Earnings Call Transcript - TWI Q1 2024

Operator, Operator

Good morning, everyone, and welcome to the Titan International Inc. First Quarter 2024 Earnings Conference Call. It is now my pleasure to introduce Alan Snyder, Vice President of Financial Planning and Investor Relations for Titan. Alan, please take it away.

Alan Snyder, VP, Financial Planning and Investor Relations

Thank you, Megan. Good morning. I'd like to welcome everyone to Titan's First Quarter 2024 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued yesterday, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission yesterday. As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties, and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate, could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call, contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q1 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript, and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul.

Paul Reitz, President and CEO

Thanks, Alan. Good morning, everyone. As noted in our last earnings call, we saw our One Titan team step up to get our transformative acquisition of Carlstar over the goal line right at the end of February. Of course, that was just the beginning as we've been full speed ahead over the past 60 days, integrating their operations into Titan. And I have to say at this point, I'm really pleased with how that has gone thus far. Carlstar has a really good team from top to bottom, and it's been great to see them embrace the transition and really envision a good future ahead for the combined companies. On the Titan side, it has similarly been terrific to see how our new folks have been welcomed with open arms and have been integrated quickly into our One Titan team. So I'll take a minute and thank our entire team, both the existing members and the new ones for all their hard work and commitment in recent months with the integration efforts. Let me shift gears to look beyond the present towards the future with our newly combined company. We believe Titan is now positioned well to deliver more consistent, stronger results throughout various market cycles for a number of reasons. Let me touch quickly on just a few. First, we have made substantial structural changes in recent years, including portfolio optimization, addressing underperforming and noncore businesses, our pricing strategies, and fortifying our balance sheet. Next, we have a tremendous focus on product development that's centered around our entrepreneurial culture, which is connected to end users and has built our portfolio with innovative products. And lastly, the Carlstar acquisition. This was accretive from the onset. As we discussed last quarter, this transforms our company with growth and synergy opportunities. And now Titan has the broadest wheel and tire product offering in our business that covers everything from ATVs and UTVs to high-speed trailers to construction and then, of course, the entire agriculture segment from small to large. Carlstar brings to us a one-stop shop that diversifies our customer base with a good balance between OEM and aftermarket. So using that as a basis, along with our recent financial performance of Titan and Carlstar, we've discussed with our Board that the combined companies in a typical year would have earnings power of $250 million to $300 million of adjusted EBITDA that also would produce free cash flow of at least $125 million. Keep in mind that AIP, the prior owners of Carlstar, believed in the value of the combined company based on the amount of stock they took as part of the transaction. That's a nice positive to see their belief in Titan and our stock. And let's not forget our Board also represents a significant shareholder base of Titan. I say all that to bring forward the point that we feel good about the future prospects of our company, and we are currently working on short- and long-term actions to deliver those numbers I presented earlier and more. While you won't see that performance this year with softer market conditions, it is good for our investors to have a perspective of where Titan and our Board see the future. For today's call now, I'd like to share some thoughts on a couple of primary themes before handing the call over to David for his comment on the financials. I want to talk about current market conditions that's naturally on everybody's mind, so I'll spend some time there. And I'd like to talk more about Carlstar and how we're attacking the opportunities with that acquisition. So let's start with the market conditions. Most everyone in the agriculture sector is currently characterized in the market as being in a cyclical trough. Although many expect this cycle to be shallower and shorter-lived than previous ones. A fair amount of the reasons behind the cycle that we're in are macro factors that extend beyond the typical agriculture sector drivers such as farmer income and inventory levels. We all spent a bunch of time seeing the headlines and understanding the Fed's steady rate increases in 2022 and '23 are certainly having an impact on credit availability and in turn spending in parts of our business. Geopolitical tensions are running high on a global basis, that's stating the obvious, but it also impacts countries that are significant producers of grain commodities and in turn, significant markets for ag equipment. There's also the presidential election this fall. It's everyone's favorite or least favorite topic, I guess. But the reality is that this may have a material impact on U.S. trade policy. So you put that all together, and it's easy to see why a lot of economic factors are causing more uncertainty in our end markets than we would otherwise have at this point in the year. On a positive note, the election is something that's not going to go on forever. It has a known end date, so to speak. And I think it's also reasonable to expect we'll have more directional clarity with the Fed and interest rates fairly soon. So what that means is the uncertainty phase, a pickup in end market demand should translate pretty directly into positive activity for Titan. So more specific to the agriculture sector now is farmer incomes. We've talked about the direct correlation between that and demand. We have seen the estimates for the year trending lower. But let's keep in mind the overall farmer balance sheets have been and continue to be described as healthy. According to the USDA, we're seeing farmer income projected to be down around 25% this year. Sentiment has been up or down, but it's somewhat neutral right now. But it really bears note that farmer incomes have reached an all-time high the past couple of years. So even though the direction has retreated, they are still at quite healthy levels. Also, with each passing day, let's not