Timken Reports 5% Lower Sales for First Quarter 2016

The Timken Company, a global leader in bearings, has reported sales of $684 million for the first quarter of 2016, approximately 5% lower than the same period a year ago. Excluding the impact of currency, sales were down 2.5%, primarily due to market weakness across most sectors partially offset by growth in automotive and the net benefit of acquisitions and divestitures.

In the first quarter, Timken posted net income of $63.0 million or $0.78 per diluted share, versus net loss of $135.2 million or $1.54 per basic share a year ago. Net income in the quarter included certain unusual items including pre-tax income of $47.7 million related to the U.S. Continued Dumping and Subsidy Offset Act.

Adjusted net income was $36.9 million or $0.46 per diluted share. This compares with adjusted net income of $44.2 million or $0.50 per diluted share for the same period in 2015. The year-over-year change in adjusted net income reflects lower volume, unfavorable price/mix and currency, partially offset by the impact of lower raw material and operating costs, as well as lower SG&A expenses. Earnings per share also benefited from share buybacks.

Free cash flow for the quarter was $22.9 million, compared with net cash used of $2.7 million in the prior-year period. The increase in free cash flow was primarily driven by improvements in working capital. In addition, the company returned $55.7 million in capital to shareholders in the first quarter, through the repurchase of 1.2 million shares and the payment of its 375th consecutive quarterly dividend.

"During the quarter, we executed well and delivered first-quarter results in line with our expectations even though market conditions globally remain weak, particularly in commodity-related sectors," says Richard G. Kyle, Timken President and Chief Executive Officer. "Looking ahead, we expect continued challenging market conditions in 2016. However, we are reaffirming our full-year earnings outlook, confident in our ability to win new business and deliver on our cost-reduction initiatives." 

First-Quarter Segment Results

Mobile Industries reported first-quarter sales of $383.2 million, approximately 2% lower than the same period a year ago. Excluding the impact of currency, sales were roughly flat compared with the prior year, as growth in automotive and the net benefit of acquisitions and divestitures offset market-related declines in off‑highway, rail and aerospace.

Earnings before interest and taxes (EBIT) for the first quarter were $30.2 million or 7.9% of sales, compared with EBIT of $35.4 million or 9% of sales for the same period a year ago. Adjusted EBIT was $35.9 million or 9.4% of sales, compared with $36.4 million or 9.3% of sales in the first quarter last year. The slight decline in adjusted EBIT reflects the impact of unfavorable price/mix and lower volume, partially offset by lower raw material and operating costs, and lower SG&A expenses.

Process Industries sales of $300.8 million for the first quarter declined approximately 9% from the same period a year ago. Excluding the impact of currency, sales were down roughly 6%, driven by weaker demand in the heavy industries sector and the industrial aftermarket, partially offset by the benefit of acquisitions.

EBIT for the quarter was $32.6 million or 10.8% of sales, compared with EBIT of $45.2 million or 13.7% of sales for the same period a year ago. Adjusted EBIT was $36.2 million or 12% of sales, compared with $50.8 million or 15.4% of sales in the first quarter last year. The decrease in adjusted EBIT was driven by the impact of lower volume and currency, partially offset by lower SG&A expenses and raw material costs.

2016 Outlook 

The company expects 2016 revenue to be down approximately 5% from 2015, including 2% from currency declines.

Within its segments, the company estimates full-year 2016:

• Mobile Industries' sales to be down approximately 6%. Excluding the impact of currency, sales are expected to be down around 4%, reflecting lower demand in rail, off-highway and aerospace, offset partially by growth in automotive and the net benefit of acquisitions and divestitures. 
• Process Industries' sales to be down approximately 4%. Excluding the impact of currency, sales are expected to be down around 2%, driven by declines in the heavy industries sector and the industrial aftermarket, partially offset by organic growth in wind energy and the benefit of acquisitions.

Timken anticipates 2016 earnings per diluted share to range from $1.65-$1.75 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.