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Timken (TKR) Earnings Miss Estimates in Q2, Improve Y/Y

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The Timken Company’s TKR second-quarter 2021 adjusted earnings per share was $1.37, which missed the Zacks Consensus Estimate of $1.41 by a margin of 3%. The bottom line, however, improved 34% year over year, benefiting from higher volume, favorable manufacturing performance and the benefit of currency, which offset higher selling, general and administrative (SG&A) expenses, rising material and logistics costs, and unfavorable mix.

On a reported basis, the company delivered earnings per share of $1.36 in the quarter under review compared with 82 cents in the prior-year quarter.

Total revenues in the quarter were a record $1,063 million, up 32% from the year-ago quarter driven by strong organic growth across most end-market sectors, favorable currency translation and contribution from the Aurora Bearing acquisition. The top line matched the Zacks Consensus Estimate.

Timken Company The Price, Consensus and EPS Surprise

Timken Company The Price, Consensus and EPS Surprise
Timken Company The Price, Consensus and EPS Surprise

Timken Company The price-consensus-eps-surprise-chart | Timken Company The Quote

Costs and Margins

Cost of sales was up 33% to $761 million from the prior-year quarter. Gross profit increased 31% year over year to $302 million. Gross margin was 28.4% compared with 28.7% in the year-ago quarter.

Selling, general and administrative expenses were up 33% year over year to $149 million. Adjusted EBITDA increased 22% year over year to $200 million. Adjusted EBITDA margin in the quarter was 18.8% compared with 20.4% in the prior-year quarter.

Segment Performance

The Mobile Industries segment revenues improved 44% to $494 million from the year-ago quarter. This upside can primarily be attributed to higher shipments in the off-highway, heavy truck and automotive sectors, and the favorable impact of currency translation. The segment’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) surged 73% year over year to $67 million as higher volume and related manufacturing performance were partially offset by the impact of rising material and logistics costs and SG&A expenses, and unfavorable mix.

The Process Industries segment revenues rose 23% year over year to $569 million in second-quarter 2021, primarily driven by strong organic growth in most sectors led by distribution, renewable energy and general industrial sectors and favorable impact of currency translation. The segment’s adjusted EBITDA climbed 10% year over year to $142 million. Impact of higher volume, and favorable currency were partially offset by higher SG&A expenses and material and logistics costs.

Financial Position

Timken had cash and cash equivalents of $305 million at the end of the second quarter of 2021, down from the $320 million witnessed at the end of the 2020. Cash flow from operations was around $147 million in the quarter compared with $247 million in the second quarter of 2020. Timken raised its quarterly dividend by 3% to 30 cents per share and paid its 396th consecutive quarterly dividend in June.

Long-term debt as of Jun 30, 2021 was $1.4 billion, flat compared with Dec 31, 2020. Net debt to adjusted EBITDA was at 1.7 at the end of second-quarter 2021.

Guidance for 2021

Timken expects revenue to be up approximately 19% at the mid-point year over year. It expects adjusted earnings per share between $5.15 and $5.45. The mid-point of the guided range reflects year-over-year growth of around 30%.

Despite persisting supply chain challenges and cost headwinds, the company anticipates record revenues and earnings in 2021 aided by improving markets and strong operational execution.

Share Price Performance

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Over the past year, shares of Timken have gained 55.5% compared with the industry’s rally of 55.7%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include Greif, Inc. GEF, Lindsay Corp. LNN and Pentair PNR. While Greif and Lindsay sport a Zacks Rank #1 (Strong Buy), Pentair carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Greif has an anticipated earnings growth rate of 47.2% for fiscal 2021. The company’s shares have gained 29.9%, in the past year.

Lindsay has an estimated earnings growth rate of 1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 22.3%.

Pentair has a projected earnings growth rate of 26% for 2021. The stock has appreciated 36.7%, over the past year.


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