forget farmers are out there in the field with their equipment, doing the work they need to do, and that drives a need for aftermarket replacement tires. I speak with customers on a regular basis, and that uncertainty I noted is something that is weighing on everyone's minds. Of course, in agriculture, there is always some uncertainty this time of year with the planting season as dealing with the weather is just part and parcel of being in the agriculture business. Even so, I am consistently hearing our customers say that the visibility at this time of the year is below what they would normally see. Without that visibility from customers combined with the macro factors, the normal and logical reaction for dealers is to adopt a risk-averse positioning with their inventory, which then flows back to the OEMs who adjust their production accordingly. We have seen tire and wheel inventory levels improve at the dealer channels and with OEMs, but the slowing of demand has resulted in overall levels not yet reaching a normal state. Again, we are confident this is a temporary dynamic as some of the macro factors that I've noted will not simply last. Outside the U.S., Europe farmer sentiment has weakened. Geopolitical concerns are taking a toll resulting in reductions in demand and inventory is still running higher than normal. In South America, strong harvests have negatively impacted commodity prices. Notably, according to some research we reviewed, regional commodity sales there have trended below normal, resulting in some farmers still holding unsold grains. So moving away from agriculture over to the Consumer segment, which I want to remind you now represents approximately 25% of our revenues. The same macro factors are impacting the market there as inflation, as you expect inflation would. Even though the pace of increase has slowed with inflation, it is apparent that consumers are still feeling the effects of it with higher gas and food prices. What that ultimately means is someone who might have thought about buying a new riding lawn mower, for example, is sticking with their old one this summer. Similarly, the off-road ATV and UTV vehicle market is feeling the effect of the various economic factors I noted. As with agriculture, our view is that this is more a pause in end market demand than anything else. So the person that wants a new yard tractor or recreational vehicle is still sitting on an aging piece of equipment that they will eventually replace. So on a positive note, I want to point out that Titan has a robust aftermarket offering in the consumer segment, just like we do in agriculture. We have a one-stop shop in the consumer sector that serves the consumer marketplace. This helps us offset that delayed dynamic that I mentioned as the same customer who has deferred buying a new lawnmower or ATV might still opt for new tires that would replace the worn-out old ones and helps maximize the performance of that existing equipment they are still using. We've seen this for years in agriculture. That's where our LSWs have continued to perform well in the aftermarket replacement space. So we know the game plan, and we know how to maximize our opportunities. Needless to say, we are happy that we've expanded the aspect of our product offering in the consumer segment and what the Carlstar acquisition has brought to Titan. So moving over to earthmoving construction. We are seeing the broad macro uncertainty impact demand. We do see these mid- to long-term drivers for the sector remaining very much intact. In the U.S., nonresidential construction activity continues to trend higher, led by the need for facilities like data centers and the onshore render manufacturing. Outside the U.S., where equipment is used for activities like mining, demand for precious metals remains strong, especially with the geopolitical factors driving prices of commodities such as gold to levels not seen in many years. While we face some headwinds, it is definitely worth repeating that we are focused on controlling what we can control. And as a global Titan team, we have extensive experience dealing with market cycles like this. Again, I want to repeat, our team is very experienced. It understands how to make efficient, timely decisions in dealing with cycles and conditions that we have seen to start 2024. David will get into the financial details, but I want to say that we did a good job in a challenging environment this quarter, and we've delivered solid financial results that our team is proud of. To close here, I do want to shift back to Carlstar. As I noted previously, I would cover this. This acquisition has really ramped up our aftermarket business, something we expect to benefit on several fronts. You've heard us talk a lot already about the one-stop shop concept, and that is our central emphasis. By positioning Titan as a single provider of end-to-end wheel and tire solutions for our customers, we make their lives simpler and processes more efficient. Adding a robust aftermarket business also helps us control our own destiny a bit more than the past. At Titan, we've done a good job expanding our tire aftermarket business in recent years in both the U.S. and South America. We've done that as well in the mining sector with our undercarriage business. Historically, as expected, our wheel business has been more of an OEM-centric type of operation and therefore, relying on the production coming out of their factories to drive our demand. But now Titan has a sizable aftermarket business in all of our end market segments. We have a revenue source that we expect will mute some of the cyclical nature of our end markets, and we certainly view that as a positive. Aftermarket sales also lead to a more positive basis with our margins. So the Carlstar acquisition really is a win-win on all fronts. I've reached out to a couple of our key aftermarket customers right after the closing of the acquisition and the response has been positive about what the combined company is capable of doing to help them better serve their respective marketplaces. So putting that all together, we are executing well despite the challenging environment. It has only been two months, but the addition of Carlstar is on track to drive the intended impact on our business we envisioned. We are focused on creating cost synergies, and David will talk more about progress in that area. We're also seeing a path to commercial synergies based on the one-stop shop proposition that is really supported by an extensive product offering, and we expect to see that accelerate when overall end market activity picks up. We are pleased to see the solid performance of our aftermarket business, particularly as we contend with weaker demand from our OEM partners. With that, I'd now like to turn the call over to David.

