Titan Machinery Inc Earnings: Will They Suffer Deere's Fate?

On Thursday, Titan Machinery (TITN -2.03%) will release its quarterly report, and investors have suffered through a whirlwind of share-price advances and declines that show the turbulence that the heavy-equipment industry has gone through lately. Like rival Deere (DE -0.65%) and fellow equipment-maker Caterpillar (CAT 0.07%), Titan Machinery has had trouble keeping its revenue up, but shareholders remain hopeful that the company will manage to get its earnings moving back in the right direction in the long run.

Titan Machinery is the retail link between the makers of agricultural and construction equipment from the manufacturer of the Case IH and New Holland brand names. With that combination of business segments, Titan Machinery hopes to tap into the same long-term demand that Deere and Caterpillar have sought in the agricultural and construction industries. Yet after putting in strong performance in the years after the financial crisis, Titan Machinery has topped out and lost half of its value from its 2012 peak. What's next for Titan? Let's take an early look at what's been happening with Titan Machinery over the past quarter and what we're likely to see in its report.

CNH / Case-IH tractor sold by Titan Machinery. Source: CNH.

Stats on Titan Machinery

Source: Yahoo! Finance.

Can Titan Machinery earnings get back on track?
In recent months, investors have gotten less optimistic about Titan earnings, doubling their loss estimates for the April quarter and cutting their projections for the full fiscal year by a dime per share. The stock has been volatile, rising 13% since late February but with much more violent swings in the share price.

Titan Machinery's most recent quarterly results show some of the struggles the company has faced lately. Sales for the quarter dropped almost 10%, and Titan's adjusted earnings fell by more than half. Moreover, with sales expected to decline a further 3%-12% over the next year, Titan is seeing some of the same trends that Deere has seen on the agricultural front. Investors had expected worse from Titan, though, and so even those ugly results led to a big jump in the stock's price.

Source: Deere.

Competition is a big factor in Titan's troubles. Deere in particular has worked hard to get ahead of changing trends in the industry, and that strategy has paid off with its decision to modify engines to comply with environmental regulations well in advance of federal deadlines. That advance preparation made it easier for Deere to pass on higher costs of compliance to its customers, while Titan Machinery has struggled to do so. Moreover, Deere is spending substantial amounts on research and development in order to sustain its hold on the U.S. agricultural equipment industry.

The big wildcard for Titan Machinery is whether construction-equipment sales will pick up. Caterpillar has seen better performance in its construction segment than in its mining segment, with actual sales gains for construction equipment in many key markets. Still, Titan announced in its last quarterly report that it would have to cut jobs at its construction equipment unit by 12%, reflecting past weakness and leading some investors to be skeptical at Titan's ability to follow Caterpillar's more favorable trends.

In the Titan Machinery earnings report, watch to see how the company's two main segments perform. If construction does start to pick up for Titan, then it could finally help the equipment retailer pull out of its revenue tailspin. But if agricultural sales are worse than Deere's recent trends, then Titan investors could have to suffer a while longer.

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