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The Timken Earnings Breakdown: Watch Out for 2014

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Timken (NYSE: TKR  ) shareholders were probably excited when the company beat earnings estimates by 20% and met revenue estimates. While shares of the company have experienced quite the run-up over the past few months, it's important for investors to keep an eye on what the underlying company is actually doing, and not just the stock price. After the recent fourth-quarter and full-year earnings release, investors were able to glean several investing takeaways and key metrics to watch over the next two years. Let's take a closer look.

Business-plan highlights
Timken highlighted in its 2012 investor presentation that it will strive to achieve sales of approximately $7 billion in 2014. The company recorded sales of $5 billion for fiscal year 2012 and guided sales in 2013 to be lower than 2012. This makes 2014 implied sales growth of 40% seem like quite the stretch and leaves me as a investor a little nervous. Timken also said this growth would come from an even ratio of organic growth and acquisitions.

The company currently is using only 50% of its production capacity and plans on getting to around 70% by the end of 2013. This will be a key metric to focus on in 2013 and 2014 for investors, and we'll want to see it tick up starting in 2014.

So it appears Timken is putting all bets on 2014 to be a truly blockbuster year. For investors, this means the state of the global economy is going to be quite the bellwether for the success of Timken's ambitious revenue plans in 2014.

Will Timken spin off the steel business?
Much of the recent share-price run-up could be attributable to the speculation that Timken will spin off its steel business under pressure from activist investors Relational Investors and the California State Teachers' Retirement System. Looking at the facts, it's pretty apparent this attempt could be futile at best. Timken is and has been a family-owned business, and the Timken family owns around 10% of shares outstanding. Simply put, if the Timkens don't want to spin off the steel business, it's more than likely not going to happen. Considering they've said they're not going to spin it off, an investing thesis based on such a spinoff is probably ill-advised. 

Investing in Timken now
Investing in a company after a large run-up can be quite the risk, and Timken's 30%-plus run over the past three months should definitely make investors think twice about buying or selling. The main motivation for investing in Timken is management's plans for growth and profitability. If the management team is successful at reaching those 2014 targets, an investment in Timken will still pay shareholders by leaps and bounds. Add in the company's stellar track record of 90 years of consecutive dividends, and you have a nice recipe for a great total return. 

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9/27/2016 1:29 PM
TKR $33.84 Up +0.22 +0.65%
The Timken Company CAPS Rating: ***