Recession in 2024, or no recession? It’s still being debated. United Parcel Service (UPS) just announced earnings…and layoffs of 12,000 employees. But General Motors (GM) beat earnings expectations, and sees profitability on the horizon for the majority of its vehicles in 2024. Either way, as the debate continues, it does appear the economy is heating up, partly in anticipation of rate cuts, which most still see beginning by mid-year.
And speaking of GM, and a return to profitability, let’s take a look at a broad vehicle supplier that appears to have also turned the corner in 2023, and is ready to take advantage of a better 2024. Twin Disc (TWIN) provides a range of markets with transmission technology, and as such has its finger on the pulse of the global economy.
Twin Disc makes transmissions for everything from mega yachts to tugboats, industrial construction equipment to firetrucks, and more and more for hybrid/electric vehicles, a growing niche market for the company. Headquartered in Milwaukee, Twin Disc has been in the business of providing transmission technology for over 100 years.
The company now has a global presence, with 38% of its business coming from North America, 30% from Europe, and 23% from the Asia Pacific region. The company is also diverse in its product lines, with 57% of its business coming from marine propulsion, 26% from land based vehicles, and 11% coming from industrial machinery.
TWIN used 2023 to get its house in order, selling some facilities and ensuring its global footprint met internal cost-effectiveness levels across the board. The company sold its Italian facility, and executed a sale-leaseback of its Belgian facility. This as it shifts its strategic focus to growing its hybrid/electric technology, and expands into controls and full system integration.
The expansion should both improve margins, and open up additional revenue streams as Twin Disc captures adjacent markets with customers it already has long standing relationships with. One of the markets that is paying off is the oil and gas market. The company saw a bottoming of the end of year dip in the oil market, and is seeing an uptick in demand for its E-Fracking and hybrid solutions in oil and gas production related vehicles.
In its latest earnings report, the company delivered a much improved profit picture and was able to reinstate its dividend. Speaking on the quarter, CEO John Batten said, “We delivered impressive results in the first quarter, highlighted by double-digit revenue growth, robust margin expansion, and solid cash generation, giving us the confidence to reinstate our quarterly dividend.”
Twin Disc reported a 13.7% increase in sales in the quarter YoY, a 26.2% expansion in gross margins, and free cash flow of $6.1 million, a huge turnaround from a $0.7 million loss a year ago. Speaking on the outlook for 2024, Batten reported, “…our results have further strengthened our overall financial profile, enabling us to navigate through potential challenges while putting us on a path for sustained growth.”
Twin Disc is an A rated stock in our POWR Ratings. The company outperforms 99% of the stocks we track in our database. It is particularly strong in the Growth and Quality components, where it rates a 92.68% and 91.58% respectively. This comports with the company’s long track record, and its growth projections as it turns the corner in 2024.
A combination of an economy at a low simmer, and the anticipation of interest rate cuts, should stand Twin Disc in great company for an overall uptick in industrial and oil and gas production. On top of that, with the company making moves to expand its electric and hybrid business, which is seeing increasing demand, should add some extra juice to 2024 numbers.
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TWIN shares were trading at $15.92 per share on Tuesday afternoon, down $0.19 (-1.18%). Year-to-date, TWIN has declined -1.49%, versus a 3.28% rise in the benchmark S&P 500 index during the same period.
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