Q2 2021 Titan International Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Titan International Inc. Second.
The 2021earnings conference call at this time, all participants have been placed all of listen only mode and we will open the floor for your questions and comments. After the presentation. If you should need assistance. Please dial star zero and the the operator will assist you it.
And it's now my pleasure to turn the floor over to Mr. Todd shoot.
Senior Vice President Investor Relations and Treasurer for Titan Mr shoot the floor is yours.
Thank you grant good morning, and welcome everyone to our second quarter 2021earnings call on the call. Today, we also have tightened and president and CEO, Paul Reitz and tightened the senior Vice President and CFO David Martin.
Martin I will begin with a reminder, that the results. We were about to review were presented in the earnings release issued this morning, along with our form 10-Q, which has also been filed with the Securities and Exchange Commission of this morning.
As a reminder, during the call and we will be discussing certain forward looking information, including the company's plans and projections for the future.
Sure.
And involve risks uncertainties and assumptions that could cause our actual results to differ materially from the forward looking information additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward looking statements can be found within the safe Harbor statement included.
Within today's earnings release attached to the company's form 8-K filed earlier today as well as our latest form 10-K and forms 10-Q, all of which have been filed with the SEC.
In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement but not be a substitute.
For the most directly comparable GAAP measures the earnings release, which accompanies today's call contains financial and it and other quantitative information to be discussed today as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures today's earnings release is available on the company's website within.
Within the Investor Relations section under news and events. Please note today's call is being recorded a replay of this presentation will be available soon after the call within the Investor Relations section on the company's website a copy of today's call transcript will be made available on our investor website soon after the call.
And I would now like to turn the call over to Paul.
Thanks, Heide and good morning, we saw this year and get off to a good start and the first quarter and at that time, we felt convincingly that our business was moving in a positive direction and and in a number of ways and our second quarter results illustrate that not only we've seen those trends continue this quarter they have improved.
Coming off of good Q1 of our second quarter sales grew quarter over quarter, 9% of $438 million and our adjusted EBITDA reached $37 million this period as compared to $26 million and Q1, along with that our adjusted EPS increased to 22 per share from <unk> and Q1.
Overall.
And second quarter performance was 1 of our strongest and a number of years as we did a really good job battling through the heavy noise that exists and today's operating environment. There really is challenging for many if not all industrial companies.
Just think that we've been able to produce an additional $215 million worth of products and the first half of this year for our customers.
Demonstrating our ability to adjust quickly to meet the growing needs of our important customers are.
Our strong Q2 results grew on the momentum from Q1 and now with the mid year point has put us and position for 2020, 1 and adjusted EBITDA to be north of $120 million.
So of diving further into our performance both of our AG and our earthmoving.
And construction segments experienced strong sales volume growth and the second quarter. Our end markets continue to look very good and we expect the strong demand levels. We have seen the last couple of periods to continue into the back half of this year and then really in the book beyond into next year as well we feel the AD continues to show good positive signs of current and longer term strength.
What is important for us is that the primary important drivers behind the growth and add continue to show signals of solid support for example, the continuing tight inventory levels and both new and used equipment has brought large AG equipment prices the very high levels, if not record levels and tightens North America business, we are seeing growing momentum and large.
Jag, where orders have increased throughout the quarter and we believe that this trend should keep moving and a further positive direction as fleets are aged and the large AG equipment market is still roughly 25% below long term averages.
Our smaller add customer base has been really good the past few years and so far in 2020.1 many of those customers have seen their inventory.
Inventory levels of depleted to low at really low levels and again, if not record low levels. The.
This means these dealers will need to rebuild their inventory, which is going to increase our production demand above retail sales levels for 2020, 2 and should keep the momentum and going again and small lag as we look into the future.
Again these are just.
You from a number of indicators of illustrate the core strength and the current AG market and support the case the AG will have solid longer term growth.
So moving from AG and looking at our Earthmoving and construction segment. We have seen demand continued to be above initial expectations with sales growth over 50 per 7% year over year and an increase of 7%.
Sent compared to our first quarter, which again, we felt was a good quarter to start the year.
As we have stated before a large percentage of the excuse.
Excuse me of large percentage of our EMC sales came comes from our undercarriage division the ITM.
<unk> has a good balanced exposure to global markets and the really something that we.
