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A month has gone by since the last earnings report for Timken (TKR). Shares have added about 13.2% in that time frame, outperforming 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 drivers.
Timken's Q1 Earnings Beat Estimates, Revenues Miss
Timken reported first-quarter 2020 adjusted earnings per share of $1.11, beating the Zacks Consensus Estimate of $1.07. The reported figure declined 11% from $1.35 per share in the prior-year quarter thanks to lower volumes due to the impact of COVID-19 as well as unfavorable currency.
On a reported basis, Timken delivered earnings per share of $1.06 in the reported quarter compared with the prior-year quarter’s $1.19.
Total revenues in the quarter came in at $923 million, down 6% from the year-ago quarter due to lower demand in most end markets and unfavorable currency. This was partially offset by the favorable impact of acquisitions and positive pricing. The top-line figure missed the Zacks Consensus Estimate of $931 million.
Costs and Margins
Cost of sales was down 5% to $645 million from the prior-year quarter. Gross profit declined 8% year over year to $279 million. Gross margin came in at 30.2% compared with 30.9% in the year-ago quarter.
Selling, general, and administrative expenses inched up 1% to $154 million from the prior-year quarter. Adjusted operating profit decreased 16% year over year to $125 million. Operating margin came in at 13.6% compared with 15.3% in the comparable quarter last year. Adjusted EBITDA declined 12.5% year over year to $177 million.
The Mobile Industries segment revenues decreased to $467 million from $500 million in the year-ago quarter. This downside mainly resulted from lower shipments in off-highway, automotive and heavy truck sectors and unfavorable currency. However, this was partially negated by the benefit from acquisitions and growth in the aerospace sector.The segment’s adjusted EBITDA declined 5% year over year to $76 million.
The Process Industries segment revenues decreased 5% year over year to $457 million in the quarter. Lower revenues in the industrial distribution and general and heavy industrial sectors, along with unfavorable currency mainly led to the decline. These negatives were somewhat mitigated by the benefit of acquisitions and strong growth in renewable energy. The segment’s adjusted EBITDA slid 15% year over year to $112 million.
Timken generated free cash flow of $24 million in the first quarter of 2020 compared with $36 million in the prior year quarter. Cash flow from operations came in at $56 million in the reported quarter compared with $52 million witnessed in the previous year quarter. Net debt as of Mar 31, 2020 was $1.57 billion compared with $1.52 billion as of Dec 31, 2019.
During the first quarter of 2020, the company returned around $65 million of capital to shareholders through $23 million of dividend payouts and $42 million in share repurchases.
On Apr 3, 2020, Timken withdrew its 2020 sales and earnings guidance due to the uncertainty of the impact of COVID-19 on the economy.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -20% due to these changes.
At this time, Timken has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Timken has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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