Timken (TKR) Up 2.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Timken (TKR). Shares have added about 2.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Timken due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Timken Misses Earnings Estimates in Q3, Lowers Guidance
Timken reported adjusted earnings per share of $1.55 in third-quarter 2023, missing the Zacks Consensus Estimate of $1.66. The bottom line fell 4.9% year over year.
On a reported basis, the company delivered earnings of $1.23 per share in the quarter under review compared with $1.18 in the prior-year quarter.
Total revenues in the quarter were $1,143 million, up 0.6% from the year-ago quarter. The upside can be attributed to higher pricing and favorable foreign currency translation, as well as the favorable impacts of acquisitions, partly offset by lower volume. However, the top line missed the Zacks Consensus Estimate of $1,197 million.
Costs and Margins
The cost of sales fell 2% to $787 million from the prior-year quarter. The gross profit increased 6.6% year over year to $356 million. The gross margin was 31.1% compared with 29.3% in the year-ago quarter.
Selling, general and administrative expenses were up 12.4% year over year to $180 million. Operating income increased 13.6% year over year to $150 million. Adjusted EBITDA improved 1% year over year to $216 million in the quarter under review. The adjusted EBITDA margin in the quarter was 18.9% compared with 18.8% in the prior-year quarter.
Segment Performances
The Engineered Bearings segment’s revenues declined 0.5% year over year to $776 million. The decrease was mainly due to lower volumes. These were somewhat offset by higher pricing and the benefits of acquisitions. We expected the segment’s sales to be $827 million in the quarter.
The Engineered Bearings segment’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $156.7 million compared with the year-ago quarter’s figure of $153.8 million. Our prediction for the segment’s adjusted EBITDA was $166 million. The impacts of lower volume, higher manufacturing costs, unfavorable foreign currency, and higher impairment & restructuring charges were partially offset by lower material & logistics costs, and a favorable price/mix.
The Industrial Motion segment’s revenues rose 2.9% year over year to $367 million in third-quarter 2023. The upside was led by higher pricing, the benefits of acquisitions and a favorable currency translation, partially offset by lower volume. The reported figure missed our estimate of $372 million. The segment’s adjusted EBITDA was $75.2 million in the third quarter of 2023 compared with $68 million in the third quarter of 2022. We projected an adjusted EBITDA of $72.5 million for the third quarter of 2023.
Financial Position
Timken had cash and cash equivalents of $368 million at the end of the third quarter of 2023 compared with $332 million at the end of 2022. Cash flow from operating activities was $194 million in the third quarter of 2023 compared with $145 million in the prior-year quarter. In the quarter, Timken returned $87.3 million of cash to shareholders through dividends and share repurchases.
The long-term debt as of Sep 30, 2023, was $1.6 billion, down from $1.91 billion as of Dec 31, 2022. The net debt to adjusted EBITDA ratio was 2.0 as of Sep 30, 2023, up from the 1.9 reported as of Dec 31, 2022.
2023 Guidance
To reflect softer end-market demand conditions, Timken anticipates adjusted earnings per share between $6.85 and $6.95 for 2023, lower than the previously provided $6.90-$7.30. Revenue growth is projected at 5-5.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -12.94% due to these changes.
VGM Scores
At this time, Timken has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Timken has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Timken belongs to the Zacks Metal Products - Procurement and Fabrication industry. Another stock from the same industry, TriMas (TRS), has gained 6.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
TriMas reported revenues of $235.34 million in the last reported quarter, representing a year-over-year change of +7.7%. EPS of $0.57 for the same period compares with $0.40 a year ago.
TriMas is expected to post earnings of $0.53 per share for the current quarter, representing a year-over-year change of -14.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.5%.
TriMas has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Timken Company (The) (TKR) : Free Stock Analysis Report
TriMas Corporation (TRS) : Free Stock Analysis Report