David Martin, Senior Vice President and CFO

Thank you, Paul, and good morning to everybody on the call today. I'm very pleased that the One Titan team fought hard through more challenging conditions in the quarter, and we put up a respectable result for Q1. As a reminder, our first quarter included one month's contribution from Carlstar, so we'll naturally see more benefit in the quarters to come. We are well underway with our synergy plans, and we have a clear line of sight into the near and long-term opportunities. For 2024, we're targeting a bottom line contribution of approximately $5 million to $6 million and believe the longer-term opportunity is in the $25 million to $30 million range on an annual basis. Broadly, we're developing strong plans with actions to improve areas such as procurement, manufacturing, distribution center optimization, and more direct cost reductions. We're being thorough in our analysis as we look to take advantage of the economies of scale and our buying power, along with ensuring the combined organization is efficient and working on driving value every day. For some opportunities in areas such as raw material supplies, there are contracts in place that impact the timing of the changes we will be pursuing, and the opportunities are significant. There are meaningful commercial synergies, as Paul said, stemming from our one-stop shop strategy and having complete offerings to serve our customers, and our teams are very focused on this as we speak. Moving on to our results. We performed well in terms of margins during the quarter. And as we move through the balance of the year, we'll see a full-year impact of Carlstar's operations. We expect that it will create some gross margin lift, all else being equal, although offset by a bit heavier SG&A, which I'll discuss a bit more. Turning specifically to our financials for Q1. Revenues in the quarter were $482 million with adjusted EBITDA of $50 million and adjusted EPS of $0.29. Our adjusted gross margin for Q1 was 16.7% compared to 17.4% a year ago but up sequentially from 14.9% in the fourth quarter of 2023. Drilling down into the gross margins a bit, Ag segment adjusted gross margin was 17.2% compared to 16.1% last year, a very healthy increase. On a comparable basis, which excludes the nonrecurring inventory step-up charge we recorded in the quarter, Consumer segment margins were 21.3% compared to 20.7% in the prior year. The step-up charge of $3.4 million was a function of revaluing Carlstar's inventory when we took it into our books at the time of the acquisition. This flowed mostly through to the consumer segment and to a lesser extent, the Ag segment. Earthmoving and Construction segment gross margin in the first quarter was 14% versus 18.7% a year ago. It was a very difficult comparison. The segment margins this year were pressured by reduced sales volume as our OE customers in Europe and Latin America responded to weaker demand. Again, we have a long history of fighting through these issues, and I expect that we're going to manage through this with strong actions to manage costs to get our margins going in the right direction. Longer-term, we continue to see a positive demand picture for that segment and expect margins can expand as activity picks up. SG&A expense for the first quarter was $39 million or 8.2% of sales compared to $34 million in the prior year or 6.3% with the change primarily due to the partial year contribution of Carlstar's operations. Recall from our announcement of the acquisition and our discussions on our Q4 call that Carlstar has historically carried more SG&A expense as a percent of sales than legacy Titan due to the distribution center model. In order to help everyone understand the impact of this particular line item, we added an item in our guidance where we note SG&A, including royalty and R&D expense is expected to be 11% of sales for Q2 and should remain