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Timken Reports Third-Quarter Results
The Timken Company (NYSE:TKR) today reported sales of $1.26 billion in the third quarter of 2007, an increase of 6 percent over the same period a year ago. Strong sales in industrial markets were partially offset by the strategic divestment of the company's automotive steering and European steel tube manufacturing operations in prior periods. The company achieved third-quarter income from continuing operations of $41.2 million, or $0.43 per diluted share, up from $38.7 million, or $0.41 per diluted share, in last year's third quarter.
Excluding special items, income from continuing operations per diluted share was $0.51 during the third quarter of 2007, compared to $0.49 in the prior-year quarter. Third-quarter special items included restructuring, rationalization and impairment charges totaling $17.2 million of pretax expense, compared to $7.1 million of similar charges in the third quarter of 2006.
"While Timken's third-quarter performance exceeded what we achieved last year, our results still fell short of what we had expected to deliver," said James W. Griffith, Timken's president and chief executive officer. "As we move forward with our strategic initiatives, we have intensified our efforts to drive better execution across the company during a period of strong demand in multiple market sectors."
During the quarter, the company:
*Made progress on its restructuring initiatives and Project O.N.E., a program designed to improve business processes and systems;
*Realigned operations under two major business groups, the Steel Group and the Bearings and Power Transmission Group, taking advantage of the Project O.N.E. capabilities to drive improvement in operational performance. The company will report its financial results using different segmentation beginning with the fourth quarter of 2007; and
*Announced the acquisition of the assets of The Purdy Corp. for $200 million, which was completed on Oct. 22, expanding the range of power-transmission products and capabilities Timken provides to the aerospace sector.
For the first nine months of 2007, sales were $3.89 billion, an increase of 4 percent from the same period in the prior year, driven by strong industrial markets. Income from continuing operations per diluted share for the first nine months of 2007 was $1.79 compared to $1.70 in the same period a year ago. The company's performance benefited from higher volume and improved pricing, which were partially offset by higher raw-material, manufacturing and logistics costs.
Special items in the first nine months of 2007 totaled $60.8 million of pretax expense, compared to $32.9 million in the same period a year ago, and included restructuring, rationalization and impairment charges. The nine-month period also included a one-time tax gain of $32.1 million due to a change in tax law during the first quarter of 2007. Excluding these items, income from continuing operations per diluted share in the first nine months of 2007 was $1.89, compared to $1.91 during the same period in 2006.
Total debt was $601.4 million as of Sept. 30, 2007, or 25.5 percent of capital. Net debt at Sept. 30, 2007, was $513.6 million, or 22.6 percent of capital, compared to $496.8 million, or 25.2 percent, as of Dec. 31, 2006. Year-to-date, the increase in net debt was primarily due to higher working capital requirements, driven by strong demand, and increased capital expenditures in support of growth initiatives.
Industrial Group Results
The Industrial Group had third-quarter sales of $556.8 million, up 11 percent from $501.8 million for the same period last year. The increase resulted from favorable pricing, currency and strong demand across all market sectors, especially from heavy industry and aerospace.
The Industrial Group's earnings before interest and taxes (EBIT) in the third quarter were $55.4 million, compared to $48.2 million for the same period last year. EBIT performance in the quarter benefited from strong volume and pricing, which were partially offset by higher raw-material costs. The group also experienced higher manufacturing and logistics costs primarily associated with capacity additions and managing strong demand through constrained facilities, compared to the year-ago period.
For the first nine months of 2007, Industrial Group sales were $1.67 billion, up 9 percent from the same period a year ago. EBIT for the first nine months of 2007 was $166.3 million, compared to $157.6 million for the prior-year period.
Automotive Group Results
The Automotive Group's third-quarter sales of $361.0 million were down 1 percent from $363.6 million for the same period last year. Increased sales during the quarter in Europe and in the North American light-vehicle market were offset by the 2006 divestment of the group's steering business and lower North American heavy-truck demand.
The Automotive Group incurred a loss of $20.7 million in the third quarter of 2007 compared to a loss of $26.3 million for the same period a year ago. The group's results benefited from ongoing restructuring efforts but were below expectations due primarily to higher manufacturing and raw-material costs.
For the first nine months of 2007, Automotive Group sales of $1.16 billion were down 5 percent from the same period a year ago. The group recorded a loss of $35.3 million for the first nine months of 2007, compared to a loss of $31.4 million for the prior-year period.
Steel Group Results
Steel Group third-quarter sales, including inter-segment sales, were $381.1 million, up 7 percent from $355.6 million for the same period a year ago. The increase was driven by strong demand across all market sectors, surcharges and favorable mix, which more than offset the impact of exiting the group's steel tube manufacturing operations in Europe earlier this year.
Third-quarter EBIT was $47.4 million, compared to $50.4 million for the same period last year. Compared to a year ago, the group's performance benefited from higher volume and surcharges, which were more than offset by increased raw-material and manufacturing costs, as well as an increase in the group's LIFO reserves.
For the first nine months of 2007, Steel Group sales were $1.18 billion, up 6 percent from the same period last year. EBIT for the first nine months of 2007 was $170.4 million, compared to EBIT of $167.2 million for the prior-year period.
Outlook
Timken anticipates strong global industrial demand, while automotive demand is expected to remain stable. The combination of strong industrial markets, capacity additions and operating improvements is expected to drive stronger performance.
The company anticipates earnings per diluted share for 2007 from continuing operations, excluding special items, to be $2.40 to $2.50, compared to $2.13 for 2006.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Thursday, Oct. 25, 2007
11:00 a.m. Eastern Time
Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Conference ID: 5457306
Replay Dial-In through Nov. 2, 2007:
800-642-1687 or 706-645-9291
Live Webcast: www.timken.com/investors
| Product Model | Inside Diameter | Outside Diameter | Thickness |
| 2096 bearing | 31.75 | 50.8 | 20.638 |
| 2283 bearing | 30.163 | 49.212 | 13.494 |