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Timken (TKR) Q1 Earnings Beat Estimates, Raises '21 Outlook

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The Timken Company’s (TKR - Free Report) first-quarter 2021 adjusted earnings per share was $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.

 

Timken Company The Price, Consensus and EPS Surprise Timken Company The Price, Consensus and EPS Surprise

Timken Company The price-consensus-eps-surprise-chart | Timken Company The Quote

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%.

Share Price Performance

Over the past year, shares of Timken have gained 119.4% compared with the industry’s rally of 82.7%.

Zacks Rank & Stocks to Consider

Timken currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Dover Corporation (DOV - Free Report) , Caterpillar Inc. (CAT - Free Report) and Pentair plc (PNR - Free Report) , each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dover has a projected earnings growth rate of 21.8% for 2021. Over the past year, the company’s shares have gained 54%.

Caterpillar has an estimated earnings growth rate of 25.7% for the ongoing year. The company’s shares have rallied 94% in the past year.

Pentair has an expected earnings growth rate of 11.6% for 2021. The stock has surged 82% in a year’s time.

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