Timken Reports Second Quarter Results

The Timken Company, a global leader in bearings, reports second-quarter 2016 sales of $674 million, 7.5% lower than the same period a year ago. Excluding an unfavorable currency impact of 1.7%, sales were down 5.8% due to weakness across most end markets, partially offset by growth in automotive and the net benefit of acquisitions.

In the second quarter, Timken posted net income of $44.9 million or $0.57 per diluted share, versus net income of $36.7 million or $0.43 per diluted share for the same period a year ago. The year-over-year increase in net income reflects lower material and manufacturing costs, SG&A expenses and pension settlement charges, and income related to distributions under the U.S. Continued Dumping Subsidy Offset Act (CDSOA). These items were partially offset by lower volume, unfavorable price/mix and currency, and higher restructuring charges.
Net income in the quarter included income from CDSOA, restructuring expense and other items totaling $1.2 million of income (net). Excluding these items, adjusted net income was $43.7 million or $0.55 per diluted share. This compares with adjusted net income of $49.1 million or $0.57 per diluted share for the same period in 2015.

"We performed well in the quarter despite challenging market conditions, generating strong cash flow and delivering double-digit operating margins," Timken President and Chief Executive Officer Richard G. Kyle says. "We also continued to advance our strategic priorities including the recent acquisition of Lovejoy. While we expect our target markets to weaken further in the second half, we are maintaining our full-year adjusted earnings guidance primarily on the strength of our operational excellence initiatives."

Cash from operations for the quarter was $155.5 million. Free cash flow for the quarter was $129.3 million. Cash from operations for the second quarter benefited from $48.1 million of cash receipts from CDSOA, lower tax payments and working capital.

Recently, the company:

• Added to its mechanical power transmission product portfolio with the acquisition of Lovejoy Inc., a manufacturer of premium industrial couplings and universal joints; 
• Opened a new service center in Denver for the repair of electric motors, generators and gearboxes, providing new and existing customers a broader offering of powertrain repair solutions; 
• Continued to advance its manufacturing footprint initiatives with the closure of a bearing plant in the U.K.; 
• Returned $53.6 million in capital to shareholders in the second quarter through the repurchase of nearly 1 million shares and the payment of its 376th consecutive quarterly dividend; and 
• Received a credit rating upgrade from BBB- to BBB from S&P Global Ratings.

Second-Quarter Segment Results

Mobile Industries reported second-quarter sales of $367.8 million, 5.4% lower than the same period a year ago. Excluding unfavorable currency of 1.5%, sales were down 3.9% compared with the prior year, as growth in automotive and the net benefit of acquisitions were offset by declines in other end markets.

Earnings before interest and taxes (EBIT) in the quarter were $35.3 million or 9.6% of sales, compared with EBIT of $36.0 million or 9.3% of sales for the same period a year ago. The slight decrease in EBIT reflects lower volume, unfavorable price/mix and currency, and higher restructuring costs offset by favorable material and manufacturing costs, and lower SG&A expenses.

EBIT in the quarter included restructuring charges of $2.3 million. Excluding this, adjusted EBIT was $37.6 million or 10.2% of sales, compared with $37.0 million or 9.5% of sales in the second quarter last year.

Process Industries sales of $305.8 million for the second quarter declined 9.9% from the same period a year ago. Excluding unfavorable currency of 1.9%, sales were down 8%, driven by weaker demand in the industrial aftermarket and heavy industries, partially offset by higher military marine revenue and the benefit of acquisitions.

EBIT for the quarter was $46.7 million or 15.3% of sales, compared with EBIT of $56.7 million or 16.7% of sales for the same period a year ago. The decrease in EBIT was driven by the impact of lower volume and unfavorable price/mix, partially offset by lower SG&A expenses and the benefit of acquisitions.

EBIT in the quarter included restructuring charges and other items totaling $1 million of expense. Excluding these items, adjusted EBIT was $47.7 million or 15.6% of sales, compared with $57.5 million or 16.9% of sales in the second quarter last year.

2016 Outlook

The company expects 2016 revenue to be down approximately 6% in total versus 2015, including an estimated unfavorable currency impact of 1.5%.

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

• Mobile Industries' sales to be down 6-7%. Excluding an estimated unfavorable currency impact of 1.5%, sales are expected to decline around 5%, reflecting lower demand in rail, off-highway, aerospace and heavy truck, partially offset by growth in automotive and the net benefit of acquisitions/divestitures. 
• Process Industries' sales to be down 5-6%. Excluding an estimated unfavorable currency impact of 2%, sales are expected to decline around 3-4%, driven by declines in the industrial aftermarket and heavy industries, partially offset by the benefit of acquisitions (including the recently announced Lovejoy acquisition).

Timken now anticipates 2016 earnings per diluted share to range from $1.70 to $1.80 for the full year on a GAAP basis. The company expects 2016 adjusted earnings per diluted share to range from $1.90 to $2.00, unchanged from its prior estimate.