Timken Improves Fourth Quarter, Full-Year 2014 Results
02/02/2015 - The Timken Company reported fourth-quarter sales of US$762.2 million, up approximately 2% over the prior-year quarter.
The revenue increase was driven by organic growth in Process Industries, partially offset by unfavorable currency and a decrease in Mobile Industries sales due to planned program exits. For the fourth quarter, the company generated net income from continuing operations of US$38.9 million, or US$0.43 per diluted share; this compares with US$33.7 million or US$0.35 per diluted share from a year ago.
Adjusted net income from continuing operations in the fourth quarter was US$57.9 million or US$0.65 per diluted share. This was up from US$45.2 million or US$0.48 per diluted share for the same period a year ago. Revenue growth, lower manufacturing costs and a lower tax rate drove the net income improvement, which was partially offset by currency. Earnings per share in the quarter also benefited from fewer shares outstanding versus the prior period.
For 2014, sales were US$3.1 billion, up slightly over 2013. Excluding the impact of US$110 million of planned program exits in Mobile Industries that concluded in 2013, sales were up approximately 5%. Net income from continuing operations was US$144.5 million, or US$1.58 per diluted share, which compared with US$175.2 million or US$1.82 per diluted share in 2013.
Adjusted net income from continuing operations improved in 2014 to US$232.9 million or US$2.55 per diluted share. This compares with US$198.6 million or US$2.07 per diluted share in the prior year. Revenue growth and cost reductions drove the net income improvement. In addition, earnings per share also benefited from the company's share repurchase program.
"We are pleased to report solid fourth-quarter results that reflect strong execution in a slow-growth, strong-dollar environment," said Timken president and chief executive officer Richard G. Kyle. "For the full year, we were able to grow the top line modestly and convert that revenue growth into a 23% increase in adjusted EPS through our continued focus on portfolio improvement and cost reduction, complemented by our share repurchase program.
"Looking ahead to 2015, we are viewing our markets slightly more cautiously than 2014. New business wins combined with modest market growth are expected to result in approximately 4% organic growth, but that will largely be offset by the impact of currency," Kyle added. "As in 2014, we expect to continue to improve our cost structure and mix to deliver solid earnings per share growth on the revenue. We remain focused on creating value for our customers and are well-positioned to respond favorably should the economy grow faster than we are currently projecting."
Among recent developments, the company:
Mobile Industries, which now also includes aerospace results for all periods, reported fourth-quarter sales ofUS$389.5 million, down approximately 7% from the same period a year ago. More than half of the decrease came from planned program exits in the light vehicle sector that were completed in 2013. The remainder was largely due to declines in aerospace and agriculture, and the impact of currency, partially offset by growth in the rail sector. Earnings before interest and taxes (EBIT) for the fourth quarter were US$22.4 million or 5.8% of sales. This compares with EBIT of US$38.0 million or 9.1% of sales during the same period in 2013. Adjusted EBIT was US$28.6 million or 7.3% of sales, compared with US$34.0 million or 8.1% of sales in the fourth quarter last year. The decline in earnings was driven by lower volume and unfavorable mix, partially offset by lower manufacturing costs.
Process Industries sales of US$372.7 million for the fourth quarter were up approximately 12% over the same period last year. Sales were driven by organic growth in both the original equipment and aftermarket channels as well as the benefit of acquisitions, partially offset by currency. EBIT for the quarter wasUS$79.7 million or 21.4% of sales on improved volume and strong manufacturing performance. This compares with EBIT of US$50.9 million or 15.4% of sales during the same period in 2013.
2015 Outlook
For 2015, the company expects year-over-year revenue to be up a net 1% after offsetting currency from an expected increase of approximately 4% organic growth. The outlook for full-year 2015 by segment:
Excluding these items, 2015 adjusted earnings per diluted share are expected to range from US$2.65 to US$2.75, up 6% at the midpoint, as organic growth and the benefit of margin expansion initiatives are expected to be largely offset by the impact of currency.
Adjusted net income from continuing operations in the fourth quarter was US$57.9 million or US$0.65 per diluted share. This was up from US$45.2 million or US$0.48 per diluted share for the same period a year ago. Revenue growth, lower manufacturing costs and a lower tax rate drove the net income improvement, which was partially offset by currency. Earnings per share in the quarter also benefited from fewer shares outstanding versus the prior period.
