
hiccup in Titan's growth outlook had been foreseen by the analysts
since early this year. And missing the fourth quarter consensus EPS
estimate of 47 cents by 80% didn't help.
Here's the view from the Zacks proprietary Price & Consensus
Since that earnings report, the Zacks Consensus Estimate for 2013
has dropped by 10.4% to $2.41 per share while that for 2014
plummeted 16.6% to $2.75 per share.
It's worth mentioning the record revenue picture here too. Revenue
of $493.6 million represented a 22.5% improvement over the year-ago
quarter. The impact was, however, negated by a 28.4% increase in
cost of sales that led to a 12.0% fall in gross profit, and a big
drop from the year-ago quarter's 37 cents EPS.
Where the Big Wheels Meet the Dirt
Decreasing earnings estimates together with a mixed bag of both
positive and negative earnings surprise for the past year --
producing an average of miss of -9.6% -- raises skepticism over
Titan International's performance in the quarters ahead.
Titan is still projected by some analysts to have mid-teens
earnings and sales growth. But until the estimate picture
stabilizes, it's probably best to stand aside. Watching how CAT and
DE estimates shake out would be a good idea too.
Kevin Cook is a Senior Stock Strategist with
CATERPILLAR INC (CAT): Free Stock Analysis
CLIFFS NATURAL (CLF): Free Stock Analysis
DEERE & CO (DE): Free Stock Analysis Report
JOY GLOBAL INC (JOY): Free Stock Analysis
TITAN INTL INC (TWI): Free Stock Analysis
To read this article on Zacks.com click here.