All right. Well, good afternoon and welcome to day two of Oppenheimer's 21st Industrial Growth Conference. Thanks for your patience here while we get started. I'm Kristen Owen. I cover the ag and industrial group here at Oppenheimer. I'm pleased to be joined this morning, or this afternoon, by Paul Reitz, Chief Executive Officer of Titan International. Paul, thank you so much for joining. I'm looking forward to the discussion today. I was wondering if we can maybe kick off the conversation here with a bit of a reintroduction. For those who are not familiar with Titan or maybe just coming back to the story, can you give us just a brief overview of Titan, you know, what the key products are, your key markets, and key geographies to start?
Sounds good. Kristen, I appreciate it. We make the wheels, tires, and undercarriage that makes the equipment move as depicted by a number of the hats you have in your background there. We do that for pretty much all the large OEMs that you would know of around the world. We do that from a strong manufacturing base that covers all the primary geographies, especially where you see agriculture. Plants in Brazil, throughout North America, throughout Europe. Really what we pride ourself on is, again, making those products that make equipment move, make it perform better, and really being that one-stop shop with our distribution and, but really more importantly with our product portfolio.
Our customers can turn to us to solve all their needs, whether it be, again, in all those marketplaces, those geographies that I mentioned, but we also serve beyond ag and earth-moving construction and consumer. We do that, again, around the world, and we do that with the broadest product portfolio of really anybody in our space. That's quick background on Titan. We'll dive into the details from there.
Definitely gonna talk about some of the moving pieces and the geographies there. First I wanna start with some of the internal changes that you guys have announced recently. David Martin, former CFO, he was recently appointed your Chief Transformation Officer, and then Tony Eheli, he was your former accounting officer. He's now CFO. Maybe, give us a little bit of background, talk a little bit more about that change, and specifically, you know, how you envision David in this new role.
Yeah. It's great for a company like Titan at our size to be able to do something like that, where we have the depth of a team where we can promote Tony into the role of CFO, clearly ready to be in that position. Also as we look at where the world of AI is going, especially in the industrial landscape, we see tremendous amount of opportunities ahead of us to use AI in a number of different ways. As we are looking at the opportunities to do that, having bandwidth becomes You can have a great idea, but if you can't execute on it. It became a natural fit with moving Tony into the CFO and bringing David over to the Chief Transformation Officer position.
Not having to bring somebody in from the outside and be able to rely on David's experience really gives us a jumpstart. You know, we're excited about where we're going. I think the challenge we have right now is there's almost limitless opportunities, so how do you narrow it down and don't spend all Tony's money too quickly on every opportunity out there? We're excited about the path we're on.
Have you identified some key areas where you do want him to focus?
We have. Actually David is getting cued up to present that to the Board in June, then we'll start bringing out some of that material into the investor scape here probably with Q2. There's the low-hanging fruit that's out there on the admin side and we're going to do that with contract reviews and simple admin tasks. For us it's what can we do on the industrial side, where it's not really just about efficiencies but also how you can improve quality, reduce scrap. There's really great tools that are out there. If you think about in a lot of industrials, especially for us, we're converting raw materials into a finished good. There's very complex processes that are doing tons of revolutions.
Your ability to capture that data and analyze that data and make real-time adjustments, the tools are coming online very quickly. We're seeing some of those tools are actually geared towards almost our space. Not exactly what we do, but almost towards, like, our space. What we wanna gravitate towards is those quicker implementations. Everybody on this call has been involved with or heard about ERP disasters and takes longer, runs over budget, and you don't really get the benefits out of it. Really what David's been focused on this year is, okay, where do we go plan that attack, and how can we do it where, you know, again, the implementation is a shorter duration and the efficiencies and improvements come through a lot quicker?
Maybe we could talk a little bit about the commercial side. You mentioned in your quick overview of the company, and I think you call this out quite a bit in your investor presentations, this idea of Titan being a one-stop shop. Can you help me understand, like what does that mean to Titan? Why is that important to you as an organization? Why is that important to your customers? And I guess maybe why should the folks on this call, the investors, how should they think about that one-stop shop sort of value proposition?
It's really critical to our value proposition. Part of it is people don't think about wheels and tires until you need to think about wheels and tires. You know, think about for all of our personal vehicles, the breadth of products needed to service most of the cars that were represented on this call here, you know, you're talking about maybe 15 to 20 different sizes that could cover the entire landscape. We don't have a single plant that produces less than 15 or 20 SKUs a day. When you get into our universe, again, agriculture, earthmoving, construction, consumer, the range of the products is immense. It's different sizes, but it's also different applications.
