Timken Reports Third-Quarter Results; Updates Outlook

CANTON, Ohio, Oct. 24, 2013 /PRNewswire-FirstCall/ -- The Timken Company (NYSE: TKR) today reported third-quarter 2013 sales of $1.1 billion.  Sales decreased 7 percent when compared with the same period a year ago, primarily due to weaker demand from the company's  broad end markets, partially offset by acquisitions. 

(Logo:  http://photos.prnewswire.com/prnh/20100210/TIMKENLOGO )

Timken generated third-quarter net income of $52.2 million, or $0.54 per diluted share.  Compared with net income of $80.9 million or $0.83 per diluted share during the same period a year ago, third-quarter earnings primarily reflect lower volume and manufacturing utilization as well as unfavorable sales mix.  The decrease was partially offset by lower raw material and plant closure costs as well as favorable pricing.

"On a macro basis, economic growth across the world has been much slower than we and our customers envisioned, and our third-quarter results were below our expectations," said James W. Griffith, Timken president and chief executive officer.  "As a result, we've implemented and are continuing to take additional actions to allow us to enhance margins despite the lower demand levels.  These include leveraging our strategic investments as well as implementing tactics to rationalize capacity levels and taking further actions to reduce costs, with a focus on SG&A." 

Among recent developments, the company:

• Announced that its board of directors has approved a plan to pursue a separation of the company's steel business from its bearings and power transmission business through a tax-free spinoff, creating a new independent publicly traded steel company in 2014; 
• Expanded its product portfolio, launching new Timken^® SNT plummer blocks and seals; introducing new Timken^® encoders that utilize the latest magnetic encoder technology; and designing two new high-performance Timken^® alloy steels to meet the specific needs of the oil and gas industry;
• Further aligned its operations with market needs, which includes capacity rationalizations, supply chain improvements and workforce reductions; and
• Returned $47 million in capital to shareholders through dividends and repurchases of company shares in the quarter, bringing the total capital returned through September 2013 to approximately $175 million.  The company has approximately 5.6 million shares remaining under its board-approved share repurchase program.

Nine Months' Results
Timken posted sales of $3.3 billion in the first nine months of 2013, down 16 percent from the same period in 2012. The change reflects lower demand across most of the company's broad end markets.  In addition, a $124 million decline in raw material surcharges from the prior-year period negatively impacted revenues.  The decrease was partially offset by the benefit of acquisitions.

In the first nine months of 2013, the company generated net income of $210.1 million, or $2.18 per diluted share. That compares with $420.2 million, or $4.28 per diluted share, in the same period last year, which included CDSOA receipts of $68 million, or $0.70 per share.  Lower volume and manufacturing utilization, as well as sales mix, drove earnings during the first nine months of 2013. The decrease was partially offset by lower raw material costs, lower selling and administrative expenses, favorable pricing and lower costs related to previously announced plant closures (reference Table 1).

As of September 30, 2013, total debt was $476.6 million, or 16.8 percent of capital.  The company had cash of $418.1 million, resulting in $58.5 million of net debt, compared with a net cash position of $107.4 million at the end of 2012. 

In the first nine months of 2013, the company generated $251.8 million in cash from operating activities. Excluding discretionary pension contributions of $66.0 million, net of tax, free cash flow (operating cash after capital expenditures and dividends) was $42.0 million.  In addition, the company repurchased 1.9 million shares for an aggregate of $107 million and made three acquisitions totaling $65 million. 

Mobile Industries Segment Results
In the third quarter, Mobile Industries' sales of $348.1 million decreased 12 percent compared with last year's third-quarter sales of $396.9 million.  The $49 million decrease included $30 million related to the company's market strategy primarily in the light-vehicle sector.  The remaining decrease was driven by lower volume in most non-automotive markets, led by mining, agriculture and heavy truck, partially offset by the Interlube Systems acquisition. 

EBIT for the segment was $29.1 million for the third quarter, or 8.4 percent of sales, down 23 percent from $37.9 million, or 9.5 percent of sales for the same period a year ago.  The decrease was driven primarily by lower volume, partially offset by lower plant closure and raw material costs.

For the nine months of 2013, Mobile Industries' sales were $1.1 billion, a decrease of 13 percent relative to the same period a year ago.  EBIT for the first nine months of 2013 was $132.7 million, or 11.7 percent of sales, down 23 percent from $173.4 million, or 13.2 percent of sales, in the prior-year period.  The decrease in EBIT was driven primarily by lower volume and manufacturing utilization, partially offset by lower plant closure, raw material and selling and administrative expenses.

Process Industries Segment Results
Process Industries' third-quarter sales were $308.3 million, down 1 percent from $311.1 million for the same period a year ago. The change reflects lower demand in both the industrial original equipment and distribution market sectors, partially offset by the previously announced industrial services acquisitions as well as pricing. 

Process Industries' third-quarter EBIT was $50.8 million, or 16.5 percent of sales, a 15.5 percent decrease compared with $60.1 million, or 19.3 percent of sales, for the same period a year ago.  The decrease reflects lower volume partially offset by pricing and lower selling and administrative expenses.

For the first nine months of 2013, Process Industries' sales were $910.9 million, a decrease of 9 percent compared with the same period a year ago.  EBIT for the first nine months of 2013 was $148 million, or 16.2 percent of sales, a decrease of 31 percent compared with $213.7 million, or 21.3 percent of sales, in the prior-year period. 

Aerospace Segment Results
Aerospace had third-quarter sales of $76.3 million, down 9 percent from $84 million for the same period last year.  The decrease reflects weakness in commercial aviation and critical motion markets and a slower-than-expected ramp-up of shipping to defense customers, partially offset by strength in general aviation.