at a similar level for the rest of 2024. From Q2 on, the incremental SG&A expense associated with the DCs adds 160 to 170 basis points as a percentage of sales. After that, SG&A would be consistent with our legacy Titan operations. R&D expenses were $3.6 million in the first quarter compared to $3 million a year ago, reflecting our continued and strong emphasis on prioritizing R&D investments. Our adjusted operating income was $25.1 million for the quarter, and our operating cash flow was $2 million. Both of those figures were impacted by the reduced sales levels in the quarter as compared to last year's first quarter. If we back out the nonrecurring expense stemming from the acquisition, along with the noncash inventory step-up charge, adjusted net income would have been $9.6 million higher as would have been operating income. Operating cash flow would have been $8.2 million, reflecting the removal of those transaction costs. So this was a solid quarter of cash flow generation when you look deeper into the numbers. First quarter CapEx totaled $16.6 million in the quarter compared to $11.7 million last year as we continue to invest in improvements in production efficiency and select expansion in strategic areas, along with product development. And of course, this is inclusive of one month of CapEx related to Carlstar. We also used cash to fund our stock repurchase program in the quarter, buying back 100,000 shares for a total of $1.4 million during the early part of the quarter. It's worth noting that given the timing of the Carlstar acquisition, we were blacked out for much of the quarter. After our purchases in Q1, we have approximately $15 million of available capacity on our stock repurchase program. Net debt at the end of the quarter was $370 million compared to $25 million at the end of the year. Our debt leverage at the end of the quarter was naturally higher after the funding of the Carlstar acquisition in February, while we continue to be in a solid balance sheet position with our stronger cash flow characteristics. Our priorities continue to be the pay down of debt we took on over time and continued strong focus on the investments in R&D and strategic growth, along with opportunistic share repurchases. Our free cash flow so far in Q2 has enabled us to pay down on the ABL line already. Lastly, I want to touch on our financial guidance. As Paul noted, there is macro uncertainty right now, which is affecting many economic sectors, including ours and virtually our discussions with customers that ambiguity is a theme. As our visibility for the balance of the year is not where they normally expect it to be, that is naturally impacting our outlook. Given that dynamic, we felt it was prudent to provide second-quarter guidance at this time. One additional point to make with respect to our guidance relates to synergies. While we are attacking all the identified synergies, it is reasonable to expect that we will get increased traction over the balance of the year and thus, more of an impact on our financial results will be in the second half of the year and even more impactful in 2025 and beyond. So our guidance for ranges for the second quarter are revenues of $525 million to $575 million. Our SG&A, including royalty and R&D expense of 11% of sales and an adjusted EBITDA of $45 million to $55 million. Free cash flow of $30 million to $40 million, which is a solid contribution from working capital management in the quarter. And then finally, our CapEx, we expect to be between $15 million and $20 million in the quarter, similar to where we were in Q1. So with that said, we're excited about the future and what holds for Titan, and our teams are very focused on driving value for our shareholders. So thank you for your time this morning and your attention to what matters to Titan. We would like to turn the call back over to Megan now our operator for the Q&A session.

