Q1 2026 Titan Machinery Inc Earnings Call
Greetings and welcome to the Titan machinery first quarter fiscal 2026 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Greetings and welcome to the Titan Machinery First Quarter Fiscal 2026 Earnings Report. At this time all participants are in a listen only mode. A question and answer session will follow the formal If anyone should require operator assistance during the conference, please press star zero on your telephone.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being I would now like to turn the call over to your host, Mr. Thank you. Thank you.
As a reminder, this conference is being recorded.
Speaker Change: I'd now like to turn the call over to your host Mr. Jeff Sonic with ICR. Thank you you may begin.
Speaker Change: Thank you welcome to the Titan machinery first quarter fiscal 2026 earnings conference call on the call today from the company are Brian <unk>, President and Chief Executive Officer, and Bo Larsen Chief Financial Officer by now everyone should have access to the earnings release for the fiscal first quarter ended April 32025.
Jeff Sonnek: Welcome to the Titan Machinery first quarter fiscal 2026 earnings conference call.
Jeff Sonnek: On the call today from the company are Bryan Knutson, President and Chief Executive Officer, and Beau Larson, Chief Financial By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30th, 2025, which is also available on Titan's Investor Relations website at ir.titanmachinery.com.
Speaker Change: Which is also available on Titans Investor Relations website at IR Dot Titan machinery Dot com and.
Jeff Sonnek: In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titan's IR website within the events and presentations section. I would also like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your question. The following statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statement section of today's earnings release and the company's filings with the SEC, to include the risk factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q.
Speaker Change: In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titans IR website within the events and presentation section.
Speaker Change: I'd also like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward looking statements are based on management's current expectations and involve.
Speaker Change: Inherent risks and uncertainties, including those identified in the forward looking statements section of today's earnings release, and the company's filings with the SEC.
Speaker Change: To include the risk factors section of Titans. Most recently filed annual report on Form 10-K, and quarterly reports on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in any forward looking statements.
Jeff Sonnek: These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking For more information visit www.FEMA.gov Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call.
Speaker Change: Except as may be required by applicable law Titan assumes no obligation to update any forward looking statements that may be made in today's release or call.
Jeff Sonnek: Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We have concluded reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation.
Speaker Change: Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titans ongoing financial performance, particularly when comparing underlying results from period to period.
Speaker Change: We have included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation at.
Jeff Sonnek: At the conclusion of our prepared remarks, we will open the call to take your questions.
Speaker Change: At the conclusion of our prepared remarks, we will open the call to take your questions and with that I'd now like to turn the call over to the company's President and CEO, Brian <unk>, Brian. Please go ahead.
Jeff Sonnek: With that, I'd now like to turn the call over to the company's president and CEO, Bryan Knutson. Bryan, please go ahead.
Bryan Knutson: Thank you, Jeff, and good morning to everyone on the call. I'll start today by covering our performance for the quarter, followed by an update on our strategic initiatives and operational focus points for the year. I'll then discuss the current market environment and performance across each of our operating segments before turning the call over to Beau for his financial review and comments on our fiscal 2026 modeling assumptions. Our first quarter results demonstrated our ability to advance our short-term goals in a challenging market environment. And while headwinds persist across the agricultural sector, our team remains focused on continuing to execute upon our initiative to optimize inventory and navigate through the trough of the cycle.
Brian: Thank you, Jeff and good morning to everyone on the call.
Speaker Change: I'll start today by covering our performance for the quarter, followed by an update on our strategic initiatives and operational focus points for the year.
Speaker Change: I'll, then discuss the current market environment and performance across each of our operating segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions.
Speaker Change: Our first quarter results demonstrated our ability to advance our short term goals in a challenging market environment and while headwinds persist across the agricultural sector. Our team remains focused on continuing to execute upon our initiatives to optimize inventory and navigate through the trough.
Speaker Change: This cycle.
Bryan Knutson: We continue to anticipate a very subdued retail environment, given the ongoing likelihood of weak farmer profitability, with government support programs remaining an important, but still very much undefined variable. While challenges persist in the marketplace, our team's relentless focus on disciplined execution of our inventory reduction initiatives and our customer care strategy is allowing us to manage key variables of the business that will improve our position as we navigate this cycle.
Speaker Change: We continue to anticipate a very subdued retail environment, given the ongoing likelihood of weak farmer profitability with government support programs remaining an important but still very much undefined variable.
Speaker Change: While challenges persist in the marketplace, our team's relentless focus on disciplined execution of our inventory reduction initiatives and our customer care strategy is allowing us to manage key variables of the business that will improve our position as we navigate this cycle.
Bryan Knutson: With that, I will now transition to our current inventory position. As you can see on our balance sheet, total inventories were $1.1 billion as of April 30, 2025. Essentially flat compared to fiscal 2025 year-end. This is very much in line with our previously communicated expectations as we've been receiving pre-sold units from the factory for delivery to customers in the first half of the year, while simultaneously taking in trades as we deliver those new units to customers. Overall, I'm quite pleased with our inventory progress, which has significantly improved our overall position over the last three quarters.
Speaker Change: With that I will now transition to our current inventory position.
Speaker Change: As you can see on our balance sheet total inventories were $1 $1 billion as of April 32025, essentially.
Speaker Change: Essentially flat compared to fiscal 2025 year end.
Speaker Change: This is very much in line with our previously communicated expectations as we've been receiving pre sold units from the factory for delivery to customers in the first half of the year, while simultaneously taking in trades as we deliver those new units to customers.
Speaker Change: Overall, I'm quite pleased with our inventory progress, which has significantly improved our overall position over the last three quarters.
Bryan Knutson: Our customer care initiative remains a key focal point for us, with parts and service providing a stable foundation, even as equipment sales face cyclical pressure. This stability is critical in environments such as this, as parts and service will make up about a quarter of our total revenue mix, but well over half of our gross profit dollars this year. We are leveraging our scale and service capacity across our footprint, which is helping us maintain strong customer engagement.
Speaker Change: Our customer care initiative remains a key focal point for us with.
Speaker Change: With parts and service, providing a stable foundation, even as equipment sales face cyclical pressure.
Speaker Change: This stability is critical in environment, such as this it's parts and service will make up about a quarter of our total revenue mix.
Speaker Change: All over half of our gross profit dollars this year.
Speaker Change: We are leveraging our scale and service capacity across our footprint, which is helping us maintain strong customer engagement.
Speaker Change: C N H recently validated these efforts by recognizing Titan machinery with two of their top dealer awards, both centered around superior customer service, which is something that we take great pride in.
Bryan Knutson: CNH recently validated these efforts by recognizing Titan Machinery with two of their top dealer awards, both centered around superior customer service, which is something that we take great pride in. In our domestic agriculture segment, while industry equipment demand remains subdued, the first quarter revenue was stronger than initially expected due to the timing of pre-sold equipment delivery. On our last call, we mentioned that Q1 domestic egg could be down 40-45%, but noted that high volumes of pre-sales could significantly impact results. Indeed, we received and delivered a substantial amount of pre-sold equipment in Q1, which includes a pull-forward of revenue we had in our plan for the second quarter.
Speaker Change: In our domestic agriculture segment, while industry equipment demand remained subdued.
Speaker Change: The first quarter revenue was stronger than initially expected due to the timing of pre sold equipment deliveries.
Speaker Change: On our last call, we mentioned that Q1 domestic AG could be down 40% to 45%, but noted that high volumes of pre cells could significantly impact results.
Speaker Change: Indeed, we received and delivered a substantial amount of pre sold equipment in Q1, which includes a pull forward of revenue we had in our plan for the second quarter.
Bryan Knutson: In the near term, we are still working through our backlog of pre-sold units. However, the back half of the year appears challenging with lower visibility and currently sluggish order activity. Farmers remain in a wait-and-see mode, with near-term sentiment hinging on commodity prices, moisture levels, and the potential of government farm aid. We are encouraging OEM partners to enhance programming for Q3 and Q4 to help stimulate demand in this environment, but absent that, it will remain challenging in the near term. It is helpful that spring planting across our domestic footprint has gone relatively well for our customers.
Speaker Change: In the near term, we are still working through our backlog of pre sold units.
Speaker Change: However, the back half of the Euro appears challenging with lower visibility and currently sluggish order activity.
Speaker Change: Farmers remain in a wait and see mode with near term sentiment hinging on commodity prices moisture levels and the potential of government pardon me.
