Timken Rides On Positive Pricing & Buyouts Amid Cost Woes
Zacks Investment Research | Jan 02, 2020 08:34PM ET
On Jan 2, we issued an updated research report on The Timken Company (NYSE:TKR) . The company is likely to benefit from favorable price and mix, and cost-reduction initiatives. Acquisition strategies and efforts to boost market share and market offerings are other positives. However, input-cost inflation and weakness in order rate remain near-term headwinds.
Favorable Price & Mix to Aid Growth
Timken projects its adjusted earnings between $4.70 and $4.75 per share for 2019. The mid-point of the guidance suggests 13% year-over-year growth. Earnings will benefit from acquisitions, and a favorable price and mix.
On the top-line front, Timken expects total revenues for 2019 to be up 5-6% year on year, driven by acquisition benefits, strong organic growth in wind and solar energy, aerospace, marine and rail sectors and positive pricing. The company also expects steady demand growth in its products and services. Further, the company’s effort to reduce costs and improve operating efficiency will boost margins.
Acquisition Strategy to Drive Growth
Timken has been benefiting from acquisitions and divestitures. Last year, the company acquired Rollon, Cone Drive and ABC Bearings, and divested the ICT Business. During second-quarter 2019, Timken acquired the Diamond chain for $84.9 million.
Timken has also completed the acquisition of BEKA Lubrication. This buyout has fortified the company’s global leadership in the automatic lubrication systems market sector, and expanded its geographic reach in Europe and Asia. Additionally, the deal has enabled Timken to better serve the wind and other industrial end markets. These acquisitions will likely boost top-line growth by 7.5%. The company is also poised to benefit from cost synergies owing to acquisitions.
Headwinds
Timken is exposed to currency-exchange rate fluctuations, which will likely hurt its top-line growth. Higher inventory and weak order levels are other concerns. Higher input costs due to the imposition of tariffs will dent margins.
Lower demand in off-highway, heavy truck and industrial services might affect strength in the wind, solar, energy and aerospace markets. Consequently sluggish automotive sector will dent Timken's top-line growth. Furthermore, slowdown in industrial markets is another concern.
The Timken Company Price and Consensus
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