Operator, Operator

The first question comes from Stephen Ferazani with Sidoti & Co.

Steve Ferazani, Analyst

I wanted to ask about the year-over-year decline in agricultural sales. It was much sharper than we were anticipating, and it seems to have been more severe than you expected as well. I have a couple of questions related to that. Your guidance suggests this trend will continue into the second quarter. What has changed in the dynamics? Can you provide some insight on the geographical aspects? How does this situation compare to your overall performance, and how significantly did Brazil impact those results?

David Martin, Senior Vice President and CFO

Yes, Steve, you're correct. As we review the past six months while gathering forecasts from our customers and discussing them internally, we've noticed a difference between the market expectations for 2024 and the current situation, as you've pointed out. I want to clarify that the expectations we set were not just guesses; it was a thorough process. Over the last six months, the uncertainty has become a significant factor. Interest rates play a crucial role, influencing inventory decisions. For aftermarket dealers, if their costs have increased, they tend to reduce their inventory. We've seen that pattern with OEMs as well, where their dealers are also cutting back on inventory due to rising interest rates. This situation has contributed to a decline in agricultural demand, resulting in a dual effect: a tendency to lower inventory driven by uncertainty and decreasing demand. We observed these changes in the forecasts and first quarter activities more suddenly than we anticipated six months ago. Essentially, there's a combination of reduced inventory and broader macroeconomic uncertainty that we're all aware of. Regarding Brazil, you asked about geographic performance. Brazil has experienced more significant challenges than both the U.S. and Europe. This situation is a necessary adjustment for the long term, and I prefer it be resolved quickly so we can return to normal conditions. However, the impact has been more severe than we expected, and other companies have noted similar issues. Various macro factors are pressuring the agricultural market in Brazil. Despite this, we believe in Brazil's potential for a swift recovery due to our strong market share and quality products. While the short-term outlook involves facing surplus grains, commodity prices, and inventory issues that need to be addressed, I remain optimistic about the mid- to long-term prospects for Brazil.

Steve Ferazani, Analyst

On the flip side, I'm impressed with how strong your margins in agriculture and consumer goods remained, even after accounting for the inventory adjustments, despite the volume declines. Should we anticipate further impacts? I expected it to resemble what you reported in EMC. How is that situation holding up? And do you foresee additional impacts if this situation persists? With fewer products moving through your facilities, it should have more of an effect.

David Martin, Senior Vice President and CFO

Yes, Steve, that's a great question. We've effectively managed our production by taking appropriate steps to control labor and all variable costs related to our plant activities. The team has responded well, maintaining good discipline, which has allowed us to keep our margins strong. While Q1 is typically a robust quarter, the increase in volume during the second quarter and beyond may pose challenges. Nonetheless, I believe the teams are performing well, and our margins in the Ag segment should remain solid. In contrast, EMC has faced a mix issue, especially in Europe and Brazil, where activity has declined significantly. It's surprising to see such a rapid drop in activity, compounded by issues related to steel components, labor, and long lead times, which have had a more pronounced impact on margins compared to our Ag and consumer segments.

Steve Ferazani, Analyst

Great. That's helpful. To get one more in. The question becomes, Paul, how you think about temporary versus more than 12 months impact on demand and how you approach cost cuts. How are you thinking about that? Because clearly, you'd like to take some costs out of the system, but if this is temporary, you don't necessarily want to do that. How are you sort of thinking about that?

