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Ag Equipment Intelligence, December 2013

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Ag Equipment Intelligence, December 2013 December 15, 2013 Vol. 19, Issue 12 • Kubota Going Big • Sales Pick Up in Nov. • Ethanol Back on Track Are U.S. Farmers More or Less Loyal to Equipment Brands Today? While many farm equipment dealers farmers report that their allegiance to Lake States. It’s a follow-up to the believe that loyalty to specific equip- “their” equipment brand is as solid as same survey the magazine conducted ment brands of ag machinery has it was 5 years ago — if not more so. 3 years earlier. The 6 questions were diminished over the years, replaced The survey was conducted in identical to those posed 3 years ago, by demanding, price shopping farm November via email and included and the major equipment brands cov- operators, that’s not what a major- a random sampling of farmers who ered were the same as well. ity of the farmers surveyed by Farm work at least 1,000 acres across 10 Of the total responses, 54.1% Equipment magazine say. If anything, states throughout the Corn Belt and of farmers said their primary brand of tractors and combines was John Are You Brand Loyal? Deere. In the 2011 report, 66.7% (all farmers) of the responses came from John Deere customers. Case IH customers comprised 32.1% of all responses vs. 17.2% the last time around. New Holland customers made up 7.3% of total responses vs. 9.1% in 2011, and 5.5% of respondents identified themselves as AGCO users compared to 4% in the earlier survey. Only 1% said they were not loyal to any of these brands. Nearly 69% of all respondents labeled themselves as “brand loyal,” while the remaining 31.2% said they Of all the farmers surveyed in November 2013, nearly 69% call themselves “brand loyal” when were not “brand loyal” when buy- it comes to the farm machinery they own and operate. This is up from about 63% when the ing farm machinery. This is up from same poll was taken 3 years ago. Source: Farm Equipment Continued on page 3 Titan Machinery Pushes to Reduce Inventories Following Tough 3QF14 Following a particularly difficult While overall equipment sales ment demand (and pricing) have quarter where revenues rose only declined 3.2% for the period ending materialized in a large third quarter 1%, Titan Machinery, the Fargo, N.D.- October 31, 2013, through the first miss and lowered fiscal year 2014 based retailer of farm and construc- 9 months of the year overall equip- guidance,” Mircea (Mig) Dobre, analyst tion equipment lowered its outlook ment sales were up by 4.6%. Parts and for RW Baird, said in a note following for annual revenue, net income and service revenues saw solid growth, up Titan’s earnings release. earnings per share. With equipment 12.2% and 21.8% respectively for the “High inventory levels coupled inventories up 12% year-over-year, the quarter, and 13.5% and 20.2%, respec- with equipment pricing pressure and company said it plans to reduce prod- tively through the first 9 months of lower end-market demand result in uct backlogs by $90 million in the the fiscal year. significant forecasting risk” for Titan. final quarter of the year, and by $250 “Our concerns surrounding dete- Difficult Quarter. Overall, Titan’s million during fiscal year 2015. rioration in North America ag equip- Continued on page 2 The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. ... Continued from page 1 Titan Machinery Equipment Inventory to the rollout of the Tier 4 Final engine technology. “We’re finding it very dif- (through 3QF14, October 31, 2013) ficult to pass it on and get full price real- izations from our customers, considering the size of the price increases,” it said. In a conference call with analysts, company officials pointed out positive trends on the used equipment side of the business. “We’re seeing fairly stable used equipment prices, especially on tractors,” David Meyer, chairman and CEO of Titan said. “But there is a lot of used equipment out there that needs to be put through the channel,” he added, while noting that margins on used combines remain difficult. Acquisitions Ahead? The com- pany noted that it is seeing an increase in discussions about acqui- sitions from other dealer-principals. During its earnings report on December 5, Titan Machinery stressed that one of its major “Long term, we’ve got a big oppor- initiatives in the fourth quarter