We have worked hard through the years to build we saw solid growth this quarter and construction revenues from both Oems and aftermarket and this is coming primarily from Europe, and the far east and our business.
And the word of the month seems to be transitory as the debate rages on if inflation is transitory or not.
Quarter.
We thought it was crazy that steel was around $500 well guess, what it is now floating around $1800 and appears to be going even higher.
Yeah. This is just an example of the facts of operating and today's post pandemic world, where costs are rising and everything from raw materials to labor and logistics.
All of this quarter Titan.
<unk> was able to balance our pricing with these rising costs and we continue to believe that we have the ability to pass through the increase in costs.
I do want to add another comment specific to Titan that we have a long strong history of being very good at managing costs and you see that and our reported SG&A costs.
And we're going out of step further we also have a strong culture around manage our operational costs and we will continue as the management team to work hard to manage our overall cost structure, which is definitely a benefit in times like we're in right now.
David will spend some time going through the financials with you, but wrapping things up and conclusions.
However day I'd like to state a few things regarding the actions, we've taken and improve our balance sheet, which includes our important long term debt refinancing that took place in April.
And these actions have put us in a good position to manage the current and future growth of our company.
These are certainly challenging times of weird.
<unk> taken in but we see in front of us the market with robust and strong broad based demand really bodes well for this year and clearly beyond in the next we believe Titan is in a good position with our global production capabilities and our strong product portfolio to deliver superior value proposition to our customers and we will be able to benefit.
The operating longer markets.
We are committed as a company to increasing our capacity in key locations and we continue to drive our product innovation to be of strong partner to our customers. Our Titan team is working hard and continues to work hard to effectively deal with the supply chain and labor challenges and at the midway point of the year of businesses.
And this is performing very well with our Q2 results really shiny bright our order books are solid and they are continuing positive signs and our end markets and this puts tight and the good position to post 2021, adjusted EBITDA north of $120 million and on top of that we see a path forward to future growth for next year and.
And now I'd like to turn.
Turn the call over to David.
Thanks, Paul and good morning, and I appreciate everybody joining us today.
Well you know the second quarter continued to show the power of the changes that we have made of Titan and how we can accelerate our financial performance improvements with sales growth.
Before I get into the details I want to highlight.
And the most important aspects from this quarter's performance.
<unk> sales grew over 53% for the quarter from last year and Q2 of course. This growth is inflated somewhat as we were and deepen the initial throes of the pandemic last year in the second quarter.
If you go back to the second quarter of 2019, and we grew a healthy 12%.
<unk> or 19% if you exclude the impact of currency fluctuations.
All of our regional operations across the segments experienced significant growth and the quarter.
Leading to the strongest sales quarter since Q2 of 2014.
Sales for the first half were up 34% from the first half last year and up 5 per.
And from the first half of 2019 and.
Again, and 12% growth if you exclude the impact of currency.
Again this quarter.
Our growth between AG and and the Earthmoving and construction segment was very balanced both grew 57% the consumer segment reported an increase of 15%.
The gross profit level was significantly improved at 61 million with the margin of 14% up from 10, 4% last year and and an increase sequentially from the first quarter margin of 13, 2%.
Excluding the impact of the bond refinancing costs, and FX losses, and the second quarter of $16.8.
Net income for the quarter was $14 million and our diluted earnings per share was 22.
Adjusted EBITDA for the quarter was 37 million, representing the strongest quarterly performance for us since 2013.
On a trailing 12 months basis, adjusted EBITDA stands at $95 million as of this quarter.
Finally, our cash position remains stable again this quarter at 96 million very healthy level for us despite the continuing investments and working capital while we have been very measured and our inventory management to date.
Now of getting into the more of the detail for the quarter.
The sales growth for the quarter versus last year stands.
The highlight but it's also important to note that sales for Q2 jumped nearly 9% sequentially from the first quarter this year.
And continuing increases in demand across all of our markets currency was a boost of sales this quarter of approximately $8 million or close to 3% versus a year ago with the strength and the euro and the pound.
Driving the majority of the increases volume was up.
Year over year by 33% and we also had favorable price and mix of more than 17% as the cost of materials have risen during the period requiring customer pricing actions.
Gross profit for Q2 was 61 and a half million dollars versus the 31.
