The Timken Company (NYSE: TKR) announced it is lowering its earnings guidance for the third quarter and the year as a result of a decline in North American automotive demand, continuation of manufacturing inefficiencies in the company's automotive group and higher-than-expected raw materials costs affecting its steel group.
"Our automotive performance is disappointing, and we are taking additional actions to address it," said James W. Griffith, president and CEO. "As the Big 3 auto makers have moved to cut production levels, we have experienced steeper volume declines in our automotive group than we had anticipated. North American passenger car production has been particularly hard hit. This has exacerbated the performance challenges which our automotive plants have experienced in recent months and will further delay the benefits of our restructuring efforts."
The company is continuing to reduce employment globally to achieve the benefits of its rationalization programs and to adjust to falling demand. It also continues to focus on cost reduction and additional spending cuts are being made. More than 900 positions are expected to be eliminated during the second half of the year, with about 700 of these in the automotive business.
The company also announced plans to reorganize the automotive business to better leverage the combination of Timken and Torrington and drive improvements in its manufacturing operations. As a result of these changes, Karl Kimmerling, president -Automotive, has left the company. Mr. Griffith has assumed direct operational control of the automotive group during this transition period. He led the company's automotive organization from 1996 - 1999.
"Karl has made many important contributions to both our automotive and steel groups during his 24-year career with the company, and we wish him well in future endeavors," Mr. Griffith said.
The company's steel group also has been hurt by the decline in passenger car production rates as well as higher raw material costs. It has raised prices on certain products and reduced spending to mitigate the impact of these negative factors.
The company's outlook for the industrial group has remained unchanged, with industrial markets expected to remain flat through the end of the year. The $860 million Torrington acquisition in February 2003 has created opportunities to strengthen the company and position Timken for long-term global competitiveness. The company still expects to achieve $20 million in annualized pretax savings this year from the integration. Despite the shortfall in earnings in both the Torrington and Timken businesses, the acquisition is expected to be neutral to slightly accretive to earnings per share for 2003.
"U.S. manufacturing continues to lag the rest of the economy, with this recovery the slowest on record," Mr. Griffith said. "While economists recently have noted some improvement in the manufacturing sector, we have seen very little evidence of a turnaround in the markets we serve."
The company is revising its earnings estimates for the third quarter to be in the range of $0.00 to $0.05, excluding special items. For the year, it anticipates earnings to be in the range of $0.45 to $0.60, excluding special items. The company had previously provided guidance of $0.10 to $0.15 per share for the third quarter and $0.80 to $0.95 per share for the full year, excluding special items.
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