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Timken Reports Third-Quarter Results

10/30/2009 - Timken reports a net loss of $50.1 million on sales of $763.6 million for the third quarter, and a net loss of $113.8 million on sales of $2.37 billion for the first nine months of 2009.

The Timken Co. reported a net loss of $50.1 million on sales of $763.6 million for the third quarter, and a net loss of $113.8 million on sales of $2.37 billion for the first nine months of 2009.
 

Steel Group Results
 
The Steel Group incurred an EBIT loss of $20.3 million compared with EBIT of $133.8 million for the same period a year ago. The decline primarily resulted from lower demand and underutilization of manufacturing capacity, which affected EBIT by roughly $100 million. The remaining decline in EBIT resulted from lower surcharges and reduced LIFO income, partially offset by favorable material and energy costs and cost-reduction actions.
 
Sales for the Steel Group, including inter-group sales, were $157.9 million, a 71% decrease from $536.5 million for the same period last year, with 53% fewer shipped tons. The greatest market declines were from the industrial and energy sectors, while light vehicle demand was up slightly compared with a year ago due to consumer stimulus programs in the U.S. Surcharges declined approximately $215 million from the year-ago third quarter.
 
For the first nine months of 2009, the Steel Group incurred an EBIT loss of $60.4 million (11.2% of sales), compared with EBIT of $267.5 million (18.1% of sales) in the same period last year. Year-to-date Steel Group sales were $541.4 million, down 63% from the same period a year ago.
Third-Quarter Results — The $50.1-million net loss ($0.52 per share), which includes a $30.8-million loss ($0.32 per share) from the Needle Roller Bearings business, compares to income of $123.9 million ($1.28 per diluted share) in the year-ago third quarter. The company’s continuing operations incurred a loss of $19.3 million ($0.20 per share).

 
Excluding special items, net income was $5.2 million ($0.05 per share), including a $2.3 million loss ($0.03 per share) from discontinued operations. Income from the company’s continuing operations was $7.5 million ($0.08 per share) excluding special items, compares with net income of $129.2 million ($1.34 per diluted share) in the prior year. Earnings reflect lower sales volume and manufacturing utilization, reduced surcharges and lower LIFO (last-in, first-out accounting) income. These items were partially offset by cost reductions, improved pricing and lower material costs compared with a year ago.
 
Special items, net of tax, amounted to $55.4 million of expense, compared with $5.5 million in the same period last year. These items included manufacturing rationalization, impairment and restructuring charges, the largest being a $25.1-million impairment, net of tax, associated with the pending sale of the Needle Roller Bearings business.
 
Sales of $763.6 million reflect a 43% decrease from sales in the same period a year ago. The company said the sales decline reflects weaker demand in many of its end markets and lower surcharges, partially offset by improved pricing. Sales for all periods exclude the results of the Needle Roller Bearings business, accounted for as “discontinued operations.”
 
Management Comments — “This quarter’s performance is more about how we’re managing the business than a shift in marketplace trends,” said James W. Griffith, Timken President and chief executive officer. “Without the benefit of improved volume, we’re yielding better results from structural changes we’ve made, in part from our Project O.N.E. and portfolio management initiatives.”
 
Third Quarter Highlights — In recent months, the company also:
 
  • Signed an agreement to sell the assets of its Needle Roller Bearings business to JTEKT Corp. for approximately $330 million, subject to certain closing conditions
  • Announced plans to streamline its distribution footprint by consolidating its Ohio and South Carolina distribution centers into a new facility
  • Entered into a three-year, $500-million unsecured Senior Credit Facility, replacing a previous facility set to expire in June 2010
  • Completed a $250-million public offering of 6.00% unsecured Senior Notes due 2014, proceeds of which will be used to repay the company’s 5.75% notes due February 15, 2010
  • Expanded its ability to offer engineered steel solutions in Asia through collaboration with Daido Steel Co. Ltd.
  • Reached a tentative four-year labor agreement with the United Steelworkers union, covering approximately 2,300 associates in Canton, Ohio.
The company continues to maintain a strong balance sheet with ample liquidity. As of Sept. 30, 2009, total debt was $800.9 million (33.5% of capital). Net debt at Sept. 30, 2009, was $169.9 million (9.6% of capital), which compares with net debt of $490.5 million (22.8%) as of Dec. 31, 2008. During the quarter the company generated cash from operating activities of $170.9 million, driven primarily by inventory reductions.
 
Nine Month Results — The company incurred a loss of $0.56 per share from continuing operations, which compares with earnings of $2.87 per diluted share last year. Sales were $2.37 billion, a 40% decrease from the same period in 2008.
 
Special items, net of tax, totaled $81.4 million of expense, compared with $3.0 million in the prior-year period. These items primarily reflect impairment and severance charges, while prior-year special items included a gain on a real estate divestment associated with a prior plant closure, offset by charges related to restructuring, rationalization and impairment.
 
Excluding special items, year-to-date income from continuing operations was $0.22 per diluted share, versus earnings of $2.91 per diluted share in the same period last year. Results were impacted by weaker demand across most of the company’s end markets, partially offset by pricing and cost-reduction initiatives.
 
Outlook — The company expects its sales for the full year 2009, excluding discontinued operations, to be down approximately 35 to 40% from the prior year, principally due to weak end-market demand. Steel Group sales are expected to decline approximately 60 to 65% for the year due to lower demand across all market sectors and reduced surcharges.
 
The company is raising its full-year earnings estimate (including discontinued operations and excluding special items), to a loss of $(0.10) to $(0.30) per share, compared with its prior estimate of a loss of $(0.40) to $(0.90) per share. The company expects to deliver strong free cash flow in 2009, driven by effective working capital management and reduced spending.
 
Timken provides innovative friction management and power transmission products and services. With operations in 26 countries, Timken reported sales of $5.7 billion in 2008.