The Timken Company, a global leader in bearings, has reported sales of $723 million for the first quarter of 2015, down 2% from a year ago. This reflects growth of nearly 3%, driven by Process Industries, which was more than offset by unfavorable currency of almost 5%.
Pension settlement and other restructuring charges in the first quarter drove a net loss from continuing operations of $135.2 million or $1.54 per share. This compares with net income from continuing operations during the same period a year ago of $60 million or $0.64 per diluted share. As previously disclosed, earlier this year the company transferred approximately $575 million of retiree pension obligations to Prudential through the purchase of a group annuity contract, which resulted in a non-cash charge of $215 million pre-tax in the first quarter.
Adjusted net income from continuing operations in the first quarter was $44.2 million or $0.50 per diluted share. This compares with $47 million or $0.50 per diluted share for the same period a year ago. Adjusted net income reflects the impact of negative currency and unfavorable mix, partially offset by the benefit of higher volume, lower selling, general and administrative (SG&A) expenses and a lower tax rate. Earnings per share benefited from the company's share buyback program, including 2.3 million shares repurchased in the first quarter.
"Although the year started off softer than expected, we were successful in achieving 3% sales growth before currency and delivered adjusted earnings in line with last year," says Richard G. Kyle, Timken President and Chief Executive Officer. "We continue to outgrow markets in Process Industries, achieving 9% growth in the quarter excluding currency. We also continue to improve our cost structure and return significant capital to shareholders.
"While we have tempered our full-year outlook to reflect the full impact of the strong dollar and a more cautious outlook on the end markets," Kyle says, "we remain confident in our long-term ability to grow our business profitably and create value for our customers and shareholders."
First-Quarter Segment Results
Mobile Industries reported first-quarter sales of $393 million, down approximately 7% from the same period a year ago, with 4.5% attributable to currency. The remainder was largely due to declines in aerospace, agriculture and the automotive aftermarket, partially offset by growth in the rail sector. Earnings before interest and taxes (EBIT) for the first quarter were $35.4 million or 9% of sales, compared with prior-year EBIT of $64.3 million or 15.2% of sales, which included a gain on the sale of real estate in Brazil. Adjusted EBIT was $36.4 million or 9.3% of sales, compared with $45.3 million or 10.7% of sales in the first quarter last year. The decline in earnings was driven by lower volume, unfavorable mix and currency, partially offset by lower SG&A expenses.
Process Industries sales of $329.5 million for the first quarter were up approximately 5% over the same period last year despite a currency impact of 4%. Sales were driven by strong organic growth in the wind energy and military marine sectors as well as the benefit of acquisitions, partially offset by currency. EBIT for the quarter was $45.2 million or 13.7% of sales, compared with prior-year EBIT of $48.2 million or 15.3% of sales. Adjusted EBIT was $50.8 million or 15.4% of sales, compared with $49.3 million or 15.6% of sales in the first quarter last year. The increase in earnings was driven by higher volume, partially offset by unfavorable mix and currency.
For 2015, the company expects year-over-year revenue to be down approximately 4%, with negative currency of 5% more than offsetting expected growth of 1%. The segment outlook for full-year 2015:
- Mobile Industries' sales are expected to be down 5 to 6%. Without the impact of currency, sales are expected to be flat to down 1% reflecting organic growth in light vehicle and rail being more than offset by declines in aerospace and agriculture.
- Process Industries' sales are expected to be down 2 to 3%. Excluding currency, sales are expected to increase 2 to 3% driven by organic growth in wind energy, industrial services and the benefit of acquisitions.
Timken projects 2015 earnings per diluted share to range from $0.60 to $0.70, which includes $1.75 of non-cash pension settlement charges and $0.20 per share of impairment and other restructuring charges, partially offset by $0.25 of income associated with discrete tax accrual adjustments.
Excluding these items, 2015 adjusted earnings per diluted share are expected to range from $2.30 to $2.40.