Titan Machinery's Q2 2026: Contradictions Emerge on Inventory Goals vs. Margins, OEM Incentives, Tariff Impact, and Used Equipment Margins

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $546.4M, compared to $633.7M in the prior year; same-store sales down 14%
• EPS: ($0.26) per diluted share (GAAP), versus adjusted $0.17 in the prior year
• Gross Margin: 17.1%, compared to 17.7% in the prior year

Guidance:

• FY26 adjusted diluted loss per share expected at $1.50–$2.00.
• Consolidated FY26 equipment margin ~6.6%; domestic Ag ~3.8% (H1: 3.1%).
• Segment revenue outlook: Domestic Ag down 15–20%; Construction down 3–8%; Europe up 30–40%; Australia down 20–25%.
• Operating expenses to decline YoY; ~16% of sales.
• Expect to exceed $100M equipment inventory reduction in FY26; majority in H2.
• Floorplan and other interest expense to continue declining; more meaningful decrease in FY27.
• Q3 and Q4 revenue similar; Q3 higher profitability; Europe ~+100% YoY in Q3 then ~-20% YoY in Q4; parts & service down ~30% sequentially in Q4; parts flattish for FY.

Business Commentary:

• Inventory Management and Reduction:
• Titan Machinery's inventory levels remained relatively flat through the first half of fiscal 2026, with a modest increase in the second quarter, totaling $954 million.
• The company expects to exceed its previously communicated inventory reduction target of $100 million, with most progress anticipated by year-end.

• The focus on inventory reduction is driven by the need to achieve healthier inventory levels to operate in a more normalized environment and improve margins.

• Revenue and Segment Performance:

• Total revenue for the fiscal 2026 second quarter was $546.4 million, reflecting a 14% decrease in same-store sales compared to the prior year.
• The domestic Agriculture segment experienced an 18.7% decrease in same-store sales to $345.8 million, while the Construction segment saw a 10.2% decrease to $72 million.

• The decline in revenue is attributed to weaker demand and continued efforts to manage inventory, with encouraging performance noted in the European segment, which saw a 44% increase in same-store sales.

• Profitability and Financial Outlook:

• Gross profit for the second quarter was $93.6 million, with a margin of 17.1%, down from 17.7% in the prior year.
• Adjusted net loss for the quarter was $6 million, compared to adjusted net income of $4 million in the prior year.

• The decline in profitability is primarily due to lower equipment margins, particularly in the domestic Agriculture segment, and continued efforts to optimize inventory levels.

• Market Conditions and Strategic Initiatives:

• Despite challenging market conditions, Titan continues to focus on customer engagement and enhancing the customer experience, with parts and service revenue contributing over half of gross profit.
• The company notes that the reinstatement of 100% bonus depreciation and timely moisture in key geographic areas have positively impacted the agricultural market.
• Strategic initiatives include optimizing the used equipment portfolio and leveraging partnerships to ensure the company is well-positioned for fiscal 2027.

Sentiment Analysis:

• Revenue declined to $546.4M from $633.7M and gross margin fell to 17.1% from 17.7%; company posted a ($6.0M) net loss. Management expects equipment margins to remain subdued in FY26. Offsetting this, Europe is strong (up 30–40% FY outlook), guidance was refined (EPS loss $1.50–$2.00), and they expect to exceed the $100M inventory reduction target, supporting improved margins and lower floorplan interest in FY27.

Q&A:

• Question from Benjamin David Klieve (Lake Street Capital Markets): What conditions are needed to lift equipment margins back toward the historical 8%–12% range from sub-4% this year?
  Response: Key drivers are inventory/mix normalization, pricing discipline as inventory health improves, stabilization of used values, geographic optimization, OEM programs, and lower floorplan interest; expect sequential improvement in FY27.

• Question from Mircea Dobre (Baird): To confirm, is the 6.6% margin guidance for total equipment, and what is domestic Ag's margin?
  Response: Yes—~6.6% consolidated equipment margin for FY26; domestic Ag at ~3.8% for FY26 (H1 was 3.1%).

• Question from Mircea Dobre (Baird): If margins are similar in H2, what drives the higher revenue outlook?
  Response: Stronger used-equipment sales and mix shift to Europe (with firmer margins) support higher revenue despite margin compression.

• Question from Mircea Dobre (Baird): By how much can you exceed the $100M inventory reduction and how to think about FY27 margins post-destock?
  Response: Internal targets are well above $100M but not quantified; as destocking ends, expect sequential progress in FY27 toward normalized equipment margins.

• Question from Mircea Dobre (Baird): Can OEM 2026 price increases be passed through, or will dealer discounts absorb them?
  Response: OEMs signal ~2–4% list increases; Titan will use targeted, deal-specific programs with pricing discipline—pass-through depends on market conditions and profitability thresholds.

• Question from Edward Randolph Jackson (Northland Securities): What’s the new vs. used inventory mix trend and interest-bearing exposure?
  Response: Used inventory is down ~$50M YTD; new up ~$75M on timing/FX; interest-bearing inventory has been flat and should decline as aged stock rolls down.

• Question from Edward Randolph Jackson (Northland Securities): Are you targeting older vs. newer used and taking trades others won’t?
  Response: Yes—actively moving late-model used and quoting all deals with disciplined valuations; selectively capturing share where competitors avoid trade-ins.

• Question from Laura Maher (B. Riley): How do tariffs and OEM exposure affect floorplanning and allocation?
  Response: No material impact noted; strategy is to minimize stock and push presales to reduce floorplan interest and balance-sheet risk.

• Question from Matthew Joseph Raab (Craig-Hallum): What’s the 2H incentive visibility and Q3 vs. Q4 cadence?
  Response: Incentives are largely set and in guidance; Q3 and Q4 revenue similar, but Q3 more profitable; Europe ~+100% YoY in Q3, then ~-20% in Q4; parts/service drop ~30% sequentially in Q4.

• Question from Matthew Joseph Raab (Craig-Hallum): Are parts and service still expected to be flat for the year?
  Response: Yes—parts remain flattish; changes in guidance mainly reflect equipment.

• Question from Edward Randolph Jackson (Northland Securities): Any expectations around the pending farm bill and farmer support?
  Response: Pushing for a permanent farm bill; advocating demand drivers like ethanol/SAF/biodiesel and research funding to support farm incomes.