News / Timken Reports Fourth-Quarter and Full-Year 2016 Results, Provides 2017 Outlook
Date: 2017-02-14
Timken Reports Fourth-Quarter and Full-Year 2016 Results, Provides 2017 Outlook
-- Reports fourth-quarter GAAP earnings of $0.31 per diluted share and adjusted earnings of $0.47 per diluted share on sales of $655 million
-- Generated strong cash from operations of $125 million and free cash flow of $72 million in the quarter
-- Expects 2017 GAAP earnings of $1.90 to $2.00 per diluted share and adjusted earnings of $2.05 to $2.15 per diluted share; both reflect the impact of adopting mark-to-market accounting for pensions in the first quarter of 2017
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NORTH CANTON, Ohio, Feb. 9, 2017 /PRNewswire/ -- The Timken Company (NYSE: TKR) (www.timken.com), a global leader in bearings and mechanical power transmission products, today reported fourth-quarter 2016 sales of $655 million, down 8.3 percent from the same period a year ago. The results reflect weakness across most end markets and unfavorable currency, partially offset by the benefit of acquisitions.
The Timken Company Logo.
In the fourth quarter, Timken posted net income of $24.1 million or $0.31 per diluted share, versus a net loss of $(35.7) million or $(0.44) per basic share for the same period a year ago. The year-over-year improvement in net income was driven by lower pension settlement charges, CDSOA income1 and lower operating costs, partially offset by lower volume and unfavorable price/mix. The year-ago period also included a gain from the divestiture of the aerospace PMA business and higher discrete income tax benefits.
Excluding special items (detailed in the attached tables), adjusted net income was $36.7 million or $0.47 per diluted share. This compares with adjusted net income of $49.0 million or $0.59 per diluted share for the same period in 2015. The decline in adjusted net income reflects lower volume and unfavorable price/mix, partially offset by the benefit of SG&A cost reduction initiatives and lower material costs.
"We performed well in the fourth quarter, giving us a solid finish to the year," said Richard G. Kyle, Timken president and chief executive officer. "Despite the difficult market environment, we delivered historically strong earnings and cash flow in 2016, which is evidence of the structural improvements we've made to our business. We advanced our strategy on all fronts and continued to position the company for profitable growth and shareholder value creation over the long term."
Among significant accomplishments during the quarter, the company acquired EDT Corp., a manufacturer of polymer housed units and stainless steel ball bearings used widely by the food and beverage industry. The company also returned $38 million in capital to shareholders through the repurchase of roughly 480,000 shares and the payment of its 378th consecutive quarterly dividend. Earlier this month, the Timken Board of Directors approved a new share repurchase authorization for up to 10 million shares, expiring Feb. 28, 2021. This replaces the prior authorization which expired Jan. 31, 2017.
2016 Full-Year Results
For 2016, sales were $2.7 billion or 7 percent lower than 2015. The decrease was primarily driven by weaker demand across industrial end markets and unfavorable currency, partially offset by growth in automotive and the net benefit of acquisitions and divestitures.
Net income was $152.6 million or $1.92 per diluted share for the year, versus a net loss of ($70.8) million or ($0.84) per basic share a year ago. The year-over-year increase in net income was driven by lower pension settlement charges, current year CDSOA income, as well as lower operating costs, partially offset by lower volume, unfavorable price/mix and currency. The year-ago period also included a gain from the divestiture of the aerospace PMA business and higher discrete income tax benefits.
Excluding special items (detailed in the attached tables), adjusted net income was $156.2 million or $1.97 per diluted share. This compares with $189.1 million or $2.21 per diluted share in 2015. The decline in adjusted net income reflects lower volume and unfavorable price/mix, partially offset by lower material, manufacturing and SG&A costs (including the benefit of cost reduction initiatives). Earnings per share also benefited from the repurchase of approximately 4 percent of the company's outstanding shares in 2016.
