The Timken Company (NYSE: TKR) today reported sales of $1.0 billion in the second quarter of 2010, an increase of 37 percent over the same period a year ago. The increase was driven by strong demand in the company’s Mobile Industries and Steel segments, as well as the favorable impact of surcharges to recover material costs.
The company generated strong earnings from continuing operations, net of non-controlling interest, in the second quarter of $81.4 million, or $0.84 per diluted share, compared with last year's second-quarter loss of $39.0 million, or $0.40 per share. Excluding special items, the company posted $82.2 million in income from continuing operations, net of non-controlling interest, or $0.85 per diluted share, compared with a loss of $6.9 million, or $0.07 per share, a year ago.
Special items for continuing operations, net of tax, in the second quarter of 2010 totaled expense of $0.8 million compared with $32.1 million in the same period last year. These special items in the current year include expense for severance and manufacturing rationalization, while the expense in 2009 primarily related to a non-cash impairment charge for a plant consolidation.
The increase in second-quarter earnings reflects the combined effects of recovering demand and improvements in the company's cost structure, manufacturing performance and pricing. Partially offsetting these benefits were higher selling and administrative costs across all of the company's segments related to performance-based compensation plans.
"Our company has rebounded extremely well from the challenges experienced during the recent recession," said James W. Griffith, Timken president and chief executive officer. "We are leveraging increased customer demand and growth in attractive markets to deliver stronger earnings.”
Among recent developments, the company:
Raised the quarterly cash dividend in May by 44 percent to 13 cents per share;
Announced it has agreed to acquire the business of QM Bearings and Power Transmission, Incorporated, based in Ferndale, Washington, which has annual sales of approximately $14 million and will expand Timken’s offering in industrial markets; and
Continued to execute the company’s wind energy strategy with a variety of new-product introductions, and received a $26-million contract to supply wind turbine products and services to Xinjiang Goldwind Science & Technology Company, one of the world's top five wind-power equipment manufacturers.
Total debt was $493 million as of June 30, 2010, or 22.9 percent of capital. As of June 30, 2010, the company’s cash position was $796 million, or $303 million in excess of total debt. This compares with a net cash position of $243 million as of Dec. 31, 2009. The favorable change in net cash reflects strong cash flow from earnings, partially offset by pension contributions, including a discretionary payment of $100 million in the first quarter, and working-capital requirements.
Six Months’ Results
For the first half of 2010, sales were $1.9 billion, an increase of 20 percent from the same period in 2009. Income from the company’s continuing operations, net of non-controlling interest, for the first six months of 2010 was $109.7 million, or $1.13 per diluted share, compared with a loss of $34.5 million, or $0.36 per share, a year ago. Special items, net of tax, in the first half of 2010 totaled $27.7 million of expense compared with $48.5 million of expense in the prior-year period. Special items in 2010 primarily related to a one-time non-cash charge of $21.6 million to record the deferred tax impact of U.S. health care legislation enacted in the first quarter and expense for severance and manufacturing rationalization.
Excluding special items, income from the company’s continuing operations, net of non-controlling interest, was $137.4 million, or $1.42 per diluted share, in the first half of 2010, versus income of $14.0 million, or $0.15 per diluted share, a year ago. During the first six months of 2010, the company benefited from increased demand, improved manufacturing performance and cost-reduction initiatives. Partially offsetting these benefits were higher selling and administrative costs across all of the company's segments related to performance-based compensation plans.
Bearings and Power Transmission Group Results
The Bearings and Power Transmission Group had second-quarter sales of $694.7 million, up 14 percent from $608.4 million for the same period last year. Earnings before interest and taxes (EBIT) for the second quarter were $104.6 million, up 150 percent from $41.8 million in the second quarter of 2009.
For the first half of 2010, Bearings and Power Transmission Group sales were $1.4 billion, up 9 percent from the same period a year ago. First-half 2010 EBIT was $186.7 million, compared with EBIT of $101.1 million in the first half of 2009.