And adjusted gross profit and the second quarter of 2020, representing a 99% improvement our gross profit margin for the second quarter was 14% versus the only 10, 8% last year after adjusting for and asset impairment.
Just a quick report on our progress this quarter in terms of production.
And of course, we continue to take up our production levels during the quarter, which reflected the moves to hire and train staff to meet the demand that's coming at US again, we're working really hard to calibrate production levels to the demands that we see coming.
Of all material and logistic costs continue to rise across all market sectors and as you can see.
Reduction numbers were putting through appropriate price increases to customers to manage the situation.
And I said, it last quarter, but the timing of impacts related to procurement and ultimately the flow through to production can differ from the price changes that we're making with customers. Obviously the objective is to align everything from a timing perspective as closely as possible.
And the time, there can be quarterly variations however.
Also while we see our gross margin dollars protection protected our margin percentages can vary.
We also continue to fight hard to ensure production remained smooth given the supply chain.
<unk> that we're seeing from.
And from steel.
All over fabric to polymers.
Our supply chain leaders have done a fantastic job today and it will and they will obviously continued their relentless exercise of keeping us moving efficiently.
Now to our segment performance.
Our agricultural segment net sales were up 84.
The old Dominion or 57% from the second quarter last year, which makes it the strongest quarter for the segment and the last 8 years.
Currency impacts were almost negligible and the segment with only <unk> 4 per cent negative impact.
Volume in the segment was up 36% and we had an increase in price and mix of 22%.
Again relating primarily to the turnaround in raw material costs and other costs associated with production and the need to increase per customer pricing accordingly.
The key driver to the volume increase related to OE sales across the business, while aftermarket sales remained very solid.
The agricultural segment gross profit.
4 million quarter was $35.3 million.
Up from $15.6 million in the prior year.
And representing 126% improvement the gross margins in Q2 were 15% for AG, which was the significant improvement from the margin produced last year of only 10, 6%.
And this.
And is reflective of the volume and the effect on our efficiencies and our plants along with the continued strong cost actions that we've taken over the last year.
And now we're definitely seeing the effects of higher raw material costs and the second quarter, while we were able to manage the overall effect on our profitability and dollars through our pricing actions much like our first quarter.
The second we saw significant performance improvements across all of our geographic operations across the segment.
Our earthmoving and construction segment exceeded expectations for the quarter as the construction markets experienced accelerated recovery of the challenges that were taking place and the global construction markets.
The result, again that that was primarily due to the early days of the pandemic last year.
Overall net sales for the <unk> segment grew by $64 million or 57% from last year on a constant currency basis, net sales would ever in Brisbane and 50% of for the quarter versus a year ago again, as the euro and the British.
British pound currencies strengthened and gets to the U S dollar.
Volume was up and the M. C segment by 38%, while the and price impact of price and mix was positive at 11%, while less impactful than in the AG segment, rising raw material and logistics costs were combated by pricing actions.
R J a.
And all geographies experienced year over year growth during the quarter with the largest growth coming from the Itm's undercarriage business, which grew 55% excluding FX impacts from the second quarter of last year I T and its primary growth Crane came in Europe Asia and Latin America.
The gross profit and the Earth moving.
And same with for the second quarter was $22 million, representing an improvement of almost $10 million or 77% from the adjusted gross profit in Q2.2020.
As a reminder, we took a small impairment of a million dollars and the second quarter last year and in this segment gross profit margin and the M. C segment was 12.6.
And concern versus an adjusted gross profit last year of 11 point to again the largest driver of our increased profitability came from the increase in sales and the Itm's undercarriage business.
Moving over to consumer of the segment's Q2, net sales were up 15% compared to last year for the first time and a while currency was a non factor.
Actor, where the positive tailwind of 1.2% and the quarter pricing and mixing pack impact was a positive of factor of 17%, reflecting our ongoing raw material and other cost increases.
Volume was down and the quarter by about 3%.
As our focus has been on our key AG and EMC customers.
We have shifted some production from the consumer products during the period.
The segment's gross profit for the second quarter was $3.9 million of healthy improvement from Q to Q1.
2020 Q2, 2 and the 2020 sorry.
Gross margins were also healthy of 12, 7%, which was an improvement from 10% last year, reflecting.
Positive mix changes in the products that we sell.