What Titan does, if you look at a typical farm, they have roughly about 400 different tires that could be used on a farm. You know, of those, Titan makes about 95% of them. We're talking about all the way down to the smallest service vehicles, all the way up to the largest tractor and combine. We are the only company that does that. We can handle turf, we can go handle combines, we can handle everything in between. In order to do that, one, you gotta have the sizes. Along with the sizes is a tremendous amount of tooling, and obviously the equipment. You know, to build a combine wheel, you need a 5,000 ton press.
Going a step further, you need highly customized tooling that can make what is needed for that piece of equipment. It gets often overlooked 'cause, again, you don't think about wheels, tires till you need to. When you do, that's where I reference Titan being a one-stop shop. We're the one company you can count on, if you're trying to run a piece, a mower, or you're trying to run a tractor. We can take care of all that and then some. We want people to think about their wheels and tires. When they do, that's where we can step up, and it works to our advantage. It takes a tremendous amount of investment, but it also takes a step beyond that. It's the technical know-how and the connection to the end users that really separates Titan from everybody else.
That sort of economies of scope, if I were to summarize that.
Exactly. Exactly. It's hard to picture, you know, 'cause again, a tractor looks like a tractor out in the field, and you just don't think of it in that type of depth. Every different dimension of a wheel or a tire or different application requires, you know, again, that expertise and that production capability we bring to the table. Not to say others don't do part of it, but we're the only one that can cover it all the way from the smallest to the biggest.
Well, let's talk a little bit about some of the more current events. It would not be an industrials conference if we didn't get to talk about tariffs. This seems to be the theme the last couple of years. Let's start to unpack that a bit. Titan has previously stated that they expected tariffs would be a net benefit to their business. Now sort of one year into this dynamic tariff regime, give us an update. How have you seen that play out so far? Maybe on the competitive front, what has that reaction been?
Yeah. I think there's parts of the tariffs have been a benefit. Clearly, parts of the execution of the tariffs have really been difficult for most companies in the industrial landscape. That's what we've adapted to. Let me backtrack to 15 months ago when we started making the comments about tariffs being a net positive for Titan. Chaos is good for Titan, and it goes back to what we were just talking about, Kristen, that one-stop shop with our distribution, and more importantly, our product portfolio, that when there's chaos, customers can call on Titan to solve their needs. We want that, and we thrive on that. When you start implementing tariffs, that is an environment that typically in the past Titan has done well.
Chaos is good for us in that regard. You know, clearly tariffs you can look at is protectionism as well. I think that layer is where it's been more complex, and I'm not gonna comment on you know, did we think tariffs were gonna be good for protectionism or not. I will say this, we've gone to the United States International Trade Commission twice. We've won unanimously twice the rulings against imported products and imported tires, I should say, from India into the U.S. What that signals is that it's not a level playing field. Where I am supportive of tariffs is also what we've already been very clear publicly, and we've seen the ITC rule in our favor, is this is not a level playing field.
If you think it's a level playing field, then I got a lot of land that I can sell you somewhere, even though I don't own any land. We are seeing that play out with the regime where there's some additional rulings that have come out recently that are favorable to Titan, that further illustrate the point. It's not a level playing field. That's where we continue to feel that tariffs, it's not necessarily the tariffs themselves, it's the viewpoint that tariffs represent an uneven playing field, which Titan fully believes, and again, has won those cases to support it. We believe an administration that is using tariffs to support an uneven playing field is a net positive for Titan. We still continue to believe that is a true statement.
Obviously, in the 12, 15 months in between the Liberation Day and now has been highly chaotic for everybody, and you can say there's some net positives, but there's also a lot of net negatives. I think that's where, you know, Kristen, if you look back at the agricultural market at the beginning of last year, there were some really positive indicators that were coming through in the forecast that have been pushed back. Again, big picture, we still believe in what the tariffs represent, which is an uneven playing field, and that's where we continue to see some, again, some rulings that have just come out recently that will continue to substantiate that and help Titan.
Yeah. I'm not gonna let you off the hook on the cycle question, but I'm gonna ask you just a little bit more about your own supply chain here then. You know, Titan has sort of taken this approach to supplementing your own manufacturing with some third party, with some JV. Just sort of help us sort of shake that out, why that strategy has worked, how you're using those third parties to supplement.
You know, going back to the common theme so far. If we have this product portfolio and we're here to meet the needs of our customers, we gotta be as effective as we possibly can. In today's world, that requires bringing in joint venture partners, requires us having some plants overseas that we import into other countries. It also requires using strategic partners in other cases. We view it as Titan is extremely good at taking care of our customers, and we will continue to evolve to make sure we can do that in the most effective manner, and that's where those other means of how we get our products to our customers have come into play.
