The Timken Company has reported record sales of $5.2 billion for 2011, up 28% from the prior year on strong demand from diverse industrial markets. The increase primarily reflects growth from the energy, heavy truck, mining, rail and industrial distribution sectors, as well as favorable pricing, material surcharges and acquisitions.
In 2011, the company generated $454.3 million in income from continuing operations, net of non-controlling interest, or $4.59 per diluted share, up 65% from $274.8 million, or $2.73 per diluted share, a year ago. Higher volume, favorable mix, surcharges and pricing drove the improvement, more than offsetting increased raw material and administrative costs.
"Our financial results tell the story of a transformed Timken Company," says James W. Griffith, Timken president and chief executive officer. "We've successfully repositioned the company, focusing our efforts on those industries and applications where we bring significant value and can make a difference in our customers' performance. As a result of this and our improved operating model, we have increased our earning power, serving Timken customers across a multitude of high-performance applications in industrial markets."
Among developments announced in 2011, Timken:
- Completed two acquisitions further diversifying its portfolio, including Philadelphia Gear for $200 million in July and drives for $92 million in October;
- Launched initiatives to further enhance productivity and serve growth in its steel business, including a new $35 million in-line forge press at the company's Faircrest plant in Canton;
- Continued to expand bearing capacity, with approximately $50 million invested in 2011 to serve global growth in attractive industrial markets;
- Returned capital to shareholders, increasing quarterly dividends 11% to 20 cents per share, and repurchasing 1 million shares of company stock;
- Entered into an amended and restated $500 million unsecured senior credit facility that matures in May 2016;
- Contributed approximately $400 million to the company's pension and post-retirement benefit plans; and
- Began collaborating with The University of Akron to establish a new laboratory focused on surface-engineering technologies, and formed a new alliance with Stark State College to construct a large bearing test center in Canton.
For the fourth quarter ended December 31, 2011, Timken reported sales of $1.3 billion, an increase of 18% from the same period in 2010. Growth across most of the company's end markets, higher surcharges, pricing and acquisitions contributed to the improvement. Acquisitions accounted for approximately one third of the growth.
The company earned $1.11 per diluted share from continuing operations net of non-controlling interest for the quarter, compared with $0.87 per share a year ago. The improvement reflects higher volume, favorable mix, acquisitions, surcharges and pricing, which more than offset increased raw material and administrative costs.
At year-end, total debt was $515.1 million, or 20.1% of capital, and the company had cash of $468.4 million, or $46.7 million of net debt. That compares with a net cash position of $363.4 million on December 31, 2010. The company generated $211.7 million in net cash from operating activities in 2011, while using $69.6 million in free cash flow (net of capital expenditures and dividends). Excluding discretionary pension and VEBA trust contributions of $256 million after tax, free cash flow was $186.4 million, compared with $322 million the prior year. This decline reflects higher working capital and capital expenditures in 2011 to support the company's growth, as well as increased dividends. The company's available liquidity was approximately $1.3 billion at December 31, 2011.
Mobile Industries Segment Results
Mobile Industries' 2011 sales were $1.8 billion, up 13% from $1.6 billion a year ago. Higher demand in the off-highway, rail and heavy-truck sectors drove most of the increase, along with favorable pricing and currency.
Mobile Industries achieved EBIT of $243.2 million, or 13.7% of sales, for the year, up 17% from $207.6 million, or 13.3%t of sales, earned in 2010. Higher volume and pricing drove the increase, partially offset by higher raw material costs and administrative expense.
In the fourth quarter, Mobile Industries' sales were $419.6 million, up 8% from the prior year's fourth-quarter sales of $388.6 million. Higher demand in the off-highway and rail sectors drove most of the increase, along with acquisitions, favorable pricing and surcharges. Excluding acquisitions, fourth-quarter sales were up 5% in the segment.
The Mobile segment recorded fourth-quarter EBIT of $43.2 million, or 10.3% of sales, compared with $42.3 million, or 10.9% of sales in 2010, as strong demand was offset by higher raw material and administrative costs. In addition, fourth-quarter results in both years included approximately $6 million in costs associated with the closure of the company's plant in Sao Paulo, Brazil.
