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Timken's Diamond Chain Buyout to Aid Process Industries Unit

Zacks Equity Research

The Timken Company TKR announced yesterday that it acquired Indianapolis, IN-based The Diamond Chain Company, owned by Amsted Industries. Financial terms of the transaction have been kept under wraps.

Diamond Chain is one of the leading suppliers of roller chains for use in material handling, food & beverage, industrial distribution, construction, agriculture, and others industries. It manufactures in China and the United States. The company’s sales for 12 months ended Mar 31, 2019, were in excess of $60 million.

Details of Buyout

As noted, the company funded the acquisition through borrowings under credit facilities and available cash.

The Diamond Chain buyout will strengthen Timken’s power transmission business as well as strengthen its distribution capabilities and employee base by 370 people. Furthermore, the buyout will boost the company’s manufacturing footprints in Asia. Also, Diamond Chain-branded products will complement Timken’s existing Drives chain business.

The company intends on reporting results of the Diamond Chain buyout under the Process Industries segment. Earnings accretion is anticipated in 2019.

Buyout Strategies

The above-mentioned transaction is consistent with Timken’s policy of acquiring businesses to improve product lines and market exposure. In 2018, acquired assets added roughly $177 million to the company’s net sales, including $98.6 million to the Mobile Industries segment and $78.7 million to the Process Industries segment.

In September 2018, Timken acquired Milan, Italy-based Rollon Group and Cone Drive. In August, it acquired ABC Bearings Limited through its subsidiary, Timken India Limited.

Zacks Rank & Stocks to Consider

With a market capitalization of nearly $3.3 billion, Timken currently carries a Zacks Rank #3 (Hold). In the quarters ahead, the company stands to benefit from solid product portfolio, strengthening demand in end markets and synergistic gains from acquired assets. However, increase in costs remains concerning.

In the past three months, Timken’s shares have increased 24.7%, outperforming the industry’s growth of 22.6%.

Earnings estimates for the company have decreased in the past 60 days. Currently, the Zacks Consensus Estimate is pegged at $4.81 for 2019 and $5.19 for 2020, reflecting declines of 1% and 0.2% from the respective 60-day-ago tallies.

Timken Company (The) Price and Consensus


Timken Company (The) Price and Consensus | Timken Company (The) Quote

Some better-ranked stocks in the Zacks Industrial Products sector are Global Brass and Copper Holdings, Inc. BRSS, Mueller Industries, Inc. MLI, and DXP Enterprises, Inc. DXPE. All these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year. The average positive earnings surprise for the last four quarters was 1% for Global Brass and Copper Holdings, 30.15% for Mueller Industries, and 46.55% for DXP Enterprises.

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