Speaker Change: We are encouraging OEM partners to enhance programming for Q3 and Q4 to help stimulate demand in this environment.
Speaker Change: But absent that it will remain challenging in the near term.
Speaker Change: It is helpful that spring planting across our domestic footprint has gone relatively well for our customers.
Bryan Knutson: However, we have received below average precipitation in much of our footprint, so timely rains throughout the growing season will remain critical.
Speaker Change: We have received below average precipitation in much of our footprint. So timely rains throughout the growing season will remain critical.
Bryan Knutson: Before turning to construction, I'd also like to welcome the team from Farmers Implement and Irrigation. We closed on this two-store acquisition on May 15th, and it allows us to expand our New Holland presence in the productive eastern South Dakota region. In our construction segment, performance was largely in line with our expectations, and we anticipate that to continue throughout the year. Revenue showed modest growth over the prior year period, reflecting relative stability in this segment despite broader economic uncertainty as infrastructure projects continue to provide a base level of demand. However, as we experienced in domestic ag, we are seeing customers take a more cautious approach to capital expenditures given interest rate concerns and broader economic uncertainty.
Speaker Change: Before turning to construction I'd also like to welcome the team from farmers implement in irrigation. We closed on this two store acquisition on May 15th and it allows us to expand our new Holland presence and the productive Eastern South Dakota region.
Speaker Change: In our construction segment performance was largely in line with our expectations and we anticipate that to continue throughout the year.
Speaker Change: Revenues showed modest growth over the prior year period, reflecting relatives relative stability in this segment despite broader economic uncertainty as infrastructure projects continue to provide a base level of demand.
Speaker Change: However, as we experienced in domestic AG, we are seeing customers take a more cautious approach to capital expenditures given interest rate concerns and broader economic uncertainty.
Bryan Knutson: Our European segment was a bright spot, particularly in Romania. where EU stimulus funds have increased by inactivity, which we expect will extend through the end of September. Well, we anticipated a lift, the degree to which was hard to determine. However, it is clear this support will be meaningful for our operations in Romania. Our business in Ukraine is also continuing to drive growth despite the ongoing conflict with Russia. It has been impressive what our team is able to accomplish given those circumstances. Planting conditions across our European footprint are off to a good start and industry volumes in Europe are expected to be more stable than in the United States.
Speaker Change: Our European segment was a bright spot, particularly in Romania.
Speaker Change: Our EU stimulus funds have increased buying activity, which we expect will extend through the end of September.
Speaker Change: Well, we anticipate a lift the degree to which was hard to determine.
Speaker Change: However, it is clear this support will be meaningful for our operations in Romania.
Speaker Change: Our business in Ukraine is also continuing to drive growth despite the ongoing conflict with Russia.
Speaker Change: It has been impressive what our team is able to accomplish given those circumstances.
Speaker Change: Planting conditions across our European footprint are off to a good start in industry volumes in Europe are expected to be more stable than in the United States.
Bryan Knutson: In our Australia segment, we're navigating through market conditions similar to our domestic ag segment. Additionally, the normalization of self-propelled sprayer deliveries that we discussed last quarter is playing out as expected. with this segment transitioning from working through nearly three years of delayed order backlog to selling in line with subdued retail demand.
Speaker Change: In our Australia segment, we're navigating through market conditions similar to our domestic AG segment.
Speaker Change: Additionally, the normalization of self propelled sprayers deliveries that we discussed last quarter is playing out as expected.
Speaker Change: With this segment transitioning them from working through nearly three years of delayed order backlog to selling in line with subdued retail demand.
Bryan Knutson: New order activity is modestly weaker than we had anticipated due to dry conditions combined with low commodity prices and as a result we are revising down our full year revenue expectations as Bo will discuss further. Sowing is well underway in Australia's winter crop season, but as previously mentioned, conditions are currently quite dry in much of our footprint, and thus precipitation is very much needed to initiate crop development.
Speaker Change: New order activity is modestly weaker than we had anticipated due to dry conditions combined with low commodity prices and as a result, we are revising down our full year revenue expectations as Bob will discuss further.
Bob: So Wayne is well underway in Australia as winter crop season, but as previously mentioned conditions are currently quite dry and much of our footprint and thus precipitation is very much needed to initiate crop development.
Bryan Knutson: In closing, while we are operating in a down market, the progress we've made on our inventory reduction and optimization initiatives reinforces our belief that we'll be well positioned by fiscal year end. Our confidence stems from the disciplined execution throughout our organization, the continued success of our parts and service businesses, and the progress we've made in positioning Titan to manage through this phase of the cycle. I want to express my sincere gratitude to our entire team for their tremendous focus and dedication during this more challenging period. Their ability to execute while maintaining exceptional customer service has been a key differentiator for us.
Bob: In closing, while we are operating in a down market. The progress we've made on our inventory reduction and optimization initiatives reinforces our belief that we'll be well positioned by fiscal year end.
Bob: Our confidence stems from the disciplined execution throughout our organization. The continued success of our parts and service businesses and the progress we made in positioning tightened to manage through this phase of the cycle.
Bob: I wanted to express my sincere gratitude to our entire team for their tremendous focus and dedication during this more challenging period.
Bob: Their ability to execute well maintaining exceptional customer service has been a key differentiator for us.
Bryan Knutson: Consequently, we remain steadfast in emerging from this period as a stronger company and delivering long-term value to our shareholders.
Bob: Consequently, we remain steadfast in emerging from this period as a stronger company and delivering long term value to our shareholders.
Beau Larson: With that, I will turn the call over to Beau for his financial review. Thanks, Bryan. And good morning, everyone. Starting with our consolidated results for the fiscal 2026 first quarter. Total revenue is $594.3 million, compared to $628.7 million in the prior year period. reflecting a 5.5% decrease in same-store sales driven by the factors that Bryan discussed earlier. Gross profit for the first quarter was $90.9 million, compared to $121.8 million in the prior year period. and Gross Profit Margin was 15.3%. These decreases were primarily driven by lower equipment margins, particularly in our domestic ag segment, resulting from our continued efforts to manage inventory to targeted levels.
Bob: With that I will turn the call over to Bo for his financial review.
Bo: Thanks, Brian and good morning, everyone.
Speaker Change: Starting with our consolidated results for the fiscal 2026 first quarter.
Speaker Change: Total revenue was $594 3 million.
Bob: Third to $628 $7 million in the prior year period.
Brian: Reflecting a five 5% decrease in same store sales driven by the factors that Brian discussed earlier.
Brian: Gross profit for the first quarter was $90 9 million.
Speaker Change: Compared to $121 $8 million in the prior year period.
Speaker Change: And gross profit margin was 15, 3%.
Speaker Change: These decreases were primarily driven by lower equipment margins, particularly in our domestic AG segment, resulting from our continued efforts to manage inventory to targeted levels.
Beau Larson: Operating expenses were $96.4 million for the first quarter of fiscal 2026. compared to $99.2 million in the prior year period. The year-over-year decrease of 2.8% was driven by lower variable expenses associated with the year-over-year decline in revenue and profitability. Floor plan and other interest expense was $11.1 million, as compared to $9.5 million in the prior year period. However, on a sequential basis, floor plan and other interest expense decreased 15.3%, reflecting our continued efforts to reduce interest-bearing inventory over the past few quarters. Floor plan interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization, and this is building toward a more meaningful decrease in floor plan interest expense next fiscal year.
Speaker Change: Operating expenses were $96 $4 million for the first quarter of fiscal 2026.
Speaker Change: <unk> to $99 $2 million in the prior year period.
Speaker Change: The year over year decrease of two 8% was driven by lower variable expenses associated with the year over year decline in revenue and profitability.
Speaker Change: Floorplan and other interest expense was $11 1 million as compared to $9 $5 million in the prior year period.
Speaker Change: However, on a sequential basis Floorplan and other interest expense decreased 15, 3%, reflecting our continued efforts to reduce interest bearing inventory over the past few quarters.
Speaker Change: Floorplan interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization.
Speaker Change: And this is building towards a more meaningful decrease in Floorplan interest expense next fiscal year.
Beau Larson: Net loss for the first quarter of fiscal 2026 was $13.2 million, or $0.58 per diluted share compared to last year's first quarter net income of $9.4 million, or $0.41 per diluted share.
Speaker Change: Net loss for the first quarter of fiscal 2026 was $13 2 million.
Speaker Change: Our 58 cents per diluted share compared to last year's first quarter net income of $9 4 million or <unk> <unk> per diluted share.