Paul Reitz, President and CEO

Yes. We depend on our team's experience to quickly identify areas where we can cut costs, and we are currently doing that. As David mentioned earlier, I am impressed by our team's ability to respond rapidly and make effective decisions in these situations. I've highlighted this in my previous comments and will reiterate it: we have significant experience, especially with different cycles and working together. This allows us to implement cost-reduction measures smoothly and consistently. We're executing these actions efficiently, and we maintain communication within the team so that everyone is aware of each other's efforts and can learn from one another. Regarding the balance between short-term and long-term outlooks, we view the current situation as more temporary and believe it represents a shallow dip. Farmers still have decent income and healthy balance sheets, and they continue to plant and use tractors. The investments they're making will lead to positive changes in the market. We anticipate solid infrastructure spending from our customers in the midterm, and feedback from them reflects a positive trend by 2025. For 2024, we aim to take swift, temporary actions without making long-term decisions at this stage. Recruiting and retaining talent is vital for every company, and we want to avoid overreacting in the short term, which could lead to higher costs next year as we attempt to rebuild our workforce. Achieving balance is challenging, which is why I trust the experience of our team and our Board. We are fortunate to have a Board that understands the cyclical nature of our business, and their input helps ensure we make effective and timely decisions.

Operator, Operator

The next question comes from Thomas Kerr with Zacks Investment Research.

Thomas Kerr, Analyst

Can you go back to the construction earthmoving segment? Were you saying that the sort of commercial construction macro outlook was deteriorating worse and the mining was holding up? Or do they get that backwards or maybe clarify those two?

Paul Reitz, President and CEO

Yes, Tom, you got it right. It's mostly on the construction side. Our mining activity on the aftermarket side was solid. And you saw a more dramatic drop in our European and more global construction OEM segment. or sector.

Thomas Kerr, Analyst

Are those stabilizing in commercial construction yet, or are they experiencing ongoing declines that will persist throughout the year?

Paul Reitz, President and CEO

Yes, it currently appears stable. It has decreased, but compared to where we were a year ago, it is still experiencing a decline. However, as we transition from Q1 to Q2, the situation remains fairly similar.

Thomas Kerr, Analyst

And on the Consumer segment, if you look at the legacy segment, I can back out the numbers, but that seemed to be a substantial decline as well. Any other comments on just the legacy consumer side of the business?

Paul Reitz, President and CEO

Certainly, we had some decline in what we call the old utility truck tire segment, and that's mostly Latin America. And so you had some decline there, and we've had a little bit of decline in our custom mixing as well just because certain customers, their activity is down, and so that led to a bit of decline there as well. But then obviously, you do have the contribution of Carlstar. And that's a very positive thing to think about though. I think our margins have held up really nicely despite that.

Thomas Kerr, Analyst

One more quick financial one. Do you guys have a level of cash that you want to maintain or try to maintain? I mean, obviously, you could put a dent in the new debt easily with all that cash, but is there a dollar amount you guys try to keep on the cash side?

Paul Reitz, President and CEO

Cash management can be complex, but we aim to optimize our cash positioning. The cash we currently hold is sufficient to operate the business, and we plan to reduce debt while also being open to share repurchases as market conditions permit. We have the flexibility to manage our business effectively and pursue these options.

Operator, Operator

The next question will go to Kirk Ludtke with Imperial Capital.

Kirk Ludtke, Analyst

Paul, David, Alan, thank you for the call. I noticed there are some very helpful pro forma numbers in the 10-Q. I was wondering if you could share the first quarter '24 adjusted EBITDA pro forma for Carlstar. I see net income; do you have an adjusted EBITDA number for Carlstar pro forma?

David Martin, Senior Vice President and CFO

No, we didn't publish that, Ludtke. That's something we wanted to address, but there are too many adjustments needed to make it clear due to the various issues stemming from the acquisition. It would require excessive adjustments to render it meaningful. However, it’s accurate to say that there was similar progress and a strong margin contribution. They are certainly affected by the same market conditions in the agricultural sector as we are, but their consumer business showed solid numbers for the month of contribution. Therefore, it may not be significantly different from how Titan has trended.

Kirk Ludtke, Analyst

The second quarter guidance appears to be relatively stable in terms of adjusted EBITDA compared to the first quarter, despite having two additional months of Carlstar. I'm curious if the guidance indicates a continuation of similar trends by business segment compared to Carlstar, or if there are any changes.

