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Timken Reports Record 2nd Quarter Results

07/27/2006 -  

July 27, 2006 — The Timken Co. today reported net income of $74.7 million on record sales of $1.39 billion for the second quarter, and net income of $140.6 million on sales of 2.74 billion for the first six months of 2006.

Timken’s Steel Group reported record sales of $469.1 million in the second quarter, a 5% percent increase from $445.3 million in the same period a year ago. Timken says the record sales were driven by increased pricing, surcharges and higher demand in the service center, aerospace, bearing and energy segments, which were partially offset by lower automotive demand.

Second quarter EBIT was a record $75.4 million, up 33% from $56.7 million for the same period last year. Timken attributes the record results to price increases, surcharges, better sales mix and improved manufacturing productivity.

For the first six months of 2006, Steel Group sales were $937.3 million, up 3% over the first half of last year. EBIT was a record $146.6 million (15.6% of sales), which compares to EBIT of $120.5 million (13.2% of sales) in the first half of 2005.

The company anticipates Steel Group profitability to be down in the second half of 2006, compared to the first six months of the year due to seasonality, but expects to exceed last year's record performance for the full year due to continued strong markets and manufacturing performance.

Second Quarter Results—The $74.7 million net income ($0.79 per diluted share) reflects an 11% increase compared to net income of $67.3 million ($0.73 per diluted share) in the second quarter a year ago.

Excluding special items, earnings per diluted share increased 17% to a record $0.90 from $0.77 in last year's second quarter. Special items included manufacturing restructuring and rationalization charges and the impact of asset dispositions that totaled $21.0 million of pretax expense, compared to $3.7 million in the same period a year ago.

Record sales of $1.39 billion reflect a 5% increase over the same period a year ago.

"This quarter's results reflect good progress towards fundamentally improving financial performance," said James W. Griffith, President and CEO. "Strong industrial markets and record Steel Group results contributed to our record second quarter. Our financial performance is underpinned by our strategic progress as we continue to improve the level of innovation and execution across the company."

During the quarter, the company strengthened its balance sheet through strong cash generation. Total debt at June 30, 2006 was $704.0 million (29.8% of capital). Net debt at June 30, 2006 was $665.2 million (28.6% of capital) compared to $737.2 million (31.9% of capital) at March 31, 2006. Cash generated from earnings and working capital more than offset higher pension contributions and capital expenditures. The company expects to generate strong free cash flow for the remainder of the year.

Six Month Results—Net income of $140.6 million compares to net income of $125.6 for the first six months of 2005. Sales were $2.7 billion, an increase of 4% from the same period in the prior year, driven by strong industrial markets. Earnings per diluted share increased 9% to $1.49. This includes the benefit of lower pension and retiree medical expense of approximately $0.05 per diluted share.

Special items totaled $25.8 million of pretax expense, compared to $4.8 million in the same period a year ago. Excluding special items, earnings per diluted share in the first half of 2006 were $1.61, versus $1.42 in the first half of 2005, due to strong industrial market demand and a record performance by the Steel Group.

Outlook—The company recently raised its 2006 estimated earnings to $3.00 to $3.15 per diluted share, excluding special items, from $2.80 to $2.95. This revised earnings estimate compares to 2005 earnings per diluted share of $2.53, excluding special items. Earnings per diluted share are estimated to be $0.70 to $0.75 for the third quarter of 2006, excluding special items.

As the company continues to implement its business strategies, it expects to achieve margin improvement in the Automotive and Industrial Groups, and Steel Group margin performance should exceed last year's record levels.

Timken is an international supplier of highly engineered bearings, alloy steels and related products and services turn up everywhere. The company has operations in 27 countries, sales of $5.2 billion in 2005 and 27,000 employees.