The Timken Company (USA) cut its earnings outlook for the third time in 2003, citing a North American automotive slowdown, lingering manufacturing inefficiencies, continued steel group cost issues and other challenges stemming from the Torrington acquisition.
Announcing a new pro forma ("excluding special items") estimate for third quarter earnings, Timken slashed its earlier estimate of $0.05 - $0.15 per share down to $0.00 - $0.05 per share. With charges, GAAP results could easily show a loss for the quarter. For the year, Timken has revised its estimates downward yet again, to $0.45 - $0.60 per share, down from previous guidance of $0.80 - $0.95, revised down from initial projections that ran as high as $1.40 per share.
Declining sales to the North American automotive industry is primarily to blame for the quarter's problems, said Jim Griffith, President and CEO, and that Timken has had difficulty managing the volume decline. "Our automotive performance is disappointing, and we are taking additional actions to address it. As the Big 3 automakers 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."
According to Mr. Griffith, GM production is down almost 20% from last year, and Ford's is down almost 40%. In all, "Passenger car production is down 7% from our July estimate," he said, "That's the core of the Torrington automotive market. That was not something that was predicted. In fact, it hit hard starting in July of this year."
Timken has begun reorganizing the automotive operation to both address these operational issues, pursue manufacturing improvements, and better leverage the Timken / Torrington market position.
In that reorganization, Karl Kimmerling, President of Automotive and a 24-year Timken veteran, has left the company. Mr. Griffith, who has held that position, took over Mr. Kimmerling's responsibilities until a replacement is named.
While automotive has suffered, the industrial bearing business -- which includes the non-automotive bearing markets -- is expected to hold steady through the end of 2003.
Mr. Griffith said, "U.S. manufacturing continues to lag the rest of the economy, with this recovery the slowest on record. 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 steel group has also been squeezed by the decline in automotive demand, while also facing higher raw materials costs. Some price increases have been announced to help offset the squeeze, and spending is being tightened.
And more job cuts are coming. Overall, Timken will eliminate more than 900 employees during the second half of 2003; 700 from the automotive group and 200 from elsewhere across the organization. 360 of the 700 automotive-related cuts were made in July and August, leaving 340 still to come. Timken did not say where those remaining cuts will be made, except that the scope is international.
Put another way, Timken said of the 700 automotive positions being eliminated, 250 stem from the restructuring begun back in 2001. The other 450 are due to current conditions.
The Torrington data center is closing, and Torrington's IT department is being integrated with Timken's data processing operation in Canton. In all, about 75 people are involved in those operations, and some are being offered the opportunity to relocate.
Last month, Timken revealed it is investigating the possibility of selling off Torrington's Standard Plant, which basically includes Fafnir. The Standard Plant currently employs approximately 250 people.
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