Titan Machinery Inc. (TITN)·Q4 2025 Earnings Summary

Executive Summary

• Fiscal Q4 2025 was dominated by an aggressive inventory reduction in Agriculture that drove a sharp margin collapse and a consolidated net loss; revenue exceeded prior year trend expectations while EPS missed consensus materially .
• Inventory fell by approximately $304M sequentially in Q4 (total reduction ~$419M since the Q2 peak), lowering floorplan balances; management pivoted from general reduction to mix optimization entering FY26 .
• FY26 modeling assumptions guide to revenue declines across segments, equipment margin pressure (Ag ~5.4%; consolidated ~7.7%), OpEx at ~17.3% of sales, and an adjusted diluted loss per share of ($1.25)–($2.00) .
• Stock narrative catalysts: accelerated destock, severe near‑term margin compression, and conservative FY26 loss guidance alongside tangible balance sheet de‑risking (floorplan and aging profile) .

What Went Well and What Went Wrong

What Went Well

• Executed an accelerated inventory reduction: “achieving a $304 million sequential decrease… total reduction to $419 million since inventories peaked” (CEO) .
• Service revenue growth: +14.5% FY25 and +7.1% same‑store, reflecting Customer Care strategy and technician investment (CEO) .
• Construction segment inventories improved with equipment margins still >10%, positioning for responsiveness despite softening demand (CFO/CEO) .

What Went Wrong

• Equipment margin collapse and gross margin compression to 6.7% in Q4 (vs 16.6% LY), driven by used equipment pricing pressure and aggressive destock .
• Elevated interest expense: floorplan and other interest rose to $13.1M in Q4 (vs $9.3M LY), despite sequential decline from Q3; interest‑bearing inventory still ~40% exiting FY25 (target ~25%) .
• Segment profitability deterioration: Agriculture swung to a Q4 pretax loss of $55.3M, Construction to a small pretax loss, Europe remained loss‑making; only Australia posted pretax income .

Financial Results

Segment revenue and profitability:

KPIs and balance sheet evolution:

Guidance Changes

FY2025 guidance evolution (updated in Q3):

FY2026 modeling assumptions:

Earnings Call Themes & Trends

Management Commentary

• “We significantly accelerated our pace of inventory reduction in the fourth quarter, achieving a $304 million sequential decrease… total reduction to $419 million since inventories peaked” – Bryan Knutson, CEO .
• “Our outlook implies continued margin pressure associated with our ongoing inventory reduction and mix optimization efforts… we believe it is prudent to set expectations conservatively in this fluid environment where demand is subdued” – CEO .
• “Our fiscal ’26 assumptions contemplate consolidated full year equipment margin to be approximately 7.7%… Ag segment ~5.4% with Q1 around 4.5%, improving to ~6% in the back half” – Bo Larsen, CFO .
• “Operating expenses are expected… approximately 17.3% of sales… floorplan related interest expense [down] ~15% to 20% YoY” – CFO .

Q&A Highlights

• Service margin volatility: FY26 expectation for a modest equipment margin increase YoY; Q4 variability attributed to mix and ERP transition inefficiencies .
• Destock channels: Majority executed through Titan’s own network to preserve future parts/service attachment; limited auction use .
• Tariffs and assistance: Material price increases could further dampen demand; potential assistance ($10B–$30–$45B) timing/impact uncertain; farmers not yet factoring payments into purchases .
• Inventory turns/targets: Illustrative inventory turns ~1.6x in FY26 base case, aiming toward ~2.0x at cycle trough and ~2.5x over time; interest‑bearing share ~40% vs ~25% optimal .
• SG&A cadence: FY26 OpEx midpoint ~$380M; Q1 OpEx guided to ~$94M; commissions and back‑half equipment sales drive seasonality .

Estimates Context

Consensus vs actual:

Values retrieved from S&P Global.*

Implications:

• Q4: Revenue beat vs consensus, but EPS/EBITDA missed materially, reflecting the deliberate margin trade‑off to accelerate inventory reduction .
• FY25: Revenue slightly above consensus; earnings far below due to margin compression and higher interest burden .

Key Takeaways for Investors

• The company prioritized balance sheet de‑risking over near‑term profitability, cutting inventories ~$419M since Q2 peak; expect continued optimization to reduce aging and interest‑bearing exposure (target ~25% interest‑bearing vs ~40% current) .
• Near‑term earnings risk persists: FY26 guided to an adjusted diluted loss of ($1.25)–($2.00), consolidated equipment margin ~7.7%, and OpEx ~17.3% of sales; trading setups should reflect ongoing margin pressure through H1 FY26 .
• Construction is relatively resilient vs Ag, with >10% equipment margins and multi‑year infrastructure support, but FY26 demand is expected to soften; inventory is cleaner heading into FY26 .
• Europe and Australia face weather‑linked demand headwinds; Europe could stabilize with subvention funds and normalized rainfall, while Australia works through tough comps and weaker grower profitability .
• Service and parts remain strategic anchors: FY25 service +14.5% (same‑store +7.1%); management continues investing in technicians and customer care to buttress gross profit and absorption through the down‑cycle .
• Watch policy catalysts (tariffs, farm assistance) and commodity/yield trajectories; management notes assistance could offset some pressure but timing/behavioural impacts are uncertain .
• Trade tactically around destock milestones: sequential floorplan interest reductions (~15–20% FY26), evidence of aging profile improvement, and progression toward targeted turns (approaching ~2x at trough) .