For 2014, sales were US$3.1 billion, up slightly over 2013. Excluding the impact of US$110 million of planned program exits in Mobile Industries that concluded in 2013, sales were up approximately 5%. Net income from continuing operations was US$144.5 million, or US$1.58 per diluted share, which compared with US$175.2 million or US$1.82 per diluted share in 2013.
Adjusted net income from continuing operations improved in 2014 to US$232.9 million or US$2.55 per diluted share. This compares with US$198.6 million or US$2.07 per diluted share in the prior year. Revenue growth and cost reductions drove the net income improvement. In addition, earnings per share also benefited from the company's share repurchase program.
"We are pleased to report solid fourth-quarter results that reflect strong execution in a slow-growth, strong-dollar environment," said Timken president and chief executive officer Richard G. Kyle. "For the full year, we were able to grow the top line modestly and convert that revenue growth into a 23% increase in adjusted EPS through our continued focus on portfolio improvement and cost reduction, complemented by our share repurchase program.
"Looking ahead to 2015, we are viewing our markets slightly more cautiously than 2014. New business wins combined with modest market growth are expected to result in approximately 4% organic growth, but that will largely be offset by the impact of currency," Kyle added. "As in 2014, we expect to continue to improve our cost structure and mix to deliver solid earnings per share growth on the revenue. We remain focused on creating value for our customers and are well-positioned to respond favorably should the economy grow faster than we are currently projecting."
Among recent developments, the company:
- Continued to execute its aerospace business restructuring plan, completing the sale of its engine overhaul assets in Mesa, Arizona;
- Acquired the assets of Revolvo Ltd. in the U.K., bringing additional breadth to the Timken portfolio of industrial product solutions;
- Entered into a group annuity contract to transfer approximately US$600 million of retiree pension obligations to Prudential Insurance Company of America, funded entirely with plan assets; and
- Completed a special program to offer lump-sum pension distributions to eligible former employees.
Mobile Industries, which now also includes aerospace results for all periods, reported fourth-quarter sales ofUS$389.5 million, down approximately 7% from the same period a year ago. More than half of the decrease came from planned program exits in the light vehicle sector that were completed in 2013. The remainder was largely due to declines in aerospace and agriculture, and the impact of currency, partially offset by growth in the rail sector. Earnings before interest and taxes (EBIT) for the fourth quarter were US$22.4 million or 5.8% of sales. This compares with EBIT of US$38.0 million or 9.1% of sales during the same period in 2013. Adjusted EBIT was US$28.6 million or 7.3% of sales, compared with US$34.0 million or 8.1% of sales in the fourth quarter last year. The decline in earnings was driven by lower volume and unfavorable mix, partially offset by lower manufacturing costs.
Process Industries sales of US$372.7 million for the fourth quarter were up approximately 12% over the same period last year. Sales were driven by organic growth in both the original equipment and aftermarket channels as well as the benefit of acquisitions, partially offset by currency. EBIT for the quarter wasUS$79.7 million or 21.4% of sales on improved volume and strong manufacturing performance. This compares with EBIT of US$50.9 million or 15.4% of sales during the same period in 2013.
2015 Outlook
For 2015, the company expects year-over-year revenue to be up a net 1% after offsetting currency from an expected increase of approximately 4% organic growth. The outlook for full-year 2015 by segment:
- Mobile Industries' sales are expected to be roughly flat to down 2%. Without the impact of currency, sales are expected to increase 1 to 3% reflecting organic growth primarily from the light vehicle market sector, partially offset by a decline in the agriculture market. Full-year Mobile Industries EBIT margins are expected be within the targeted 10 to 13% range.
- Process Industries' sales are expected to increase approximately 2 to 4%. Excluding currency, sales are expected to increase 5 to 7% driven by organic growth in original equipment sectors, including wind energy and marine, the industrial aftermarket and the benefit of acquisitions. Full-year Process Industries EBIT margins are expected to be near the high end of the targeted margin range of 17 to 20%.
Excluding these items, 2015 adjusted earnings per diluted share are expected to range from US$2.65 to US$2.75, up 6% at the midpoint, as organic growth and the benefit of margin expansion initiatives are expected to be largely offset by the impact of currency.
