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Timken on Pace to Achieve Record Earnings This Year

May 03, 2011 | About:
ABN

ABN

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The Timken Company (TKR) reported an almost 400% increase in first quarter earnings on April 26 with net income of $112.7 million compared to $28.6 million in 2010.

The company is a manufacturer of frictionless bearings for trucks, tractors, excavators, rail and automobiles (Mobile Industries Segment), for factory conveyors, wind turbines and oil and gas drilling (Process Industries Segment), rotor systems, landing gear and guidance systems (Aerospace & Defense Segment) and bearings, drill bits, drill pipes, axles and crankshafts (Steel Segment).

Sales of $1.3 billion in the first quarter of 2011 represented an increase of 37% over the same period a year ago. The company reported that the improvement in first-quarter earnings reflected increased demand and favorable mix, as well as surcharges and pricing which more than offset year-over-year increases in material costs and selling and administrative expenses.

The Steel Segment performance was particularly strong with a 78% increase in sales to $481.5 million to make it Timken’s largest division. Mobile Industries’ sales were $443 million, up 21%, and Process Industries' first-quarter sales were $285 million, up 38%. Only the Aerospace & Defense segment was down with sales reducing 14% to $79.1 million as a result of reduced demand in the segment's defense-related business. At quarter-end, the company had cash of $637.6 million compared to total debt of $522.4 million.

James W. Griffith, Timken president and chief executive officer said "Timken's first-quarter results set the company on pace to achieve record earnings this year.” The company has increased its 2011 full-year sales outlook with a forecast of 20% to 25% over 2010 and raised its 2011 full-year earnings estimate to a range of $3.80 to $4.10 per diluted share from its prior estimate of $3.30 to $3.60 per share. As of May 2, the stock was priced on a forecast PE of approximately 14.

Such remarkable growth cannot be sustained in the long run. The company has for some time benefited from strong growth in Asia which has resulted in China becoming its second largest sales market. However, despite interest rate rises and increased reserve requirements, there is still no sign of a slowdown, and commentators predict China will continue to grow by 9% in 2011. At the same time an improving U,S, economy and increased demand from the auto industry should support demand at home.

Disclosure: The author has no long or short positions in The Timken Company

Rating: 4.5/5 (4 votes)

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