However, the manufacturer also warned that its farm business was down at least $75 million in 2006 and that it may report a negative gross margin for the fourth quarter of 2006.
In the past year, Titan acquired Goodyear’s North American farm tyre assets (Goodyear) and Continental Tire North America’s off-the-road (OTR) earthmover tyre assets (Continental). Titan spent approximately $153 million on these combined acquisitions. The 2005 revenue of Goodyear’s farm tyre business was more than $200 million, and Continental’s Bryan OTR business was more than $100 million.
“When compared with 2005, the 2006 farm business will be down at least $75 million. However, the purchase of Continental’s Bryan OTR business will compensate for some of agriculture’s shortfall in 2006,” the company commented in an official statement on the subject.
In October 2006, Titan determined that its Freeport, Ill., facility has the basic equipment to produce OTR tyres up to 35 inches. This means that Titan can expand capacity by adding building drums and moulds and implementing modifications. The company’s goal was to implement these changes in fourth quarter 2006 and the first part of 2007. A steel radial 17.5R-25 is in production now, and production on another size is expected soon. Titan believes that the Freeport plant can produce in excess of $60 million in OTR tyres in 2007.
Negative Gross Margin
Due to capacity constraints at Titan’s Bryan, Ohio, OTR tyre facility, the company is adding OTR tyre capacity at its Freeport, Ill., and Des Moines, Iowa, tyre facilities. Titan is aligning synergies, which includes retooling, retraining personnel and movement of equipment, at the Bryan, Freeport and Des Moines facilities. This may cause the company’s gross margin to be negative for the fourth quarter of 2006 as labour costs that are normally dedicated to making products were instead used for retooling, retraining and movement of equipment.
“Last fall, Titan set 2007 management sales goals at $800 to 825 million for the year, and we still believe this is an achievable objective,” said Titan Chairman and CEO Maurice M. Taylor. “We have already seen strong demand for January and February. If this continues, 2007 will be Titan’s best year ever.”
“Titan is the only company in the world manufacturing OTR and farm tyres and wheels,” said Taylor. “If you look at the equipment used by mining companies, construction firms or farmers, you will see that they have been neglected when it comes to new wheel and tyre designs for their equipment. An old John Wayne movie shows a construction loader with 25-inch wheels and now, 62 years later, the same 25-inch wheel is still used. Now Titan can improve equipment performance with custom engineered wheel and tyre assemblies in this OTR market.”
“We have stayed focused on our mission to grow our business and to be the best in the world in supplying engineered products to the agricultural, earthmoving, construction, mining and specialty markets.”
