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Timken Company's Cone Drive Buyout to Aid Chinese Operations

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The Timken Company (TKR - Free Report) has announced yesterday that it has completed acquiring Traverse City, MI-based Cone Drive on Sep 1, 2018. Financial terms of the transaction, originally announced on Jul 24, have been kept under wraps.

Cone Drive is one of the leading makers of precision drive products. Its manufacturing activities are primarily done in China and the United States. Its product offerings, including H-Fang and Cone drives and many more products, are primarily used in aerial platforms, solar, food & beverage, and automation industries. The firm has roughly 500 employees. Sales in 2018 are anticipated to be in excess of $100 million.

Details of Buyout

Per the agreement signed, Timken Company will fund the buyout with debts.

It’s worth noting here that the company has made a public offering of $400 million of 4.5% Senior Notes. These notes are unsecured in nature and are due to expire in 2028. The offering, anticipated to close on Sep 6, 2018, will fund Cone Drive acquisition as well as the buyout of Rollon Group (discussed below).

The Cone Drive buyout will strengthen Timken Company’s power transmission business in various end markets served, especially solar. Furthermore, the buyout will boost the company’s footprints in China. Earnings accretion is anticipated in the first year of the completion of the buyout.

Timken’s Buyout Strategies

The above-mentioned transaction is consistent with Timken Company’s policy of acquiring businesses to gain access to improve its product lines and market exposure. In the second quarter of 2018, acquired assets added roughly $30.7 million to the company’s mobile Industries segment while contributed $3.1 million to the Process Industries segment.

Earlier, in July 2018, Timken Company agreed to acquire Milan, Italy-based Rollon Group from Chequers Capital and IGI Private Equity. Rollon Group specialized in manufacturing linear motion products for use in packaging, logistics, aerospace, medical, automation and passenger rail end-markets. Sales in 2018 are predicted to be $140 million. The buyout is anticipated to be completed in September 2018.

Zacks Rank & Other Stocks to Consider

With a market capitalization of nearly $3.7 billion, Timken Company currently carries a Zacks Rank #2 (Buy). Its investment appeal is further accentuated by a favorable VGM Score of A. In the quarters ahead, the company stands to benefit from its solid product portfolio, strengthening demand in end markets and synergistic gains from acquired assets. It delivered 2.78% earnings surprise in second-quarter 2018, with the average of last four quarters coming in at 7.23%.

For 2018, the company has raised its earnings per share forecast to $4.10-$4.20 from the previous guidance of $3.90-$4.00. Revenues are predicted to grow 21% year over year versus 17% expected earlier. Organic sales are now estimated to grow 15%, above the previous expectation of 12%.

We believe sound financial performance and impressive outlook has raised optimism about the company’s growth prospects. In the past 60 days, its earnings estimates for both 2018 and 2019 have been increased by five brokerage firms. Currently, the Zacks Consensus Estimate is pegged at $4.17 for 2018 and $4.65 for 2019, reflecting growth of 5.3% and 4.7% from the respective 60-day-ago tallies.

Timken Company (The) Price and Consensus
 

Timken Company (The) Price and Consensus | Timken Company (The) Quote

Further, the company’s share price has increased 1.3% in the past month. This improvement is way above 6.3% decline recorded by the industry it belongs to.



Other top-ranked stocks in the Zacks Industrial Products sector are Global Brass and Copper Holdings, Inc. (BRSS - Free Report) , Altra Industrial Motion Corp. (AIMC - Free Report) and TriMas Corporation (TRS - Free Report) . While both Global Brass and Copper Holdings and Altra Industrial Motion sport a Zacks Rank #1 (Strong Buy), TriMas carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 5.65% for Global Brass and Copper Holdings, 4.01% for Altra Industrial Motion and 2.28% for TriMas.

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