Pricing Actions, Strong Demand Aid Timken (TKR) Amid High Costs
The Timken Company TKR is benefiting from strong demand in its markets and price realization despite headwinds like supply-chain constraints and higher costs. Strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services, have also been driving growth.
The company’s efforts to grow its wind and solar businesses will be key catalysts, considering the growing demand for renewable energy.
Solid Demand Bodes Well
Timken is experiencing strong demand for its broad range of products and services in the food and beverage industry. It has witnessed a sales CAGR of more than 30% in the market over the last five years, aided by the solid portfolio that it has built through the years. Timken’s expanding global footprint, new and innovative products and growing demand for food are expected to fuel growth in the coming years. The market for food and beverage processing equipment is estimated to increase from $64.6 billion in 2023 to $84.9 billion by 2028.
Demand for the company’s products will remain strong in the years to come. Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provides it with a competitive edge.
Over the past few years, the company has been focused on building its renewable energy portfolio through innovation and acquisitions. Renewable energy is currently Timken’s largest individual end-market sector, generating 10% of sales in 2022 compared with 5% in 2018. The global demand for renewable energy is expected to witness a CAGR of around 8% over the next 10 years. The share of electricity generation from renewable is expected to more than double by 2030.
Thus, the company is focused on targeted investments in this sector to capitalize on this trend and make it a bigger part of its portfolio in the future. TKR had announced a $70 million investment in May 2023 to boost manufacturing capacity, which will help in meeting the increase in demand for its products catering to the wind sector. This adds to the company’s previous $75 million commitment to strengthen both wind and solar capabilities.
Strategic Acquisitions to Boost Portfolio
Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services. Timken acquired the assets of American Roller Bearing in January 2023, which will augment the company’s market position in engineered bearings. It also completed the acquisition of Nadella Group in April 2023, which will expand the company’s linear motion portfolio in attractive market sectors. These two businesses generated revenues of approximately $140 million in 2022.
Solid Balance Sheet to Aid Growth
Timken is taking actions to enhance liquidity, reduce costs and generate a strong cash flow. The company’s total debt-to-capital ratio was 0.44 as of Jun 30, 2023, lower than the industry’s 0.48. The company's times interest earned ratio was 7.2, much higher than the industry’s 1.0. Timken expects free cash flow in 2023 to be around 100% of net income aided by higher earnings and improved working capital.
Near-Term Concerns
Timken’s margins have been impacted by higher operating costs. Also, labor shortages and supply-chain constraints are expected to persist and may impair the company’s ability to capture the full opportunity that comes with a strong demand environment.
Price Performance
In the past year, shares of Timken have gained 16.5% compared with the industry’s 17.5% growth.
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Zacks Rank & Stocks to Consider
Timken currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Terex Corporation TEX, Astec Industries, Inc. ASTE and A. O. Smith Corporation AOS. TEX and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Terex’s 2023 earnings per share is pegged at $1.61. Estimates were unchanged in the last 60 days. It has a trailing four-quarter average earnings surprise of 27.1%. TEX has gained 67% in a year’s time.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares have gained 37% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS has gained 22.6% in the last year.
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Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
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Timken Company (The) (TKR) : Free Stock Analysis Report