Beau Larson: Now turning to a brief overview of our segment results for the first quarter. Our agriculture segment realized a same store sales decrease of 14.1% to $384.4 million. and benefited from a pull forward of pre-sold equipment deliveries as Bryan already mentioned. Agriculture segment pre-tax loss was $12.8 million. compared to pre-tax income of $13 million in the first quarter of the prior year. resulting from softer retail demand and continued efforts to manage inventory at the targeted levels. both of which impacted equipment margins, although to a lesser degree than the more intense margin contraction we experienced in the fourth quarter of last year.
Speaker Change: Now turning to a brief overview of our segment results for the first quarter.
Speaker Change: Our agricultural segment realized a same store sales decrease of 14, 1% to $384 $4 million.
Speaker Change: <unk> benefited from a pull forward of pre salt equipment deliveries as Brian already mentioned.
Speaker Change: Agriculture segment pre tax loss was $12 $8 million.
Speaker Change: Compared to pretax income of $13 million in the first quarter of the prior year.
Speaker Change: Resulting from softer retail demand and continued efforts to manage inventory to targeted levels.
Speaker Change: Both of which impacted equipment margins, although to a lesser degree than the more intense margin contraction, we experienced in the fourth quarter of last year.
Beau Larson: In our construction segment, same-store sales increased 0.9% to $72.1 million. As Bryan mentioned, we continue to see relative stability in this segment, despite broader macro uncertainty. Pre-tax last was $4.2 million compared to pre-tax income of $0.3 million in the first quarter of the prior year.
Speaker Change: In our construction segment same store sales increased <unk>, 9% to $72 1 million.
Speaker Change: As Brian mentioned, we continue to see relative stability in this segment despite broader macro uncertainty.
Brian: Pre tax loss was $4 $2 million compared to pre tax income of <unk> $3 million in the first quarter of the prior year.
Beau Larson: In our European segment, sales increased 44.2% to $93.9 million. which reflects a same-store sales increase of 44%. partially offset by a slight negative foreign currency impact. On a constant currency basis, revenue increased 47.5% and was led by Romania, which was bolstered by EU stimulus programs. Pre-tax income for the segment was $4.7 million compared to pre-tax income of $1.4 million in the first quarter of last year.
Speaker Change: In our European segment sales increased 44, 2% to $93 $9 million.
Speaker Change: Which reflects a same store sales increase of 44%.
Speaker Change: Partially asset by a slight negative foreign currency impact.
Speaker Change: On a constant currency basis revenue increased 47, 5% and was led by Romania, which was bolstered by EU stimulus programs.
Speaker Change: Pretax income for the segment was $4 $7 million compared to pre tax income of $1 $4 million in the first quarter of last year.
Beau Larson: In our Australia segment, same store sales decreased 1% to $44 million. which included a 4.6% negative foreign currency impact. On a constant currency basis, revenue increased $1.6 million or 3.6%. Despite these results, retail demand was somewhat softer than we had anticipated, and we expect that that incremental softness will continue throughout the rest of the year. Additionally, the quarterly comparables get more challenging in this segment as we progress through the year. as last year was bolstered by nearly three years worth of sprayer backlog. Pre-tax loss was $0.6 million compared to pre-tax loss of $0.5 million in the first quarter of last year.
Speaker Change: In our Australia segment same store sales decreased 1% to $44 million.
Speaker Change: Which included a four 6% negative foreign currency impact.
Speaker Change: On a constant currency basis revenue increased one $6 million or three 6%.
Speaker Change: Despite these results retail demand was somewhat softer than we had anticipated and we expect that that incremental softness will continue throughout the rest of the year.
Speaker Change: Additionally, the quarterly Comparables get more challenging in this segment as we progress through the year.
Speaker Change: Last year was bolstered by nearly three years worth of sprayer backlog.
Speaker Change: Pretax loss was <unk> $6 million compared to a pretax loss of $5 million in the first quarter of last year.
Beau Larson: Now on to our balance sheet and inventory position. We had cash of $22 million and an adjusted debt to tangible net worth ratio of 1.8 as of April 30, 2025, which is well below our bank covenant of 3.5 times. Regarding inventory, in the first quarter, we reduced our equipment inventory by approximately $13 million sequentially to $913 million. bringing our cumulative equipment inventory reduction to approximately $406 million from peak levels in Q2 of the prior year. This was consistent with our expectations at the beginning of the year. The $100 million of additional equipment inventory reductions we discussed last quarter remains our target.
Speaker Change: Now onto our balance sheet and inventory position.
Speaker Change: We had cash of $22 million and an adjusted debt to tangible net worth ratio of one eight as of April 32025.
Speaker Change: Which is well below our bank covenant of three five times.
Speaker Change: Regarding inventory in the first quarter, we reduced our equipment inventory by approximately $13 million sequentially to $913 million.
Speaker Change: Bringing our cumulative equipment inventory reduction to approximately $406 million from peak levels in Q2 of the prior year.
Speaker Change: This was consistent with our expectations at the beginning of the year.
Speaker Change: The $100 million of additional equipment inventory reductions, we discussed last quarter remains our target.
Beau Larson: with most of that reduction expected to come in the second half of this fiscal year. We continue to maintain strong corporate oversight and controls around inventory management, working to stay ahead of the aging curve created by the heavy influx of equipment shipments as supply chains normalized post-pandemic. Throughout this process, we continue to optimize our inventory composition by reducing aged inventory while building toward an optimal mix that better aligns with customer demand. which will have the added benefit of further reducing floor plan interest expense.
Speaker Change: But most of that reduction expected to come in the second half of this fiscal year.
Speaker Change: We continue to maintain a strong corporate oversight and controls around inventory management.
Speaker Change: Working to stay ahead of the aging curve created by the heavy influx of equipment shipments as supply chain normalized post pandemic.
Speaker Change: Throughout this process, we continue to optimize our inventory composition by reducing aged inventory, while building toward an optimal mix that better aligns with customer demand.
Speaker Change: Which will have the added benefit of further reducing floorplan interest expense.
Beau Larson: With that, I'll finish by commenting on our fiscal 2026 full year guidance, which we are reiterating from an adjusted loss per diluted share perspective, but modifying in terms of revenue modeling assumptions for our international segment. Starting with our top line assumptions, for the domestic agriculture segment, we continue to expect revenue to be down in the range of 20 to 25 percent. North America large ag industry volume is still expected to be down approximately 30% year over year. which aligns with the midpoint of our expectations for cash crop new equipment revenue. Our parts and service business continue to perform well, and we expect flattish revenue in these areas.
Speaker Change: With that I'll finish by commenting on our fiscal 2026 full year guidance.
Speaker Change: We are reiterating from an adjusted loss per diluted share perspective.
Speaker Change: But modifying in terms of revenue modeling assumptions for our international segments.
Speaker Change: Starting with our top line assumptions.
Speaker Change: So the domestic agriculture segment, we continue to expect revenue to be down in the range of 20% to 25%.
Speaker Change: North America large AG industry volume is still expected to be down approximately 30% year over year.
Speaker Change: Which aligns with the midpoint of our expectations for cash craft new equipment revenue.
Speaker Change: Our parts and service business continued to perform well and we expect flattish revenue in these areas.
Beau Larson: For the construction segment, we are maintaining our expectations to be in the range of down 5 to down 10 percent. The Federal Infrastructure Bill continues to provide healthy support for industry fundamentals, but near-term economic uncertainty is impacting construction activity.
Speaker Change: For the construction segment, we are maintaining our expectations to be in the range of down five to down 10%.
Speaker Change: The federal infrastructure Bill continues to provide healthy support for industry fundamentals, but near term economic uncertainty is impacting construction activity.
Beau Larson: We are updating revenue assumptions for our international segments based on localized dynamics. Our European segment is now expected to be up 23% to up 28%. This improved outlook is led by the aforementioned strength in Romania. For our Australia segment, we are updating our expected revenue to be down 20% to down 25%, as market conditions remain challenging and farmer sentiment is lower given dry conditions across much of our footprint. From a margin perspective, our fiscal 2026 assumptions for consolidated full-year equipment margin are to be approximately 8%. Now turning to the ag segment specifically, in the first quarter, equipment margins came in lower than expected at 3.3%.
Speaker Change: We are updating revenue assumptions for our international segments based on localized dynamics.
Speaker Change: Our European segment is now expected to be up 23% to up 28%.
