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Timken Reports Record 2nd Quarter Results

07/29/2005 - The Timken Co. reported net income of $67.3 million on sales of $1.3 billion for the second quarter of 2005. Results reflect a 17% increase in sales and more than doubling of earnings per share compared to a year ago.

The Timken Co. reported net income of $67.3 million on sales of $1.3 billion for the second quarter of 2005. Results reflect a 17% increase in sales and more than doubling of earnings per share compared to a year ago.

Timken’s Steel Group

Steel Group sales were $445.3 million in the second quarter, up 35% from $330.4 million last year. Sales growth in alloy and specialty steel businesses reflected strong demand from industrial customers as well as price increases and surcharges to recover high raw material and energy costs.

EBIT was $56.7 million compared to $3.0 million last year. Increased volume, price increases, surcharges and continued high labor productivity drove the strong EBIT performance. During the quarter, the company also benefited from its investment in the new continuous rolling mill at its specialty steel operation in Latrobe, Pa.

Last year's second quarter EBIT was reduced by nearly $8 million due to an unplanned shutdown of the Faircrest steel plant.

For the first half, Steel Group sales were $912.8 million, up 43% over the first half of last year. EBIT for the first half was a record $120.5 million — or 13.2% of sales — compared to 0.9% of sales in the first half of 2004. Steel Group's second half results are expected to be lower than the record first half due to seasonality and lower raw material surcharges.

"We are pleased to report both record sales and second-quarter earnings per share. As these results demonstrate, we have leveraged the strength of the industrial markets we serve, while improving competitiveness," said James W. Griffith, President and CEO.

Second Quarter Results—The $67.3 million net income ($0.73 per diluted share) compares to $25.3 million ($0.28 per diluted share) a year ago. Sales of $1.3 billion compared to $1.1 billion last year. Excluding special items, earnings per diluted share were $0.77, compared to $0.33 per diluted share last year. Special items totaled $3.7 million of pretax expense, including expenses for manufacturing rationalization, integration and reorganization, partially offset by a gain on the sale of a non-strategic business.

"While we are seeing strong industrial markets, automotive markets continue to be challenging. We have benefited from actions to improve our position, including price increases to recoup high raw material costs. However, these efforts have not been enough to offset significant changes occurring in the automotive industry. As a result, we are taking more aggressive actions. Over the next quarter, we will announce detailed plans to globally restructure our Automotive Group to reduce fixed costs, with targeted annual savings of approximately $40 million," Mr. Griffith said.

Six Month Results—Earnings per diluted share were $1.37, versus $0.60 in 2004. Excluding special items, earnings per diluted share were $1.42, versus $0.64 in 2004. Special items totaled $4.8 million of pretax expense, compared to $6.9 million a year ago. Sales were $2.6 billion, an increase of 18% from the prior year.

Excluding special items, the company's effective tax rate was 34.1%, down from 36.0% in the first quarter, due to higher earnings in low tax-rate jurisdictions. The company expects to maintain its rate from the first half.

Total debt at June 30, 2005 was $842.1 million, or 38.6% of capital. Debt was higher than the 2004 year-end level of $779.3 million due to seasonality and higher working capital requirements to support growth. The company expects its leverage to be lower at the end of this year compared to last year.

Outlook—As a result of the company's strong second-quarter performance and improved outlook for the year, the company is estimating third-quarter earnings per diluted share, excluding special items, of $0.50 to $0.55 and increasing its full-year estimates to $2.40 to $2.55 from $2.05 to $2.20. The improved outlook reflects continued strong industrial markets, benefiting the Industrial and Steel Groups, which should more than offset continued challenges within automotive markets.