Timken Reports 2007 Results
02/01/2008 - Timken reports net income of 48.3 million on net sales of $1.3 billion for the fourth quarter, and net income of $220 million on net sales of $5.2 billion for all of 2007.
The Timken Co. reported net income of 48.3 million on net sales of $1.3 billion for the fourth quarter, and net income of $220 million on net sales of $5.2 billion for all of 2007.
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Timken’s Steel Group Results
Sales for the Steel Group, including inter-segment sales, reached a record $1.6 billion in 2007, up 6% from 2006. Excluding divestment of the group’s European steel tube manufacturing operations earlier in 2007, sales increased 10% over 2006. The company said that sales in 2007 benefited from strong demand in all market sectors, especially energy, as well as surcharges.
EBIT for the year increased to a record $213.1 million, up 3% over 2006, driven by strong volumes in key market segments, higher prices and surcharges, partially offset by inflation in raw-material and manufacturing costs. 2007 performance also benefited from high levels of production, surpassing the previous year’s record.
Steel Group sales in the fourth quarter, including inter-segment sales, were $379.4 million, an increase of 6% from the prior-year period. Fourth-quarter EBIT was $42.7 million, up 8% compared to a year ago. The Steel Group benefited from the same factors during the fourth quarter that impacted the full year.
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Fourth Quarter Results—Net income of $48.3 million compares to net income of $35.3 million for the year-ago fourth quarter. Sales of $1.3 billion represent an increase of 9% from a year ago. The company said that strong sales in industrial markets were partially offset by the impact of the company’s strategic divestments.
Income from continuing operations per diluted share was $0.50 in the fourth quarter of 2007 compared to $0.17 in the same period a year ago. The company’s performance benefited from higher volume and improved pricing, which were partially offset by higher raw-material, manufacturing and logistics costs.
Special items, net of tax, totaled $0.8 million of expense, compared to $5.5 million in the same period a year ago. The special items included losses on divestitures and charges related to restructuring, rationalization and impairment, partially offset by disbursements received under CDSOA. Excluding these items, income from continuing operations per diluted share in the fourth quarter of 2007 was $0.51, compared to $0.23 during the same period in 2006.
Full Year Results—Sales of $5.2 billion represent a 5% over 2006 sales of $5.0 billion. The company attributes the increase to strong sales in industrial markets and the favorable impact of currency, partially offset by the impact of the strategic divestment of the company’s automotive steering and European steel tube manufacturing operations.
Timken also achieved income from continuing operations of $219.4 million, or $2.29 per diluted share, up from $176.4 million, or $1.87 per diluted share, in 2006.
Excluding special items, income from continuing operations of $229.9 million ($2.40 per diluted share) represents a 15% increase compared to income from continuing operations of $200.8 million ($2.13 per diluted share) in the prior year.
Special items, net of tax, totaled $10.5 million of expense in 2007, which compares to $24.4 million in 2006. These special items, which included losses on divestitures and charges related to restructuring, rationalization and impairment, were partially offset by disbursements received under the Continued Dumping and Subsidy Offset Act (CDSOA) and favorable tax adjustments.
Management Comments—“Our financial results for 2007 reflect the strength of industrial markets and the progress we made on initiatives to shift our portfolio to markets where we can create greater shareholder value,” said James W. Griffith, Timken’s President and CEO. “We expect to see continued strong demand for our products and are committed to achieving improved financial performance through a combination of better execution and portfolio management.”
During 2007, the company took actions to shift its portfolio toward key growth markets, including Asia, aerospace, distribution, energy and heavy industries. Examples include:
- Capacity expansions over the past two years in China, India, Romania and the United States to meet growing demand for large-bore and aerospace bearings.
- Acquisition of The Purdy Corp. for $200 million, expanding the company's range of gearbox manufacturing and repair to serve the aerospace industry.
- Establishment of a joint venture in China to manufacture ultra-large-bore bearings for the growing Chinese wind energy market.
- Closure of steel tube manufacturing operations in Desford, England.
- Continued progress on restructuring initiatives within the company's bearing operations, including closure of its manufacturing facility in Clinton, S.C.
During the year, Timken commissioned a new induction heat-treat line focused on steel products for the energy and industrial sectors and began building a $60 million expansion for special small-bar steel capabilities that will give the company one of the broadest ranges of super-clean alloy steel bars in North America.
The company also realigned operations under two major business groups, the Bearings and Power Transmission Group and the Steel Group, to improve execution and accelerate profitable growth.
Finally, Timken completed its first major U.S. implementation of Project O.N.E., a program designed to improve enterprise-wide business processes and systems. Over the next year, the company will complete the next phase of the rollout, covering most of its remaining operations.
Financial Position—The company’s total debt was $723.2 million as of Dec. 31, 2007, or 26.9% of capital. Net debt at Dec. 31, 2007, was $693.0 million, or 26.1% of capital, compared to $496.8 million, or 25.2%, as of Dec. 31, 2006. According to Timken, the increase in net debt was due primarily to the Purdy aerospace acquisition in the fourth quarter of 2007, higher working capital requirements driven by strong demand, and increased capital expenditures in support of growth initiatives.
In the fourth quarter of 2007 the company implemented a change to its management structure and now operates under two major business groups, the Steel Group and the Bearings and Power Transmission Group, which includes three segments – Mobile Industries, Process Industries, and Aerospace & Defense. Beginning with the first quarter of 2008, the company will report its financial results under the new structure and reclassify its prior-period segmentation accordingly. Financial reporting under the previous segmentation (Industrial, Automotive and Steel) was used throughout the fourth quarter of 2007.
Outlook—The company said it expects earnings per diluted share for 2008, excluding special items, to be $2.75 to $2.95 for the year and $0.70 to $0.80 for the first quarter, compared to $2.40 and $0.66, respectively, for the comparable periods in 2007. Global industrial demand is expected to remain strong in 2008 as additional capacity comes online in key growth markets. The company also said it will continue to pursue pricing, portfolio management, and better execution to improve operating results.
Timken provides innovative friction management and power transmission products and services. Timken’s approximately 25,000 employees generated sales of $5.2 billion in 2007 from its operations in 26 countries.
