The Timken Company, a global leader in bearings, reports sales of $728 million for the second quarter of 2015, down 8% from a year ago. Excluding currency impact of 5%, sales were down approximately 3%, primarily due to market-related declines in Mobile Industries that were partially offset by organic growth in Process Industries.
Net income from continuing operations was $36.7 million or $0.43 per diluted share for the quarter, versus $56.5 million or $0.61 per diluted share a year ago. Adjusted net income from continuing operations was $49.1 million or $0.57 per diluted share. This compares with $59.4 million or $0.65 per diluted share for the same period in 2014. The change in adjusted net income reflects the impact of negative currency and unfavorable volume. This was partially offset by lower material and logistics costs; reduced selling, general and administrative (SG&A) expenses; and a more favorable tax rate. Earnings per share benefited from the company's share buyback program, with 2 million shares repurchased in the second quarter.
Free cash flow (net cash from operations minus capital expenditures) for the quarter was $64.7 million, or 132% of adjusted net income. The strong performance was driven in part by lower working capital.
"The quarter came in near our expectations with demand up slightly compared with the first quarter," Timken President and CEO Richard G. Kyle reports. "Given the volume levels and the impact of currency, we managed costs and cash flow well in the quarter and continued to return capital to shareholders by raising our quarterly dividend and executing our share buyback plan.
"During the quarter, demand remained weak in many of our markets. As a result, we are reducing our outlook for the balance of the year, now expecting our top line to be slightly off from the first half," Kyle says. "We are working to accelerate the impact of our cost-reduction initiatives, and expect to generate second-half earnings comparable to the first half. We're committed to drive shareholder value and remain focused on executing our strategy and growing our business."
In the quarter, the company:
- Launched the Timken UC-Series ball bearing housed unit product line, an extension of the company's housed unit bearing portfolio;
- Started shipping products to support new business platforms in Mobile Industries;
- Increased the company's quarterly dividend 4% to $0.26 per share;
- Returned $102.5 million in capital to shareholders through the repurchase of 2 million shares and payment of dividends in the quarter; and
- Entered into a new five-year $500 million senior credit facility.
Second-Quarter Segment Results
Mobile Industries reported second-quarter sales of $388.6 million, down approximately 13% from the same period a year ago, with about 5% attributable to currency. The remainder was largely due to declines in aerospace, agriculture and automotive, partially offset by continued growth in the rail sector.
Earnings before interest and taxes (EBIT) for the second quarter were $36 million or 9.3% of sales, compared with prior-year EBIT of $42.3 million or 9.5% of sales. Adjusted EBIT was $37 million or 9.5% of sales, compared with $46.7 million or 10.4% of sales in the second quarter last year. The decline in earnings was driven by lower volume and currency, partially offset by lower manufacturing, material and logistics costs, and SG&A expenses.
Process Industries sales of $339.4 million for the second quarter were down 1% from the prior year. Excluding currency impact of about 5%, sales were up almost 4%, driven by organic growth in the wind energy and military marine sectors, higher industrial services revenue and the benefit of acquisitions. This growth was partially offset by lower industrial distribution demand driven by weakness in metals, mining, and oil and gas.
EBIT for the quarter was $56.7 million or 16.7% of sales, compared with prior-year EBIT of $64.8 million or 18.9% of sales. Adjusted EBIT was $57.5 million or 16.9% of sales, compared with $66.6 million or 19.5% of sales in the second quarter last year. The decrease in earnings was driven by unfavorable mix, manufacturing utilization and currency, which more than offset the benefit of higher sales volume and lower logistics costs.
For 2015, the company expects year-over-year revenue to be down approximately 7 to 8%, which includes 5% from currency declines. The segment outlook for full-year 2015 has also been adjusted with:
- Mobile Industries' sales expected to be down 8 to 9%. Without the impact of currency, sales are expected to be down 3 to 4% reflecting lower shipments in aerospace and agriculture, partially offset by organic growth in rail.
- Process Industries' sales expected to be down 6 to 7%. Excluding currency, sales are expected to be down 1 to 2%, as growth in wind energy and military marine, and the benefit of acquisitions are more than offset by weaker demand in industrial aftermarket and heavy industries.
Timken expects 2015 earnings per diluted share to range from $0.30 to $0.40, which includes $1.80 of non-cash pension settlement charges and $0.20 per share of impairment and other restructuring charges, partially offset by $0.20 of income associated with discrete tax accrual adjustments.
Excluding these items, the company expects 2015 adjusted earnings per diluted share to range from $2.10 to $2.20.