The Timken Company, a global leader in bearings, has reported sales of $714.4 million for the fourth quarter of 2015, approximately 6% lower than the same period a year ago. Excluding the impact of currency, sales were down just under 2%, primarily due to market-related declines in Process Industries which were partially offset by sales from the recently acquired Carlisle belts product line.
In the fourth quarter, Timken posted a net loss from continuing operations of $35.7 million or $0.44 per basic share, versus net income of $41.2 million or $0.46 per diluted share a year ago. The loss included certain unusual items including non-cash pension settlement charges of $242 million (pre-tax), offset partially by a divestiture gain and the reversal of certain tax reserves.
Excluding unusual items, adjusted net income from continuing operations was $49.0 million or $0.59 per diluted share. This compares with $57.9 million or $0.65 per diluted share for the same period in 2014. The year-over-year change in adjusted net income reflects lower volume and unfavorable currency, partially offset by the impact of favorable material and operating costs and lower SG&A expenses. Earnings per share also benefited from the company's share buyback program, with 2.7 million shares repurchased in the fourth quarter.
Free cash flow (net cash from operations minus capital expenditures) for the quarter was $88 million, compared with $69 million in the prior-year period. The strong performance was driven primarily by lower working capital.
"Given the soft industrial environment globally, we were pleased with our fourth quarter results," says Richard G. Kyle, Timken President and Chief Executive Officer. "Demand declined slightly less than anticipated and our cost-reduction initiatives continued to gain momentum, resulting in a solid finish to a challenging year.
"In 2015, we gained share in sectors like automotive, wind and rail, maintained double-digit operating margins, generated strong cash flow, acquired the Carlisle belts product line and made structural improvements to our cost-competitiveness and operating margins," says Kyle. "We also continued to return capital to shareholders by increasing our dividend and buying back nearly 10% of our outstanding shares."
Kyle concludes, "We enter 2016 with a lower backlog and a significant degree of market uncertainty. As such, we are planning for 2016 revenue to be lower than 2015, reflecting softer end-user demand across most of the industrial landscape and a continued strong U.S. dollar. Our strategic priorities remain the same: We will continue to focus on outgrowing our end markets through our DeltaX initiative, driving operational excellence with an emphasis on cost reductions and cash generation, as well as effective capital deployment to increase shareholder value."
2015 Full-Year Results
For 2015, sales were $2.9 billion, 7% lower than 2014. Excluding the impact of currency, sales declined almost 2%, primarily driven by weaker end market demand across both Mobile and Process Industries, offset partially by the benefit of acquisitions. Net loss from continuing operations was $70.8 million or $0.84 per basic share for the year, versus net income of $146.8 million or $1.61 per diluted share a year ago.
Adjusted net income was $189.1 million or $2.21 per diluted share. This compares with $232.9 million or $2.55 per diluted share in 2014. The decline in earnings reflects negative currency, volume and net price/mix and higher interest expense, partially offset by favorable material and operating costs, lower SG&A expenses and a lower tax rate. Earnings per share also benefited from the company's share buyback program, with 8.6 million shares repurchased in 2015.
Among recent developments, the company:
- Broke ground on a new tapered roller bearing manufacturing facility in Ploiesti, Romania. The company expects to begin production in 2017;
- Returned $103.1 million in capital to shareholders in the fourth quarter, through the repurchase of 2.7 million shares and payment of dividends, bringing total capital returned to shareholders to nearly $400 million for the year;
- Received board authorization to repurchase up to 5 million shares in 2016;
- Entered into a group annuity contract to transfer approximately $475 million of retiree pension obligations to Prudential Insurance Company of America. Coupled with a similar transaction in the first quarter, the total liability transferred was over $1 billion in 2015, funded entirely with plan assets; and
- Completed its global rollout of the Timken 6000 Series metric deep groove ball bearings and introduced a new line of Drives Leaf Chain, both as part of its DeltaX growth initiative.
Fourth-Quarter Segment Results
Mobile Industries reported fourth-quarter sales of $380.3 million, approximately 2% lower than the same period a year ago. Excluding the impact of currency, sales increased over 2% driven by the net benefit of acquisitions. Organically, revenue was roughly flat, with automotive growth partially offset by lower off-highway and rail demand.
Earnings before interest and taxes (EBIT) for the fourth quarter were $58.9 million or 15.5% of sales, compared with EBIT of $22.4 million or 5.8% of sales for the same period a year ago. Adjusted EBIT was $36.2 million or 9.5% of sales, compared with $28.6 million or 7.3% of sales in the fourth quarter last year. The increase in year-over-year adjusted EBIT was driven by the impact of favorable material and operating costs and lower SG&A expenses, partially offset by the impact of lower production volume.
Process Industries sales of $334.1 million for the fourth quarter declined approximately 10% from the same period a year ago. Excluding the impact of currency, sales were down about 6%, driven by weaker demand in the industrial aftermarket and heavy industries, partially offset by growth in wind energy and military marine, and the benefit of acquisitions.
EBIT for the quarter was $45.2 million or 13.5% of sales, compared with EBIT of $79.7 million or 21.4% of sales for the same period a year ago. Adjusted EBIT was $55.7 million or 16.7% of sales, compared with $79.4 million or 21.3% of sales in the fourth quarter last year. The decrease in year-over-year adjusted EBIT was driven by the impact of lower volume and currency, partially offset by favorable material costs, lower SG&A expenses and the benefit of acquisitions.
The company is planning for 2016 revenue to be down approximately 4-5% versus 2015, including 2% from currency declines.
Within its segments, the company estimates full-year 2016:
- Mobile Industries' sales to be down approximately 5%. Excluding the impact of currency, sales are expected to be down around 3%, reflecting lower demand in rail, off-highway and aerospace, offset partially by growth in automotive and the net benefit of acquisitions.
- Process Industries' sales to be down approximately 4%. Excluding the impact of currency, sales are expected to be down around 2%, driven by declines across the industrial aftermarket and heavy industries, offset partially by the benefit of acquisitions.
Timken anticipates 2016 earnings per diluted share to range from $1.35-$1.45 for the full year on a GAAP basis. Excluding unusual items, the company expects 2016 adjusted earnings per diluted share to be $1.90-$2.00. Earnings per share estimates reflect the benefit of share repurchases completed by the end of 2015 and currency rates as of December 31, 2015.