Mobile Industries Segment Results
In the second quarter, Mobile Industries’ sales were $400.4 million, a 37-percent increase from last year’s second-quarter sales of $292.2 million. The increase was driven by stronger demand, led by the light-vehicle, off-highway and heavy-truck market sectors.
EBIT was $68.5 million for the second quarter, compared with an EBIT loss of $12.0 million for the same period a year ago. The increase was driven by higher volume, better manufacturing utilization, cost reductions and pricing initiatives.
For the first half of 2010, Mobile Industries’ sales of $767.9 million were up 30 percent from the same period a year ago. First-half 2010 EBIT was $110.9 million, compared with an EBIT loss of $14.3 million in the first half of 2009.
Process Industries Segment Results
Process Industries had second-quarter sales of $211.6 million, up 2 percent from $207.0 million for the same period a year ago. The increase reflects higher sales in Asia, partially offset by declines in North America and Europe.
Second-quarter EBIT was $28.9 million, down 18 percent from $35.1 million in the same period a year ago. The benefit of cost-reduction initiatives was more than offset by increased material costs and the ramp-up of new wind-energy production, as well as higher selling and administrative costs.
For the first half of 2010, Process Industries sales were $418.2 million, down 3 percent from the same period a year ago. First-half 2010 EBIT was $55.8 million, compared with EBIT of $78.6 million in the first half of 2009.
Aerospace and Defense Segment Results
Aerospace and Defense had second-quarter sales of $82.7 million, down 24 percent from $109.2 million for the same period last year. The decline reflects further reductions in demand from commercial and general aviation market sectors, while the defense markets remain relatively flat.
Second-quarter EBIT was $7.2 million, down 62 percent from $18.7 million a year ago. The decline, which reflects lower demand and higher selling and administrative costs, was partially offset by cost-reduction initiatives.
For the first half of 2010, Aerospace and Defense sales were $174.8 million, down 20 percent from the same period a year ago. First-half 2010 EBIT was $20.0 million, compared with EBIT of $36.8 million in the first half of 2009.
Steel Group Results
Sales for the Steel Group, including inter-group sales, were $338.1 million in the second quarter, an increase of 151 percent from $134.8 million for the same period last year. The increase was driven by stronger demand across most end markets and higher raw-material surcharges of $84 million.
Second-quarter EBIT was $43.0 million, compared with an EBIT loss of $32.9 million for the same period a year ago. EBIT performance benefited from improved volume, manufacturing utilization and cost-reduction initiatives.
For the first six months of 2010, Steel Group sales were $608.4 million, up 59 percent from the first half of last year. EBIT for the first half of 2010 was $62.9 million, compared with an EBIT loss of $40.2 million for the same period a year ago.
Outlook
The company’s outlook for 2010 reflects general improvement in the global economy that varies by end-market and geographic region. Timken anticipates an increase in sales of approximately 25 to 30 percent over 2009, driven primarily by stronger demand in the Steel and Mobile Industries segments. Steel Group sales are expected to increase 70 to 80 percent from 2009, due to improved demand across all market sectors as well as surcharges. Mobile Industries segment sales are expected to be up approximately 20 to 25 percent, driven by the light-vehicle, off-highway and heavy-truck sectors. Sales in the Process Industries segment are expected to be up slightly, as growth initiatives in energy and Asia and new product introductions offset declines in other industrial market sectors. Aerospace and Defense segment sales are expected to decline 5 to 10 percent due to decreases in commercial and general aviation, which are expected to improve in the second half of the year.
The company is raising its 2010 full-year earnings estimate, excluding special items, to a range of $2.40 to $2.60 per diluted share, compared with its prior estimate of $1.60 to $1.80 per diluted share. The company expects to generate cash from operating activities in excess of $380 million, and free cash flow (after capital expenditures and dividends) in excess of $200 million for the full year 2010.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Thursday, July 29, 2010
11:00 a.m. Eastern Time
All Callers: Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Conference ID: 68506185
Replay Dial-In through August 6, 2010:
800-642-1687 or 706-645-9291
Live Webcast: www.timken.com/investors
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