Timken Posts Strong First-Quarter Sales and Earnings; Company Raises Full-Year Outlook
CANTON, Ohio, April 29 /PRNewswire-FirstCall/ — The Timken Company (NYSE: TKR) today reported sales of $913.7 million during the first quarter of 2010, an increase of 5 percent over the same period a year ago. Despite weaker demand in certain aerospace and industrial market sectors, higher volume in the company’s mobile end markets drove the overall sales improvement, with contributions from surcharges and currency.
Income from the company’s continuing operations, net of noncontrolling interest, in the first quarter was $28.3 million, or $0.29 per diluted share, compared with $4.5 million, or $0.05 per share, a year ago. Excluding special items, income from continuing operations, net of noncontrolling interest, was $55.2 million, or $0.57 per diluted share, compared with $20.7 million, or $0.22 per diluted share, a year ago.
Special items associated with continuing operations, net of tax, in the first quarter of 2010 totaled $26.9 million of expense compared with $16.2 million of expense in the same period last year. The expense in 2010 included a one-time non-cash charge of $21.6 million to record the deferred tax impact of recently-enacted U.S. health care legislation, while 2009 included severance and impairment charges.
The improvement in first-quarter earnings primarily reflects increased demand, improved manufacturing performance, cost reduction initiatives, and the timing effect of the company’s material surcharge-recovery mechanism. Partially offsetting these benefits were lower aerospace and industrial demand, LIFO expense (last-in, first-out inventory accounting) and higher selling, general and administrative costs related to incentive compensation plans.
“We have increased our profitability with structural improvements and operating efficiencies throughout the company,” said James W. Griffith, Timken president and chief executive officer. “In addition to our improved performance this quarter, we are positioned for greater value creation as we leverage the recovery expected in our industrial markets.”
Among first-quarter developments, the company:
- Commenced wind-bearing production at its Timken XEMC (Hunan) Bearings Co., Ltd. facility in Xiangtan, China;
- Increased its penetration on the U.S. Army’s fleet of Apache Longbow helicopters, making Timken the only aftermarket manufacturer approved to supply all five gearboxes onboard the Apache;
- Introduced a new line of tapered roller bearing housed units that are ideal for rugged applications, such as in process and material-handling equipment; and
- Was recognized as one of the World’s 100 Most Ethical Companies for 2010 by the Ethisphere Institute.
Total debt at March 31, 2010, was $515.9 million, or 24.0 percent of capital, essentially unchanged from year-end, 2009. As of March 31, 2010, the company’s cash position was $709 million, or $193 million in excess of total debt. This compares with a net cash position of $243 million as of Dec. 31, 2009. The change reflects strong cash flow from earnings, which was more than offset by working-capital requirements and pension contributions, including a discretionary payment of $100 million in the quarter. The company expects to generate positive free cash flow for full year driven by improved earnings.
Bearings and Power Transmission Group Results
The Bearings and Power Transmission Group had first-quarter sales of $666.1 million, up 5 percent from $635.0 million for the same period last year. Earnings before interest and taxes (EBIT) for the first quarter were $82.2 million, up 39 percent from $59.3 million in the first quarter of 2009.
Mobile Industries Segment Results
In the first quarter, Mobile Industries’ sales were $367.5 million, a 22-percent increase from last year’s first-quarter sales of $300.6 million. The significant increase was driven by stronger demand and currency. Sales increases in light vehicle and heavy truck market sectors yielded the largest increases, while sales in off-highway and rail market sectors were lower than the prior year.
EBIT was $42.5 million for the current period, compared with an EBIT loss of $2.3 million for the same period a year ago. The increase was driven by improved demand, better manufacturing utilization, and cost reduction, restructuring and pricing initiatives.
Process Industries Segment Results
Process Industries had first-quarter sales of $206.6 million, down 8 percent from $225.1 million for the same period a year ago. Sales declined in most market sectors, including aggregate, gear drives, oil and gas, and industrial distribution, while sales in wind energy and power generation were up compared with last year. The net decline in demand was partially offset by a favorable currency effect.