Fourth-Quarter Segment Results
Mobile Industries reported fourth-quarter sales of $342.3 million, 10 percent lower than the same period a year ago, driven primarily by lower demand in the rail, automotive and aerospace sectors, as well as unfavorable currency.
Earnings before interest and taxes (EBIT) in the quarter were $19.2 million or 5.6 percent of sales, compared with EBIT of $58.9 million or 15.5 percent of sales for the same period a year ago. The decrease in EBIT reflects lower volume and unfavorable price/mix, partially offset by lower SG&A expenses and favorable material and manufacturing costs. The year-ago period also included a gain from the divestiture of the aerospace PMA business.
Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $26.5 million or 7.7 percent of sales, compared with $36.2 million or 9.5 percent of sales in the fourth quarter last year.
Process Industries sales of $312.5 million for the fourth quarter declined 6.5 percent from the same period a year ago, driven primarily by weaker demand in the industrial aftermarket and heavy industries sectors, lower military marine revenue and unfavorable currency, partially offset by the benefit of acquisitions.
EBIT for the quarter was $43.2 million or 13.8 percent of sales, compared with EBIT of $45.2 million or 13.5 percent of sales for the same period a year ago. The decrease in EBIT was driven by the impact of lower volume and unfavorable price/mix, partially offset by favorable SG&A and material costs. The year-ago period also included a fixed asset write-off charge.
Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $45.8 million or 14.6 percent of sales, compared with $55.7 million or 16.7 percent of sales in the fourth quarter last year.
2017 Outlook
The company expects 2017 revenue to be relatively flat compared with 2016. This includes a negative currency impact of roughly 1.5 percent, based on Dec. 31, 2016, exchange rates. Within its segments, the company estimates full-year 2017:
Mobile Industries' sales to be down approximately 4-5 percent, driven primarily by market-related declines in the rail sector, continued softness in the agriculture and heavy truck sectors, and unfavorable currency.
Process Industries' sales to be up approximately 4-5 percent, reflecting growth in the industrial aftermarket and wind energy sectors, and the benefit of acquisitions, offset partially by unfavorable currency.
"Sentiment in most of our markets has improved over the last few months, and while we are forecasting the full year to be relatively flat, we are planning for sequential strengthening as we move through 2017," said Kyle. "We will continue to navigate the environment with discipline and flexibility, staying focused on outgrowing our markets, managing our costs and investing in our business for the long term. As markets improve, we are confident in our ability to achieve new levels of financial performance."
Timken plans to adopt mark-to-market pension accounting for its defined benefit pension and other postretirement benefit plans in the first quarter of 2017. This change will have no effect on employees' retirement benefits, plan funding requirements or Timken cash flows. Under the new accounting method, the company will immediately recognize actuarial gains and losses in the year in which they occur (in the fourth quarter or earlier as required) rather than amortizing them over many years.
This change is expected to add approximately $0.15 to earnings per share for 20172. Including this impact, Timken anticipates 2017 earnings per diluted share to range from $1.90 to $2.00 for the full year on a GAAP basis. Excluding restructuring and other special items, the company expects 2017 adjusted earnings per diluted share to range from $2.05 to $2.15. In connection with the adoption of mark-to-market accounting, prior-year results will be retrospectively modified to reflect the new method. Adjusted earnings for 2016 are expected to be revised upward by approximately $0.15 per diluted share. Additional information will be provided in conjunction with the company's first quarter 2017 earnings release.
Conference Call Information
Timken will host a conference call today at 11 a.m. Eastern Time to review its financial results. Presentation materials will be available online in advance of the call for interested investors and securities analysts.
Conference Call:
Thursday, Feb. 9, 2017
11 a.m. Eastern Time
Live Dial-In: 877-548-7906 or 719-325-4838
(Call in 10 minutes prior to be included.)
Conference ID: Timken's 4Q Earnings Call
Conference Call Replay:
Replay Dial-In available through Feb. 23, 2017:
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