SG&A and our R&D expenses for the second quarter were $35.1 million down from down a million and a half dollars from last quarter second quarter, SG&A and R&D costs increased from a year ago about.
And some of half million again due to the the pandemic last year, we had taken some very strong spending control measures and in the quarter last year. This year's expenses included some variable compensation costs, reflecting the increase in sales and profitability during the quarter.
Most importantly, our SG&A and R&D expenses.
By far as a percentage of sales declined to 8% versus 10, 7% last year and Q2.
First half SG&A expenses were 8.5% of sales.
We recorded tax expense of $2 million during the second quarter in line with our expectations. This reflects our taxes on.
The increased income from certain foreign jurisdictions, including Latin America, Turkey, and Asia, we remain on track to see between 8 and $10 million and tax expense for the full year.
Alright, so, let's let's move on to the cash flow and our.
Overall cash balances remained steady this quarter at $96 million.
Senses and spite the sense of sequential growth in sales as our profitability increased significantly and we needed to invest and inventory to support our second half expectations for sales operating cash flow for the quarter was almost breakeven at an outflow of 1 and a half million dollars.
Our operational teams were very effective and managing.
Managing working capital this quarter are and accounts receivable and accounts payable effectively group growth effectively offset each other again this quarter, we had growth and inventory in the quarter of approximately $32 million about half of this increase in the quarter came on higher raw material costs with the other half coming and volume mix and currency changes when you bought.
Paul It all down the overall growth and inventory during the quarter was 9.2% with less than 5% coming from volume, which shows the effectiveness of our working capital management discipline.
With continued solid focus I believe the cash flow will increase through the year and we can get the breakeven to positive and free cash.
Cash flow for the.
Here of course, this will be somewhat dependent on how we view our needs for inventory as we head towards 2020.2.
And any event any inventory investments will be strategically focused as we plan for business growth.
Capital expenditures for the second quarter were $5.8 million, which was in line with the quarterly historical levels.
For Capex spending as of mid year, we stand at 4 point $14.6 million and total Capex capex spending will be higher and the second half as we have a number of ongoing projects that are focused on facilitating more efficient operations and reduce cost we have some investments, particularly in Brazil that are needed to expand our production capacity.
The full to meet the demands of our customers. We also continue to focus on product line of innovation, which require some tooling investments as well of.
And I continue to and pit anticipate the spending for the full year to be about around $35 million to $40 million.
We've talked about the the bond refinancing that took place in April so that is not new news.
News, but it is worth mentioning as it was a very significant step forward for Titan, it's and very important for us to take the advantage of the opportunity to refinance and secure our financial stability for years to come and so on April 22nd we were able to close the new 7% months, which will now mature in 2028.
Overall debt level.
At quarter and increased from March of about 15 million and all of this increase came on revolver borrowings related to the refinancing cost of the bonds, we borrowed approximately $19 million to pay the fees and the call premium at closing short term debt at the end of June was up slightly to 34 million most of our current maturities.
At the end of the period relate to foreign credit facilities and term loans, which can be rolled over an extended if needed in the coming year there.
And therefore, I don't anticipate any significant cash requirements relating to debt in the near term.
Our current domestic and $100 million ABL credit facility is also secure with the maturity of 2020.
A corner and we had borrowings of 29 million.
And none of the current borrowings related to any working capital needs and the business with positive operating cash flow expectations and the near term, we should be able to pay down these borrowings overtime.
That said at the end of Q2, we had headroom and the capacity on the facility of $59 million.
3 of you deduct the current borrowings and outstanding letter of letters of credit. We also have sufficient revolver capacity and Europe. This gives us tremendous flexibility to run the business.
Overall net debt increased in the quarter to $391 million again, and I expect the trim that number through the year as cash flow increases and were able to pay.
After revolving credit lines.
It is important to note that our debt leverage at the end of June based on trailing 12 months. Adjusted EBITDA has decreased to 4.1 times, which is nearing our target leverage of less than 4 times EBITDA.
And let me wrap up with a few thoughts on the second half of the year and some concluding remarks.
Down the burst or our view of on demand is very strong as Paul indicated earlier and.
At the same time, we have certain seasonality and variation and our business, where traditional summer holidays and vacations throughout Europe.
And the traditional and November and December holidays that we have and that has some impact on our production schedules.
And our performance.
