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Timken Reports Record 2nd-Quarter Results
07/31/2008 - Timken reports record net income of $88.9 million on record net sales of $1.54 billion for the second quarter, and net income of $173.4 million on net sales of $2.97 billion for the first six months of 2008.
The Timken Co. reported record net income of $88.9 million on record net sales of $1.54 billion for the second quarter, and net income of $173.4 million on net sales of $2.97 billion for the first six months of 2008.
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Timken’s Steel Group Results
Sales for the Steel Group (including inter-group sales) reached $518.9 million, a 26% increase from sales of $410.8 million for the same period last year. The company said the increase was driven by raw-material surcharges and higher demand across all market sectors, except for automotive.
Second-quarter EBIT was $80.3 million, a 22% increase from $65.9 million in the prior-year period. Compared to the same period a year ago, the company said results benefited from volume, mix and surcharges, which were partially offset by higher raw-material and related LIFO charges, as well as higher manufacturing costs.
For the first six months, Steel Group sales were $943.9 million, an 18% increase over the first half of last year. EBIT for the first half was $133.7 million (14.2% of sales), which compares to EBIT of $131.4 million (16.4% of sales) in last year’s first half.
The company said that it expects second-half 2008 Steel Group performance to be below the first half of the year, and above the second half of 2007. The company continues to expect to benefit from volume, mix and surcharges, partially offset by higher raw-material and related LIFO charges, as well as increased manufacturing costs.
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The $88.9 million income from continuing operations ($0.92 per diluted share) compares to income of $55.6 million ($0.58 per diluted share), in the year-ago second quarter. Excluding special items, income from continuing operations increased 33% to $92.4 million ($0.96 per diluted share) compared to income of $69.7 million ($0.73 per diluted share) in the second quarter of 2007.
The company said that results benefited from favorable pricing, surcharges, volume and currency, which were partially offset by higher material costs and related LIFO charges. Second-quarter special items, net of tax, included manufacturing rationalization, impairment and restructuring charges totaling $3.5 million, compared to $14.1 million of similar charges in the second quarter of 2007.
Management Comments—“The company has pursued a deliberate strategy to transform Timken’s portfolio where we see a significant opportunity to drive profitable growth,” said James W. Griffith, Timken’s President and CEO. “This strategy is allowing us to create higher levels of customer and shareholder value over time and contributed to record sales and earnings during the second quarter despite continued weakness in automotive markets. We are on pace to achieve record performance for the year as our strategic initiatives to add capacity and strengthen execution continue to take hold.”
Second Quarter Accomplishments—During the quarter, the company completed another significant phase of Project O.N.E., Timken’s business process improvement and global systems initiative, now covering most of the company’s U.S. and European Bearing and Power Transmission operations. The company also initiated production at its new aerospace and precision products facility in Chengdu, China, and started shipping products from its new industrial bearing manufacturing plant in Chennai, India.
Timken also continued to strengthen its balance sheet, ending the quarter with total debt of $861.4 million (28.3% of capital). Net debt at June 30, 2008, was $786.6 million (26.5% of capital), which compares to net debt of $805.1 million (28.0% of capital) at March 31, 2008. The company said it expects to generate strong free cash flow for the remainder of the year, and to end 2008 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.
Six-Month Results—Sales of $2.97 billion through the first six months reflect a 13% increase compared to sales for the first six months of 2007. Income from continuing operations per diluted share was $1.80, which compared to $1.36 last year.
Special items, net of tax, totaled $2.1 million of income, which compares to $2.3 million of expense in the prior-year period. These special items included a gain on a real estate divestment associated with a prior plant closure, partially offset by charges related to restructuring, rationalization and impairment. Excluding special items, income from continuing operations per diluted share increased 28% to $1.78, vs. $1.39 in the first half of 2007. The company said results benefited from strong industrial market demand, pricing, surcharges, mix and currency, which were partially offset by higher raw-material costs and related LIFO charges and the impact of lower automotive demand.
Outlook—The company said that it expects earnings per diluted share (excluding special items) to be $2.95 to $3.10 for the year 2008 and $0.65 to $0.75 for the third quarter. These expected per-share earnings compare to earnings per diluted share $2.40 and $0.51, respectively, for the same periods in 2007.
The company expects industrial demand to remain strong in 2008 as additional capacity comes online in key growth markets, while North American automotive demand is anticipated to decline. Timken said it will continue to pursue execution initiatives and portfolio optimization, as well as pricing and better working capital management to improve operating results and cash flow. The company expects these initiatives to contribute to record performance in 2008.