Speaker Change: This improved outlook is led by the aforementioned strength in Romania.
Speaker Change: For our Australia segment, we're updating our expected revenue to be down 20 to down 25%.
Speaker Change: As market conditions remain challenging and farmer sentiment is lower given dry conditions across much of our footprint.
Speaker Change: From a margin perspective, our fiscal 2026 assumptions for consolidated full year equipment margin to be approximately 8%.
Speaker Change: Now turning to the AG segment, specifically in the first quarter equipment margins came in lower than expected at three 3%.
Beau Larson: and we expect that the Ag segment will have similar equipment margins in the second quarter. However, we expect their margins will improve in the back half of the year as we optimize our inventory mix and work toward our year-end target. We are pleased with the progress we are making on this important initiative, and we are prioritizing this proactive approach to reducing used equipment levels. Consistent with our prior expectations, operating expenses are expected to decrease year over year on an absolute basis. which is expected to translate to approximately 17% of sales due to the lower revenue base we are forecasting as compared to the prior year.
Speaker Change: And we expect that the AG segment will have similar equipment margins in the second quarter.
Speaker Change: However, we expect our margins will improve in the back half of the year as we optimize our inventory mix and work towards our year end targets.
Speaker Change: We are pleased with the progress we are making on this important initiative and we are prioritizing this proactive approach to reducing used equipment levels.
Speaker Change: Consistent with our prior expectations.
Speaker Change: Operating expenses are expected to decrease year over year on an absolute basis.
Speaker Change: Which is expected to translate to approximately 17% of sales due to the lower revenue base, we are forecasting as compared to the prior year.
Beau Larson: In summary, while we are making some refinements to Europe and Australia's revenue assumptions, we remain on track with our expectations for adjusted diluted loss per share in the range of $1.25 to $2. We remain focused on ensuring we're well positioned heading into fiscal 2027, where we expect to drive toward more normalized levels of profitability relative to the demand environment at that time.
Speaker Change: In summary, while we are making some refinements to Europe and Australia as revenue assumptions, we remain on track with our expectations for adjusted diluted loss per share in the range of $1 25 to $2.
Speaker Change: We remain focused on ensuring we are well positioned heading into fiscal 2027.
Speaker Change: We expect to drive toward more normalized levels of profitability relative to the demand environment at that time.
Beau Larson: This concludes our prepared comments. Thank you.
Speaker Change: This concludes our prepared comments.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Operator: At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your. Confirmation tone will indicate your line is in the You may press star 2 if you'd like to remove your question from the line.
Speaker Change: You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be now.
Liam Burke: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the start The first question comes from the line of Liam Burke with B. Reilly's Thank you. Good morning, Bryan. Good morning, Bob. Morning.
Speaker Change: So you can pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Liam Burke with B Riley Securities. Please proceed with your question.
Liam Burke: Thank you and good morning, Brian Good morning, Bob.
Speaker Change: Good morning.
Bryan Knutson: I know the agricultural environment is tough, weather is bad, and at least the, I know government subsidies do not support equipment sales, but is there any positive outlook on the agricultural sector? I mean, are you seeing any positive moves here, or is it still just? continues to be tough. Yeah, there has been some of the government payments that have started to come through. So if you look at, traditionally, there would be about $10 billion is the traditional level of government payment, which is, at this point, what has been approved. Some of our growers are starting to see those checks, Liam, so that is helping provide some stability.
Speaker Change: I know the agricultural environment is tough weather is bad and.
Speaker Change: At least the.
Speaker Change: No government subsidies did not support equipment sales, but is there any positive outlook on the agricultural sector I mean, you're seeing any positive moves here or is it still just.
Speaker Change: <unk> to be tough.
Speaker Change: Yeah Theres there.
Speaker Change: It has been some of the government payments that I have started to come through so if you look at traditionally there would be about $10 billion is the traditional level of government payment, which is a at this point what has been approved some of our growers are starting to see those checks Liam so that is.
Speaker Change: Helping provide some stability.
Bryan Knutson: Also, as different trade negotiations are going on, you know, and we see more deals get done here, that will further help as well. Recent rains we've received here in the upper Midwest have also helped with sentiment and that will help with crop development.
Speaker Change: <unk> also has different trade negotiations are going on you know and we see more deals.
Speaker Change: Good get done here that will further help as well recent rains. We've received here in the upper Midwest have also helped with sentiment and that will help with crop development.
Bryan Knutson: Australia is at a critical point. There is some rain in the forecast there, so that could help. But again, if you look at the USDA net farm income projections that they came out with earlier in the year, those were really heavily predicated around the government subsidies. And so that remaining, what they have projected to be up to an additional $30-some billion is still very much an unknown. And so, you know, where that falls in, whether it's $10 billion or $45 billion here, or where in between, is really going to have an impact this year, frankly.
Speaker Change: Australia is at a critical point there is some rain in the forecast there. So so that could help.
Speaker Change: But again as you look at the.
Speaker Change: The USDA net farm income projections that they came out with earlier in the year those were really heavily predicated around the government subsidies.
Speaker Change: And so that remaining what what they have projected to be up to an additional $37 billion is still very much an unknown and so where that falls in whether it's a $10 billion or 45 billion here where in between is really going to have.
Speaker Change: Have an impact this year frankly.
Speaker Change: Right fair enough and on the construction side.
Bryan Knutson: Great, fair enough.
Bryan Knutson: And I'm a construction side. There seems to be another area, the sector in general, is cautious because of all the macro headwinds and uncertainties. I would expect that construction would be a little more optimistic in terms of end market potential. It seems to be just as challenging as agriculture. It is certainly more positive. We've been talking with a lot of our contractor customers. The start to the year was a little bit slower, but their backlog of work, they're starting to get projects. It is starting to get filled up for them. Their attitudes are becoming more positive.
Speaker Change: There seems to be another area that the sector in general is cautious because of all the macro headwinds and uncertainties, but.
Speaker Change: I would expect that construction would be a little more optimistic in terms of.
Speaker Change: And markets are potential.
Speaker Change: Potential it seems to be just as challenging as agriculture.
Speaker Change: Hi, It is certainly more positive we've.
Speaker Change: In talking with a lot of our contractor customers the start to the year was a little bit slower but they're.
Speaker Change: There their backlog of work, they're starting to get projects. It is starting to.
Speaker Change: Get get filled up for them there their attitudes are becoming more positive is certainly not what it was the past two years that's for sure it's definitely very.
Bryan Knutson: It's certainly not what it was the past two years, that's for sure. It's definitely very heavily dependent on a rate environment, so any positive movement we did see in interest rates, even just the slightest bit, would certainly help there as well. Again, any stability around trade talks and general broader economy would help as well. We definitely see more stability in the construction environment right now.
Speaker Change: Heavily dependent on the rate environment. So any any positive movement. We did see an interest rates, even just a slightest bed would certainly help there as well and again any stability around trade talks and general broader economy would help as well but.
Speaker Change: We definitely see more stability in the construction environment right now yeah, and I mean, maybe reiterating the same thing just for some perspective right constructions coming off of some really good years and for US record years, and we're talking about kind of a modest step back off of that given some of the uncertainty and the higher interest rate environment, you compare that to.
Bryan Knutson: Yeah, I mean, maybe reiterating the same thing, just for some perspective, right? Construction's coming off of some really good years, and for us, record years. And we're talking about kind of a modest step back off of that, given some of the uncertainty in the higher interest rate environment. You compare that to ag, where we're really talking about trough level and kind of historically low industry volumes. Quite a bit different outlook, I would say. So, yeah, overall, down slightly. But putting that in perspective, again, coming off of those highs, much different spot for construction.
Speaker Change: And what we're really talking about trough level and kind of historically low industry volumes quite a bit different outlook I would say sorry.
Speaker Change: So yeah overall down slightly but putting that in perspective again coming off of those highs are much different spot for construction there.
Speaker Change: Great. Thank you very much.
Liam Burke: Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question.
Ted Jackson: Our next question comes from the line of Ted Jackson with North... All right, thanks.
Ted Jackson: Oh thanks.
Bryan Knutson: I wanted to circle back into, first of all, in some of the government support, you know, so if the USDA is, you know, looking for an additional $37 billion and a billion dollars has been put out, you know, what kind of programs are the USDA looking to? How do they get funded and how do we follow? So they are putting specifics behind this, and you can find that on the USDA web page. And they have a timeline for the rest of the year. And a lot of the additional payments coming out this year are specific to natural disaster type events that actually happened in 2023 and 2024.