It can get highly complicated if I kind of walk through all the different ways we do it, but some of these joint ventures are servicing our own plants as components. Some of our own low-cost country plants service our other own plants as part of our internal supply chain. Some of these partners and/or our overseas plants are used for just direct distribution into, you know, primarily North America. It can be a complicated web, but again, that's what we like. We like complications. We like the fact that, you know, this is not a simple business where 20 SKUs can service the bulk of the market.
You know, this is a highly complex space. We've evolved our supply chain quite extensively over the last, really the last three years to be able to do that. It's difficult to see all that playing out 'cause it's been, you know, somewhat challenged markets as this has been going on. Where we see Titan now is extremely well-positioned for the future.
Let's talk about those market challenges then. You know agriculture, we've mentioned a few times here, but construction, consumer, all three sort of end markets, sort of going through their own cycles. What are you seeing when you're talking to your OEM partners or you're talking to your customers? Is there any hope that we may actually be at the trough here? Like what would you need to see to feel confident that there was some inflection in any one of these end markets?
There's definitely hope. All right. There is definitely hope. Unfortunately, the answer to that question gets more complex than, you know, it's right around the corner, we can see it. The hope comes from a lot of different reasons. I mean, it, you know, I think most people are familiar with it. I mean, the farmers and their income is gonna be tied to part of that hope. Now, it goes beyond just the math of farmer income. It's the sentiment, it's the psychology of what drives that. I think we're looking at a situation where inventories have been properly balanced now. We're looking at a situation where equipment is aging. Farmer income has been difficult, it hasn't been absolutely a disaster.
If you look at it from that landscape, the negativity is different than some of the negativity of the past. The balance sheets are strong. Land values are good. Government support is there. Now, it could be a little bit tricky understanding how the government support plays in, but just listen to Scott Bessent talk. He constantly referenced support for the farmer. I think if you take that and you pull it all together, it can be anything that helps move the sentiment. I mean, a lot of farmers, a lot of dealers believe interest rates are too high, so they hold off on purchases. Dealers don't wanna hold inventory.
You look at if the market turns because there's less inventory that's out there, then that sentiment's gonna say, "I need inventory." We're clearly been an environment where inventory is taboo. All of a sudden, you know, you could be getting an uptick in the market. That's accelerated by re-accelerating the need for more inventory. What could drive that? It could be a number of things.
You look at the input costs have been high, whether it's fertilizer, fuel, seeds. If you get a little bit of improvement on the supply and demand equation, farmer income with a little bit of government support in place, all of a sudden that sentiment flips. I think we're in a position where because this downturn has been so long, ag had a nice uptick in Brazil last year, hit a little bit of rough spots obviously this year. North America's, Kristen, what are we in like month 40 now? We're getting there.
I don't know. It feels like a lifetime to me, Paul.
It does. It's a long time. It's a long time. I think because of that, you just need a little bit of spark and things can get going. You know, I'll go back to what I'd mentioned earlier. If you look at the forecast we were getting the beginning of 2025, there was already this belief that ag was ready for an uptick then, and we're starting to see that in the forecast. Obviously, Liberation Day tariffs have pushed a number of other factors have pushed that back. I do believe it's a market that's ready to go. What we've seen in the meantime is forecasts are difficult. You know, to answer your question about visibility, it's hard to get visibility right now.
I feel like we're a company that does get good visibility because we manufacture a wheel with long lead times on the supply chain. It's difficult right now 'cause there's not a lot of conviction to a forecast. Lot of variability. Some of it's up, some of it's down. I think we're stuck in kind of this flattish world where we do see more drop-in orders because forecasts were off or inventory gets a little bit light. It's more driven either by a particular product or maybe even a certain region versus anything wholesale across the board where I could point to you, these are a leading indicator of the market turning. I think we're gonna be in that environment. That's where we are right now. We'll see what happens when the war finishes.
We'll see what happens with kind of overall pricing within the supply chain and obviously commodities as well. I don't think it's a bad position to be in. I think what we have done is positioned our company better to handle what's been going on, but also rely on what we've been good at in the past, is when the markets are positive, again, we have the capability to service our customers in ways that's more immense and better than anybody else in our space, and we gotta be ready to turn it on. What I've been saying to the board, what we've been saying to investors, obviously instructing our team is if the market uptakes 20%, we gotta be able to handle it. That's our expectation. Will that happen? I do believe it will happen. Can I tell you when it's gonna happen? I'd probably just be guessing on that.
We could have another conversation about that land you don't have. No, okay. We've kind of got the lay of the land on ag. Any comments on, like, the construction or consumer side of the business?
