The Timken Company, a global leader in bearings and mechanical power transmission products, has reported first quarter 2017 sales of $703.8 million, up 2.9% from the same period a year ago. The results reflect increased industrial distribution and off-highway demand, as well as the benefit of acquisitions, partially offset by lower rail, wind energy and aerospace shipments.
In the first quarter, Timken posted net income of $38.2 million or $0.48 per diluted share, versus net income of $65.9 million or $0.82 per diluted share for the same period a year ago. The year-ago period included CDSOA income of approximately $31 million after-tax. The year-over-year change in net income also reflects the impact of higher volume, improved manufacturing performance and lower restructuring charges, partially offset by unfavorable price/mix and a pension mark-to-market remeasurement charge in the quarter.
Excluding special items, adjusted net income in the first quarter of 2017 was $43.7 million or $0.55 per diluted share, up from $39.9 million or $0.50 per diluted share for the same period in 2016. The increase in adjusted net income reflects the impact of higher volume and improved manufacturing performance, partially offset by unfavorable price/mix. The company generated cash from operations of $46.7 million and free cash flow of $27.4 million in the first quarter.
"We had a solid start to the year, with stronger demand in sectors like industrial distribution and off-highway," says Richard G. Kyle, Timken President and Chief Executive Officer. "We responded well to the increase in demand, improved operating margins and generated solid cash flow, while continuing to advance our strategy across the globe."
Recently, the company:
- Added to its mechanical power transmission product portfolio with the acquisition of Torsion Control Products Inc., a manufacturer of engineered torsional couplings, which complements the Lovejoy acquisition made last year; and
- Returned $28 million in capital to shareholders in the first quarter through the repurchase of 185,000 shares and the payment of its 379th consecutive quarterly dividend.
First-Quarter Segment Results
Mobile Industries reported first-quarter sales of $383 million, roughly flat compared to the same period a year ago, with increased demand in the mining and agriculture sectors offset by softness in rail and aerospace.
Earnings before interest and taxes (EBIT) in the quarter were $30.8 million or 8% of sales, compared with EBIT of $32 million or 8.4% of sales for the same period a year ago. The decrease in EBIT primarily reflects unfavorable price/mix in the quarter partially offset by favorable currency.
Excluding special items, adjusted EBIT in the quarter was $36.6 million or 9.6% of sales, compared with $37.7 million or 9.8% of sales in the first quarter last year.
Process Industries sales of $320.8 million for the first quarter were up 6.6% from the same period a year ago, driven primarily by increased industrial distribution demand, higher marine revenue and the benefit of acquisitions, partially offset by lower revenue in wind energy and services.
EBIT for the quarter was $43 million or 13.4% of sales, compared with EBIT of $33.8 million or 11.2% of sales for the same period a year ago. The increase in EBIT was driven by the impact of higher volume, improved manufacturing performance, lower SG&A expenses and the benefit of acquisitions, partially offset by unfavorable price/mix. In addition to these operating factors, year-on-year results were also impacted by lower restructuring charges in the quarter.
Excluding special items, adjusted EBIT in the quarter was $44.2 million or 13.8% of sales, compared with $37.4 million or 12.4% of sales in the first quarter last year.
"Encouraged by our start to the year, we are raising our revenue and earnings outlook, with the expectation that markets sustain their recent improvements," says Kyle. "We are confident in our ability to generate solid bottom-line growth in 2017."
The company now expects 2017 revenue to be up 5-6% in total versus 2016. Within its segments, the company estimates full-year 2017:
- Mobile Industries' sales to be up 2-3%, driven primarily by improved demand in the off-highway and heavy truck sectors and the benefit of acquisitions, partially offset by continued weakness in the rail sector.
- Process Industries' sales to be up 9-10%, reflecting growth across most end-market sectors and the benefit of acquisitions, offset partially by unfavorable currency.
Timken now anticipates 2017 earnings per diluted share to range from $2.15 to $2.25 for the full year on a GAAP basis, which does not include the impact of any potential mark-to-market pension remeasurement adjustments in the fourth quarter.
The company expects 2017 adjusted earnings per diluted share to range from $2.35 to $2.45.
Recast of 2016 Earnings for Change in Accounting Principle
In the first quarter of 2017, Timken implemented a change in accounting principle for pension and OPEB costs. Prior to 2017, the company amortized actuarial gains and losses into earnings over time. Under the new principle, the company will recognize actuarial gains and losses as a mark-to-market remeasurement gain or loss when they occur rather than amortizing them to earnings over time. In addition, the company has changed its accounting policy for measuring the market-related value of plan assets from a calculated amount (based on a smoothing of asset returns) to fair value. As a result of these changes, 2016 earnings have been recast to make the company's results comparable year-over-year. First-quarter 2016 earnings have been recast from $0.78 to $0.82 per diluted share. First-quarter 2016 adjusted earnings have been recast from $0.46 to $0.50 per diluted share. More information on the 2016 impact of this change in accounting principle can be found in the Form 8-K filed by the company on April 24, 2017.