Speaker Change: I wanted to see.
Speaker Change: Michael back into the first of all in some of the government support.
Speaker Change: The USDA is looking for an additional $37 billion and $1 billion has been put out there what kind of programs that the USDA looking to happen how do they get funded and how do we follow that.
Speaker Change: You can see that.
Speaker Change: So that would be question.
Speaker Change: So they are putting specifics behind this and you can find that at the on the USDA webpage and they have a timeline for the rest of the year and it's a lot of the additional payments coming out. This year are specific to a natural disaster type events that actually happened in 'twenty three in 2024, so specific to droughts.
Bryan Knutson: So specific to droughts and supporting livestock industry, and then specific to other dry areas or wildfires supporting the ag industry. Kind of what they need to do is go state by state, who qualifies, how much money is going to be allocated in that region, how much gets allocated to an individual grower. So all of that remains to be seen. But if you want to look at that timeline, it's available. There are a lot of specifics out there. So I would say it's pretty structured, and we're all going to wait and see how this plays out and how much of that ultimately flows to customers that are on our floor.
Speaker Change: Supporting the livestock industry, and then specific to other dry areas of wildfire supporting the AG industry.
Speaker Change: What they need to do is go state by state who qualify as how much money is going to be allocated in that region. How much gets allocated to an individual grow or so all of that remains to be seen but if you want to look at that timeline. Its available. They are a lot of specifics out there. So I would say, it's pretty structured and we're all going to wait and see how this plays out and how much.
Speaker Change: So that ultimately flows to customers that are on our footprint.
Bryan Knutson: Yeah, and Ted, the main one that has really happened so far for the grain growers has been, is what they call ECAP, for the Emergency Commodity Assistance Program. And that that was just under $10 billion, which is again, in line with what the annual traditional level would be. And so, yeah, we'll remain to be watching here on the rest of the year. But You know, a lot of times what that does is that certainly at normal yield levels that these prices would essentially get them close to a break even for the average grower or just help mitigate their loss.
Ted Jackson: Yeah, Ted the main one that has really happened so far for the grain growers has been is what they call E cap for the emergency commodity assistance program and that that was just under $10 billion, which is again in line with what the.
Speaker Change: Annual traditional level would be.
Speaker Change: And so yeah, we'll remain to be watching.
Speaker Change: Watching here on the rest of the year, but.
Speaker Change: A lot of times, what that does is that certainly.
Speaker Change: At normal yield levels at these prices would essentially get them a call.
Speaker Change: Close to a breakeven for the average grower or just help mitigate their loss so.
Bryan Knutson: So in general, that's why you're hearing us and Deere and C&H all saying that, you know, that won't by itself drive equipment demand or equipment purchasing. They'll typically use those dollars to pay down debt and, again, just to... Fight another year, if you will. But that said, you know, again, anything incremental beyond that will help, and they can't defer that income, so there is a point here where it does start to help with demand and help allow them to update some much-needed machinery up. Thanks.
Speaker Change: In general that's why you're hearing.
Speaker Change: And Dear and CNA, Charles saying that that one by itself drive equipment demand or equipment purchasing they'll typically use those dollars to pay down debt and again just to.
Speaker Change: And fight another year, if you will but that said you know again anything incremental beyond that will help and and they can't defer that income. So there is a point here, where it does start to help with demand and help allow them to.
Speaker Change: Updates so much needed machinery update.
Speaker Change: Thanks number two when you go into your commentary Youre actually using the word trough in you know instead of decline I mean would you.
Bryan Knutson: Number two, when you go into your commentary, you're actually using the word trough instead of decline. I mean, would you, is there something to be read in that? Do you feel that at this point, you know, we're kind of knocking along the bottom of the cycle? I mean, I'm not talking for a turnaround, but you know, more or less, you know, that. There's more. Maybe predictability, stability is probably too much of a word, but you know, predictability or stability. the ag markets in the U.S. Yeah, I mean, I guess what we would say about that is, it's certainly not trying to call this specific year or a specific quarter as as being the bottom.
Speaker Change: Is there something that you'd be right in that do you feel that at this point, you know where youre kind of knock on along the bottom of the cycle I mean, I'm not talking for a turnaround but no debt.
Speaker Change: More or less you know that.
Speaker Change: There's more.
Speaker Change: Maybe predictability stability is probably too much of a word but predictability or stability with regards to the markets.
Speaker Change: Markets in the U S.
Speaker Change: Yeah, I mean, I guess, what we would say about that is there's certainly not trying to call. This specific year of specific quarter as as being a bottom, but if you're just looking at history right and specifically you know going back through the year 2000, with a large AG are expected to be down 30% year over year.
Bryan Knutson: But if you're just looking at history, right, and specifically, you know, going back through the year 2000, with large ag expected to be down 30% year over year, that really puts us about 36% below the average from 2024 back to the year 2000. And just a little bit below the previous low point, which was that 2016-2017 time period. So it certainly aligns with it is at or slightly below the trough of, of the last couple of decades, which, you know, gives some support to the fact that we're somewhere near that and operating toward the bottom of the cycle here.
Speaker Change: That really puts us about 36% below the average from 2024 back to the year 2000, and just a little bit below.
Speaker Change: The previous low point, which was that 2016 2017 time period. So it certainly aligns with that is at or slightly below the trough of the last couple of decades, which gives some.
Speaker Change: Support to the fact that we're somewhere near to that in an operating toward the bottom of the cycle here again weather.
Bryan Knutson: Again, whether that changes in the next couple quarters or it's next year, we're not making that call, but that's kind of what we're alluding to, right? We're comparing that to history, seeing that we are at those similar levels, and not necessarily making the call on when it turns upward.
Speaker Change: You know that changes in the next couple of quarters or its next year, we're not making that call, but that's kind of what we're alluding to you're right, we're comparing that to history.
Speaker Change: Seeing that we are at those similar levels are and not necessarily making the call on when it turns upward from here.
Operator: Okay, I got a couple more, but I'm going to step aside and I'll jump back in line if they don't get asked. Ladies and gentlemen, as a reminder, if you'd like to Star 1.
Speaker Change: Okay, I've got a couple more but I'm going to step aside I'll jump back in line if they don't get asked thanks.
Speaker Change: Thanks, Chad.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Matthew Raab: I Your next question comes from... Good morning. Thank you for taking the question. I want to go back to discussing inventory. It was encouraging to see additional progress this quarter, especially on the youth side. So I guess I'm curious to get an update from you, gentlemen, in terms of regionally, how you think about inventories. You mentioned that for your Europe business, you expect inventories to remain flattish. Maybe give us a little insight on what's going on with Australia. And then as you think about the North American footprint... Are there particular areas where you still need to work this down?
Speaker Change: Our next question comes from the line of make debris with Baird. Please proceed with your question.
Make Debris: Good morning. Thank you for taking my question I wanted to go back to discussing inventory.
Speaker Change: And it was it was encouraging to see.
Speaker Change: Additional progress this quarter, especially on the used side.
Speaker Change: So.
Speaker Change: I guess I'm.
Speaker Change: I'm curious to get an update from you gentlemen in terms of.
Speaker Change: Regionally how are you thinking about inventories you mentioned that.
Speaker Change: For your Europe business you expect.
Speaker Change: Inventories to remain flattish.
Speaker Change: Maybe give us a little insight on what's going on with Australia.
Speaker Change: And then as you think about the North American footprint.
Speaker Change: Are there particular areas, where you still need to do to work. This down I mean are there specific product lines or either regions or states, where we're.
Bryan Knutson: I mean, are there specific product lines or either regions or states where maybe you have a little more wood to chop than other areas?
Speaker Change: Where maybe you have a little more wood to chop that than others.
Bryan Knutson: Yeah, so just to clarify a couple of points. And that $100 million target, I would say, is certainly a minimum that we look to achieve. Certainly looking to do better than that. But we're at expectations through Q1. So let's get another three months in and see what we can do before we would revise that. And what I would say from that hundreds, painting it a little broadly here, CE was in pretty good shape and really within a range overall. Certainly some optimization, but not really a hundred, I wouldn't prescribe any of that a hundred million decrease to them.
Speaker Change: Yeah. So just to clarify a couple of points in that $100 million target I would say is certainly a minimum that we look to achieve.
Speaker Change: Certainly looking to do better than that but we're at expectations through Q1. So are you know what let's get another three months in and see what we can do before we would revise that and what I would say from that hundreds painting. It a little Bradley here CE was in pretty good shape and really within a range overall, certainly some optimization, but not really.