First-quarter EBIT was $26.9 million, down 38 percent from $43.5 million in the same period a year ago. The benefit of cost-reduction initiatives was more than offset by reduced volume; higher selling, administrative and general costs; and costs associated with the ramp-up of new wind-energy production.
Aerospace and Defense Segment Results
Aerospace and Defense had first-quarter sales of $92.1 million, down 16 percent from $109.3 million for the same period last year. The decline primarily reflects further reductions in demand from commercial and general aviation market sectors.
First-quarter EBIT was $12.8 million, down 29 percent from $18.1 million a year ago. The impact of lower demand and higher selling, general and administrative costs was partially offset by manufacturing execution and cost-cutting initiatives.
Steel Group Results
Sales for the Steel Group, including inter-group sales, were $270.3 million, an increase of 9 percent from $248.6 million for the same period last year. The increase was driven by stronger light vehicle demand and higher raw-material surcharges, partially offset by lower energy and industrial volume.
First-quarter EBIT was $19.9 million and compared with an EBIT loss of $7.3 million for the same period a year ago. EBIT performance benefited from improved volume, manufacturing utilization, cost reduction initiatives, and the timing of surcharges in excess of raw-material costs. Partially offsetting these benefits were negative mix and LIFO expense.
Outlook
The company’s outlook for 2010 reflects a general improvement in the global economy that varies by end-market and geographic region. Timken anticipates an increase in sales of approximately 20 to 25 percent over 2009, driven primarily by stronger demand in the Steel and Mobile Industries segments. Steel Group sales are expected to increase 65 to 75 percent from 2009, due to improved demand across all market sectors, as well as surcharges. Mobile Industries segment sales are expected to be up approximately 15 to 20 percent, as increased demand across most market sectors is expected to be partially offset by lost business resulting from the company’s initiatives to re-price low-margin business. Sales in the Process Industries segment are expected to be up slightly, as growth initiatives in energy and Asia and new product introductions offset declines in other industrial market sectors. Aerospace and Defense segment sales are expected to decline slightly due to decreases in commercial and general aviation, but are expected to improve in the second half.
The company is raising its 2010 full-year earnings estimate, excluding special items, to a range from $1.60 to $1.80 per diluted share, compared with its prior estimate of $0.85 to $1.15 per diluted share. The company expects to deliver strong free cash flow in 2010, driven by improved earnings and effective working capital management and cost controls.
Conference Call
Information
---------------
The company will host a conference call for investors and analysts
today to discuss financial results.
Conference Call: Thursday, April 29, 2010
11 a.m. Eastern Time
Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Conference ID: 68505133
Replay Dial-In through May 7, 2010:
800-642-1687 or 706-645-9291
Live Webcast: www.timken.com/investors
About The Timken Company
The Timken Company (NYSE: TKR, http://www.timken.com) keeps the world turning with innovative friction management and power transmission products and services, enabling our customers’ machinery to perform more efficiently and reliably. With sales of $3.1 billion in 2009, operations in 26 countries/territories and approximately 17,000 employees, Timken is Where You Turn® for better performance.
Certain statements in this news release (including statements regarding the company’s forecasts, estimates and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company’s future financial performance, including information under the heading “Outlook”, are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company’s financial statements for the first quarter of 2010; the company’s ability to respond to the changes in its end markets that could affect demand for the company’s products; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company’s customers, which may have an impact on the company’s revenues, earnings and impairment charges; fluctuations in raw-material and energy costs and their impact on the operation of the company’s surcharge mechanisms; the impact of the company’s last-in first out accounting; continued weakness in global economic conditions and financial markets; changes in the expected costs associated with product warranty claims; the impact on operations of general economic conditions, higher or lower raw-material and energy costs, fluctuations in customer demand, and the company’s ability to achieve the benefits of its ongoing programs and initiatives, including, without limitation, the initiative to reduce its employment levels and other costs, the implementation of its Mobile Industries Segment restructuring program and initiatives and the rationalization of the company’s Canton bearing operations. These and additional factors are described in greater detail in the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2009, page 50. The company undertakes no obligation to update or revise any forward-looking statement.