And those factors will be present present, and the second half of 2021, notwithstanding our continued strong sales expectations.
The future remains bright for us and our leadership team is very focused on managing the opportunities and the challenges that are in front of us the first half performance.
Performance demonstrates that commitment we have a lot of work ahead of us as the landscape remains volatile and.
And I look forward to sharing our continued progress again next quarter.
So that sums it up so I'll turn it off the call back to grant for any questions you have.
We will now begin the question and answer session.
And I ask the question you May Press Star then 1 on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys and withdraw your question. Please press Star then 2 at this time, we will pause momentarily and some more off Sir.
Our first question today will come from Steve <unk> with Sidoti. Please go ahead.
Good morning, everyone. Good morning.
Paul twice, you said, you're on pace for for north of $120 million, and EBITDA, which to some degree would seem to conflict with with.
His comments about typical second half seasonality and I'm, just trying to get an expert.
And idea of where you simply doubling the first half number or is that your actual expectation north of 100.
And $20 million EBITDA.
Yeah, No I mean first off I mean, David I are both aligned on the positive outlook that we have for the company.
David rest of this year, you know my comments about being north of 120 million really reflect the confidence we have and our end markets and and the strong position, we have with our order books.
We certainly feel good about the results we have through the mid year, especially the the performance and the second quarter and as we look forward of the back half.
For the year, you know I got out of high degree of confidence that our you know both David and I mentioned, our Titan team is going to work hard has been working hard and as good of dealing with challenges and so as we look into the back half of the year. You are correct, Steve with your comment you know, we do have seasonality of theirs.
There's.
And maintenance, there's vacation theres holidays.
Half of the of theirs.
And as typical issues that will impact our production days and the back half of the year, we are working and and we will mitigate the the plant shutdowns to the the greatest extent, we can and so we can continue to produce as much product as possible for our customers.
And so really it's.
Think of where we're at.
There'll be able to say today that we look like we will be above.
North of a 120 million just expresses the confidence we have and and our business. Overall, so I think I think both David and I are and alignment on that so the only thing.
That is based on.
The real forecast that we're operating within the company not.
At the just the doubling of the first half for price yeah.
That's fair so how much of that can certainly we've talked a lot about and you commented a lot about the the challenge you had was Ricky.
The recruiting.
Training, and then retraining retaining of labor and clearly.
Not great job of that so far.
Where would you say you are with that do you think there's more to come and do you think you could be doing more volume and a quarter. If you had more labor and how can you get the sort of outlook on the labor side.
And we look it's not as simple as putting a help wanted sign out and people walked out of your door.
And I think we've done and the results support that a really good job and if you look at our domestic hiring day.
And you can confirm this and I think were up like 14% for the year.
And that's right you know overall as the company were up somewhere around 11, and 12% I mean, I think of today's challenging labor.
You've done it as you highlighted I think we're doing a really good job, we're making the investments to recruit people, where we are really channel and we're really committed as a management team to deal with the challenges of retaining people.
And I think those number of supported its not just our sales, but again you look at our head count levels.
And this type of market to be up.
And Mark of 14% domestically is strong and and we are we're seeing and bright lights that debt and.
Certainly support that we can continue to grow well beyond that and and.
Labor markets.
See the the wage support that's existed from the government side kind of start to pull back.
We believe that the our ability to continue to recruit and retain people will will only get stronger as we finish out this year and look the next year to continue to hire.
Great and if I could just get 1 more in obviously the capex. This year, you need to invest and the plants I'm just trying to think about longer term what your thoughts.
Thoughts on cash flow and debt repayments.
Yeah, so keep in mind and a lot of our a lot of our debt is relates to our term loans as.
Well as the credit facilities outside of the United States.
We are committed to paying down and on the the ABL facility.
And the U S and moderating our our debt levels with the end of the international operation. So we will continue to do that with cash flow, but it's you know, it's obviously not a very significant number and the first place you know the majority of our our debt is obviously with the you know.
And the bonds them.
And so it.
It won't be necessarily big numbers, when you see pay down of debt, but it will you will start to see that and as we go through the <unk>. This year next year.
Great. Thanks, so much everyone appreciate the time.
And I just wanted to add 1 thing you know you talked about Capex, just a minute ago and I think that maybe.
And we'll play into that 2 of certain extent, probably we will continue to invest and the operations and I said $35 million $35 million to $40 million of total capex this year.