Speaker Change: 100, but I wouldn't prescribe any of that $100 million decrease to them, Australia also I mean, you're talking single digits, probably in terms of the target.
Bryan Knutson: Australia also, I mean, you're talking single digits probably in terms of the target. And then really mostly it would be about 60% ag and then 40% in Europe. So we're certainly expecting to see and driving a decrease in inventory in Europe this year and expecting that to unfold as we work through the rest of the year. Now, within those from an ag perspective, I would say that most of what we prescribe on there is focused on reducing used inventory levels and optimization across new and used. So you're asking areas that you need to focus on.
Speaker Change: And then really mostly it would be about 60% egg and then 40% in Europe. So we're certainly expecting to see in driving a decrease in inventory in Europe. This year and expecting that to unfold as we worked through the rest of the year now within those from an AG perspective, I would say that most of.
Speaker Change: What we prescribe on there.
Speaker Change: He is focused on reducing used inventory levels are and optimization across new and used so youre asking areas that you need to focus on we still have an aging of seasonal products that we you know we got a large quantity at the same time kind of post pandemic normalization.
Bryan Knutson: We still have an aging of seasonal products that we got large quantity at the same time kind of post pandemic normalizations. We need to work through those. So that we can dedicate more of that balance sheet to the high horsepower tractors, for example. So that's the optimization that we're talking about. On the Europe side, they do a lot less used business than on the ag side. So there's not a whole lot there and it's more about reducing the overall level and also working on that optimization. So yeah, I guess I'd pause there to see if you had a followup.
Speaker Change: We need to work through those so that we can dedicate more of that balance sheet too are the you know the high horsepower tractors. For example, so that's the optimization that we're talking about.
Speaker Change: On the Europe side.
Speaker Change: They do a lot less used business than on the Ah.
Speaker Change: AG side, so theres not a whole lot there and it's more about reducing the overall level and also working on that optimization.
Speaker Change: So yeah, I guess I'd pause there to see if you had a follow up.
Matthew Raab: No, that's very helpful.
Speaker Change: No that's very helpful.
Matthew Raab: I want to talk a little bit about Europe. Look, I mean, the The increase in revenue guidance, I'm having a hard time wrapping my head around that in terms of What is happening in Romania and how big Romania could be in order to generate this sort of swing. I guess I would like more detail there, and I'm also curious how you think about Mars.
Speaker Change: I want to talk a little bit about Europe.
Speaker Change: Look I mean the.
Speaker Change: The increase in revenue guidance I'm I'm, having a hard time wrapping my head around that.
Speaker Change: In terms of.
Speaker Change: What is happening in Romania, and how big Romania could be in order to generate the sort of swing so.
Speaker Change: I guess I would like more detail there and I'm also curious how you think about margin.
Bryan Knutson: Margin here was 5% in Q1, and if you're raising the guidance to this extent, how do you think about the rest of it? Yeah, so first off, you know, from some more perspective for Romania, it represents about half of our business in Europe. So it is pretty substantial. And last year, given the significance of the droughts, we actually saw our Romanian business decrease 34% year over year. And that was most of the decrease for the whole Europe segment. So because of those droughts, actually, industry and country essentially got cut in half. I mean, a significant drop, right?
Speaker Change: Martin here it was 5% in Q1, and then if you're raising the guidance to this extent how do you think about the rest of the year.
Speaker Change: Yeah. So first off you know from some more perspective for Romania and represents about half of our business in Europe. So it is pretty substantial and last year given the significant of the droughts are we actually saw Europe business or sorry, our Romanian business decreased 34% year over a year and that.
Speaker Change: Was most of the decrease for the whole Europe segment.
Speaker Change: So from a because of those droughts actually industry and country.
Speaker Change: Essentially got cut in half I mean, a significant drop right. So what we're alluding to with the European Union funds as some European Union funds dedicated to Romania, subsea <unk>, specifically to support our the industry, it's a broader piece, but as it relates to our business.
Bryan Knutson: So what we're alluding to with the European Union funds is some European Union funds dedicated to Romania, some subvention funds specifically to support the industry. It's a broader piece, but as it relates to our business, initially, that was about 150 million euro dedicated to providing, essentially, assistance for farmers to buy certain types of equipment. So that's helping us drive significant increase. in the interest and buying of certain types of equipment, maybe a little bit in terms of from an inventory perspective, it doesn't necessarily help us address all areas of inventory and certainly we need to order some more to keep up with that demand as orders are coming in.
Speaker Change: That was about 150 million euro dedicated.
Speaker Change: Two providing essentially assistance for farmers to buy certain types of equipment. So that is helping us drive significant increase in.
Speaker Change: In the interest and buying of certain types of equipment.
Speaker Change: Maybe a little bit in terms of from an inventory perspective, it doesn't necessarily help us address all areas of inventory and certainly we would need to order some more to keep up with that demand as orders are coming in.
Bryan Knutson: But that's why you're seeing the swing from saying, you know, flat to up 5 to up 23 to 28. It's really getting Romania kind of swinging back to where it was and actually growing from about two years ago, given the significance of these funds and the opportunity it's providing for growers in the region.
Speaker Change: But thats why youre seeing the swing from saying flat to up five to up 23 to 28.
Speaker Change: <unk> edge.
Speaker Change: It's really getting Romania kind of swinging back to where it was in actually growing from about two years ago, given the significance of these funds and the opportunity is providing for growers in the region.
Bryan Knutson: and The Margin. Yeah, so from that also is helpful from an equipment margin perspective in Europe, you know, we talked about overall for the year consolidated equipment margin being 8%. You know, for Europe, expecting about 15 and a half, they have historically quite a bit higher margin than the US side. So I would say strength and margin on the Europe side, but a little weakness and margin on the domestic ag side. So domestic ag, you saw the 3.3 expecting something similar, in Q2, and then improving from there. You know, in terms of overall priorities for us, but I just take the opportunity to reiterate is, we've got confidence in executing the plan and bringing inventory down and thus that 100 million being a minimum and looking to build off of that.
Speaker Change: And the margin.
Speaker Change: Yeah. So from that also is helpful from an equipment margin perspective in Europe.
Speaker Change: We talked about overall for the year consolidated equipment margin being 8% for Europe are expecting about 15, and a half they have historically quite a bit higher margin than the U S side. So I would say strength in margin on the Europe side, but a little weakness in margin on our domestic AG side.
Speaker Change: So domestic AG, a solid 3.3 expecting something similar in Q2, and then improving from there.
Speaker Change: In terms of overall priorities for us, but I just take the opportunity to reiterate as we've got our confidence in executing the plan and bringing inventory down and invest that hundred million being a minimum and looking to build off of that and that is the first priority right. So in terms of actions, we're taking incrementally.
Bryan Knutson: And that is the first priority, right? So in terms of actions we're taking, incrementally, you know, it proposes some potential compression on margin domestically, but on the Europe side, you know, this is beneficial, and we're seeing that help.
Speaker Change: It proposes some potential compression on margin domestically, but on the Europe side.
Speaker Change: This is beneficial in and we're seeing that helpful.
Speaker Change: Okay.
Matthew Raab: Okay, last question, so on your domestic ag business, Again, I'm trying to figure out exactly how to get to your same-store-sales guidance given timing of shipment. So, can you help us out in terms of what Q2 looks like relative to the back half? And if we are seeing pretty sustained pressure on the back half, like I said, Thank you. Thank you. What gets the margin to be better than this negative 3% in the back half? what has to happen. Yep. So, you know, a lot of it comes down to discipline on our side, and, you know, ordering activity.
Speaker Change: The last question.
Speaker Change: So on your domestic agribusiness.
Speaker Change:
Speaker Change: Again, I'm I'm I'm trying to figure out exactly how to get to your to your same store sales guidance given.
Speaker Change: Timing of shipments.
Speaker Change: So can you can you help us out in terms of what Q2 looks like relative to the back half.
Speaker Change: And if we are seeing pretty sustained pressure on the back half.
Speaker Change: It looks to me like your guidance implies.
Speaker Change: What gets the margin to be better than this negative 3% in the back half.
Speaker Change: What has to happen in order for you to.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Yeah. So you know a lot of it comes down to discipline on our side.
Speaker Change: Order.
Speaker Change: Ordering activity you know, we're mostly focused on any orders, we're placing our pre sells so.
