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WIKI ANALYSIS
Timken Company (NYSE:TKR) is the world's largest manufacturer of tapered roller bearings and alloy seamless mechanical steel tubing, though it also makes other bearings and steel alloys for industries ranging from defense to oilfield services to wind energy. Timken competes in the machine tools & accessories oligopoly with Stanley Works (SWK) and Kennametal (KMT), but is unique from these companies in that it can manufacture steel bars with one inch diameters and cylindrical roller bearings with diameters as large as 12 inches, making its product line useful to more industrial projects. The company earned $3.1 billion in revenue but incurred a $134 million loss in 2009.[1]
Timken has been pressured by slumps in the American housing and automotive markets, which have historically been TKR's biggest customers. In response, Timken has expanded internationally, especially in India and China, with annual sales in each country increasing 20% and 30%, respectively. Also, TKR has developed its aerospace and energy product lines to reduce dependence on automobile products, through acquisitions and new facilities. Aerospace and process industry sales have increased 38.6% and 25.4%, respectively. Rising steel and oil prices increase TKR total costs, but the company avoids decreasing margins because these commodities also increases demand for Timken Process Industries products. For example, rising steel prices causes greater demand for TKR's heavy bearings, which are used in rolling mills to make steel more efficiently.
Company Overview
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Business Growth
FY 2009 (ended December 31, 2009)[1]
- Net sales decreased 28% to $3.1 billion. Sales were lower across all business segments except for Aerospace and Defense. Lower sales were driven by lower volume and lower surcharges in the Steel segment.
- The company incurred a net loss of $134 million compared to a gain of $268 million in the prior year.
Trends and Forces
TKR makes international acquisitions in booming industrial markets.
Timken, historically a producer for the U.S., has increased international production within the past few years in response to the U.S. economic recession. Timken's most effective international moves have been opening new facilities in Chennai, India and Chengdu, China.
TKR expands aerospace and energy product lines in response to declining automotive industry.
TKR's success depends on the health of the end markets it sells bearings, tools, and steel to. Timken combined its Automotive and Industrial Groups to form the Bearings and Power Transmission Group. TKR now operates in three segments within Bearings and Power Transmission: Process Industries, Mobile Industries, and Aerospace and Defense. TKR has made the following maneuvers to expand its aerospace and energy business:
Rising oil and steel prices increase Timken's product demand and total costs.
Timken manufactures bearings using its own steel tubing and bars, purchased strip steel and energy resources.
TKR produces steel alloy using scrap metal, nickel and other alloys. Oil is the main source of energy for Timken manufacturing.[2]
- Rising steel and oil prices increase Timken product demand. Increasing steel and oil prices cause an demand increase for Timken products. Timken's Process industry products, including wind energy turbines , drilling equipment, and coal conveyors, are in high demand for energy exploration and processing. Also, increased steel prices increase demand for TKR's heavy bearings used in rolling mills to make steel more efficiently.
- Rising steel and oil prices increase Timken's total costs. -- Scrap metal is an ingredient in Timken's steel alloy production, so rising scrap metal costs increase Timken's cost of production. TKR also uses oil and gas in manufacturing. Prices for scrap metal and oil have increased since the early 2000s. Increased product demand has helped stabilize Timken's margins. Raw material surcharges and pricing strategies have also been done to stabilize Timken's margins.
Competition
Machine Tools & Accessories
- Timken Company (TKR)- World's largest manufacturer of tapered roller bearings and steel alloy.
- Kennametal (KMT) - Global producer of tools, machine accessories, and advanced materials and second largest metal cutting tools manufacturer in the world.
- Stanley Works (SWK)- World-renowned brand of consumer and industrial tools.
- Kaydon (KDN)- Leading manufacturer in specialty bearings, especially bearings used for wind energy.
- CompX International (CIX)- Manufactures security products and precision ball bearing slides.
- Hardinge (HDNG)- HDNG manufactures machine tools in Western Europe.
- Thermadyne Holding (THMD)- Producer of gas and electric arc cutting and welding products for the Americas.
- RBC Bearings (ROLL)- Bearing manufacturer makes 90% of sales in U.S., has second-highest return on equity in the past year.
- Flow International (FLOW)- Producer of high-pressure waterjet cutting tools had highest revenue growth of machine tools companies in the past quarter.
References
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