(Unaudited)
CONDENSED
CONSOLIDATED
STATEMENT OF
INCOME AS REPORTED ADJUSTED (1)
----------- ------------
(Dollars in
thousands,
except share
data) Q1 2010 Q1 2009 Q1 2010 Q1 2009
------------- ------- ------- ------- -------
Net sales $913,690 $866,616 $913,690 $866,616
Cost of
products
sold 689,760 710,811 689,760 710,811
Manufacturing
rationalization /
reorganization
expenses -
cost of
products sold 1,239 1,191 - -
---------------- ----- ----- --- ---
Gross Profit $222,691 $154,614 $223,930 $155,805
Selling,
administrative
& general
expenses
(SG&A) 132,821 123,137 132,821 123,137
Rationalization /
reorganization
expenses -
SG&A 236 274 - -
Impairment
and
restructuring 5,525 13,755 - -
-------------- ----- ------ --- ---
Operating
Income $84,109 $17,448 $91,109 $32,668
Other income
(expense) (396) 6,751 (396) 6,751
Special items
-other
income
(expense) (205) 1,222 - -
------------- ---- ----- --- ---
Earnings
Before
Interest and
Taxes (EBIT)
(2) $83,508 $25,421 $90,713 $39,419
Interest
expense, net (8,999) (8,063) (8,999) (8,063)
------------- ------ ------ ------ ------
Income From
Continuing
Operations
Before
Income Taxes 74,509 17,358 81,714 31,356
Provision for
income taxes 45,854 18,793 26,149 10,504
------------- ------ ------ ------ ------
Income (Loss)
From
Continuing
Operations $28,655 $(1,435) $55,565 $20,852
Income (loss)
from
discontinued
operations
net of
income taxes
(3) 336 (3,643) - (13,566)
------------- --- ------ --- -------
Net Income
(Loss) $28,991 $(5,078) $55,565 $7,286
Less: Net
Income
(Loss)
Attributable
to
Noncontrolling
Interest 374 (5,948) 374 183
--------------- --- ------ --- ---
Net Income
Attributable
to The
Timken
Company $28,617 $870 $55,191 $7,103
============= ======= ==== ======= ======
Net Income per
Common Share
Attributable to
The Timken
Company Common
Shareholders:
Earnings Per
Share -
Continuing
Operations $0.29 $0.05 $0.57 $0.22
Earnings
(Loss) Per
Share -
Discontinued
Operations 0.01 (0.04) - (0.15)
---- ----- --- -----
Earnings Per
Share $0.30 $0.01 $0.57 $0.07
Diluted
Earnings Per
Share -
Continuing
Operations $0.29 $0.05 $0.57 $0.22
Diluted
Earnings
(Loss) Per
Share -
Discontinued
Operations 0.01 (0.04) - (0.15)
---- ----- --- -----
Earnings Per
Share $0.30 $0.01 $0.57 $0.07
Average
Shares
Outstanding 96,360,137 96,028,860 96,360,137 96,028,860
Average
Shares
Outstanding
-assuming
dilution 96,700,256 96,028,860 96,700,256 96,028,860
============ ========== ========== ========== ==========
BUSINESS SEGMENTS
(Dollars in
thousands)
(Unaudited) Q1 2010 Q1 2009
------------ ------- -------
Mobile Industries
Segment
-----------------
Net sales to
external customers $367,489 $300,623
Adjusted earnings
(loss) before
interest and taxes
(EBIT) (2) $42,454 $(2,345)
Adjusted EBIT
Margin (2) 11.6% -0.8%
Process Industries
Segment
------------------
Net sales to
external customers $205,901 $224,174
Intergroup sales 669 922
--- ---
Total net sales $206,570 $225,096
Adjusted earnings
before interest
and taxes (EBIT)
(2) $26,939 $43,492
Adjusted EBIT
Margin (2) 13.0% 19.3%
Aerospace and
Defense Segment
----------------
Net sales to
external customers $92,093 $109,254
Adjusted earnings
before interest
and taxes (EBIT)
(2) $12,801 $18,108
Adjusted EBIT
Margin (2) 13.9% 16.6%
Total Bearings and
Power Transmission
Group
-------------------
Net sales to
external customers $665,483 $634,051
Intergroup sales 669 922
--- ---
Total net sales $666,152 $634,973
Adjusted earnings
before interest
and taxes (EBIT)
(2) $82,194 $59,255
Adjusted EBIT
Margin (2) 12.3% 9.3%
Steel Group
-----------
Net sales to
external customers $248,207 $232,565
Intergroup sales 22,120 16,003
------ ------
Total net sales $270,327 $248,568
Adjusted earnings
(loss) before
interest and taxes
(EBIT) (2) $19,902 $(7,262)
Adjusted EBIT
Margin (2) 7.4% -2.9%
Unallocated
corporate expense $(13,779) $(12,317)
Intergroup
eliminations
income (expense)
(4) $2,396 $(257)
Consolidated
------------
Net sales to
external customers $913,690 $866,616
Adjusted earnings
before interest
and taxes (EBIT)
(2) $90,713 $39,419
Adjusted EBIT
Margin (2) 9.9% 4.5%
(1) "Adjusted" statements exclude the impact of impairment and
restructuring, manufacturing rationalization/reorganization and
special charges and credits for all periods shown.