Bryan Knutson: You know, we're mostly focused on any orders we're placing, our pre-sales. So, you know, the pressure that all came in through last year and, you know, ramped up as we progressed through the year was because we had a bunch of stock inventory available that's interest paying, right? And so we're working through that, and we've made really good progress on that. And we're going to continue to make progress. We did in Q1. We'll continue to in Q2, Q3, from there. So, by the time we get to Q4, we're going to be in a drastically different position in terms of inventory health year over year, which helps us with that margin improvement.
Speaker Change: The pressure that all came through last year.
Speaker Change: <unk> ramped up as we progressed through the year was because we had a bunch of stock inventory available that's interest Bang right and so we're working through that and we've made really good progress on that.
Speaker Change: We're going to continue to make progress we did in Q1, we will continue to in Q2 Q3 from there. So by the time, we get to Q4, we're going to be in a drastically different position in terms of inventory health year over year.
Speaker Change: Which helps us with that margin improvement so, but it's to me absolutely agree that it's a challenging backdrop. The benefit is the significantly less order volume, we have coming in and specifically all of that being pre sold and just the progress we've made and will continue to make on the <unk>.
Bryan Knutson: So, but it's, to me, absolutely. I agree that it's a challenging backdrop. The benefit is the significantly less order volume we have coming in, and specifically all of that being pre-sold, and just the progress we've made and will continue to make on inventory optimization. Because right now, right, in order to make that progress, we certainly are getting more aggressive with internal programs and promotions to get that progress done. And we're, you know, as we achieve that, there's less of that that we have to do in the back half, and thus setting us up as we exit FY26 to really operate at more of a normalized margin, you know, relative to the point of the cycle that we're in.
Speaker Change: Inventory optimization because.
Speaker Change: Because right now right in order to make that progress, where we certainly are getting more aggressive with internal programs and.
Speaker Change: And promotions to get that progress done it and we're as we achieve that there's less of that that we have to do in the back half and setting us up as we exit FY 'twenty six to really operate at more of a normalized margin relative to the point the of.
Speaker Change: Of the cycle that we're in.
Matthew Raab: Okay, but just to clarify, just for Q2, same store sales and agriculture, should we be thinking down 25, down more, the timing versus Q1 versus Q2 of delivery, that's what I'm looking to clarify. Yeah, and you know, just a start with also in terms of same store. So the acquisition that we just did in Brookings and Watertown, we're really excited about, but in the press release, we had mentioned last year, it was 20 million in sales this year, obviously, they're reflecting the market that we are. So it's not really when you're looking at growth numbers, it's not really blurring the lines on same store, just to clarify that for you.
Make Debris: Okay, but just to clarify just for Q2 same store sales in agriculture should we be thinking down twenty-five down more this the timing versus Q1 versus Q2 again debris that I'm looking to clarify.
Make Debris: Yeah, and you know just a start with also in terms of same store. So the acquisition that we just did in Brookings and Watertown, We're really excited about in the press release, we had mentioned last year. It was $20 million in sales. This year, obviously, there reflecting the market that we are so it's not really when you're looking at growth numbers its not really blurring the lines on the <unk>.
Make Debris: Store just to clarify that for you and then in terms of what we're expecting.
Bryan Knutson: And then in terms of what we're expecting You know, going into the second quarter, we still have some backlog we're executing on. And certainly, as we look at the back half of the year, the next couple of months are going to be really important in terms of what that order writing activity is. But that said, sort of as a base case, I've got, from an equipment perspective, Q2, Q3, Q4, each being down about 30% year over year for domestic ag. And then you mix in your parts and service that's more flattish. That's what I would prescribe for you.
Speaker Change: You know going into the second quarter, we still have some backlog we're executing on.
Speaker Change: And certainly as we look at the back half of the year. The next couple of months are going to be really important in terms of what that order writing activity is but.
Speaker Change: But that said sort of as a base case I've got from an equipment perspective, Q2, Q3, Q4, each being down about 30% year over year for domestic AD and then you mix in your parts and service that's more flattish AR, that's what I would prescribe for you. So then.
Matthew Raab: So then if you really...
Speaker Change: If you really.
Matthew Raab: I'm zooming back out, and I'll talk on a consolidated basis. Last year, we were more 45%, 46% of our total revenue was in the first half of the year. This year is going to be closer to 50% because of exactly what you're alluding to, sort of the pre-sales in the first half of the year, and then we're looking at and projecting forward more challenging order activity in the back half of the year. Very helpful. Thank you.
Speaker Change: And zooming back out and I'll talk on a consolidated basis last year, we were more 45, 46% of our total revenue was in the first half of the year. This year is going to be closer to 50%.
Speaker Change: Because of exactly what you are alluding to sort of the pre sales in the first half of the year and then we're looking at and projecting forward a more challenging.
Speaker Change: Order activity in the back half of the year.
Speaker Change: Very helpful. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Bank Levy with Lake Street Capital markets. Please proceed with your question.
Ben Klieve: Our next question... All right, thanks for taking my questions, and congratulations on the start to the fiscal year here. First, I want to ask about your comments regarding hopeful initiatives from OEM partners on kind of stimulating demand in the second half of the year. I'm wondering if you can talk a bit about this from the perspective of kind of specifically what you would most like. The degree to which you have these embedded within your guidance and then the degree of confidence you have that these will come to pass. Sure.
bank Levy: Thanks for taking my questions and congratulations nice start to the fiscal year here the first one.
bank Levy: Ask about your comments regarding harmful initiatives from OEM.
bank Levy: Partners on kind of stimulating demand in the in the second half of the year I'm wondering if you can talk a bit about this from the perspective of kind of specifically what you would most like to see the degree to which you have.
bank Levy: These embedded within your guidance and then your the degree of confidence you have that these you know.
bank Levy: More will come to pass.
Speaker Change: Sure Good morning, Ben.
Bryan Knutson: Good morning, Ben. Yeah, so first of all, we're looking at another year of weak farmer profitability, as we mentioned, and uncertainty on exports with our global trading partners, and as we see those continue to evolve, and as I mentioned, watching moisture levels and crop development, and so all that will further determine farmer sentiment and net farm income, but as it currently sits, you know, the net farm income, as we've mentioned, is very challenging, so that's where, you know, the OEMs... those discussions happening and looking to pull many different levers, whether it's through financing programs, additional incentives and what have you.
Speaker Change: Yeah. So first of all we're looking at another year of weak farmer profitability, as we mentioned and and uncertainty on exports with our global trading partners and as we see those continue to evolve and as I mentioned, you know watching moisture levels and crop development and and so all of that will.
bank Levy: Well further determined in farmer sentiment and and net farm income, but is it as it currently sits.
bank Levy: The net farm income as we mentioned is very challenging so that's where you know the Oems.
bank Levy: So those discussions happened in and looking to.
bank Levy: How many different levers whether its through financing programs additional incentives.
bank Levy: And and what have you so.
Bryan Knutson: So we'll continue to, a lot of the front half of the year is already baked, as we've been talking about a lot of those pre-sells coming in. And you heard Bo talk about that. But we're really looking at back half of the year and as we get into order boards for next year here. And there's been a lot of price increases that have happened with the equipment post-COVID here or even over the last 10 years. And there's been a lot of improvements and a lot of technology advancements with the equipment as well that really are driving that ROI on the equipment.
bank Levy: Well, we will continue to you know a lot of the front half of the year is already baked as we've been talking about a lot of those pre sales coming in at.
bank Levy: And you heard Bob talk about that but so we're really looking at <unk>.
bank Levy: Back half of the year and as we get into order boards for for next year here and Theres been a lot of.
bank Levy: Price increases that have happened with the equipment post COVID-19 here or even over the last 10 years and.
bank Levy: And theres been a lot of improvements in a lot of technology advancements with the equipment as well that really are driving that that ROI on their equipment. So you know how.
