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Why Is Timken (TKR) Down 4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Timken (TKR - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Timken due for a breakout? 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 catalysts.

Timken Tops Q1 Earnings Estimates, Raises '24 View

Timken reported adjusted earnings per share (EPS) of $1.77 in first-quarter 2024, beating the Zacks Consensus Estimate of $1.50 per share. The bottom line declined 15% year over year from the record EPS of $2.09 in the year-ago quarter, as low volumes offset the impacts of favorable price realization.

Including special items, EPS was $1.46 compared with $1.67 in the first quarter of 2023.

Total revenues were $1.19 billion, down 5.7% from the record revenues of $1.26 billion in the year-ago quarter. The decline was attributed to low demand, particularly in renewable energy in China, and unfavorable foreign currency translation, partially offset by the benefit of acquisitions and favorable pricing. The top line beat the Zacks Consensus Estimate of $1.16 billion.

Costs and Margins

The cost of sales declined 6.3% to $792.7 million from the prior-year quarter. Gross profit was down 5.6% year over year to $397.6 million. The gross margin was 33.4% compared with 30% in the first quarter of 2023.

Selling, general and administrative expenses rose 2% year over year to $190.7 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 7.2% year over year to $246 million. The adjusted EBITDA margin in the quarter was 20.7% compared with 21% in the prior-year quarter.

Segment Performances

The Engineered Bearings segment’s revenues declined 10.9% year over year to $802.5 million. The decrease was mainly due to weak demand and unfavorable foreign currency translation, offset by higher pricing. Weakness was noted in renewable energy and off-highway end markets while demand for rail was notably strong. We expected the segment’s sales to be $837 million .

The Engineered Bearings segment’s adjusted EBITDA was $181.4 million compared with the year-ago quarter’s $203.8 million. The year-over-year drop reflected the impacts of lower volume, partially offset by a favorable price/mix and improved operating cost performance. Our prediction for the segment’s adjusted EBITDA was $177 million.

The Industrial Motion segment’s revenues rose 7% year over year to $389 million. The upside was led by higher pricing and the benefits of acquisitions, partially offset by lower volume. The reported figure surpassed our estimate of $332 million.

The segment’s adjusted EBITDA was $82.1 million, indicating a 7% increase year over year aided by acquisitions, improved operating cost performance and favorable price/mix, partially offset by the impact of lower volume. We projected an adjusted EBITDA of $49 million.

Cash Flow & Balance Sheet Updates

Timken had cash and cash equivalents of $422 million at the end of the first quarter of 2024, up from $419 million at the end of 2023. Cash flow from operating activities was $49 million compared with $79 million in the prior-year quarter.

In the Jan-March period, Timken returned $24.5 million in cash to shareholders through dividends.

The long-term debt as of Mar 31, 2024, was around $1.8 billion, flat compared with the figure as of Dec 31, 2022. Net debt to adjusted EBITDA was 2.1 as of Mar 31, 2024.

2024 Guidance

Timken expects total revenues to decline 2-4% (earlier stated expectation was 2.5-4.5%) from the 2023 reported level. The company now anticipates adjusted EPS between $6.00 and $6.30 , higher than the prior stated range of $5.80 to $6.20.

The raised guidance reflects the first-quarter performance and expected improvement across multiple end-market sectors through the remaining part of the year. This will be offset partially by lower expectations for wind energy and unfavorable foreign currency translation. An improved mix and strong operational execution are expected to aid margin expansion and earnings growth.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Timken has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Timken has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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