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Timken (TKR) Down 8.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Timken (TKR - Free Report) . Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Timken due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Timken Q3 Earnings & Revenues Miss Estimates, Up Y/Y

Timken's third-quarter 2021 adjusted earnings per share was $1.18, which missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 4% year over year, driven by higher volume, positive price/mix, a lower tax rate and favorable currency, which offset supply chain disruptions, inflation and higher costs.

On a reported basis, the company delivered earnings per share of $1.14 in the quarter under review compared with $1.16 in the prior-year quarter.

Total revenues in the quarter were $1,037 million, up 16% from the year-ago quarter. The upside can primarily be attributed to strong organic growth across most end-market sectors, favorable currency translation, higher pricing and contribution from acquisitions. Nevertheless, the top line lagged the Zacks Consensus Estimate of $1,038 million.

Costs and Margins

Cost of sales was up 22% to $769 million from the prior-year quarter. Gross profit increased 1.6% year over year to $268 million. Gross margin was 25.8% compared with 29.5% in the year-ago quarter.

Selling, general and administrative expenses were up 6% year over year to $141 million. Adjusted EBITDA increased 3% year over year to $179 million. Adjusted EBITDA margin in the quarter was 17.2% compared with 19.4% in the prior-year quarter.

Segment Performance

The Mobile Industries segment revenues improved 14% to $487 million from the year-ago quarter. Higher shipments in the off-highway, heavy truck sectors, and the favorable impact of currency translation led to the uptick. This was partially offset by lower revenues in the automotive sector. The segment’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 15% year over year to $58 million as higher operating costs offset the favorable impact of higher volume and related manufacturing utilization, and positive price/mix.

The Process Industries segment revenues rose 18% year over year to $550 million in third-quarter 2021, primarily on account of strong organic growth in most sectors led by distribution, general industrial sectors, improved pricing and favorable impact of currency translation. The segment’s adjusted EBITDA climbed 13.5% year over year to $131 million. Impact of higher volume and related manufacturing utilization, positive price/mix, and favorable currency were partially offset by higher operating costs.

Financial Position

Timken had cash and cash equivalents of $262 million at the end of the third quarter of 2021, down from the $320 million at the end of the 2020. Cash flow from operations was around $285 million in the first nine-month period ended Sep 30, 2021 compared with $457 million in the comparable period last year. During the third quarter, Timken returned $53.1 million of cash to shareholders through dividends and the share repurchases.

Long-term debt as of Sep 30, 2021 was $1.42 billion, compared with $1.43 billion as of Dec 31, 2020. Net debt to adjusted EBITDA was at 1.6 at the end of third-quarter 2021.

Timken completed the acquisition of Intelligent Machine Solutions, thus augmenting its growing linear motion portfolio.

Guidance for 2021

While strong demand is expected to continue, revenues in the fourth quarter will be down sequentially due to seasonal factors and fewer shipping days. Timken anticipates cost inflation and supply chain issues to remain in the fourth quarter. Adjusted EBITDA margins are likely to be lower than third-quarter 2021 due to lower revenues.

In 2022, a strong demand environment will continue, with supply chain issues persisting through at least the early part of the year. The company expects significant price realization and operational excellence initiatives to offset these headwinds.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -11.51% due to these changes.

VGM Scores

Currently, Timken has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.


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