David Martin, Senior Vice President and CFO

Yes, sequentially, yes. If you consider the typical seasonality in our business, Q1 generally sees higher sales in the agriculture segment. This indicates a slight shift in seasonality, leading to a seasonal decline. That's also why, when you analyze EBITDA, we are in the 50s. It seems relatively flat, perhaps slightly down in overall activity, especially within agriculture and construction.

Kirk Ludtke, Analyst

Got it. Okay. Well, I appreciate that. And I also appreciate the longer-term guidance, $250 million to $300 million, including $25 million to $30 million of synergies. Can you maybe give us a sense for how that breaks down between the two businesses? The $250 million to $30 million less the synergies? I imagine the synergies are coming from both sides.

Paul Reitz, President and CEO

Yes. I'll say at a high level, we looked at it as a combined company, and that's the way we're approaching it. As the company has and will continue just to move together and operate as one. And so we did not approach it from breaking it out between the two. What we did use as a basis is kind of grounding our numbers is if you look at where the companies have performed in the past, the target of $250 million to $300 million is grounded in performance that is supported by both companies' historical results, and then you add the synergies on top of it. So that's why we look at it and say, in typical years, this is what Titan can do and is expected to do. But then you throw synergies on top of it, both cost and commercial again, on both sides of the fence, tightening Carlstar, and you start going, we think we can do even more than that. So we wanted to get that out there because that's the way we're talking with our Board. And it's important. I mean, our Board has substantial shareholders in Titan, not just with AIP and the recent acquisition, which again is a strong signal that they took Titan shares. But our existing Board members represent a substantial shareholder base of Titan. And so I think it's just important information to say, this is where the Board sees Titan going. This is where the management expects Titan to go and want to share that with investors. But we really don't have it broken down, though, between the two companies. That's just not the way we're looking at Titan going forward.

Kirk Ludtke, Analyst

I understand and appreciate your perspective. I agree that this could be an important valuation metric. Now that you have been in this for a few months, could you discuss the synergies? Are the projected $25 million to $30 million primarily from revenue opportunities, cross-selling, or cost savings? Any additional insights would be helpful.

David Martin, Senior Vice President and CFO

Yes, Kirk, it's a well-balanced approach. There are significant commercial opportunities. Considering our supply chain and procurement, we have great opportunities as a larger company. We’re able to leverage our buying power and evaluate the variety of our purchases. The consolidation with vendors has enabled us to merge the best offerings from both sides. We're actively pursuing this. There are certainly cost reductions through better alignment of our organizations. Additionally, there's a global sourcing aspect to consider. We have various third-party purchases related to wheels and tires that can benefit from the combination of our companies, providing greater economies of scale. Overall, it's a balanced strategy, not overly focused on commercial aspects, even though they are important.

Kirk Ludtke, Analyst

Got it. Is there a revenue range on revenue that you would put on that guidance?

David Martin, Senior Vice President and CFO

I would rather wait a little bit before we start putting fine tips on that. But again, we'll provide more guidance on that at a later time.

Operator, Operator

The next question comes from Alexander Blanton with Clear Harbor Asset Management.

Alexander Blanton, Analyst

What struck me the most was the decremental margin in Agriculture, which was only 15%. You've already discussed this quite a bit, and it's notably low given the volume decline in that sector. This stands in contrast to the Engineering or earthmoving segment, which experienced a decremental margin of 42%. I'm curious about why there is such a significant difference. I noticed you mentioned contractual price adjustments related to lower steel prices, but that wasn't mentioned in relation to the Agriculture segment. Was that the primary reason for the discrepancy between the two? If there was effective cost control in Agriculture, why was it not the case in earthmoving? They are essentially similar products.