(2) EBIT is defined as operating income plus other income (expense).
EBIT Margin is EBIT as a percentage of net sales. EBIT and EBIT
margin on a segment basis exclude certain special items set forth
above. EBIT and EBIT Margin are important financial measures used
in the management of the business, including decisions concerning
the allocation of resources and assessment of performance.
Management believes that reporting EBIT and EBIT Margin best reflect
the performance of the company's business segments and EBIT
disclosures are responsive to investors.
(3) Discontinued Operations relate to the sale of the Needle Roller
Bearings (NRB) operations to JTEKT Corporation on December 31, 2009.
(4) Intergroup eliminations represent intergroup profit or loss
between the Steel Group and the Bearings and Power Transmission
Group.
Reconciliation of net (loss) income attributable to The Timken
Company and EPS -diluted.
This reconciliation is provided as additional relevant information
about the company's performance. Management believes adjusted
earnings per share are more representative of the company's
performance and therefore useful to investors. Management also
believes that it is appropriate to compare GAAP income from
continuing operations to adjusted income from continuing operations
in light of special items related to impairment and restructuring
and manufacturing rationalization/reorganization costs, Continued
Dumping and Subsidy Offset Act (CDSOA) receipts, and gain/loss on
the sale of non-strategic assets.
First Quarter
-------------
2010 2009
---- ----
(Dollars in thousands, except
per share data) (Unaudited) $ EPS (5) $ EPS (5)
----------------------------- --- ------- --- -------
Net Income Attributable to The
Timken Company $28,617 $0.30 $870 $0.01
Income (loss) from
discontinued operations net
of income taxes (3) 336 0.01 (3,643) (0.04)
--- ---- ------ -----
Net income from continuing
operations
attributable to The Timken
Company $28,281 $0.29 $4,513 $0.05
Pre-tax special items:
Manufacturing rationalization/
reorganization expenses -
cost of products sold 1,239 0.01 1,191 0.01
Rationalization/
reorganization expenses -
SG&A 236 - 274 -
Impairment and restructuring 5,525 0.06 13,755 0.14
Special items -other expense
(income) 205 - (1,222) (0.01)
Provision for income taxes (6) 19,705 0.20 8,289 0.09
Special items attributable to
noncontrolling interests - - (6,131) (0.06)
--- --- ------ -----
Adjusted net income from
continuing operations
attributable to The Timken
Company 55,191 0.57 20,669 0.22
------ ---- ------ ----
Add: adjusted (loss) income
from discontinued operations - - (13,566) (0.15)
--- --- ------- -----
Adjusted Net Income
Attributable to The Timken
Company $55,191 $0.57 $7,103 $0.07
======= ===== ====== =====
Income (loss) from continuing
operations $28,655 $0.30 $(1,435) $(0.01)
Less: Net income (loss)
attributable to
noncontrolling interest 374 0.01 (5,948) (0.06)
--- ---- ------ -----
Net Income from continuing
operations attributable to
The Timken Company $28,281 $0.29 $4,513 $0.05
======= ===== ====== =====
Income (loss) from
discontinued operations, net
of income taxes $336 $0.01 $(3,643) $(0.04)
Special items, discontinued
operations (336) (0.01) (9,923) (0.11)
---- ----- ------ -----
Adjusted income (loss) from
discontinued operations, net
of income taxes $- $- $(13,566) $(0.15)
=== === ======== ======
(5) EPS amounts may not sum due to rounding differences.