Process Industries Segment Results
Sales for the Process Industries segment were $1.2 billion in 2011, an increase of 38% from $903.4 million a year ago. Stronger distribution demand, acquisitions, growth in Asia, new-product sales and pricing accounted for the increase. Excluding acquisitions, sales were up 26%.
Process Industries generated $281.6 million, or 22.6% of sales, in EBIT for the year, up 111% from the prior year's EBIT of $133.6 million, or 14.8% of sales. Higher volume, acquisitions, pricing and favorable mix due to higher aftermarket sales contributed to the increase.
Process Industries' fourth-quarter sales grew to $322.4 million, compared with $250.7 million in the same period a year ago. The 29% increase reflects stronger demand from industrial distribution and acquisitions. Excluding acquisitions, fourth-quarter sales were up 9%.
Process Industries' fourth-quarter EBIT was $67.1 million, or 20.8% of sales, up 51% from $44.4 million, or 17.7% of sales, a year ago. Higher volume, acquisitions, favorable mix and manufacturing utilization contributed to the improvement.
Aerospace and Defense Segment Results
For the full year 2011, Aerospace and Defense (Aerospace) sales were $324.1 million, down 4% from the same period a year ago. The decrease primarily reflects lower demand for defense-related products.
Aerospace EBIT was $7.6 million for the year, or 2.3% of sales, compared with 2010 EBIT of $16.7 million, or 4.9% of sales. The decline primarily reflects lower volume and unfavorable mix.
Aerospace sales in the fourth quarter were $79.7 million, compared with $82.5 million in 2010, primarily driven by lower demand for defense-related products.
Aerospace improved fourth-quarter EBIT to $3.6 million, or 4.5% of sales, from a prior-year loss of $3.8 million. The prior-year quarter included $7 million in inventory and warranty-related expenses.
Steel Segment Results
Sales for steel, including inter-segment sales, were $2 billion in 2011, an increase of 44% from $1.4 billion in 2010. Demand from the energy and industrial sectors drove the improvement, as well as favorable pricing and an increase in raw-material surcharges of approximately $210 million.
The steel segment posted $270.7 million in EBIT for the year, or 13.8% of sales, up 85% from $146.2 million, or 10.8% of sales, in 2010. The improvement reflects higher volume, surcharges, pricing and favorable mix led by the industrial and energy sectors, partially offset by higher material costs.
For the quarter, steel segment sales were $468.4 million, up 23% from the fourth quarter of 2010. Strong demand from the energy sector, pricing and an increase in surcharges of approximately $35 million, drove sales higher.
EBIT for the fourth quarter was $71.5 million, or 15.3% of sales, compared with EBIT of $42 million, or 11.1% of sales, in 2010. Higher surcharges, improved pricing and mix were partially offset by increased raw-material costs.
Timken expects sales growth of 5 to 8% in 2012, with:
- Mobile Industries sales relatively flat for the year, reflecting improved off-highway and rail demand, offset by reduced light-vehicle business;
- Process Industries sales up 8 to 13%, projecting increased demand from global industrial distribution, continued growth in Asia, the full-year impact from acquisitions and new-product sales;
- Aerospace and Defense sales up 10 to 15%, driven by increased demand in the defense and commercial aerospace sectors; and
- Steel sales up 5 to 10%, driven by demand in the energy and mobile on-highway sectors, as well as pricing.
Timken projects 2012 annual earnings in the range of $4.90 to $5.20 per diluted share, reflecting improved operating performance.
The company expects to generate approximately $515 million in cash from operations, which includes discretionary pension and VEBA trust contributions of approximately $150 million, net of tax. Free cash flow is expected to be $90 million after making capital expenditures of about $345 million and paying roughly $80 million in dividends. Excluding the discretionary pension and VEBA trust contributions, the company expects free cash flow of approximately $240 million in 2012.