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Timken (TKR) Q4 Earnings Miss, Revenues Beat Estimates

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Zacks Equity Research
·5 min read
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The Timken Company’s TKR fourth-quarter 2020 adjusted earnings per share was 84 cents, which missed the Zacks Consensus Estimate of 91 cents by a margin of 8%. The bottom line was flat compared with the prior-year quarter as gains from lower operating expenses, reflecting the impact of cost reduction initiatives, reduced interest and tax rate, were offset by lower volumes due to the COVID-19 pandemic and price/mix and currency.

On a reported basis, the company delivered earnings per share of 69 cents in the reported quarter compared with $1.48 in the prior-year quarter.

Total revenues in the quarter were $892 million, down 0.5% from the year-ago quarter on account of lower demand in most end-markets due to the COVID-19. However, this was partially offset by favorable impact of acquisitions, currency translation and pricing. However, the top line surpassed the Zacks Consensus Estimate of $872 million.

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 2% to $655 million from the prior-year quarter. Gross profit declined 7% year over year to $237 million. Gross margin was 26.6% compared with 28.6% in the year-ago quarter.

Selling, general and administrative expenses were down 15% year over year to $136 million. Adjusted EBITDA inched down 1% year over year to $144 million. Adjusted EBITDA margin in the quarter was 16.2% compared with 16.3% in the prior-year quarter.

Segment Performance

The Mobile Industries segment revenues declined 3% to $434 million from $445 million in the year-ago quarter. This downside was primarily due to lower shipments in the rail, aerospace and automotive sectors, partially mitigated by growth in the off-highway and heavy truck sectors, and benefit of acquisitions. The segment’s adjusted EBITDA slipped 11% year over year to $54 million.

The Process Industries segment revenues rose 2% year over year to $458 million in fourth-quarter 2020, primarily driven by strong growth in renewable energy, higher marine revenues, positive pricing, benefit of acquisitions and favorable impact of currency translation. However, lower revenues in distribution and other industrial sectors negated some of these gains. The segment’s adjusted EBITDA went up 4% year over year to $102 million.

Financial Position

Timken generated free cash flow of $456 million in 2020 compared with $410 million in the prior year. Cash flow from operations was around $578 million in 2020 compared with $550 million in the previous year. During the year, Timken returned a total of $136 million of cash to shareholders through dividends and share repurchases.

Long term debt as of Dec 31, 2020 was $1.43 billion compared with $1.65 billion as of Dec 31, 2019. The company ended the year with net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at 1.9 times compared to 2.1 times at the end of 2019.

During 2020, Timken announced more than $75 million in capital investments to increase renewable energy capabilities across its global footprint.

2020 Results

Timken reported adjusted earnings per share of $4.10 in 2020, down 11% from the prior-year’s figure of $4.60. The bottom line also lagged the Zacks Consensus Estimate of $4.16. Including one-time items, the company delivered earnings per share of $3.72 in 2020 compared with $4.71 in 2019.

Sales were down 7% year over year to $3.51 billion from the prior-year figure of $3.79 billion. However, the top line surpassed the Zacks Consensus Estimate of $3.5 billion.

Guidance for 2021

Backed by improving industrial markets, an active pipeline of new business wins and continued outperformance in sectors like renewable energy and marine, Timken expects strong revenue growth in 2021. The company, however, anticipates some near-term uncertainty and supply chain challenges related to the COVID-19 pandemic. It expects adjusted earnings per share to range between $4.70 and $5.10 in 2021. The mid-point of the guided range reflects year-over-year growth of 20%.

Share Price Performance

Over the past year, shares of Timken have gained 31.8% compared with the industry’s growth of 18.3%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the industrial products sector are Apogee Enterprises, Inc. APOG, AptarGroup Inc. ATR and Crown Holdings, Inc. CCK, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apogee has an expected earnings growth rate of 1.26% for the current fiscal year. The company’s shares have gained around 10.7% in the past year.

AptarGroup has a projected earnings growth rate of 14.4% for the current fiscal year. The stock has appreciated around 17% in a year’s time.

Crown Holdings has an estimated earnings growth rate of 11.7% for the current fiscal year. The company’s shares have rallied nearly 21% over the past year.

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