(6) Provision for income taxes includes the tax impact on pre-tax
special items, the impact of discrete tax items recorded during the
respective period, as well as adjustments to reflect the use of one
overall effective tax rate on Adjusted pre-tax income in interim
periods.
Reconciliation of Outlook Information
Expected earnings per diluted share for the 2010 full year excludes
special items. Examples of such special items include impairment
and restructuring, manufacturing rationalization/reorganization
expenses, gain/loss on the sale of non-strategic assets and
payments under the CDSOA. It is not possible at this time to
identify the potential amount or significance of these special
items. Management cannot predict whether the company will receive
any additional payments under the CDSOA in 2010 and if so, in what
amount. If the company does receive any CDSOA payments, they will
most likely be received in the fourth quarter.
Reconciliation of GAAP income from continuing operations before
income taxes
This reconciliation is provided as additional relevant information
about the company's performance. Management believes Consolidated
adjusted earnings before interest and taxes (EBIT) and Total
Bearings and Power Transmission Group adjusted EBIT are more
representative of the company's performance and therefore useful to
investors. Management also believes that it is appropriate to
compare GAAP Income from Continuing Operations before Income Taxes
to Consolidated adjusted EBIT in light of special items related to
impairment and restructuring and manufacturing rationalization/
reorganization costs, Continued Dumping and Subsidy Offset Act
(CDSOA) receipts, and gain/loss on the sale of non-strategic
assets.
First Quarter
-------------
2010 2009
(Thousands of U.S. dollars) (Unaudited) $ $
--------------------------------------- - -
(Loss) Income from continuing
operations before income taxes $74,509 $17,358
Pre-tax reconciling items:
Interest expense 9,558 8,429
Interest income (559) (366)
Manufacturing rationalization/
reorganization expenses - 1,239 1,191
cost of products sold
Manufacturing rationalization/
reorganization expenses -SG&A 236 274
Impairment and restructuring 5,525 13,755
Special items - other income 205 (1,222)
--- ------
Consolidated adjusted earnings before
interest and taxes (EBIT) $90,713 $39,419
======= =======
Steel Group adjusted earnings (loss)
before interest and taxes (EBIT) (19,902) 7,262
Unallocated corporate expense 13,779 12,317
Intergroup eliminations expense (2,396) 257
------ ---
Total Bearings and Power Transmission
Group adjusted earnings before
interest and taxes (EBIT) $82,194 $59,255
======= =======
Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to
Capital:
March 31, Dec. 31,
(Dollars in thousands) (Unaudited) 2010 2009
---------------------------------- ---------- ---------
Short-term debt $44,637 $43,380
Long-term debt 471,229 469,287
------- -------
Total Debt 515,866 512,667
Less: Cash and cash equivalents (709,301) (755,545)
Net Debt $(193,435) $(242,878)
========= =========
Shareholders' equity $1,629,489 $1,595,568
Ratio of Total Debt to Capital 24.0% 24.3%
Ratio of Net Debt to Capital (Leverage) -13.5% -17.9%
===== =====
This reconciliation is provided as additional relevant information
about The Timken Company's financial position. Capital is defined
as total debt plus shareholders' equity.
Management believes Net Debt is more indicative of Timken's financial
position, due to the amount of cash and cash equivalents.
Free cash flow:
---------------
March 31, March 31,
(Dollars in thousands) (Unaudited) 2010 2009
---------------------------------- ---------- ----------
Net cash provided by operating activities $(13,880) $33,126
Less: capital expenditures (13,981) (32,710)
Less: cash dividends paid to shareholders (8,690) (17,424)
Free cash flow $(36,551) $(17,008)
======== ========
Management believes that free cash flow is useful to investors
because it is a meaningful indicator of cash generated from
operating activities that is available for the execution of its
business strategy.