Bryan Knutson: So how the OEMs look to pull those different levers to keep their factory set levels that work for them and also from a dealer perspective, to keep our sales up and keep you know, the fleet to a certain level of aging as well out there. As we are at, as Bo mentioned, 20-year trough levels here in demand, the further we go through the cycle at these levels, we'll continue to age the fleet and continue to increase replacement demand even as you go farther. So we'll continue to work with them on just, you know, various incentives to help stimulate demand, help bridge what is currently a gap for growers as you look at their net farm income levels compared to what the certain payments or cash flow levels of the equipment are in the trade prices right now.
bank Levy: How the Oems look to.
bank Levy: All those different levers to keep their factories that are levels.
bank Levy: That work for them and and also from a dealer perspective being able to keep our sales up in and keep them.
bank Levy: The the the fleet to a certain level of of aging as well out there.
bank Levy: As we are at as Bo mentioned 20 year trough levels here and demand are the further we go through the cycle at these levels will continue to age the fleet and continue to increased replacement demand even as you go farther so.
bank Levy: So we'll continue to work with them on just your various incentives to to help stimulate demand help bridge. What is currently a gap for growers as you look at their net farm income levels compared to what the certain payments or cash flow levels of the equipment or in the trade prices.
bank Levy: Now so various levers and tools will Poland and look to team up together with the Oems to bridge that gap right now.
Bryan Knutson: So various levers and tools we'll pull and look to team up together with the OEMs to bridge that gap. And in terms of you asked the question, what's embedded in the guidance, I would say kind of a consistency with what we've seen from our strategic OEM partners over the going on 50 year relationship. So, you know, we try to provide as much clarity and transparency to them as in terms of what we're seeing. And right now, the pinch point is wheat farmer profitability, along with software used values, creating a gap in that boot or the cash price that they need to bring in working with the OEMs to to find a way to make those deals that work for the grower, the OEM and ourselves.
bank Levy: Yeah and in terms of you asked the question what's embedded in the guidance I would say kind of a consistency with what we've seen from our strategic OEM partners over the going on 50 year relationships. So.
bank Levy: We tried to provide as much clarity and transparency to them as is in terms of what we're seeing in right now the pinch point.
bank Levy: As weak farmer profitability, along with softer used values, creating a gap in that Buda, the cash price that they need to bring in and working with the Oems to find a way to to make those deals that work for the grower the OEM and ourselves.
Beau Larson: got it got it i appreciate that from both of you and then i guess i have a follow-up to this uh maybe more for you bo around around uh around these initiatives i mean it would seem to be that that if this uh You know, if this does come to pass, it would be an overwhelming positive for you, but I'm wondering if you can, you know, outline if there's any kind of, you know, resulting margin compression that you would see, you know, you know, need to lean into the floor plan, floor plan payable, excuse me, in a more material manner, you know, any, any kind of offsetting effect that those kind of initiatives would, you know, need to have.
Speaker Change: Got it got it I appreciate that from both of you and then I guess I have a follow up to this maybe more for you bow around around.
Speaker Change: Around these initiatives I mean, it would seem to be that that if this.
Speaker Change: If this does come to pass and it would be an overwhelming positive for you, but I'm wondering if you can on you know outlined if theres any kind of a.
Speaker Change: The resulting margin compression that you would see.
Speaker Change: You know I need to lean into the floor.
Speaker Change: Floorplan floor more plan payable excuse me in a more material manner, you know any any offsetting effect that those kind of initiatives would you.
Speaker Change: Goodbye.
Beau Larson: Well, to the extent that, you know, there's further support there, again, for a perspective, right, we're talking about historically low equipment margins for ourselves in domestic ag. So, to the extent that there's more support there, it helps support the view that we have, or potentially a little bit upside in terms of where revenue could be. It could improve margins, you know, coming up off of really the floor of where we've been, but still well below normals that, you know, we should be operating at. So, you know, progress in that direction. And then, yeah, absolutely. You know, as we free up cash flow, one of our main capital allocations is going towards interest bearing debt.
Speaker Change: But to the extent that there is.
Speaker Change: As a further support there again just for a perspective right, we're talking about historically low equipment margins for ourselves.
Speaker Change: In domestic egg so to the extent that there's more support there.
Speaker Change: It helps support the view that we have or potentially a little bit of upside in terms of where revenue could be.
Speaker Change: It could improve margins coming up off of really the floor of where we've been but still well below our normal that you know we should be operating at so progress in that direction and then you absolutely you know as we free up cash flow one of our main capital allocations is going towards interest bearing debt. So.
Speaker Change: That can help pay that down faster.
Ben Klieve: So, that could help pay that down faster. Overall, again, the priority is inventory reduction, and we're doing what we need to. And, you know, just working with our partners on support so that we can all get there as efficiently as possible. Got it. Very good. Well, I appreciate the caller. Congratulations again. Good start to the year. Thank you, Ben.
Speaker Change: Overall again, the priority is inventory reduction and we're doing what we need to and you know just working with with our partners on support so that we can all get there as efficiently as possible.
Speaker Change: Got it very good well I appreciate the color congratulations again, good start to the year I'll get back in queue.
Speaker Change: Thank you Ben.
Speaker Change: Thank you. Our next question comes from the line of Steve Dyer with Craig Hallum Capital Group. Please proceed with your question.
Steve Dyer: Our next question comes from the line of Steve Dyer with Craig Helm. Hey, thanks.
Speaker Change: Hey, Thanks. This is Matthew Rob on for Steve two questions on on parts and service here. Firstly are we still expecting a slight increase year over year in the and the service gross margin.
Matthew Raab: This is Matthew Raab. I'm for Steve.
Beau Larson: Two questions on parts and service here. Firstly, are we still expecting a slight increase year over year in the service gross margin? Secondly, Bo, you noted last quarter traffic was a little bit slower to start the year. Any update on how the quarter trended and then any expectations for traffic through year-end? Yeah, so from a margin perspective, similar levels, slightly positive levels, that still remains the expectation. In terms of what unfolded in the first quarter, I recall talking about it, we were expecting parts and service to be down mid to single digits in Q1. Same store growth last year, Q1, was almost 20%, it was like 18.9, so that was part of what was going into it.
Speaker Change: And then secondly, BOE you noted last quarter traffic was a little bit slower to start the year.
Speaker Change: Any update on how the quarter trended and then any expectations for traffic through yearend.
Speaker Change: Yeah. So from a margin perspective, yes, similar levels slightly positive levels that still remains the expectation in terms of what unfolded in the first quarter.
Speaker Change: Good.
Speaker Change: I recall talking about it we were expecting parts and service to be down mid single digits. In Q1 same store growth last year Q1 was almost 20%. It was like $18 nine so that was part of what was going into it you know we ended up down low single digits. So certainly within the realm or maybe even on the better side of what our.
Beau Larson: We ended up down low single digits, so certainly within the realm or maybe even on the better side of what our expectations were there, and still expecting kind of a flattish viewpoint there in a world where equipment's down 30%. To us, that's a real positive in just how sustainable that parts and service can be, as long as it takes a ton of work, so it's not a given at all. But everything that we put behind it to be able to maintain sort of a flattish view there when equipment's down 30, hats off to the team on the great job that they do to execute.
Speaker Change: Expectations were there.
Speaker Change: And still expecting kind of a flattish viewpoint there in a world where equipment is down 30% to us that's a real positive and just how sustainable.
Speaker Change: That part of the service can be as long as it takes a ton of work. So it's not a given at all but everything that we put behind it to be able to to maintain sort of a flattish view there when equipment is down 30 hats off to the team on the great job that they do to execute a lot of work to still get done this year to make that happen.
Beau Larson: A lot of work to still get done this year to make that happen. But that's an important part of our business. I think we already talked about that, but a quarter of our revenue, upwards of 60% of the gross profit dollars this year. You can see why we talk about it so much, why our customer care strategy is one of our number one strategic objectives, and why it'll be critically important going forward as we continue to move the business in the right direction.
Speaker Change: But you know that's that's an important part of our business. It's I think we already talked about that but a quarter of our revenue.
Speaker Change: The 60% of the gross profit dollars this year.
Speaker Change: You can see why we talk about it so much by our customer care strategy is one of our number one strategic objectives.
Speaker Change: And why it'll be critically important going forwards.
Speaker Change: We continue to move the business in the right direction.
Speaker Change: That's great. Thanks, guys.
Operator: That's great. Thanks, guys. Thank you. Turn the floor back.
Mr. Carlson: Thank you, ladies and gentlemen that concludes our time allowed for questions I'll turn the floor back to Mr. Carlson for any final comments.
Bryan Knutson: Thank you for your interest in Titan, and we look forward to updating you with our progress on our next call. And again, I just want to thank all of our employees for their execution and their efforts. and have a great day.
Mr. Carlson: Thank you for your interest in Titan and we look forward to updating you with our progress on our next call and again I just want to thank all of our employees for their execution and their efforts and have a great day.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.
Operator: This concludes today's conference call. You may disconnect your lines at this time.