I mean, construction is we are more European-focused. Have a good presence in Brazil. You know, obviously some here in the U.S. I think construction is in a good position and it's the need for investment in infrastructure, the government spending. I think the projects that are ongoing and forecast to continue puts construction in a pretty good space. You know, the only thing I would say is on my radar that we're watching carefully is the EU with all their problems. You know, they gotta stop autos from coming in. They gotta stop large equipment from getting to the EU. You know, that's the only visibility right now that's a little tough.
I think the EU's waking up and putting some foreign content, local content, excuse me, in place for autos. The same thing needs to happen on large equipment. I mean, I'm not against free trade. Don't get me wrong. I think there's a lot of benefits to it, obviously. At the same time, it has to be fair trade. I think the EU's gotta step up. I think if that happens, you know, we'll get more visibility into exactly where the European market's going for the future, which is a big part of our business. You know, consumer's kind of It's got some good uplifts, and it's got a little bouncing around on the bottom and some negatives. It depends if you're talking about, for us, power sports or outdoor power equipment.
I think the one thing that we have been doing that's a net positive is we've been winning some OEM contracts. We've been innovating quite extensively. The number of products we've introduced in the last year and a half in the specialty division's more than what they introduced in the 10 years prior before Titan acquired Carlstar. We believe with innovation, getting in front of some, you know, getting some nice wins with the OEMs, we're a little bit ahead of the marketplace. We talked on our call last week that we do see growth for the year. We were down just a touch in Q1 but see some growth coming for the rest of the year as we see some of these wins start to kick into gear.
It's actually a really good segue because you touched on sort of where you sit in these various end markets. Pretty good mix of some of the larger OEM customers, some of the aftermarket sales. Maybe talk a little bit about those separate channels now. Like, who are some of the bigger customers and sort of what are you seeing in terms of the state of the OE versus the aftermarket channel?
It's a great question because we're all kind of waiting for maybe some consistency. That'd be the best way to put it, where the aftermarket and the OEs and the different types of OEs align. It does vary by customer. It varies by region. We're seeing the aftermarket, especially as you get into the small ag, you get into the consumer division, be more consistent. There's a theme there. I mean, the products are being used. Less susceptible, I think, to some of the noise with gas prices as you get into consumer products. I mean, if you're a consumer lawn care provider, you still gotta use your equipment. We're seeing more consistency there. The big tough one for us has been large ag.
You know, we have a tremendous wheel plant in the U.S. servicing large ag. It does do small ag as well, but just focusing on large ag. Our volumes of large ag are down. For me, I'm waiting for that indicator from the OEMs that large ag is coming back. You know, I think the dealers have done a really good job managing the used. They took a lot of pain kind of starting a lot late 2024 through 2025. I'm hearing less from the dealers, the OEM dealers, that they're dealing with pain with used this year. I think we're at a good point. A more balanced point, not perfect, more balanced point with inventory. That's a very positive sign, but the volumes are still low.
For Titan, large ag, especially in our wheel business, will really unleash some positive accretive margins because we are operating at a historically low level. This is a business with, you know, good market share. We've gotta watch large ag carefully. I think in Europe, ag has been more stable, but we've had some really nice wins over there on primarily our wheel business is a bigger part of our business over there. We've had some nice wins. I see some nice growth. We talked about that last week coming through in our European business. I think the market's good enough to support that growth, but it's our wins that are sort of accelerating that there. There's a lot going on. I could talk about Brazil, but I'll kinda stop. You know, Brazil's up and down. They're fighting elections. Things get crazy.
I'd ask what's in your crystal ball for Brazil. It's kind of a tough one to call. Instead, I wanna talk about some of these wins that you're getting. Every time that I talk to you, Paul, I'm always surprised at just how many configurations and tires there are. You guys always seem to be coming up with something up in the pipeline. Maybe talk about what's driving some of the wins that you're seeing, what kind of growth opportunities you're excited about, and maybe talk a little bit about what's in that innovation pipeline.
I mean, look, the wins I reference do come from constantly having innovation and getting the confidence of our customers, but it's really coming from the risk mitigation piece. Again, going back to when the world gets chaotic, it helps Titan, that's where we're seeing some of these wins come through, is customers need more of a reliable supply chain. Not to say they can't find one, we definitely check the box as a more reliable supply chain for a number of different reasons with our manufacturing plants and our product portfolio. It helps us get those wins. When you also can layer in the innovation, knowing that the end users of that equipment are gonna be highly satisfied with the product, that's how we get the wins.
