Titan Machinery shares plunge as drought drags down margins

Mon Sep 10, 2012 9:24pm IST

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(Reuters) - Farm equipment retailer Titan Machinery Inc (TITN.O) cut its full-year profit forecast as the worst drought in 56 years in the U.S. Midwest forced farmers to sell their used equipment, hurting prices of tractors and combine harvesters.

Shares of the West Fargo, North Dakota-based company were down 22 percent at $19.65 on Monday on the Nasdaq. They have lost almost a third of their value since they touched an all-time high in April.

The brutal U.S. summer drought is killing large swaths of the nation's corn crop, sparking concerns among investors that farmers could delay new machinery purchases as they conserve cash after the fall harvest.

Gross margin for the second quarter fell to 17.2 percent, from 18 percent a year earlier, as the company offered discounts to counter competition, mainly in the used equipment business.

Farmers and dealers from severely affected drought areas in the Midwest have been selling their used equipment, impacting prices, a company executive said on a conference call with analysts.

"Titan has been matching or beating the pricing on used equipment coming out of the other states and as a result, the margin has been negatively impacted this quarter, and is likely to continue for the balance of this year," said Tom Varesh, an analyst with M Partners.

Titan sells agricultural and construction equipment manufactured under the CNH Global CNH.N family of brands, as well as equipment from a variety of other manufacturers. It is the largest retail dealer of CNH's Case IH Agriculture equipment in the world.

Titan Machinery, which is valued at about $531 million, cut its full-year profit forecast to between $2.10 and $2.30 per share from its previous forecast of between $2.55 and $2.75 per share. It maintained its full-year revenue forecast of between $1.95 billion and $2.1 billion.

Second-quarter net income fell to $5.2 million, or 25 cents per share, from $6.3 million, or 30 cents per share, a year earlier. Revenue rose 32 percent to $410.1 million.

Analysts on average expected the company to earn 43 cents per share on revenue of $401.9 million, according to Thomson Reuters I/B/E/S.

(Reporting by Mridhula Raghavan in Bangalore; Editing by Supriya Kurane)

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