As a percentage of sales that's kind of in a pretty good place and I think as we continue to see growth you know I think you'll we'll stay as a percentage of sales.
<unk> purely pretty close to this but we will moderate up to a certain extent, if we need to based on where we see the and it needs to expand capacity or just keep our plants running more efficiently.
Thank you.
Your next question will come from Kirk Ludtke of Imperial capital. Please go ahead.
Good morning, good morning, guys.
Can you hear me.
Yes, sure well congratulations on some very very strong execution and.
And and a challenging environment.
A couple of couple of questions.
The Big picture.
Does this environment give you an opportunity to make some.
Some strategic moves on the M&A front to boost capacity.
Simplify the product offering.
On the capital structure side, you know does it give you an opportunity to.
Issue some shares maybe term out some foreign maturities.
Oh man and you get into sort of heavy questions there correct.
You know the certainly I am and M&A Friday.
Friday, it's difficult to predict where that that future looks I mean, we we and I believe I'm speaking on behalf of the board is as well you know do you see a future where there's some operating opportunities out there that that would be good for Titan, but you know it's difficult to predict exactly where that goes and the future.
You know I will say this our capital structure.
The overall with what we've completed in April and how well, we've managed the balance sheet and and working capital as David has highlighted you know puts us in a very good position to handle growth for the future and make the key investments, where we need to and capex to do it strategically to increase capacity.
And those target markets, where we see growing demand.
And and we see the importance of what we do being critical to our customer base. We are committed to doing that and we have a plan to do that we will continue to invest aggressively and product innovation and whatever investments are needed there on the edge of engineering front, the tooling and France, and we feel that that's the strength of the Titans that we will.
We'll continue to invest in and for the future. So.
And as I look at our capital structure and I feel very good about where it positions us regardless of the M&A for who we are as a company to continue to meet the growing needs of our customers and do it most importantly on a on a local and regional basis, where we can give them a.
Our supply chain that they can feel confident and.
And that's helpful. Thank you.
On a on a prior call you mentioned.
That you were asking customers to sign long term agreements.
How's that going and can you elaborate on what the benefits of that those agreements to the extent you can get.
Customers signed up to a long term agreement.
The benefits might be in terms of.
Minimum volumes.
Yes, I think what what I would say is made of the response from our customer of key customer.
He has been very good.
And it shows the importance of the products that we produce to their supply chain to their end users and you know I think the response, we got from the marketplace has been something that we feel as the team broadly speaking around the world very good about we will continue to pursue further discussions.
And as with customers because and in my opinion, the the long term agreements really solidify the relationship between between our customers and tightened that's important and I'm going to go beyond just the the volumes and maybe some of the simple things, but it really says to each other that we're committed to 2 to damage the.
<unk> desire to deliver good high quality products on time.
And at a very competitive.
Land scape for them to be able to meet the needs of their customer base and so I look at it as when we signed that long term agreement. It means we're going to work together.
For a number of years to again, we share.
And and desire of that our products go in and and meet the needs of the same and users. The farmers construction of operators mine operators around the world and you know.
I think that long term agreement, just says hey, where both of US together so from.
From a volume perspective, I mean, yeah does it.
It helps us with our scheduling and are planning to.
And know that we have a secure volume and.
And I, certainly can't say that there's a negative to the out at all I mean, the more of the more we can secure the volume it and understand what that schedule looks like the more efficient we can operate our business and so.
Look forward to having continuing discussions with our customers to have more long term agreements.
That's helpful. Thank you. Conversely are your are your vendors asking you for long term agreements.
Yeah, Jeff if you're going to do something like a <unk> and LTE, a and it's got to be a mutual relationships. So yes, it's a 2 way street.
Great and then lastly.
And.
I know you refresh your ratings before you did your bond deal but.
But that Moody's rating is looking a little stale.
Uh huh.
Is there any and a chance of getting them to revisit.
Well the.
And this is David I will tell you that we have ongoing dialogue with all of the.
The rating agencies every quarter.
And so you know, we will obviously refresh our financials and and have discussions with them and obviously, it's up to them.
And on that risk and that credit risk associated with it but it <unk>.
Know that where we were proactive with that.
Thank you and great quarter guys.
Thanks Kurt.
