TITAN MACHINERY Lowers FY2015 EPS Guidance: $0.00-$0.30

Titan Machinery reported a loss for their third consecutive quarter on Tuesday morning that sent shares down to a new 4 year low @ $11.85, a price that it had previously traded at in March 2010.

    

Aside from lowering their net income guidance dramatically, the company also lowered their cash flow and sales outlook as well.

chart source: (bigcharts.com) click chart to enlarge.


The stock has closed under $14 per share for 21 consecutive days and saw a brief spike yesterday after the CEO bought 90,000 shares @ 13.03. The trade in my opinion is insignificant in light of the most recent prior trade the CEO did when he  appeared on Jim Cramer's MAD MONEY  and touted TITAN MACHINERY's future. 30 days later DAVID MEYER SOLD 300,000 shares @ $27.80 and received proceeds of $8,340.00.00 and CEO Peter Christianson sold 200,000 shares $27.80 for proceeds of $5.56 million. (more on Hyping of Shares (Unrealistic Guidance) that Directors used to take advantage of Stock Sales can be found here)

 

Management Discloses ERRORS made in 1st Quarter 10Q

In their FY2015 2nd quarter 10Q filed on Tuesday afternoon with the Securities and Exchange Commission the company stated that they realized that they had inflated their assets and understated their losses in their 1st quarter 10Q filed back in June. Although they previously reported an Earnings Per LOSS of ($0.20) for Q1, it came to their attention that had actually loss ($0.31) for the quarter. The company determined that the error on the loss of over 50% was immaterial and that they won't deem it necessary to Refile their FY2015 Q1 10Q. I am wondering if the SEC will think otherwise?

•  "The incorrect classification of the VAT asset as a non-monetary asset coupled with the significant devaluation of the UAH resulted in an overstatement of the Company’s assets (Prepaid expenses and other) as of April 30, 2014 and an understatement of the Company’s loss (Interest income and other income (expense)) for the three months ended April 30, 2014. This correction increased the Company’s Net Loss Attributable to Titan Machinery Inc. by $2.3 million (from the previously reported $4.2 million to $6.5 million) and increased the diluted loss per share by $0.11 (from the previously reported $0.20 loss per share to a $0.31 loss per share). This correction is reflected in the accompanying unaudited Consolidated Statements of Operations for the six-month period ended July 31, 2014.
  
  
  Based on an evaluation of all relevant factors, the Company concluded that this correction was immaterial to the Company’s results for the three months ended April 30, 2014; therefore, the Company determined that an amendment of its previously filed Form 10-Q for the quarterly period ended April 30, 2014 was not necessary, and the correction will be reflected in future 10-K and 10-Q filings."

 $150 million Corporate Bond (2019) @ New All Time Low $76.00 w 10.4% yield

•  FY2015 2nd quarter 10Q included a footnote regarding the covenants of Titan's $150 million indenture with Wells Fargo, specifically the 4th amendment in less than a year. What is interesting to not is that the underwriting only occurred 2 years ago and the investment banker found it seemed fir to make yet a 4th amendment.

Wall Street Money Mangers and Brokerages Are Looking the Other Way

The biggest mystery to the Titan Machinery trading activity is that 85% of the shares (according to Morningstar) are held by institutions. 

The trailing twelve months ending July 31,2014 Titan has total net income of $690,000 and the stock @$13 a share values the company at $275 million. (or a PE of 398 on ttm basis)

With FY 2015 EPS Guidance now at $0.00 to $0.30 per share , if use the mid range of $0.15 eps, the shares are currently trading at PE of nearly 100!

Why is there such a disconnect with the fundamentals of this underlying business and the price of its stock market valuation? I am seriously thinking that these shares may be being manipulated. One director on the board who is also a founder of the company is the general partner of an underwriting firm for the company and may know more about why shares trade at such a huge premium. 

Management of Titan can blame price of corn, the weak construction & agricultural economy,  poor farming, the unrest with their footprint in the UKRAINE, but I blame The company's poor financial condition on GREED AND RELATED PARTY TRANSACTIONS

Titan Machinery 10Q Includes Footnote Disclosing 4th Wells Fargo Debt Amendment

2nd Quarter 10Q 


Footnote with Wells Fargo's 4th Amendment to Debt Disclosure

TITAN Machinery Reports Disastrous Q2 Financials Pre Market, Shares Lower

T I T N down to $11.95 pre-market

Hats off to @StockPicker908 for sticking w/his warnings on $TITN all the way down http://t.co/NMAM2lzW9c

— Herb Greenberg (@herbgreenberg) September 9, 2014

$TITN FY2015 Q2 loss ($0.03) vs. FY2014 Q2 $0.18

— tom renna (@StockPicker908) September 9, 2014

$TITN OUTLOOK LOWERED , cut in half. expects net income to be in range $6.4 mil- $12.7 million, vs previous range of $14.8 mil to $21.1 mil