We do manage our business effectively, you know, from an efficiency standpoint. There's certain raw materials that are out of balance right now, depending on where you source them from. I'll stay away from the politics and keep that very simple. The piece that gets us at times is not labor, it's really just is there arbitrage in the raw materials and where the raw materials are being sourced from, where certain geographies may have a competitive advantage.
That's where, again, we gotta look at how we can use our JV partners, how we use strategic sourcing. Even when we go through strategic sourcing, those are our designs. We take full responsibility of the quality. We stand behind it in the warranty, and we're responsible for the performance of that with the equipment that is going on. You know, it becomes seamless to the customer. That, that's really how we get our wins. When you need risk mitigation, you need innovative products at a high quality, you turn to Titan and it's helping us gain those wins.
On the innovation front.
Oh, sorry. You know, some of the cool things we've been doing is, you know, one of the ones we came out recently is VPO. It's called variable pressure, but it's actually you don't even need air. You can run a piece of turf equipment with no air in it. You imagine if you're an operator, what that does for you, it takes away all risk, all concerns. You can put in air in there if you wanna have a more comfortable ride, but if you wanna run it no air, you will not damage that tire. You know, it's innovations like that. We're excited that we expanded our Goodyear relationship and agreement when we acquired Carlstar.
Using the Goodyear brand on this innovation, this high quality innovation that's gonna make equipment perform better, it really helps us get in the marketplace quicker. We're really excited about where we can start using the Goodyear brand on the consumer side. You know, on the agriculture side, I mean, one of the products we came out, you know, over the last few years that's been highly successful is just an R14, where you can use it in all kinds of different applications. If you're a dairy farmer dealing with different conditions or you're municipality who needs to mow fields, do light construction work, and take care of snow in the winter, we can now give you one set of tires that'll do all that.
That's where we've become very strong in the, what's called the small ag, but it's really that utility area of agriculture. You know, we've innovated and created products that have really put us in a position that we can take care of whatever that end user needs. We have a really good solution for, of course, LSW, Kristen. I mean, we love LSW. We think it's got room to grow. I mean, we've talked about it a long time, Where I say it's got room to grow is we gotta get more to the midsize farmers. It's been more geared towards the large farmers. It's a large product in generally speaking. LSW works. It's on all of our passenger vehicles.
What it does is it obviously makes the equipment perform better from just the comfort level. It will help improve your yields. It's fuel efficient. What we've seen is some recent data that came to us last year, not sanctioned or done by Titan, by an independent party who runs a group of farms. He came to us and said, "Do you know how much our LSWs are saving us every time you have to do the end row turn, especially on a smaller plot of land?" They saw a really nice improvement in yields, about 30% every time they turned it.
That's where now the economics for a small or mid-sized farm have now improved, where the cost of getting LSW really pays for itself in quick timeframe. You know, w hile LSW is not a new innovation, we gotta continue to innovate how we market and how we position LSW for the marketplace, into the marketplace, get it in the hands of many people as possible.
Yeah. I mean, you know I can spend an entire call talking about LSW, so unfortunately we don't have that time today. I understand the enthusiasm there and some of the value to getting that into the midsize tractor market, just given the diversity of applications there. Sadly, we've gotta shift gears a little bit, and I've gotta ask you about things like capital allocation, because that's what we do in these conversations, right? Talk to me, Paul. What capital allocation strategy, short-term, long-term, obviously dealing with the cycle dynamic short term. Maybe help unpack how you've talked about your capital allocation strategy.
Do wanna work down some debt. This is a tough time of the year where we do see our working capital increase. Now, as Tony articulated last week, it's predominantly driven by accounts receivable. It's tied to sales, but it's also tied to we have some large OEM customers that are pushing us and extending terms. We don't have, at this time, a ton of leverage to push back. From what we've been told, a lot of that was driven by them waiting to get tariff refunds, and the tariffs kind of drove them to take those actions against us. Either way, it's tied up in AR. We do have a little bit of inventory build that goes on this time of year.
With that, as we generate cash flow, we do wanna use that cash flow to pay down some of our revolving debt, and that's what we anticipate doing. You know, for us with CapEx, our CapEx is very similar to last year. We've talked a lot about innovation and product development. We will always invest in product development. You know, that's not the bulk of our CapEx. That's a small part of it. The tooling is, that's required, we will do that. The rest of our CapEx, there's a lot of maintenance in there, safety. We could trim it further if we needed to, if we wanted to really allocate our, you know, our capital more towards paying down debt. Right now we're looking at CapEx being right around the same as last year.
Fantastic. Paul, we have to leave it there, but really appreciate the conversation. Thank you everybody who joined.
Appreciate it, Kristen. Enjoyed it. Everyone who joined the call, thank you.
Thank you.