Timken Reports 2009 Results, 2010 Outlook
02/03/2010 - The Timken Co. reported a net loss of $20.2 million on sales of $774.6 million for the fourth quarter and a net loss of $134.0 million on sales of $3.1 billion for the year 2009.
The Timken Co. reported a net loss of $20.2 million on sales of $774.6 million for the fourth quarter and a net loss of $134.0 million on sales of $3.1 billion for the year 2009.
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Timken’s Steel Group
Timken’s Steel Group incurred a $57.9-million loss* in 2009, compared with EBIT of $264.0 million in 2008. The decline resulted from lower demand and underutilization of manufacturing capacity. The company noted that benefits from cost-reduction actions, lower material costs and an approximate $70-million change in LIFO reserve were offset by lower surcharges. The change in LIFO reserve was due to lower year-end inventory quantities and material costs.
Sales, including inter-group sales, were $714.9 million in 2009, a 61% decrease from $1.85 billion last year, with 50% fewer shipped tons. The greatest market declines were from the industrial and energy sectors. Surcharges declined approximately $555 million from a year ago.
Fourth-quarter sales, including inter-segment sales, were $173.6 million, a 53% decrease from $371.5 million for the year-ago fourth quarter, with approximately 40% fewer shipped tons. The company said that weaker end-market demand in the industrial and energy sectors was partially offset by stronger demand in the light-vehicle sector compared with a year ago due to consumer stimulus programs in the U.S. and continued market strengthening in general. Surcharges declined approximately $80 million from the year-ago fourth quarter.
Fourth-quarter EBIT was $2.6 million, up from a loss of $3.5 million in the year-ago quarter. Lower material costs, an approximately $30-million favorable change in LIFO and cost-reduction initiatives more than offset the impact of lower demand.
*Results reflect continuing operations, excluding special items.
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Excluding special items, income was $0.40 per diluted share, including $0.09 per diluted share from discontinued operations. Net of non-controlling interest, income from continuing operations (excluding special items) was $0.31 per diluted share, which compares with $0.15 for the same period last year. Benefits from pricing, cost reductions, lower material costs and LIFO income were partially offset by lower sales volume, manufacturing underutilization and reduced surcharges.
Sales of $774.6 million reflect a 29% decrease from the year-ago fourth quarter. The company said the reduction reflects weaker demand across most of its end markets and lower surcharges, while favorable pricing and currency partially offset the sales decline.
Full-Year Results — The $134.0 million ($1.39 per share) net loss, which included a $72.6 million ($0.75 per share) loss from the Needle Roller Bearings business, compared with income of $278.9 million ($2.89 per diluted share) in 2008. Net of non-controlling interest, the company's continuing operations incurred a loss of $61.4 million ($0.64 per share) for the year,
Excluding special items, net income was $30.7 million ($0.32 per diluted share), including a $20.2-million ($0.21 per share) loss from discontinued operations. Net of non-controlling interest, income from the company's continuing operations was $50.9 million ($0.53 per diluted share) excluding special items, compared with $295.0 million ($3.06 per diluted share) in the prior year. The company said the change in full-year earnings reflects lower sales volume, surcharges and manufacturing utilization, partially offset by pricing, cost reductions, lower material costs and LIFO income.
Special items for 2009, net of tax, amounted to $164.6 million of expense, compared with $45.8 million in the prior year. Special items included $49.7 million in asset impairment charges for Mobile Industries; a $37.8-million loss on the sale of the Needle Roller Bearings business; $20.8 million in impairment charges in Process Industries for consolidation of bearing operations; and $56.4 million of severance costs associated with the company's cost-reduction efforts. Special items in the prior year consisted primarily of a goodwill impairment charge in the Mobile Industries segment.
Sales of $3.1 billion reflect a 38% decrease from a year ago. The company said the sales comparison, which excludes for both periods the results of the Needle Roller Bearings business sold in December (accounted for as "discontinued operations"), reflects weak demand and lower surcharges, partially offset by improved pricing.
Management Comments — "The global economic environment made 2009 an extremely challenging year for The Timken Company, which is reflected in the reduction in our sales and earnings," said James W. Griffith, Timken President and CEO. "However, we responded quickly to the downturn, taking actions that helped generate record free cash flow. We continued shifting our portfolio towards attractive markets, strengthening our balance sheet and improving our operating capabilities. Today we are better positioned to leverage an economic recovery."
Business Highlights — The company took the following actions in response to the global economic recession:
- Realigned the organization to improve focus on target markets, made structural cost reductions and limited discretionary spending.
- Enhanced customer service capabilities and drove supply-chain efficiencies with further deployment of its "Project ONE" enterprise initiative.
- Completed the sale of its Needle Roller Bearings business for approximately $330 million, including retained receivables.
- Generated $577 million of net cash provided by operating activities and record free cash flow of $419 million.
- Strengthened its balance sheet and liquidity, completing three financings.
Total debt was $513 million (24.3% of capital) as of Dec. 31, 2009, or. At year-end, the company's cash position was $756 million, or $243 million in excess of total debt, which compares with net debt of $490 million as of Dec. 31, 2008. The company said the improvement reflects strong free cash flow of $419 million driven primarily by working capital reductions as well as proceeds from the sale of the Needle Roller Bearings business.
Outlook — Overall, the company expects the global economy to grow modestly in 2010 following 2009's retraction. Timken anticipates an increase in sales of approximately 5 to 10% over 2009, driven primarily by stronger shipments in the Steel Group, as customers rebuild inventory levels. The company expects the Mobile Industries segment to be up slightly, as increased demand is largely offset by the company's initiatives to exit low-margin business. The company expects sales in the Process Industries segment to be up slightly, with growth initiatives in energy and Asia more than offsetting declines in other areas. The company also expects Aerospace segment sales to decline slightly due to decreases in commercial and general aviation.
The company expects 2010 earnings, excluding special items, to range from $0.85 to $1.15 per diluted share for the year, compared with $0.53 per diluted share from continuing operations in 2009.
Timken provides innovative friction management and power transmission products and services. With operations in 26 countries and approximately 17,000 employees, the company generated sales of $3.1 billion in 2009.