— tom renna (@StockPicker908) September 9, 2014

$TITN reports third consecutive quarterly loss

— tom renna (@StockPicker908) September 9, 2014

$TITN Net Income for TRAILING TWELVE MONTHs ending July 31,2014 : $690,000 that's 690 thousand dollars. Mkt Cap $275 million, PE is 398 ttm

— tom renna (@StockPicker908) September 9, 2014

$TITN Lowered Guidance Again TODAY as Expected Equities Research: Warning: Don't Buy Titan Machinery Guidance http://t.co/HXsFqt7SPd

— tom renna (@StockPicker908) September 9, 2014

$TITN FloorPlan Payable increased from $798 million in Q1 to $850 million in Q2

— tom renna (@StockPicker908) September 9, 2014

$TITN CURRent LIABILITES increased from $940 million in Q1 to $972 million in Q2 3.4% increase

— tom renna (@StockPicker908) September 9, 2014

Tweets by @StockPicker908

TITAN MACHINERY Down 40% since April 14th 52 Week High

The above chart demonstrates how Equities Research llc  SEEKS ALPHA!
 (chart source: www.bigcharts.com)



After Titan Machinery reported disappointing  Fiscal Year 2014 annual financials on April 10,2014, shares went on a three day tear and traded up from $16 to $20.40.
In less than 5 months since hitting the 52 week high of $20.40 on April 14,2014, shares are now down 40%, closing yesterday @ $12.44. The S&P500 index is up 9% over the same period. (1830 to 1997).

Management of Titan can blame price of corn, the weak construction & agricultural economy,  poor farming, the unrest with their footprint in the UKRAINE, but I blame The company's poor financial condition on GREED AND RELATED PARTY TRANSACTIONS


Equities Research remains bearish Titan heading into the company's  2nd  quarter earnings release scheduled to be reported pre-market next Tuesday.

• Top Technical Analyst Greg Harmon looks at Titan Machinery

•  On June Q1 conference call Chairman gave guidance: "expect our Ag same-store sales to be negative 10% to 15%".

• Investment Banking firm William Blair has Titan rated a Sell (under perform). William Blair covers 98 stocks and Titan is its only SELL rating.

• Titan Machinery's $150 million Convertible Bond traded at an all time last week @ $77.50 yielding 9.78%.

• Based on Titan Machinery's Historical Guidance, future guidance should not be trusted.  

•  History of Negative Operational Cash Flow 

•  10K FootNote: Wells Fargo Tightens Debt Agreement (again) on Titan Machinery

• A Review of Securities & Exchange Commissions Comments regarding Titan Machinery Disclosure

• YEAR over Year Earnings are down (-79%) . 

• FY 2015 Q1 Results: Loss ($0.20) vs. Loss ($0.02 in FY2013 Q1

• Trailing Twelve Months ending April 30,2014 Net Income : $5.07 million. At current $250 million market capitalization, shares are trading at a Price to Earnings Multiple of 60.

• Other Q1 2015 CC Highlights:
• Agriculture Adjusted Pre-Tax Income Declined 50% in FY2015 Q1 vs FY2014Q
•  
•  "Used Equipment Prices Under Pressure due to Higher Industry Levels of Used Equipment"

•  Q1 equipment margins declines. Gross profit margin was 16.3% in the Q1 fiscal 2015, compared to 16.7% in the first quarterQ1 last yr

• inventory level was $1.12 bil as of April 30, 2014, compared to $1.08 billion as of January 31, 2014.Floorplan interest exp $4.6 mil

•   FY15 Q1 Operational Cash FLow : (Negative $54 mil) vs (Neg $6 mil) in FY14 Q1. operational cash flow per share NEG ($2.44) per share

my former twitter handle was @GFNNSTOCK

This guy makes a serious case that this company is, umm, furry. (@gfnnstock)newsgrade.blogspot.com/2013/04/titan-…
— Roddy Boyd (@BoydRoddy) April 28, 2013

 

I've got to hand it to $GFFNStock (Tom Renna): He's been warning on $TITN for quite awhile http://t.co/Fso3e4laAg Also not a fan of $SSYS
— Herb Greenberg (@herbgreenberg) May 24, 2013

Bob Olstein: Earnings vs.Cash Flow

The first step to becoming an investor is to identify the right Master.  Robert Olstein of the Olstein Funds is one of  the most sophisticated investors on all of Wall Street.  Today I am sharing historical articles written about Olstein that investors should examine and learn from.

OLSTEIN: Earnings vs. Cash Flow

New York Times  7/18/1999

INVESTING, When a Rosy Picture Should Raise a Red Flag by Gretchen Morgenson

"EARNINGS VS. CASH FLOW -- Mr. Olstein first examines what a company generates in cash flow from its operations. A company with excess cash flow can raise dividends and survive tough times without being forced to borrow or sell assets.
To calculate a company's cash flow, start with net income. Add back what it has taken in depreciation expenses and accounts payable. Then subtract capital expenditures, inventories and accounts receivable.
Watch out, Mr. Olstein said, if net income is much higher than cash flow. The company may be speeding or slowing its booking of income or costs, perhaps to meet analysts' earnings forecasts."

