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Timken (TKR) Up 0.9% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Timken (TKR - Free Report) . Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Timken due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Timken Q1 Earnings Beat Estimates, Raises '21 Outlook
Timken’s first-quarter 2021 adjusted earnings per share was a record $1.38, which beat the Zacks Consensus Estimate of $1.20 by a margin of 15%. The bottom line also improved 24% year over year, benefiting from higher volume, favorable manufacturing performance, lower selling, general and administrative expenses, and a lower tax rate. However, these were partially offset by unfavorable mix, higher material and logistics costs.
On a reported basis, the company delivered earnings per share of $1.47 in the quarter under review compared with $1.06 in the prior-year quarter.
Total revenues in the quarter were a record $1,025 million, up 11% from the year-ago quarter aided by organic growth across most end-market sectors led by renewable energy and off-highway. Favorable currency translation and the contribution from the Aurora Bearing acquisition also contributed to the year-over-year improvement. The top line surpassed the Zacks Consensus Estimate of $988 million.
Costs and Margins
Cost of sales was up 13% to $726 million from the prior-year quarter. Gross profit increased 7% year over year to $299 million. Gross margin was 29.2% compared with 30.2% in the year-ago quarter.
Selling, general and administrative expenses were down 6% year over year to $145 million. Adjusted EBITDA increased 15% year over year to $204 million. Adjusted EBITDA margin in the quarter was 19.9% compared with 19.2% in the prior-year quarter.
Segment Performance
The Mobile Industries segment revenues improved 8% to $505 million from the year-ago quarter. This upside can primarily be attributed to organic growth in the off-highway, heavy truck and automotive sectors and the favorable impact of currency translation, partially offset by lower revenue in the rail and aerospace sectors. The segment’s adjusted EBITDA went up 5% year over year to $80 million as higher volume and lower SG&A expenses helped offset the impact of unfavorable mix and higher material and logistics costs.
The Process Industries segment revenues rose 14% year over year to $521 million in first-quarter 2021, primarily driven by strong organic growth in renewable energy, distribution and general industrial sectors and favorable impact of currency translation. However, lower marine revenues negated some of these gains. The segment’s adjusted EBITDA went up 22% year over year to $136 million. Impact of higher volume, favorable manufacturing performance, lower SG&A expenses and the benefit of currency were partially offset by unfavorable mix and higher material and logistics costs.
Financial Position
Timken generated free cash flow of $2.3 million in the reported quarter compared with $24.4 million in the prior-year quarter. Cash flow from operations was around $32 million in the quarter compared with $56 million in the first quarter of 2020. During the quarter, Timken returned a total of $50.1 million of cash to shareholders through dividends and repurchases of 350,000 shares.
Long term debt as of Mar 31, 2021 was $1.6 billion compared with $1.56 billion as of Dec 31, 2020. Net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was at 1.9 at the end of first-quarter 2021.
Guidance for 2021
Backed by improving markets and new business wins, Timken expects revenue to be up approximately 18% at the mid-point year over year. This has been raised from the prior outlook of growth of 12%. Organic revenue is expected to be up around 15% for the year, up from previous outlook of 9%
Despite persisting supply chain challenges related to the COVID-19 pandemic and cost headwinds, the company anticipates strong margin performance aided by improving markets and strong operational execution. It now expects adjusted earnings per share between $5.15 and $5.45, higher than its previous guidance of $4.70-$5.10. The mid-point of the guided range reflects year-over-year growth of around 30%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.68% due to these changes.
VGM Scores
At this time, Timken has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Timken has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Timken (TKR) Up 0.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Timken (TKR - Free Report) . Shares have added about 0.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Timken due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Timken Q1 Earnings Beat Estimates, Raises '21 Outlook
Timken’s first-quarter 2021 adjusted earnings per share was a record $1.38, which beat the Zacks Consensus Estimate of $1.20 by a margin of 15%. The bottom line also improved 24% year over year, benefiting from higher volume, favorable manufacturing performance, lower selling, general and administrative expenses, and a lower tax rate. However, these were partially offset by unfavorable mix, higher material and logistics costs.
On a reported basis, the company delivered earnings per share of $1.47 in the quarter under review compared with $1.06 in the prior-year quarter.
Total revenues in the quarter were a record $1,025 million, up 11% from the year-ago quarter aided by organic growth across most end-market sectors led by renewable energy and off-highway. Favorable currency translation and the contribution from the Aurora Bearing acquisition also contributed to the year-over-year improvement. The top line surpassed the Zacks Consensus Estimate of $988 million.
Costs and Margins
Cost of sales was up 13% to $726 million from the prior-year quarter. Gross profit increased 7% year over year to $299 million. Gross margin was 29.2% compared with 30.2% in the year-ago quarter.
Selling, general and administrative expenses were down 6% year over year to $145 million. Adjusted EBITDA increased 15% year over year to $204 million. Adjusted EBITDA margin in the quarter was 19.9% compared with 19.2% in the prior-year quarter.
Segment Performance
The Mobile Industries segment revenues improved 8% to $505 million from the year-ago quarter. This upside can primarily be attributed to organic growth in the off-highway, heavy truck and automotive sectors and the favorable impact of currency translation, partially offset by lower revenue in the rail and aerospace sectors. The segment’s adjusted EBITDA went up 5% year over year to $80 million as higher volume and lower SG&A expenses helped offset the impact of unfavorable mix and higher material and logistics costs.
The Process Industries segment revenues rose 14% year over year to $521 million in first-quarter 2021, primarily driven by strong organic growth in renewable energy, distribution and general industrial sectors and favorable impact of currency translation. However, lower marine revenues negated some of these gains. The segment’s adjusted EBITDA went up 22% year over year to $136 million. Impact of higher volume, favorable manufacturing performance, lower SG&A expenses and the benefit of currency were partially offset by unfavorable mix and higher material and logistics costs.
Financial Position
Timken generated free cash flow of $2.3 million in the reported quarter compared with $24.4 million in the prior-year quarter. Cash flow from operations was around $32 million in the quarter compared with $56 million in the first quarter of 2020. During the quarter, Timken returned a total of $50.1 million of cash to shareholders through dividends and repurchases of 350,000 shares.
Long term debt as of Mar 31, 2021 was $1.6 billion compared with $1.56 billion as of Dec 31, 2020. Net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was at 1.9 at the end of first-quarter 2021.
Guidance for 2021
Backed by improving markets and new business wins, Timken expects revenue to be up approximately 18% at the mid-point year over year. This has been raised from the prior outlook of growth of 12%. Organic revenue is expected to be up around 15% for the year, up from previous outlook of 9%
Despite persisting supply chain challenges related to the COVID-19 pandemic and cost headwinds, the company anticipates strong margin performance aided by improving markets and strong operational execution. It now expects adjusted earnings per share between $5.15 and $5.45, higher than its previous guidance of $4.70-$5.10. The mid-point of the guided range reflects year-over-year growth of around 30%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.68% due to these changes.
VGM Scores
At this time, Timken has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Timken has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.