CONDENSED CONSOLIDATED BALANCE
SHEET March 31, Dec 31,
(Dollars in thousands)
(Unaudited) 2010 2009
---------------------- ---- ----
ASSETS
Cash & cash equivalents $709,301 $755,545
Accounts receivable 489,054 411,226
Inventories 689,372 671,236
Other current assets 171,264 184,553
-------------------- ------- -------
Total Current Assets 2,058,991 2,022,560
Property, plant & equipment 1,302,542 1,335,228
Goodwill 221,038 221,734
Other assets 405,543 427,371
Total Assets $3,988,114 $4,006,893
============ ========== ==========
LIABILITIES
Accounts payable $221,852 $156,005
Short-term debt 44,637 43,380
Income taxes 9,199 9,233
Accrued expenses 325,300 331,815
---------------- ------- -------
Total Current Liabilities 600,988 540,433
Long-term debt 471,229 469,287
Accrued pension cost 579,449 690,889
Accrued postretirement benefits
cost 601,419 604,250
Other non-current liabilities 105,540 106,466
----------------------------- ------- -------
Total Liabilities 2,358,625 2,411,325
EQUITY
Timken Company shareholders'
equity 1,611,119 1,577,584
Noncontrolling interest 18,370 17,984
-----------------------
Total Equity 1,629,489 1,595,568
------------ --------- ---------
Total Liabilities and Equity $3,988,114 $4,006,893
============================ ========== ==========
For the three months
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ended
March 31, March 31,
(Dollars in thousands) (Unaudited) 2010 2009
---------------------------------- ---- ----
Cash Provided (Used)
OPERATING ACTIVITIES
Net income attributable to the Timken Company $28,617 $870
Net (loss) income from discontinued operations (336) 3,643
Net income (loss) attributable to
noncontrolling interest 374 (5,948)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 47,748 50,148
Impairment - 3,795
Pension and other postretirement expense 25,204 26,938
Pension contributions and other postretirement
benefit payments (118,702) (14,720)
Accounts receivable (82,134) 55,429
Inventories (22,533) 59,948
Accounts payable and accrued expenses 60,405 (133,863)
Other 47,141 (16,502)
------ -------
Net Cash (Used) Provided by Operating
Activities -Continuing Operations (14,216) 29,738
Net Cash Provided by Operating Activities -
Discontinued Operations 336 3,388
--- -----
Net Cash (Used) Provided by Operating
Activities (13,880) 33,126
INVESTING ACTIVITIES
Capital expenditures (13,981) (32,710)
Other (1,094) 3,649
------ -----
Net Cash Used by Investing Activities -
Continuing Operations (15,075) (29,061)
Net Cash Used by Investing Activities -
Discontinued Operations - (509)
--- ----
Net Cash Used by Investing Activities (15,075) (29,570)
FINANCING ACTIVITIES
Cash dividends paid to shareholders (8,690) (17,424)
Purchase of treasury shares - net (13,986) -
Net proceeds from common share activity 8,250 1,648
Net borrowings on credit facilities 3,699 6,034
----- -----
Net Cash Used by Financing Activities (10,727) (9,742)
Effect of exchange rate changes on cash (6,562) (3,086)
------ ------
Decrease in Cash and Cash Equivalents (46,244) (9,272)
Cash and Cash Equivalents at Beginning of
Period 755,545 133,383
------- -------
Cash and Cash Equivalents at End of Period $709,301 $124,111
======== ========
Media Contact: Lorrie Paul Crum, Manager – Global Media and Strategic Communications, Mail Code: GNW-37, 1835 Dueber Avenue, S.W., Canton, OH 44706 U.S.A., Telephone: (330) 471-3514, Mobile: (330) 224-5021, lorrie.crum@timken.com
Investor Contact: Steve Tschiegg, Director – Capital Markets and Investor Relations, Mail Code: GNE-26, 1835 Dueber Avenue, S.W., Canton, OH 44706 U.S.A., Telephone: (330) 471-7446, steve.tschiegg@timken.com
For Additional Information:
SOURCE The Timken Company