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Timken Reports Record Third-Quarter Earnings
10/28/2008 - Timken reports income from continuing operations of $130.4 million on record third-quarter sales of $1.48 billion for the third quarter, and net income of $303.8 million on sales of $4.45 billion for the first nine months of 2008.
The Timken Co. reported income from continuing operations of $130.4 million on record third-quarter sales of $1.48 billion for the third quarter, and net income of $303.8 million on sales of $4.45 billion for the first nine months of 2008.
Third Quarter Results—The $130.4 million income from continuing operations ($1.35 per diluted share) compares to income of $41.2 million ($0.43 per diluted share) in the year-ago third quarter. Excluding special items, income from continuing operations was $135.8 million ($1.41 per diluted share), a 179% increase compared to $48.6 million ($0.51 per diluted share) in the third quarter of 2007. Earnings exceeded the company’s prior estimate of $1.00 to $1.10, principally due to the impact of last-in, first-out (LIFO) accounting, resulting from projected lower raw-material costs, and the timing of raw-material cost recovery.
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Timken’s Steel Group
Sales for the Steel Group (including inter-group sales) reached $536.5 million in the third quarter, a 41% increase from sales of $381.1 million in the year-ago third quarter. The company said the increase was driven by raw-material surcharges, the impact of the Boring Specialties acquisition (completed in the first quarter of 2008), and favorable mix as a result of higher demand across all market sectors, except automotive.
Third-quarter EBIT was $133.8 million, a 156% from $52.3 million EBIT in the year-ago quarter. Compared to the year-ago third quarter, results benefited from the timing of surcharges in excess of raw-material costs, and better mix. The rapid decline in material costs at the end of the third quarter resulted in LIFO income, compared to LIFO expense in the third quarter of 2007. These factors more than offset weaker automotive demand and the impact of inflation.
For the first nine months of 2008, Steel Group sales were $1.48 billion, a 25% increase over the first nine months of last year. EBIT was $267.5 million (18.1% of sales), compared to EBIT of $183.7 million (15.5% of sales) in the same period last year.
The company anticipates fourth-quarter Steel Group performance to be below the prior-year period due primarily to raw-material costs only partially offset by surcharges during the quarter and the impact of lower automotive production volumes. The negative impact from material cost recovery is due to timing, as the company benefited from surcharges in excess of its material costs in the third quarter of 2008.
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Record third-quarter sales of $1.48 billion represent an 18% increase over the year-ago third quarter. During the quarter, the company benefited from the favorable impact of surcharges, pricing and currency, as well as acquisitions that serve the aerospace and energy market sectors. Strong sales in global industrial markets largely offset the impact of weaker automotive demand.
“Our strategy of shifting our portfolio toward more attractive global industrial markets is clearly delivering results,” said James W. Griffith, Timken’s President and CEO. “While the economy today is unsettled, we still see strong demand for our products from aerospace, energy and heavy industry market sectors, as well as growth in Asia. We continue to take actions to deal with declining automotive demand. Our company is well-positioned to navigate the uncertain markets we face.”
During the quarter, the company invested $14 million in a new thermal treatment facility at its steel plant in Canton, Ohio. This new facility will increase capacity primarily suited for use in the energy and industrial market sectors. The company also began production of large-bore bearings at its plant in Wuxi, China, during the quarter; this production will serve customers in key market sectors including cement, mining, wind energy and rail; and
Financial Position—Total debt at Sept. 30, 2008, was $739.2 million (25.1% of capital), while net debt at Sept. 30, 2008, was $644.5 million, or 22.6 percent of capital, compared to $693.0 million, or 26.1 percent of capital, at Dec. 31, 2007. The decrease in net debt reflects strong operating cash flow.
In addition to cash and cash equivalents of $94.7 million at Sept. 30, 2008, the company has liquidity available under a $500-million senior credit facility and a $200-million accounts-receivable securitization program. Availability under these committed facilities totaled $563.5 million at Sept. 30, 2008. The company expects to generate positive 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.
Nine-Month Results—Income from continuing operations was $3.15 per diluted share, which compares to $1.79 last year. Sales of $4.45 billion represent a 14% increase from the same period in 2007.
Special items, net of tax, totaled $3.3 million of expense compared to $9.7 million of expense in the prior-year period. These special items included charges related to restructuring, rationalization and impairment, partially offset by a gain on a real-estate divestment associated with a prior plant closure. Excluding special items, income from continuing operations was $3.19 per diluted share, a 69% increase vs. $1.89 in the same period a year ago.
The company said that 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—Against the backdrop of continued softening of the global economic outlook compounded by constraint in the credit markets, the company said it is seeing weakness in its North American and Western European markets, while demand in Asia continues to grow at a slower pace. The company noted that demand for its products in aerospace, energy and heavy industry markets remains relatively strong on a global basis.
The company expects earnings per diluted share for 2008 (excluding special items) to be $3.35 to $3.45 for the year and $0.16 to $0.26 for the fourth quarter, compared to $2.40 and $0.51, respectively, for the same periods in 2007. Fourth-quarter expectations are below the company’s previous estimate due primarily to the timing of raw-material cost recovery in the Steel Group, which benefited the third quarter, and weaker automotive demand for both Steel and Mobile Industries.
The company reaffirmed its expectation for record full-year earnings.
Timken supplies innovative friction management and power transmission products and services. Its approximately 25,000 employees generated sales of $5.2 billion in 2007 from its operations in 27 countries.
