Timken Reports Record 1st Quarter Results
05/01/2008 - Timken reports net income of $84.5 million on sales of $1.43 billion for the first quarter of 2008.
The Timken Co. reported net income of $84.5 million on sales of $1.43 billion for the first quarter of 2008.
First Quarter Results—Income from continuing operations, $84.5 million ($0.88 per diluted share) compares to income of $74.3 million ($0.78 per diluted share) in the year-ago first quarter. The company said that strong earnings benefited from favorable pricing, volume, mix and currency, although these were partially offset by higher LIFO charges related to increased material costs.
Special items, which totaled $5.6 million of income (net of tax), included a gain on a real estate divestment associated with a prior plant closure, partially offset by charges related to restructuring, rationalization and impairment. For the year-ago first quarter, special items, net of tax, totaled $11.8 million of income.
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Steel Group Results
Sales for the Steel Group (including inter-group sales) reached $425.0 million, a 9% increase sales of $390.3 million for the year-ago first quarter. Excluding the net impact of the BSI acquisition and the 2007 divestment of the group’s steel tube manufacturing operations in England, sales increased 16%. The increase was driven by raw-material surcharges and higher demand in the energy sector, partially offset by lower demand in automotive-related sectors.
First-quarter EBIT was $53.4 million, a 19% drop compared to $65.5 million in the prior-year period. The Steel Group benefited from higher volume, favorable mix and surcharges, which were more than offset by the negative impact of higher LIFO expense, significantly higher raw-material costs, and inflation in manufacturing costs.
The company expects Steel Group performance in 2008 to be comparable to 2007, as strong demand and the favorable impact of the BSI acquisition are anticipated to be offset by LIFO expense, driven by significant inflation in the cost of raw-materials and consumables.
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Sales of $1.43 billion reflect a 12% increase over the year-ago first quarter. The sales increase was driven by strong sales in global industrial markets, as the company benefited from its capacity-expansion initiatives, as well as the favorable impact of pricing, surcharges and currency.
Management Comments—“We achieved record first-quarter earnings as execution of our strategic initiatives and a more efficient operating model allowed us to take better advantage of continued strong global demand for our industrial products,” said James W. Griffith, Timken’s President and CEO. “We continue to have a positive outlook for 2008 performance as we bring more capacity online in attractive markets and advance our pricing and execution initiatives.”
First Quarter Highlights—During the quarter, the company implemented the next wave of Project O.N.E., the company’s business process improvement and global systems initiative, covering most of the company’s remaining U.S. and European operations. The company also completed construction of a new industrial bearing manufacturing plant in Chennai, India, and a new aerospace and precision products facility in Chengdu, China, which are part of Timken’s strategy of driving growth in key global industrial markets; and
During the first quarter, the company also acquired the assets of Boring Specialties Inc. (BSI), which provides steel components for the oil and gas industry, further expanding Timken’s ability to serve the growing market for high-performance energy products.
As of March 31, 2008, Timken’s total debt was $873.3 million (29.7% of capital). Net debt was $805.1 million (28.0% of capital) compared to $693.0 million (26.1% of capital) as of Dec. 31, 2007. The company said the increase in net debt was due to seasonal working capital requirements and strong demand. Net debt also increased due to acquisitions, net of divestments, during the quarter. The company expects to end 2008 with lower net debt and leverage, providing additional financial capacity to pursue strategic investments.
First-quarter financial reporting reflects changes to the company’s management structure to improve execution and accelerate profitable growth. The company operates under two major business groups, the Steel Group and the Bearings and Power Transmission Group, which includes three reporting segments: Mobile Industries, Process Industries, and Aerospace and Defense.
Outlook—The company said that it expects earnings per diluted share (excluding special items) to be in the range of $2.75 to $2.95 for the year and $0.73 to $0.83 for the second quarter. Expected earnings compare to earnings per share of $2.40 and $0.73, respectively, for the same periods in 2007.
The company also expects global industrial demand to remain strong in 2008 as additional capacity comes on line in key growth markets. Timken will continue to pursue pricing, portfolio management, and better execution to improve operating results, which are expected to contribute to anticipated record performance for the company in 2008.
Timken supplies innovative friction management and power transmission products and services. The company’s approximately 25,000 employees generated sales of $5.2 billion in 2007 from its operations in 27 countries.