Paul Reitz, President and CEO

Yes. That's a good question, Alex. Let me jump in first with a comment and then David will touch on the financial aspects, and I know he's kind of touched on already. But you look at Ag, think about what we have in Ag, Alex, where we got to LSW. I mean, LSW is just a tremendous product and what it delivers to the end user. It's a premium product for us. It's a premium product for the end users as well for our customers. And so the LSW serves the marketplace very well in aftermarket. As we've noted in our comments in Ag, I mean, the fields are still being planted. The work is still going on in the LSW, that ultimate product that can take care of the customers' needs. And so one of the differentials we have in Ag versus earthmoving construction is going to be LSW. We have other innovations besides LSW. There's other products that do serve the marketplace well. So I don't want to make it seem like LSW is it. But LSW stands up to the test of time in down markets, the demand is strong. We see it increasing in many aspects. So really, just one key differential though to keep in mind is just the pull-through we get of LSW. We do have a strong aftermarket distribution channel. We've talked about that, and we worked very hard to have what we see and what we firmly believe is the best distribution channel in North America for large Ag. Strong partners servicing the marketplace very well. We're connected to the end users. And so again, that aftermarket piece in Ag is really one of the drivers that is different between Earthmoving and Construction. So go ahead, David.

David Martin, Senior Vice President and CFO

Yes. The only thing I was going to add there is that on the EMC side, it's more heavily weighted towards the OEMs and in particular, in Europe and in Brazil. So you don't have that strong aftermarket opportunity on the EMC. So as the volume declines, you're just much more impacted there versus Ag where we have a good balance of OEM and aftermarket, and aftermarket margins are good.

Alexander Blanton, Analyst

Well, I think I'll take the rest of that offline because I still don't quite understand what the difference is. It's the same kind of product. in both sectors. And one, you had a big decline in margins and the other you did... I'm not sure important...

David Martin, Senior Vice President and CFO

Before you go any further with it, they are different products. The majority of our EMC segment is undercarriage product. It's not wheels and tires.

Alexander Blanton, Analyst

It's what? Undercarriage?

David Martin, Senior Vice President and CFO

It's the undercarriage.

Alexander Blanton, Analyst

And what is the effect of these givebacks and the lower steel prices in that sector?

David Martin, Senior Vice President and CFO

We typically try to line that up. Obviously, when it comes down, you've got steel, your prices come down in line, but you don't necessarily always get it exactly. And there's leads and lags when you buy steel. So it can be more impactful in a given month or quarter. It's not tremendous, but there is some of that. But the steel has moved in a reasonably down fashion in Europe and Asia over the last year.

Alexander Blanton, Analyst

Okay. Second question is on the guidance in EBITDA, what is that in earnings per share for the second quarter?

Paul Reitz, President and CEO

Yes, Alex, if you consider the tax rate perspective, it shouldn't be significantly different. It should align fairly well with our performance in the first quarter. I don't have that figure readily available, but Alan, perhaps you can assist me with that one.

Alexander Blanton, Analyst

Okay. So we're going to have basically flat earnings in the second quarter versus first, but the sales were 14% higher. So what's happening there?

David Martin, Senior Vice President and CFO

Yes. That's mainly due to the mix of products we are selling and the seasonality in the business.

Alexander Blanton, Analyst

Okay. So you've modeled that out then.

David Martin, Senior Vice President and CFO

Yes.

Alexander Blanton, Analyst

Just a general question, one more question on that. Why is it that you don't give us the guidance and the results in EPS as well as EBITDA?

David Martin, Senior Vice President and CFO

I mean that's a fair question, and we can look at that in the future, and we'll help you out with that.

Alexander Blanton, Analyst

Most channels prefer EPS over EBITDA, and we need to derive it from your figures. If you're projecting a long-term target of $250 million to $300 million in EBITDA, what does that translate to in EPS? That's the key information people are interested in.

David Martin, Senior Vice President and CFO

That's a great question. We'll look at that.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Reitz for closing remarks.

Paul Reitz, President and CEO

Yes. Thank you, everybody. Appreciate your participation in our Q1 earnings call. Look forward to touching base here in the near future. Thank you.

Operator, Operator

Thank you for attending today's presentation. The conference call has now concluded.