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Twin Disc, Inc. (TWIN - Free Report) , a Zacks Rank #1 (Strong Buy) designs, manufactures and sells heavy duty off-highway power transmission equipment. Products offered include: hydraulic torque converters; power-shift transmissions; marine transmissions and surface drives; universal joints; gas turbine starting drives; power take-offs and reduction gears; industrial clutches; fluid couplings and control systems. Principal markets are: construction equipment, industrial equipment, government, marine, energy and natural resources and agriculture.

Earnings Data

In the company’s most recent earnings report, TWIN crushed the Zacks consensus earnings estimate ($0.29 vs the estimate of $0.00), but came in just short of the revenue estimate ($45 million vs. the estimate of $46 million).  The company saw year over year sales increase by +25.8%, due to growth in the North American oil and gas, and aftermarket components.  The company also saw gross margins improve by 520 basis points to 30.8% for the quarter.  

Drivers Going Forward

The big driver behind the estimate upgrades (as you can see below in the increasing estimates section) is their huge improvement in backlogs.  TWIN’s six-month backlog currently stands at $62.7 million; this is a +35% improvement sequentially, and a +89% increase on a year over year basis.  This massive increase in their backlogs was attributed to the recovering oil and gas markets in North America, and a now consistent level of industrial demand.  

Management’s Take

According to John H. Batten, President and CEO, “Positive momentum from new and existing North American pressure pumping customers accelerated in the fiscal 2018 first quarter, helping drive significant year-over-year improvements in sales, profitability, and backlog. We expect favorable trends within our oil and gas market to continue throughout this fiscal year as producers adjust to stable oil and gas prices, and North American servicing companies invest in rebuilding and expanding their pressure pumping fleets.  Throughout the recent oil and gas downturn, our strategy was focused on emerging as a stronger, more profitable, and better positioned company.  We proactively adjusted our cost structure, while investing in our power control technologies and our global support and service platform.  These initiatives are beginning to pay off by enhancing profitability and expanding our market share.  As the year progresses, we will remain committed to programs that increase operating efficiency by further reducing costs, investing in new production capabilities, and improving the effectiveness of our supply chain.”

Price and Earnings Consensus Graph

As you can see in the graph below, the stock price had a very difficult 2015 and 2016, but recent positive events have caused the stock price to bounce back, and earnings estimates have also been increased over the same time period.

Increasing Earnings Estimates

Due to the strong earnings report, improved backlog, and expanding gross margins, the earnings estimates have significantly improved for Q2 18, Q3 18, FY 18 and FY 19; Q2 18 rose from -$0.04 to $0.03, Q3 tripled from -$0.05 to $.010, FY 18 jumped up from $0.01 to $0.58, and FY 19 vaulted up from $0.10 to $0.50.

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