Third-quarter EBIT was $4.9 million, or 6.4 percent of sales, a decrease of 36 percent compared with $7.7 million, or 9.2 percent of sales, for the same period a year ago.  The decrease reflects lower volume.

For the first nine months of 2013, Aerospace sales were $240.8 million, 8 percent lower than the same period a year ago.  EBIT for the first nine months was $21.4 million, or 8.9 percent of sales, a decrease of 19 percent compared with $26.3 million, or 10 percent of sales, in the prior-year period.  The decline in EBIT was driven primarily by lower volume and higher manufacturing costs, partially offset by pricing and lower selling and administrative expenses.

Steel Segment Results
Sales for Steel, including inter-segment sales, were $350.5 million in the third quarter, a decrease of 7 percent from $377 million for the same period last year.  The results reflect reduced shipments to industrial sectors, partially offset by improved sales to the mobile on-highway sector.  Raw-material surcharges decreased $4 million from the third quarter last year.

Third-quarter EBIT was $29.2 million, or 8.3 percent of sales, down 41 percent from $49.7 million, or 13.2 percent of sales, for the same period a year ago.  The decline in EBIT was primarily due to unfavorable sales mix, lower volume and higher manufacturing costs including approximately $8 million incurred for scheduled maintenance.  The decrease was partially offset by lower raw material costs.

For the first nine months of 2013, Steel sales were $1.1 billion, a 26 percent decrease compared with the same period a year ago.  EBIT for the first nine months of 2013 was $107.3 million, or 10.2 percent of sales, down 53 percent from $226.6 million, or 16 percent of sales, in the prior-year period. 

Outlook
The company revised its outlook for the full year based on a slower-than-expected economic recovery. The Timken Company expects 2013 sales to be approximately 13 percent lower year-over-year with:

• Mobile Industries sales down 11 to 13 percent for the year due to the impact of lower customer demand and the company's market strategy;
• Process Industries sales to be down 7 to 9 percent, due to broad-based weakness in industrial markets, partially offset by the benefit of acquisitions;
• Aerospace sales down 3 to 5 percent, due to decreased demand in critical motion, civil aviation and defense; and
• Steel sales down 20 to 22 percent, driven by lower industrial and oil and gas end-market demand and lower surcharges, partially offset by growth in mobile on-highway.

Timken projects 2013 annual earnings per diluted share to range from $2.70 to $2.90, which includes approximately $0.13 per share for previously announced plant closure costs and $0.07 associated with one-time implementation costs related to its planned separation of the steel business.

The company expects to generate cash from operations of approximately $415 million in 2013.  Free cash flow is projected to be $5 million after making capital expenditures of about $320 million and paying about $90 million in dividends.  The company does not anticipate making further discretionary pension contributions this year beyond the $66 million, net of tax, made in the first quarter, as it expects its pension plans to be essentially fully funded by year end given the recent increase in interest rates.  Excluding discretionary pension contributions, the company forecasts free cash flow of approximately $70 million in 2013.  In addition, the company has repurchased $107 million of its shares and expects to continue to repurchase shares under its current board-authorized program.

Excluding one-time implementation costs for the separation, the company expects sales and earnings in 2014 to improve as a result of cost reductions and the company's strategic initiatives as well as a gradual economic recovery.  

Conference Call Information
Timken will host a conference call today at 11:00 a.m. Eastern Time to review its financial results.  Presentation materials will be available online in advance of the call for interested investors and securities analysts.

About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com), a global industrial technology leader, applies its deep knowledge of materials, friction management and power transmission to improve the reliability and efficiency of industrial machinery and equipment all around the world.  The company engineers, manufactures and markets mechanical components and high-performance steel.  Timken^® bearings, engineered steel bars and tubes—as well as transmissions, gearboxes, chain, related products and services—support diversified markets worldwide.  With sales of $5.0 billion in 2012 and approximately 20,000 people operating from 30 countries, Timken makes the world more productive and keeps industry in motion.

Certain statements in this news release (including statements regarding the company's forecasts, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expectations regarding the company's future financial performance, including information under the heading "Outlook," are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the company's financial statements for the third quarter of 2013; the company's ability to respond to the changes in its end markets that could affect demand for the company's products; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company's customers, which may have an impact on the company's revenues, earnings and impairment charges; fluctuations in raw material and energy costs and their impact on the operation of the company's surcharge mechanisms; the impact of the company's last-in, first-out accounting; weakness in global or regional economic conditions and financial markets; changes in the expected costs associated with product warranty claims; the ability to achieve satisfactory operating results in the integration of acquired companies; the impact on operations of general economic conditions; higher or lower raw material and energy costs; fluctuations in customer demand; the impact on the company's pension obligations due to changes in interest rates or investment performance; the company's ability to complete and achieve the benefits of announced plans, programs, initiatives, and capital investments; retention of CDSOA distributions; the taxable nature of the spin-off; and the company's ability to successfully complete the spin-off. Additional factors are discussed in the company's filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended Dec. 31, 2012, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

###

Media Contact:
Pat Carlson
Global Media Relations
1835 Dueber Avenue, S.W.
Canton, OH 44706-0927 U.S.A.
Telephone: (330)471-3514
[email protected]

Investor Contact:
Steve Tschiegg
Director – Capital Markets & Investor Relations
1835 Dueber Avenue, S.W.
Canton, OH 44706-0927 U.S.A.
Telephone: (330)471-7446
[email protected]

SOURCE The Timken Company

WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?

440k+
Newsrooms &
Influencers

9k+
Digital Media
Outlets

270k+
Journalists
Opted In

GET STARTED