Titan International (NYSE: TWI) reported Q1 EPS of $0.22, $0.16 better than the analyst estimate of $0.06. Revenue for the quarter came in at $403.5 million versus the consensus estimate of $401.17 million.

"The positive momentum we highlighted during our most recent earnings release in March has continued and has increased further over the past couple of months," stated Paul Reitz, President and Chief Executive Officer. "The first quarter of 2021 was our strongest quarter since the first half of 2018 with net sales over $403 million and adjusted EBITDA above $26 million. These results are on the high side of our Q1 outlook. The strong recovery we began to see in our global Ag markets in the fourth quarter has now accelerated and includes additional demand within our earthmoving and construction (EMC) businesses beyond our initial expectation at this point in the year. During the first quarter of 2021, Ag and EMC experienced volume increases over 15 percent and 19 percent respectively. These market dynamics, as well as our continued cost discipline emphasized over the last year, led to a gross margin percentage of 13.2% representing a 450 basis point improvement from last year's first quarter.

"Based on a number of positive factors in the Agricultural sector, including higher crop prices, low inventory levels for new and used equipment, strong farmer income, and the age of existing equipment, we believe that the current market trends experienced in Q1 will continue, and in some cases even improve throughout 2021 into 2022. We are taking the necessary steps in managing the workflow and operational levels at all of our production facilities to meet existing demand along with the future needs of our customers. Titan has a long history of being flexible to adjust to changing markets with impressive depth in our production capabilities and we continue to hire and train people to meet this growing demand.

"Many companies around the world are facing supply chain and logistics shortages, but we are managing well to this point, due to well-coordinated supply chain management that requires continuous attention and action. At the same time, we have been and will continue to take, appropriate pricing actions to cover the rising costs of raw materials, labor and logistics. The second quarter will likely be much of the same, with volatility, but we are up to the task of managing through the opportunities and the challenges in front of us. Due to this volatility, it is prudent to hold back on providing specific guidance for the remainder of the year, and we will address this as we progress through the year.

"In the third quarter of 2019, we outlined our strategic goal to protect our balance sheet in order to position Titan to successfully refinance our 2023 bonds. Our management team worked hard to make consistent progress on that goal over the past 18 months and based on those efforts, last month we refinanced our $400 million bonds to a 2028 maturity date. Looking at our balance sheet this quarter, working capital had an impact on cash flow during the quarter as we ended with $96 million in cash. Although we continued to manage it carefully, inventory grew approximately $20 million due to growing sales volumes, but was lower as a percent of sales resulting in some cash flow efficiency gains despite the impact from increasing raw material pricing. We anticipate cash flow during the second quarter will continue to be tighter somewhat due to working capital, but also due to nearly $19 million of costs associated with refinancing our $400 million bonds. We expect continuing improvements in cash flow as we progress through the second half of the year."

Morry Taylor, Chairman of the Board, commented, "At our last Board meeting, we discussed the long history of Titan's Tire and Wheel business, specifically in the Agriculture sector, and it was suggested that I provide a refresher on that to our shareholders. We also discussed the positive trends we are seeing in the marketplace. I have been involved in this business since 1973, and have seen a fair number of business cycles. Nobody knows for certain what is going to happen with this cycle, but I am going to share some thoughts on what could be important for Titan going forward.

• In October 2020, major global OEMs were forecasting 5% Ag growth for 2021 – today their forecasts are much higher and likely will go higher as their order books are full and beyond their production levels
• The price of soybeans and corn had a strong surge at the end of 2020 and has kept on climbing in 2021
• OEMs and their dealers significantly reduced inventories for large tractors and combines over the past couple years and now it is time to rebuild those channels. However, with demand levels rising so rapidly, new equipment is hard to find in 2021 and it could take as much as 2-3 years to catch up on certain equipment.
• OEMs are trying hard to build more equipment to meet market demand, but the supply base for steel and many other components used in their equipment is a current problem.
• Large farmers started buying tractors, combines and sprayers near the end of the year to get tax depreciation benefits, while smaller farmers continued to buy both new and used equipment. The result is pricing on new equipment at some OEMs went up in Q4 – big time, over 8% in some cases.
• Delivery dates of new equipment are being delayed for many months with some situations seeing deliveries a year out. As a result, farmers are needing to replace tires on tractors and combines as equipment ages.
• South America is booming in Ag and is sold out for 2021. Farmers are going to larger equipment and that means larger tires/wheels – Titan's real strength!

Morry Taylor continued, "As you can see, there are good reasons to believe that Titan's business for 2021 looks strong. Titan has the productive capacity to satisfy the needs of our customers during this crazy market.

"Through the years, there is one item that really makes this a wild business. For example, a farmer might order 540R/46 duals, but then the weather gets wet and he might want to change to LSW 1100R46 Titan's Super Singles. The same with tires and wheels for combines and sprayers, which means a lot different wheels and tires being moved around in the schedule. This all adds up to a tremendous amount of OEM scheduling changes that create challenges. Bottom line is that Titan needs to charge more for these changes because we have the industry leading capabilities to meet our customer's needs.

"Along with our production capabilities, Titan has the capacity in North America to handle the increases in market demand. We are hiring and training additional employees, along with managing the supply chain in order to get steel, rubber, paint and nylon fabric. So, how do you deal with this situation and plan production accordingly? First, we work with OEMs and sign them up for long-term agreements (LTAs) to allow us to plan our production better. If they don't want to agree to a LTA, we schedule production to take care of those who do. The non-LTA customers will then have to be allocated behind the customers that have a signed LTA.

"Paul's team has set-up Titan well for a good run of growth in sales and profitability. I believe that there will be a good run in the farm business that will go for a few years due to a number of factors as Paul and I have noted, including the need to rebuild inventory levels. With the bond deal closed and as performance continues to get better, there are acquisitions that Titan could take to grow and serve our customers in an even bigger way. If these moves get done, I believe they could be a big boost to Titan. Paul's team's first mission is increasing production, but he and the Board will focus on these actions also. As always, I would like to thank our shareholders for their continued support."

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