The Timken Company (TKR) is experiencing robust demand in its markets and successfully implementing pricing strategies to offset challenges such as supply chain constraints and rising costs. The company’s growth is also fueled by strategic acquisitions that expand its portfolio and capabilities in various markets, particularly in bearings, power transmission products, and related services.
Furthermore, Timken’s focus on growing its wind and solar businesses aligns with the increasing demand for renewable energy.
Solid Demand Outlook
Timken enjoys strong demand for its wide range of products and services in the food and beverage industry. The company has achieved a sales compound annual growth rate (CAGR) of over 30% in this market over the past five years. Timken’s global presence, innovative products, and the growing demand for food are expected to drive future growth. The market for food and beverage processing equipment is projected to reach $84.9 billion by 2028.
The company’s product demand remains strong due to its diversified end markets, customer base, geographical reach, product innovation, and engineering expertise.
In recent years, Timken has strategically focused on expanding its renewable energy portfolio through acquisitions and innovation. Renewable energy is now its largest individual end-market sector, generating 10% of sales in 2022 compared to 5% in 2018. The global demand for renewable energy is forecasted to grow by approximately 8% over the next decade, with the share of electricity generation from renewable sources expected to more than double by 2030.
To capture this trend, Timken is making targeted investments in the wind sector. The company has announced a $70 million investment to boost manufacturing capacity for wind-related products and had previously committed $75 million to enhance both wind and solar capabilities.
Portfolio Boost through Strategic Acquisitions
Continuing its growth strategy, Timken pursues strategic acquisitions to expand its portfolio and capabilities across diverse markets. The recent acquisitions of American Roller Bearing and Nadella Group have strengthened Timken’s position in engineered bearings and the linear motion segment, respectively. These acquisitions contributed approximately $140 million in revenues in 2022.
Strong Balance Sheet Supports Growth
Timken is taking measures to enhance liquidity, reduce costs, and generate strong cash flow. As of June 30, 2023, the company’s total debt-to-capital ratio was 0.44, lower than the industry average of 0.48. Timken’s times interest earned ratio of 7.2 also surpasses the industry average of 1.0. The company expects its free cash flow in 2023 to be around 100% of net income, driven by higher earnings and improved working capital.
Despite its positive outlook, Timken faces challenges such as higher operating costs, labor shortages, and supply chain constraints. These factors may impact the company’s margins and hinder its ability to fully capitalize on favorable market conditions.
In the past year, Timken’s stock has gained 16.5%, slightly below the industry’s growth of 17.5%.
Zacks Rank & Stocks to Consider
Timken currently holds a Zacks Rank #3 (Hold).
For investors seeking better opportunities in the Industrial Products sector, Terex Corporation (TEX), Astec Industries, Inc. (ASTE), and A. O. Smith Corporation (AOS) are recommended. TEX and ASTE have a Zacks Rank #1 (Strong Buy), while AOS holds a Zacks Rank #2 (Buy).
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Nasdaq, Inc.