of fiscal 2014 and throughout the 2015 fiscal year will be to tunity, a long runway of acquisitions dramatically shrink both its new and used equipment inventory. Source: Company reports out there,” Meyer said. He noted that the pricing on some recent acquisi- Titan Machinery Revenue Analysis — 3Q & 9 mos. FY2014 tions within the industry has been (millions of U.S. dollars*) “a little higher than we’re comfort- Oct. 31 Oct. 31 % Oct. 31 Oct. 31 % able with.” He said Titan is maintain- 3QFY14 3QFY13 Change 9 mos. 9 mos. Change ing its discipline when it comes to Revenue $588.0 $582.1 +1.0 $1,517.8 $1,413.9 +7.3 pricing acquisitions. Agriculture $459.0 $478.7 -4.1 $1,186.9 $1,146.4 +3.5 In his note, Nelson said, “Titan’s Construction $109.9 $94.9 +15.8 $290.6 $271.7 +7.0 acquisition pace has slowed as it International $40.3 $28.2 +42.7 $107.9 $53.8 +100.6 focuses on integrating recent acqui- Equipment $441.8 $456.2 -3.2 $1,134.9 $1,084.9 +4.6 sitions and improving execution in Parts $80.9 $72.1 +12.2 $214.4 $188.8 +13.5 its stores. We do not believe that the Service $40.6 $33.4 +21.8 $112.5 $93.6 +20.2 ongoing strategies preclude Titan from Rental & Other $24.7 $20.5 +20.4 $56.0 $46.6 +20.2 executing on a deal, and we note the Gross Profit $93.6 $94.1 -0.5 $251.1 $234.8 +6.9 company maintains a strong balance Gross Profit Margin 15.9% 16.2% -30 bps 16.5% 16.6% -10 bps sheet and cash position.” revenues rose to $588 million vs. higher than our forecast. Ag segment AEI Copyright Notice $582.1 million last year. pre-tax profits were $16.7 million Ag Equipment Intelligence is a Rick Nelson, analyst for Stephens, vs. $24.9 million and construction copyrighted publication of Lessiter said in a note, same-store revenues fell produced a loss of $3.4 million vs. Publications. Copying an entire issue to share with others, by any means, by 4.5% and including a 6.5% decline profit of $0.5 million. International is illegal. Duplicating of individual in ag, 6.5% growth in CE and 6.9% also generated a loss of $1 million vs. items for internal use is permitted decline in international. $1.4 million profit last year.” only with permission of the pub- “Total gross margins fell 30 bps Revised Outlook. Titan reduced lisher. Licensing agreements that to 15.9% vs. our model of 16.2%. revenue guidance from $2.25-2.45 bil- allow distribution of Ag Equipment Intelligence to a specified number Equipment margins fell 130 bps to lion to $2.15-2.35 billion for the year. of readers are available by contact- 7.9% vs. our estimate of 8.4%. Service The company noted headwinds cre- ing Lessiter Publications at 262-782- and parts revenues and margins were ated by significant price increases due 4480, ext. 408. AG EQUIPMENT INTELLIGENCE is published monthly for U.S., Canada and Mexico print subscriptions are $349 the farm equipment industry by Lessiter Publications Inc., 225 per year. Save $50 by receiving Ag Equipment Intelligence Regency Ct., Suite 100, Brookfield, WI 53008-0624. © 2013 by each month via E-mail Internet access at only $299 per year. Lessiter Publications Inc. All rights reserved. Reproduction in any International print subscriptions are $449 per year. Send sub- form of this newsletter content is strictly forbidden without the scription orders to: Ag Equipment Intelligence, P.O. Box 624, prior written consent of the publisher. Please send any address Brookfield, WI 53008-0624. Fax: 262/786-5564. Phone: 262/782- changes as soon as possible to the address shown above. 4480 or 866/839-8455 (U.S. only). E-mail: [email protected]. 2 Ag Equipment Intelligence/December/2013 ... Continued from page 1 the 2011 report when 62.6% defined process with the desire to purchase years that was not the same brand as themselves as “brand loyal” and 37.4% the same brand as your tractor/com- their “primary brand” and what type of who didn’t claim allegiance to any spe- bine? Slightly over 67% said “yes,” and equipment did they purchase outside cific brand of farm equipment. slightly less than 34% said “no.” their brand. The farmers were also asked, If Not Your Brand? The farmers Nearly 58% said they purchased “When you purchase new (not used) surveyed were also asked if they had another brand of spraying equipment, farm equipment, do you begin the purchased equipment in the past 5 and 55% they had bought tillage tools that weren’t the same brand as their tractor and combine.
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