Our next question will come from Alex Blanton with clear Harbor asset management. Please go ahead and hi, good morning.
Thanks for asking the question Hi, I before I ask my question just 1 of <unk>.
And that's seeking alpha.
Misreported your <unk>.
Number 621 a M.
Saying that it was the non-GAAP earnings of 29 cents.
That's of course, you're 6 months.
Number they reported it as the quarter set of 22 cents.
We don't have a lot of power and what they what they report right they have and if they haven't corrected yet.
Is that the only guidance, you're giving for the quarter of the I mean for the year of the EBITDA.
That's correct.
So we have to.
And from there.
To what extent, where the the there were headwinds.
You've said on on labor.
What do they really affecting your production rates.
Our our order books are very strong Alex to the extent that we.
We can hire people, we're going to we're going to put them to work and and meet the growing needs of our customers.
I would look at it this way of kind of going back to what we had talked about earlier I mean, I think we've been very effective and hiring you know when you look at domestically what you're reading the headlines about the challenge with the labor market I mean, we're up 14% and our head count and year.
Year over year.
And very good at recruiting and retaining people and.
What we are doing for our customer base as it is making those investments and the commitments to do that to go into the market. It's it's again, it's not as easy as just the saying you need people you got to really got to recruit them into the into the business and so I think we're doing a good job.
We will continue to do that and we'll probably be talking about hiring and labor.
For the next 12 months and that's a really good sign of it tells you that our order books are full and we need to build more products.
Well I guess my question was could you and so more had you had more than even the higher and more was that the headwind.
So we've been in the quarter.
And any idea of how much.
No that's really that's very challenging to say yes.
The Big 1 is yeah, okay and the same question on the on.
And the material side.
Yes, certainly the.
There are some constraints with respect to the you know the supply chain, but I would tell you during the quarter. It probably was not as much as.
And what they've been anything that really true.
Truly put us back.
Things are in the second half of the year will be more challenging and so we're gonna be fighting hard through and just as we.
And the second quarter.
The hole is obviously to keep things flowing efficiently.
And you can never guarantee that.
And Alex were just too busy to play what if I mean, we are we got our heads down and were shown to work every day and put in the overtime and do and building as much as we possibly can these days and I.
And I think we see that continuing for the.
A number of periods ahead of us.
Could you just give us a quick rundown on.
On the foreign business, specifically, Europe, South America and Russia.
How are they doing.
I would tell you. The you know if you look at comparative performance of all of them are up very very soon.
Definitely to the.
And to the levels and in Europe there are.
<unk>.
The European wheel operations grew 100% this quarter.
The.
The Russia grew quite nicely again double digit growth.
And Latin America grew up close to 100 per cent as well.
Is that since and what.
Metric the.
100% gross sales and sales per sales okay.
And then and rest of you were planning to sell <unk>.
And your tires made and Russia into Europe.
Are you are you able to do that.
Yeah.
Well the Russian plant has been doing a really good job taken tightened branded tires into the local market there.
We've expanded on just the the local brand that had been in the marketplace for a number of years and really the added the Titan the Titan brand into the market. We are exporting some titan branded products out of there.
Well to be honest with you, though right now I mean, the markets and.
And as really good over there and and we have not not needed or have the necessarily the capabilities right now to expand beyond the local market and we're doing everything we kind of meet the needs. There. So what we're doing to meet the needs and Europe is is bringing of products from other suppliers.
Are some of its off take out of out of other countries. Some of it is coming from North America. Some of it comes from Brazil. So we are working on expanding the Goodyear brand in Europe to answer your question, it's coming from multiple outlets are again, some titan manufactured some some non Titan manufacturer. We have some really good partners that we're working with on that.
But when we look at the Russian plant. These days, it's doing a great job servicing the the markets, we need and the service and.
And that region.
Okay.
And finally could you characterize the.
And of the aftermarket.
And your sales there.
The after.
Aftermarket is really good I think that's 1 of the Titans strengths over the last 5 years and so the tough OEM conditions, we have a very strong distribution base of dealers that we've really built a strong solid relationship around the survey mutual customers and we.
We continue to see the demand for.
And Alex within the aftermarket space continue to grow and you know as we've been talking about we're going to continue to increase our production base and and and really meeting the needs of our our aftermarket customers is certainly a big part of that.
Okay. Thank you.
