Titan Machinery's Q2 2026 Earnings Call Contradictions on Inventory, Margins, and Oem Partnerships

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

Date of Call: August 28, 2025

Financials Results

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

Guidance:

• FY26 adjusted diluted loss per share guided to ($1.50)–($2.00).
• Consolidated equipment margin FY26 ~6.6% (~100 bps lower vs prior outlook).
• Domestic Ag equipment margins: H1 3.1%; FY26 ~3.8%.
• Segment revenue outlook: Domestic Ag down 15–20%; Construction down 3–8%; Europe up 30–40%; Australia down 20–25%.
• OpEx to decline YoY; ~16% of sales.
• Expect to exceed $100M equipment inventory reduction in FY26; bulk in H2.
• Q3 vs Q4: revenue similar; Q3 higher profitability; Europe ~+100% Y/Y in Q3, then ~-20% Y/Y in Q4.
• Parts and service revenue roughly flat YoY; equipment margins subdued through FY26.

Business Commentary:

* Inventory Optimization and Margins: - Titan Machinery reported a modest inventory increase during the second quarter, reaching $954 million, although equipment inventory levels remained essentially flat year-over-year at the halfway point of fiscal 2026. - The inventory increase was due to the timing of OEM shipments ahead of deliveries, and the company expects to exceed its $100 million inventory reduction target for the full year.

• Segment Performance and Market Conditions:
• The domestic Agriculture segment saw a 18.7% decrease in same-store sales, with a segment pretax loss of $12.3 million, compared to adjusted pretax income of $6.7 million in the prior year.

• This decline is attributed to weak retail demand and the challenge of low commodity prices faced by farmers.

• Regional Variations and Market Dynamics:

• The Construction segment experienced a 10.2% decrease in same-store sales, while the Australia segment saw a 50.1% decrease, impacted by normalization of sprayer deliveries and lower industry volumes.

• Infrastructure projects provided a base level of demand for the Construction segment, while the Australian segment faced declines due to the normalization of sprayer delivery backlogs.

• Financial Outlook and Revenue Guidance:

• Titan Machinery narrowed its adjusted diluted loss per share guidance to a range of $1.50 to $2 due to better-than-expected revenue performance, particularly in used equipment sales.
• The revised revenue guidance reflects confidence in exceeding the fiscal year inventory reduction target, although equipment margins are expected to remain subdued due to pricing concessions.

Sentiment Analysis:

• Management cited a challenging market and expects equipment margins to remain subdued through FY26, and narrowed FY26 guidance to an adjusted diluted loss per share of ($1.50)–($2.00). Revenue fell to $546.4M from $633.7M and gross margin declined to 17.1% vs 17.7%. Offsetting this, they raised segment revenue assumptions, highlighted parts and service as stabilizers, and said they are positioned to exceed the $100M inventory reduction target with most progress in H2.

Q&A:

• Question from Benjamin David Klieve (Lake Street Capital Markets): What needs to happen to lift equipment margins from sub-4% back toward the historical 8%–12% range absent a major macro improvement?
  Response: Margin recovery hinges on inventory/mix optimization, pricing discipline as inventories normalize, stable used values, OEM program support, and lower floorplan costs; expects meaningful improvement through FY27.

• Question from Benjamin David Klieve (Lake Street Capital Markets): Beyond those factors, what fundamentally drives the recovery?
  Response: Net farm income is the biggest driver (yields, prices, government support), with demand catalysts like ethanol and sustainable fuels helping.

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

• Question from Mircea Dobre (Baird): If equipment margins aren’t improving much in H2, what’s driving higher revenue guidance?
  Response: Stronger used equipment sales momentum is continuing, supporting higher revenue while aiding inventory reduction.

• Question from Mircea Dobre (Baird): How do lower margins square with higher sales—any mix effects?
  Response: Consolidated margins are ~100 bps lower; U.S. Ag down more, but Europe’s stronger margins and growth partially offset the decline.

• Question from Mircea Dobre (Baird): By how much might you exceed the $100M inventory reduction, and does FY27 approach normalized margins?
  Response: Internal targets are well above $100M (no figure provided); expects sequential FY27 improvement toward the normal range as destocking completes.

• Question from Mircea Dobre (Baird): How are OEM price increases (tariffs, costs) and presales affecting your ability to pass through pricing?
  Response: OEMs indicate ~2%–4% price hikes; dealers are using targeted incentives, but TITN will prioritize margin discipline even if volumes are pressured.

• Question from Edward Randolph Jackson (Northland Securities): What’s the new vs used inventory mix trend and aging profile?
  Response: Used inventory fell ~$50M in H1; new rose ~$75M (timing/FX); interest-bearing levels flat and expected to decline as aged inventory rolls down.

• Question from Edward Randolph Jackson (Northland Securities): Are you using programs to convert older units into newer used to clear late-model used?
  Response: Yes—this is a standard lever; focus remains on moving late-model used, with good progress.

• Question from Edward Randolph Jackson (Northland Securities): Do you ever refuse trade-ins, and can aggressiveness on trades win share?
  Response: They quote every deal based on disciplined valuations and expected turns; some share wins occur, but brand-switching has many factors.

• Question from Laura Maher (B. Riley): How do tariffs and OEM exposure affect floorplanning and allocation?
  Response: No material impact on floorplan expense; strategy is to minimize stock and drive presales to reduce carrying costs.

• Question from Matthew Joseph Raab (Craig-Hallum Capital Group): H2 OEM incentives visibility and Q3 vs Q4 cadence?
  Response: Incentives are known and reflected; Q3 and Q4 revenue similar, but Q3 more profitable; Europe ~+100% Y/Y in Q3 then ~-20% Y/Y in Q4.

• Question from Matthew Joseph Raab (Craig-Hallum Capital Group): Outlook for parts and service revenue this year?
  Response: Parts and service expected to be roughly flat YoY; guidance changes are driven by equipment.

• Question from Edward Randolph Jackson (Northland Securities): Expectations around the pending farm bill and farmer support?
  Response: Advocating for a permanent bill and demand-side support (e.g., ethanol/soy uses and research) to bolster farm economics.