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TM

Titan Machinery Inc. (TITN)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 revenue was $0.680B, down 2.1% year over year, with diluted EPS of $0.07 versus $1.32 last year as equipment margins compressed and interest expense rose .
  • Inventory reduction progressed: total inventories fell ~$115M sequentially to $1.413B, while equipment inventory declined ~$101M, supporting the strategy to right-size and eventually normalize margins .
  • Guidance cut: Europe revenue now down 20–25% (was down 12–17%), Australia $220–$230M (was $230–$250M); FY2025 diluted EPS to a loss of $0.61–$0.11 (from loss $0.36–earnings $0.14) and adjusted EPS to a loss $0.25–earnings $0.25 (from $0.00–$0.50) .
  • Catalysts: continued aggressive inventory reductions, ongoing equipment margin compression (Ag equipment margins guided to compress 50 bps sequentially in Q4), international drought impacts, and elevated floorplan interest expense ($53M for FY2025) .

What Went Well and What Went Wrong

What Went Well

  • Inventory reduced by ~$115M in Q3, a key milestone toward targeted inventory levels and margin normalization; management: “we are seeing positive results from our inventory reduction initiatives” .
  • Recurring revenue strength: parts grew to $121.1M and service to $51.1M, both up year over year, reflecting the customer care strategy and higher absorption .
  • Construction segment revenue rose 10% y/y to $85.3M on timing of deliveries; management expects flattish full-year outcome and sees long-term support from infrastructure spend .

What Went Wrong

  • Equipment margin compression drove gross margin down 360 bps y/y to 16.3%, materially reducing profitability; EBITDA fell to $14.7M from $50.1M y/y .
  • International headwinds: Europe revenue down 26.8% (drought in Eastern Europe) and Australia softness from low rainfall and frost; both segments posted pre-tax losses .
  • Interest burden: floorplan + other interest rose to $14.3M (vs. $5.5M last year) amid higher interest-bearing inventory and sale-leaseback accounting changes, pressuring EPS .

Financial Results

MetricQ3 FY2024Q1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Billions)$0.694 $0.629 $0.634 $0.680
Diluted EPS ($)$1.32 $0.41 $(0.19) $0.07
Gross Margin %19.9% 19.4% 17.7% 16.3%
EBITDA ($USD Millions)$50.1 $23.9 $9.1 $14.7
Operating Expenses ($USD Millions)$92.1 $99.2 $95.2 $98.8
OpEx as % of Revenue13.3% 15.8% 15.0% 14.5%
Floorplan + Other Interest ($USD Millions)$5.5 $9.5 $13.0 $14.3

Segment breakdown (Revenue and Pre‑Tax Income/Loss):

SegmentQ3 FY2024Q1 FY2025Q2 FY2025Q3 FY2025
Agriculture Revenue ($M)$531.4 $447.7 $424.0 $482.0
Agriculture Pre‑Tax ($M)$35.1 $13.0 $0.6 $1.9
Construction Revenue ($M)$77.5 $71.5 $80.2 $85.3
Construction Pre‑Tax ($M)$4.1 $0.3 $(4.9) $(0.9)
Europe Revenue ($M)$85.2 $65.1 $68.1 $62.4
Europe Pre‑Tax ($M)$5.1 $1.4 $(2.3) $(1.2)
Australia Revenue ($M)— $44.4 $61.3 $50.1
Australia Pre‑Tax ($M)— $(0.5) $1.4 $(0.3)

Key KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Inventories ($USD Billions)$1.430 $1.528 $1.413
Cash ($USD Millions)$35.7 $31.2 $23.4
Floorplan Payable ($USD Millions)$1,025.0 $1,168.4 $1,048.2
Same‑Store Sales – Agriculture+4.3% –11.2% –10.8%
Same‑Store Sales – ConstructionN/AN/A+10.0%
Same‑Store Sales – EuropeN/AN/A–27.1%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Agriculture Segment RevenueFY2025Down 5% to Down 10% Down 5% to Down 10% Maintained
Construction Segment RevenueFY2025Down 2.5% to Up 2.5% Down 2.5% to Up 2.5% Maintained
Europe Segment RevenueFY2025Down 12% to Down 17% Down 20% to Down 25% Lowered
Australia Segment RevenueFY2025$230M–$250M $220M–$230M Lowered
Diluted EPSFY2025(−$0.36) to $0.14 (−$0.61) to (−$0.11) Lowered
Adjusted Diluted EPSFY2025$0.00 to $0.50 (excludes ~$0.36 sale-leaseback) (−$0.25) to $0.25 Lowered
Domestic Ag Equipment MarginQ4 FY2025N/A~50 bps sequential compression vs Q3 Lowered
Operating Expenses (% of Sales)FY2025N/A~14.6% of sales Added
Other Income/Expense (incl. floorplan)FY2025N/A~$(53)M expense Added
Service revenue growthFY2025N/AHigh single-digit growth expected Added
Inventory reduction targetFY2026N/AReduce equipment inventory by ~$400M from $1.3B peak Added