Thanks, Alan Thanks, Alex.
The last question will come from Brian Arabia with Baird. Please go ahead.
Good morning, gentlemen.
Few questions here can you give me any sense and this has been touched on a little bit but could you give me any sense of what your current capacity utilization is and your plants.
Okay.
Well.
For our previously vary by plant, but I would say from a practical capacity standpoint, you know very high a.
Very high numbers at this point.
And it's labor is more of a constraint and really physical mechanical.
So.
And again I'd have to go.
And it's got a litany of different things, but it's I would say that it's a very high levels at this point.
Maybe put that another way you know.
How much more volume room do you have before you start running into capacity constraints.
If you had labor was sort of fixed.
And again the.
Through all of that's going to vary by product and by region and it is.
It's difficult with the.
The the manufacturing base that we have across multiple platforms, we certainly believe.
And I believe that's the wrong way to put of and we know that we have the ability to continue to grow quite extensively beyond where we're at today. So.
And as we.
Answer to the to add labor.
And we are doing the end markets right now, where we are not constrained from a production capacity perspective.
Right, Okay very good there.
And then switching gears on raw materials.
It appears as if many words of just been sort of 1 way.
But as you know and it's not impacting you, yet, but they've been rapid reversals and certain warm and.
Commodity strength.
How should we think about how well is the company protected.
Let's see just for argument's sake, there's a sharp correction and steel costs.
You mean.
Continued sales starts to drop correct yeah.
And so we have a lead time.
And with with the types of the steel that we buy them and we're managing that very carefully and just trying to recognize where steel could go and we look at those features every single day, and so and we manage.
And if kind of steel that we actually procure and over a period of time.
We're not 100% protected and we're never going to be of 100% protected but I think we have we've hedged are the best of the best we can during this very.
Rapid increase in demand.
So where we're moving.
I'd love to actually have more steel.
The amount of the operate but we're operating it very right at the right level that we need to to manage this situation and the second half of the year and as well as what we expect for the you know the.
The first quarter of 2022 at this point.
Okay. That's helpful. And then you mentioned that you're approaching the goal.
Paul.
Under 4 times leverage.
I guess 2 part question there how does your capital allocation thoughts change and you got below 4 times and.
Given sort of the strength and the equity markets. How are you thinking about ITM.
Well first of all kind of just capital allocation.
And at this point is obviously continuing to service that do the investments that we have to and our plants its not not significantly different than what we have been doing over the last 2 years I think you know given given the types of debt that we have it's the it's kind of easy due to the move that along and if we need to.
And I'll defer to Paul and any discussion about ITM, but I think ultimately.
Youre not going to see a dramatic change and how how we've allocated capital outside of bidding and opportunistic in the M&A market and.
And taking care of things that could be strategic for the future of Titan.
And how I see I see.
And today as the demand is really good and the business is performing well we got to.
To increase our capacity and some key locations there around production.
And some production of investments, we're making where we're continuing to hire and and markets where the demand is strong and the ITM has as a business that we've put a lot into.
Of the years.
Talked about it before where we've expanded the aftermarket presence and made the the business more balanced around the world and more balanced by customer base and.
Feel pretty good about where it's at today.
The.
And ITM perspective regarding capital allocation.
And again, we'll see we'll see what the board thinks of of what we can do and the future, but right now I think the president has is really where we're focused and things are performing very well and we got a lot of customer demand out there that we got to work every day to go meet.
So we should be thinking about ITM going forward and sort of.
Part of the.
The Titan and.
For the time being I know you've been used to qualify but for the time being probably not looking to divest that business or the IPO it or whatever.
I mean at the time being and we got it we got to build as much price as we can for our customers and and that's really where our focus.
Is that you know of ITM is again, it's a good strong performing business and.
How others May look at it and that's up to them, but from you know from a capital allocation from a board perspective, we're not in a position that we need to do anything different with ITM then to continue to invest in and continue to make it stronger to meet the needs of our customers.
Ladies and gentlemen, this will conclude our question and answer session.
And I'd like to turn the conference back over to Mr rates for any closing remarks.
And I just wanted to say, thank you and everybody appreciates your time and your attention. This morning, and look forward to talking to you at the end of Q3. Thank you have a good day.
The conference has now concluded and thank you for attending today's presentation you may now disconnect.