High tire inventories in the machinery and mining industries is
biting the tire manufacturers.
Titan International Inc.
) recently announced it would lower 2013 guidance as a result. This
Zacks Rank #5 (Strong Sell) is expected to see earnings decline by
over 12% in 2013.
Titan International supplies wheels, tires and assemblies for
off-highway equipment used in agriculture and
When agriculture and mining was booming, tire sales were too. In
2011, the farmers took home record income and Titan's earnings
Warns on 2013
But the agriculture sector and the commodities industry has cooled.
On June 7, in a press release, CEO Maurice Taylor provided
commentary regarding the first five months of 2013 and discussed
the build-up in tire inventories.
He emphasized that there is no tire shortage. On the contrary,
millions of dollars in tires have been dropped in the aftermarket
from the OEM's in the farm and construction industries. Those tires
have now been released.
Titan sees this a a bump in the road for a few months until things
get back to normal.
The selling price of Titan's tires is also going down because its
material cost has been dropping.
Titan will be adjusting its December 2012 full year guidance, but
it wanted to gather further information from the mining companies
and their inventories before doing so.
The analysts know what this means. Obviously, the guidance will be
cut so the estimates must be cut as well.
The 2013 Zacks Consensus plunged to $1.69 from $2.15 just 30 days
before, as 3 estimates were cut. That is an earnings decline of
12.6% from 2012.
The 2014 Zacks Consensus was also swiftly cut to $2.16 from $2.74.
Titan is scheduled to report earnings on July 24, so there will
certainly be an update on business at that time.
The 5-year earnings surprise chart tells the tale, however. There
have been 2 big misses in the last 2 quarters.
Over the short term, Titan may not be the place for investors to
be. However, the company does sport a cheap valuation with a
forward P/E of just 9.7.
If you want to play the agriculture sector, both
), which make the actual machinery, are higher ranked Zacks Rank #3
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