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Inventory reduction strategyQ1: Inventory rising with OEM normalization; focus on managing inventory; updated modeling assumptions . Q2: Aggressive strategy to catalyze sales, reduce inventory; margin compression to historical lows; sale‑leaseback one‑time expense .Reduced total inventory by ~$115M; equipment inventory down ~$101M; more reductions expected sequentially and into FY2026 .Improving (execution accelerating) .
Equipment margin compressionQ2: Gross margin down to 17.7% with compression expected to persist; domestic Ag margins 6–5% range .Gross margin 16.3%; domestic Ag equipment margin ~5.9% with ~5.4% implied in Q4; compression to persist through FY2026 .Deteriorating near term .
International demand (Europe/Australia)Q1/Q2: Softer demand; drought impacts; Europe down double digits .Europe −26.8% y/y; Australia demand softer (low rainfall, frost); guidance lowered for both segments .Deteriorating .
Construction demandQ1/Q2: Segment stable; timing impacts; some inventory build .Revenue +10% y/y; pre‑tax loss from margin pressure, mix and used cleanup; outlook flattish; potential normalization late FY2026 .Stable to modestly improving .
Interest expense & financingQ1/Q2: Floorplan + other interest up sharply; sale‑leaseback reclass increases interest .Q3 interest $14.3M; FY other income/expense ~$(53)M expected; floorplan normalization requires larger inventory declines .Elevated; easing only with inventory cuts .
OEM support & dealer programsN/A in Q1/Q2 detail.CNH pool funds and prescriptive programs supporting dealer margins and inventory; coordinated industry response .Supportive .
Farmer sentimentQ1/Q2: Lower net farm income and higher rates pressuring sentiment .Near‑term uptick in U.S. foot traffic on better‑than‑expected yields; still cautious for 2025 given commodity prices .Mixed (near‑term better; medium‑term cautious) .

Management Commentary

  • “Our third quarter results reflect a market cycle that is largely playing out as we anticipated…we are seeing positive results from our inventory reduction initiatives with a third quarter reduction of approximately $115 million” — CEO Bryan Knutson .
  • “Gross profit margin contracted…driven primarily by lower equipment margins…our domestic Ag equipment gross margin percentage…was 30 bps below our expectations” — CFO Bo Larsen .
  • “We are lowering our revenue assumptions for our international segments…we expect…compression will persist throughout the next fiscal year while we actively work to reduce inventory levels” — CEO Bryan Knutson .
  • “We anticipate equipment margin compression will persist through fiscal 2026…Operating expense…14.6% of sales…Other income/expense…$53M” — CFO Bo Larsen .
  • “We are on track to…reducing equipment inventory by approximately $400 million from the $1.3 billion peak” — CFO Bo Larsen .

Q&A Highlights

  • Farmer sentiment: U.S. seeing near‑term positivity and increased foot traffic on better harvest yields, but 2025 outlook remains cautious absent commodity price improvement .
  • Margin dynamics: Domestic Ag equipment margins printed ~5.9% in Q3; midpoint implies ~5.4% in Q4; FY2026 expected in ~5% range, reflecting aggressive used pricing to move inventory .
  • Inventory trajectory: Expect another decline in Q4; Europe needs ~$70M reduction; majority of used equipment reduction shifts into FY2026; target −$400M from peak .
  • OEM support: CNH pool funds and targeted programs are assisting dealers; prescriptive pricing by product and aging helping balance inventory .
  • Construction: Q3 strength on equipment deliveries timing; margins pressured by inventory, mix (wheel loaders), and used; expect flattish full‑year and gradual normalization potentially late FY2026 .

Estimates Context

  • Wall Street consensus for Q3 FY2025 EPS and revenue via S&P Global was unavailable due to data limits at the time of this analysis; we will update when accessible. In absence of consensus, results likely prompt downward estimate revisions for FY2025 EPS (given lowered ranges) and tighter margin assumptions into FY2026, particularly for domestic Ag equipment margins and international segments .

Key Takeaways for Investors

  • Execution on inventory reduction is the core lever; continued sequential declines (new then used) are the path to margin normalization and lower floorplan interest — monitor quarterly inventory, used mix, and equipment turns .
  • Expect further near‑term equipment margin pressure (Ag margins guided down ~50 bps sequentially in Q4) and plan models accordingly; service and parts provide offset but not full protection .
  • International risk elevated: drought‑related weakness in Eastern Europe and Australian yield pressure drove guidance cuts; valuation sensitivity to these segments may rise until conditions improve .
  • Interest expense remains a headwind (~$53M FY total other expense); meaningful relief requires deeper inventory cuts through FY2026 — a key gating factor for EPS recovery .
  • Construction appears stable with timing noise; margin normalization is likely later than Ag but less acute; watch mix and used clean‑up progress .
  • Non‑GAAP adjustments: The Q2 one‑time non‑cash sale‑leaseback (~$0.36/share) clarifies underlying profitability; Q3 had no such adjustment, so EPS $0.07 is clean — use adjusted figures appropriately in multi‑period comparisons .
  • Near‑term trading: stock narrative hinges on visible inventory progress and confirmation of guided margin compression path; medium‑term thesis is a normalized margin cycle post inventory right‑sizing, supported by recurring parts/service and OEM coordination .