March 31, 2008 - Timken Co. (TKR-NYSE) tries to keep its bearings straight. The company makes bearings that range in weight from a mere half an ounce to nine tons. Timken bearings find their way into products from computers to railroad cars. Timken and its subsidiaries also manufacture alloy and specialty steels, such as steel tubing, high-strength alloy steels, and die layout-ready ground blocks; the products are used primarily by industrial and automotive customers. Five generations of the Timken family have served the company since its founding by one-time carriage maker Henry Timken in 1899.

The Steel and Industrial divisions will benefit from increasing international demand, specifically from aerospace, mining, and energy companies. Furthermore, as metal and oil prices continue to run higher, the companies producing them need more of Timken's bearings. In fact, Timken can't keep up with the demand, unable to bring on new capacity fast enough to fill the orders from these industries. Backlog for large bearings and forging bars goes into the second half of this year. Later this year, three new plants will open to alleviate some of the strain on current production facilities.

Timken has been adding more than production facilities. It's been busy buying companies like Purdy and Boring Specialties. The first is in aerospace, the second in steel. There's a new joint venture in China as well where the company is entering the wind energy market. Look for more strategic purchases to complement TKR's internal growth.

While other divisions are ramping up, the Mobile Industries group, serving the automobile industry, is having problems. Hurt by higher raw materials costs and the troubled U.S. auto market, the company is unwinding some unprofitable contracts, extricating itself from the worst ones in order to improve the overall sales mix. This year's sales should be flat compared to last year. But losses should decrease because European orders have been improving and the company's implementation of restructuring plans. Analysts don't think profits will show in this division until 2010.

Some numbers: TKR has a $2.7 billion market cap with 95.8 million shares outstanding. Net profit margin is 5%. Sales were $5.236 billion last year, projected to be $5.55 billion this year and $5.8 billion next year. Sales growth is estimated to be 3% a year, on average over the next 5 years while earnings should increase by 6.5% a year, on average. Current assets are more than double current liabilities. Debt is 23% of capital. Return on Equity is 12%.

TKR is not a stock that get investors' excited. The numbers have been disappointing over the last 2 years. The stock is down about 15% since the beginning of the year. But it does have the potential to be a turnaround, and while an investor waits to see earnings improve, there's a 68 cent dividend, giving a yield of 2.3%. Dig deeper if you're looking for a stock that seems to be heading in a new and better direction.

- Company Web site: www.timken.com

- Ted Allrich