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The Timken Company (NYSE: TKR) today reported record sales of $1.39 billion in the second quarter, up 5 percent from the same period a year ago. Second quarter net income increased 11 percent to $74.7 million, or $0.79 per diluted share, up from $67.3 million, or $0.73 per diluted share, in the second quarter a year ago.
Excluding special items, earnings per diluted share increased 17 percent to a record $0.90 from $0.77 in last year's second quarter. Special items in the second quarter included manufacturing restructuring and rationalization charges and the impact of asset dispositions that totaled $21.0 million of pretax expense, compared to $3.7 million in the same period a year ago.
"This quarter's results reflect good progress towards fundamentally improving financial performance," said James W. Griffith, president and chief executive officer. "Strong industrial markets and record Steel Group results contributed to our record second quarter. Our financial performance is underpinned by our strategic progress as we continue to improve the level of innovation and execution across the company."
During the quarter, the company strengthened its balance sheet through strong cash generation. Total debt at June 30, 2006 was $704.0 million, or 29.8 percent of capital. Net debt at June 30, 2006 was $665.2 million, or 28.6 percent of capital, compared to $737.2 million, or 31.9 percent of capital, at March 31, 2006. Cash generated from earnings and working capital more than offset higher pension contributions and capital expenditures. The company expects to generate strong free cash flow for the remainder of the year.
For the first half of 2006, sales were $2.7 billion, an increase of 4 percent from the same period in the prior year, driven by strong industrial markets. Earnings per diluted share for the first six months of 2006 increased 9 percent to $1.49. This includes the benefit of lower pension and retiree medical expense of approximately $0.05 per diluted share. Special items in the first half of 2006 totaled $25.8 million of pretax expense, compared to $4.8 million in the same period a year ago. Excluding special items, earnings per diluted share in the first half of 2006 were $1.61, versus $1.42 in the first half of 2005, due to strong industrial market demand and a record performance by the Steel Group.
Industrial Group Results
The Industrial Group had second quarter sales of $529.1 million, up 6 percent from $498.2 million for the same period last year. The company continued to enjoy strong demand across its broad industrial segments, led by increases in the aerospace, industrial distribution, off-highway and rail segments.
The Industrial Group's earnings before interest and taxes (EBIT) in the second quarter were $63.5 million, compared to $63.6 million for the same period last year. EBIT performance reflected better volume and pricing, which were offset primarily by higher manufacturing costs, including those for capacity additions, increased investments for growth initiatives and the impact of foreign currency.
For the first half of 2006, Industrial Group sales were $1.03 billion, up 7 percent from the same period a year ago. EBIT for first half of 2006 was $109.4 million -- or 10.6 percent of sales -- compared to EBIT of $110.6 million -- or 11.4 percent of sales -- in the first half of 2005. While EBIT margins in the first half were lower than the same period a year ago, the company expects Industrial Group margins for the full year to improve over last year's levels due to better pricing, higher volume and improving manufacturing costs.
Automotive Group Results
The Automotive Group's second quarter sales of $426.7 million were comparable to the same period a year ago. The favorable effect of improved pricing was offset by lower demand from North American original equipment manufacturers and the exiting of low-margin business.
The Automotive Group recorded a second quarter loss of $2.0 million, compared to a loss of $1.2 million for the same period a year ago. Despite improved pricing and mix, EBIT was negatively impacted by higher manufacturing costs due to lower volume and higher energy costs.
For the first half of 2006, Automotive Group sales of $847.7 million were comparable to last year's first six months. The Group recorded a loss of $5.1 million for the first half of 2006, compared to a loss of $6.3 million in the first half of 2005. Results for the first half of 2006 included a $3.5 million increase in the company's accounts receivable reserve for automotive industry credit exposure.
The company expects improved Automotive Group performance in the second half of 2006 through better pricing and the continued favorable shift in business mix. The Automotive Group restructuring program also remains on track to achieve its targeted savings.
Steel Group Results
Steel Group second quarter sales were a record $469.1 million, a 5 percent increase from $445.3 million in the same period a year ago. The record sales were driven by increased pricing, surcharges and higher demand in the service center, aerospace, bearing and energy segments, which were partially offset by lower automotive demand.
Second quarter EBIT was a record $75.4 million, up 33 percent from $56.7 million for the same period last year. The record results were due to price increases, surcharges, better sales mix and improved manufacturing productivity.
For the first six months of 2006, Steel Group sales were $937.3 million, up 3 percent over the first half of last year. EBIT for the first half of 2006 was a record $146.6 million -- or 15.6 percent of sales -- compared to EBIT of $120.5 million -- or 13.2 percent of sales -- in the first half of 2005.
The company anticipates Steel Group profitability to be down in the second half of 2006, compared to the first six months of the year due to seasonality, but expects to exceed last year's record performance for the full year due to continued strong markets and manufacturing performance.
Outlook
The company recently raised its 2006 estimated earnings to $3.00 to $3.15 per diluted share, excluding special items, from $2.80 to $2.95. This revised earnings estimate compares to 2005 earnings per diluted share of $2.53, excluding special items. Earnings per diluted share are estimated to be $0.70 to $0.75 for the third quarter of 2006, excluding special items. As the company continues to implement its business strategies, margin improvement is expected in the Automotive and Industrial Groups, and Steel Group margin performance should exceed last year's record levels.
| Product Model | Inside Diameter | Outside Diameter | Thickness |
| SL192340-TB bearing | 200 | 420 | 138 |
| SL192338-TB bearing | 190 | 400 | 132 |