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Timken (TKR) Earnings & Revenues Trail Estimates in Q3, Up Y/Y

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The Timken Company (TKR - Free Report) reported third-quarter 2019 adjusted earnings per share of $1.14. The figure improved 7.5% from the prior-year quarter’s $1.11 per share. This upside was driven by favorable price and mix, benefit of acquisitions and lower material and logistics costs, partly offset by the impact of lower volume and related manufacturing utilization as well as higher interest expenses. Earnings, however, missed the Zacks Consensus Estimate of $1.18.

On a reported basis, Timken delivered earnings per share of 84 cents in the September-end quarter compared with the prior-year quarter’s 91 cents.

Total revenues in the quarter came in at $914 million, up 3.7% from the year-ago quarter, backed by acquisition benefits, partly offset by lower organic revenue in Mobile Industries, and unfavorable foreign-currency translation impact. The top-line figure, however, missed the Zacks Consensus Estimate of $946 million.

Timken registered record earnings per share, strong operating margins and excellent cash flow despite weakness in several industrial markets in the reported quarter. The company continues to grow in renewable energy and rail sectors, and takes measures to reduce costs and improve operating efficiency.

Costs and Margins

Cost of sales was up 1.3% to $636.5 million for the July-September quarter. Gross profit grew 9.5% year over year to $277.5 million. Gross margin came in at 30.3% compared with the 28.7% reported in the year-ago quarter.

Selling, general and administrative expenses flared up 4.2% to $148 million from the $142 million reported in the prior-year quarter. Operating profit increased 17.7% year over year to $128 million. Operating margin came in at 14% compared with the 12% witnessed in the comparable period last year. Adjusted EBITDA grew 11.6% year over year to $181.3 million.

The Timken Company Price, Consensus and EPS Surprise

Segmental Performance

The Mobile Industries segment revenues went down to $455.1 million from the $464.2 million recorded in the year-ago quarter. This downside mainly resulted from lower shipments in off-highway and heavy truck, and unfavorable currency, partly offset by the benefit of acquisitions and growth in the rail sector. The segment’s adjusted EBIT was up 2.5% year over year to $53.8 million.

The Process Industries segment revenues increased 10% year over year to $458.9 million in the quarter, aided by acquisitions and organic growth in the renewable energy and marine sectors. This was partly muted by lower revenues recorded in industrial services as well as unfavorable currency-translation impact. The segment adjusted EBIT jumped 17% year over year to $98.3 million.

Financial Position

Timken generated free cash flow of $101.2 million during the July-September quarter compared with the $114 million recorded in the prior-year quarter. Cash flow from operations came in at $144.9 million in the third quarter compared with the $137.2 million witnessed in the year-ago period.

During the quarter, the company returned $53.7 million of capital to shareholders. It also announced quarterly dividend of 28 cents per share, marking the 389th consecutive quarterly dividend payment. Also, Timken repurchased approximately 750 thousand shares.

Recent Development

Recently, Timken completed the acquisition of BEKA Lubrication for $165 million. This buyout will help Timken boost its global leadership in the automatic lubrication systems market sector as well as expand the company’s geographic reach in Europe and Asia. Additionally, the deal will create opportunities for Timken to better serve wind and other industrial end markets.

For 2019, Timken now expects total revenues to be up approximately 5-6% from 2018, on the back of acquisition benefits, partly offset by unfavorable currency-translation impact. For the full year, the company now anticipates adjusted earnings per share in the range of $4.70 to $4.75.

Share Price Performance

Shares of the company have appreciated around 26.7% over the past year, as against the industry’s decline of 6.3%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Sharps Compliance Corp (SMED - Free Report) , Plug Power Inc. (PLUG - Free Report) and Cintas Corporation (CTAS - Free Report) . While Sharps Compliance sports a Zacks Rank #1 (Strong Buy), Plug Power and Cintas carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sharps Compliance has an expected earnings growth rate of a whopping 500% for the ongoing year. The company has appreciated 39.1% so far this year.

Plug Power has a projected earnings growth rate of 2.8% for the current year. The stock has gained 124.2% so far this year.

Cintas has an estimated earnings growth rate of 12.74% for 2019. Shares of the company have rallied 60% year to date.

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