Timken Posts Strong Quarter, Raises Full-Year Forecast
10/28/2011 - Timken reported $111 million income from continuing operations on sales of $1.3 billion for the third quarter and $345.2 million income from continuing operations on sales of $3.9 billion in the first nine months of 2011.
The Timken Co. reported $111 million income from continuing operations on sales of $1.3 billion for the third quarter and $345.2 million income from continuing operations on sales of $3.9 billion in the first nine months of 2011.
Third Quarter Results — The company generated $111 million ($1.12 per diluted share) income from continuing operations net of non-controlling interest, reflecting a 55% increase compared with $71.4 million ($0.73 per diluted share) a year ago. The improvement reflects higher volume, favorable mix, surcharges and pricing, which more than offset increased raw-material costs, as well as higher selling and administrative costs. Results also reflect a higher tax rate during the quarter (38.5%) primarily from a recent change in French tax law that was retroactive to the beginning of the year.
Sales of $1.3 billion reflect an increase of 25% over the same period a year ago. The increase primarily reflects demand growth across the company's diverse industrial markets, as well as favorable effects from pricing, material surcharges and acquisitions.
"With the addition of this quarter's strong performance, we earned more in nine months than our previous annual record," said James W. Griffith, Timken President and CEO. "This accelerated performance shows our strategy is working, positioning Timken to serve attractive industrial markets that today are growing faster than the economy in general. We are leveraging that growth to higher profitability."
Among other recent developments, the company opened early negotiations for its 2013 labor agreement with the United Steelworkers of America to support a potential $225-million investment at its Faircrest Steel Plant in Canton.
Nine Month Results — The company reported $345.2 million ($3.48 per diluted share) earnings from continuing operations net of non-controlling interest, a 91% increase compared with $181.1 million ($1.86 per diluted share) earned in the comparable year-earlier period. Earnings benefited from increased demand, higher surcharges and a combination of favorable pricing and mix, which more than offset higher raw-material and logistics costs, as well as selling and administrative costs.
Sales of $3.9 billion reflect a 31% increase from the same period in 2010. Strong end-market demand drove the increase, along with favorable pricing, surcharges and currency effects.
The nine-month tax rate of 35.2% was lower than the prior year's rate of 40.2%, which included the effect of U.S. healthcare legislation.
Total debt as of Sept. 30, 2011, was $512.1 million, or 18.7% of capital. At the end of the third quarter, the company had cash of $406.5 million and net debt of $105.6 million, compared with a net cash position of $363.4 million at the end of 2010.
For the first nine months, the company used $67.4 million in cash from operating activities, as strong earnings were more than offset by higher working capital requirements to support demand and $256 million of discretionary contributions, net of tax, to the pension and VEBA trust plans. Excluding these discretionary contributions, free cash flow (operating cash after capital expenditures and dividends) was $26 million. The company continues to maintain a strong balance sheet and ended the quarter with $1.3 billion of available liquidity.
Steel Segment Results — Sales for the company’s Steel segment, including inter-segment sales, were $501.5 million in the third quarter, a 35% increase from $371.3 million for the same period last year. Stronger demand, particularly in the energy and industrial sectors, contributed to broad-based improvement, as well as favorable pricing and surcharges. Raw-material surcharges increased approximately $45 million from the third quarter last year.
Third-quarter EBIT was $67.1 million (13.4% of sales), up 62% from $41.3 million (11.1 percent of sales) for the comparable year-ago period. Results reflect improved pricing, stronger volume and favorable mix, especially in the industrial and energy sectors, partially offset by higher costs for material and planned maintenance.
For the first nine months of 2011, Steel segment sales were $1.5 billion, up 52% from the first nine months of last year. Higher demand in the oil and gas market led the increase, which also reflected broad-based industrial growth and surcharges. Raw-material surcharges increased approximately $170 million from the same period a year ago. EBIT for the first nine months of 2011 was $199.2 million (13.4% of sales), compared with $104.2 million (10.6% of sales) last year.
Outlook — For the full-year 2011, Timken anticipates a sales increase of approximately 25 to 30%, including a 40 to 45% in steel sales, driven by stronger demand in the energy and industrial sectors, as well as capacity increases and surcharges.
Timken projects annual earnings in the range of $4.45 to $4.55 per diluted share. The company should generate approximately $210 million in cash from operations and expects to use $65 million in free cash flow after making capital expenditures of about $200 million and paying $75 million in dividends. Excluding year-to-date discretionary pension and VEBA trust contributions of $256 million, net of tax, the company expects annual free cash flow of approximately $190 million.
The Timken Co. supplies innovative friction management and power transmission products and services. In 2010, the company’s 20,000 employees generated sales of $4.1 billion operating from locations in 30 countries.