 Fortune Magazine  6/26/2000

  Eight Warnings You Want to See by Herb Greenberg

"Positive free cash flow. Olstein looks at a company's financials, specifically the 10-Qs and 10-K, and makes a beeline for the statement of cash flows. We're not talking about the stated cash flow from operations, investing activities or financings. We're talking about cash flow from operations minus capital expenditures--the amount of usable cash the company actually generates, which can be used to buy back stock, pay dividends, make acquisitions, and grow the business."

 TheStreet.com 6/25/01

Fund Junkie by Ian MacDonald

" Our main defense against risk is only buying companies that either are currently generating excess cash flow, or will in the next three years."

Financial Advisor Magazine August 2001

Staying Alert Pays Off by Maria Brill

"To Olstein, being right means finding companies with excess cash flow that are selling at inexpensive levels because investors are tuning them out. "Cash flow is the oil that lubricates the corporate engine," he observes."

 The Washington Post 2/17/2002

To Avoid an Enron, Look at Cash Flow by James K. Glassman

"By concentrating on cash, investors can learn enough about a company to eliminate it as a possible investment. FOr example, if you want to get a quick-and-dirty reading, look not at a firm's "income statement" but at a more obscure tables of numbers called its "statement of cash flows".

New York Times 11/14/2004

Sometimes It Takes a Sherlock by Gretchen Morgenson

""Everyone looks at conventional price-earnings ratios but that doesn't tell you anything about the deviation between cash flow and reported earnings," Mr. Olstein said."

 Financial Advisor Magazine June 2006

Forensic Accounting by Jeff Schlegel

"Olstein believes that cash--particularly free cash flow--is king because he thinks it's a truer measure of a company's underlying performance. He and his staff analysts look for companies trading at a discount to free cash flow. Lack of free cash flow is one reason why he doesn't like (a sector) ..."

 CFA Institute 12/4/2007

Free Cash Flow & Quality of Earnings by Fred H. Speece, Jr. CFA

BloombergBusinessweek 8/17/2009

Behind Bob Olstein's Comeback by Karyn McCormack

"....buy quality companies that have "wide moats" (in other words, "hard to compete with out of the box"), have been generating free cash flow throughout the financial crisis, and have a great balance sheet to withstand any issues."

 New York Times 1/9/2010

Fair Game:Why All Earnings Are Not Equal by  Gretchen Morgenson

As the market goes higher, it becomes more important to measure the quality of corporate earnings, he said. You have to look behind the numbers.

Adjustments that investors need to make now, in Mr. Olstein's view, are a result of disparities between a company's reported earnings and its excess cash flow. Earnings are what investors focus on, but because these figures include noncash items, based on management estimates, the bottom line may not tell the whole story.
Cash flow, on the other hand, is actual money that a company generates and that its managers can use to invest in the business or pay out to shareholders.

SOME of the widest gulfs between earnings and cash flows, Mr. Olstein said, are showing up the ways companies account for capital expenditures."

 New York Times 9/11/2010

A Wealth of Choices for a Value Investor by Jeff Sommer

Cash is king, he says. He spends a lot of time crunching numbers in a search for strong cash flow, and his winnowing process goes something like this:
First, he scrutinizes a company's financial reports in an effort to determine whether they paint an accurate picture. In this work, he has considerable expertise: he was an auditor with the old Arthur Andersen & Company, and then, in the 1970s, was co-author of The Quality of Earnings, a financial newsletter that, in its day, was perhaps the foremost authority on spotting the gray areas of corporate accounting.
If you're analyzing a company, he says, you first have to understand what they're really earning, as opposed to what they say they're earning.

 American Association of Individual Investors  October 2010

What You Can Learn from Shareholder Letters by Eric R. Heyman

"the forensic analysis we undertake
to analyze a company's results and the quality of its
earnings for valuation purposes.
1. Using the company's cash fl ow statements, we begin by
reconciling the difference between free cash fl ow and
reported earnings under accrual accounting. (Accrual
accounting records revenues, expenses and income
when the transaction occurs, as opposed to when
the cash is actually received or spent.) The smaller
the difference between free cash fl ow and reported
earnings, the higher the quality of earnings."

 Barron's 4/30/2011

Depreciation, An Appreciation by Lawrence C. Strauss

"He grows more concerned when a company's reported earnings significantly exceed its cash flow,..."

 Value Investor  4/30/2012

  Strengthin Numbers

"Describe where you look first in researching
a company's financials.
RO: We begin by reconciling the difference
between free cash flow and reported
earnings under accrual accounting. The
smaller the difference, the higher the
quality of earnings. The bigger the difference,
the more work we have to do to
understand the makeup and sustainability
of free cash flow."

OlsteinShareholder Letters