The Timken Company, a global leader in bearings and mechanical power transmission products, has reported third-quarter 2016 sales of $657 million, down approximately 7% from the same period a year ago. Excluding unfavorable currency of 1%, sales were down 6% due to weakness across most end markets, partially offset by the net benefit of acquisitions and divestitures.
In the third quarter, Timken posted net income of $20.6 million or $0.26 per diluted share, versus net income of $63.4 million or $0.75 per diluted share for the same period a year ago. The year-over-year decrease in net income was driven by a large tax benefit in the year-ago period, lower volume, unfavorable price/mix and higher pension settlement and restructuring charges, partially offset by lower material, manufacturing and SG&A costs.
Net income in both quarters included expense attributable to pension settlements, impairment and restructuring, and other items. In addition, the prior period included a large tax benefit. Excluding these items, adjusted net income was $38.9 million or $0.49 per diluted share. This compares with adjusted net income of $46.7 million or $0.55 per diluted share for the same period in 2015.
"We performed well again this quarter, demonstrating our ability to navigate a challenging market environment," says Richard G. Kyle, Timken President and Chief Executive Officer. "While most industrial sectors remain weak, our earnings are on track for the year and we continue to focus on organic outgrowth initiatives, operational excellence and deploying capital to create shareholder value."
During the quarter, the company:
- Completed the acquisition of Lovejoy Inc., a manufacturer of premium industrial couplings and universal joints, further expanding its mechanical power transmission portfolio;
- Continued to reduce operating costs, including the announcement of plans to close its Pulaski, TN, bearing plant and cease manufacturing operations in South Africa; and
- Returned $35 million in capital to shareholders in the third quarter through the repurchase of 480,000 shares and the payment of its 377th consecutive quarterly dividend.
Third-Quarter Segment Results
Mobile Industries reported third-quarter sales of $353 million, 11% lower than the same period a year ago. Excluding unfavorable currency of 1%, sales were down 10%, as the net benefit of acquisitions were more than offset by declines across most end markets.
Earnings before interest and taxes (EBIT) in the quarter were $24.1 million or 6.8% of sales, compared with EBIT of $43.0 million or 10.8% of sales for the same period a year ago. The decrease in EBIT reflects lower volume, unfavorable price/mix and higher impairment and restructuring charges, partially offset by favorable material and manufacturing costs and lower SG&A expenses.
Excluding impairment and restructuring and other items, adjusted EBIT in the quarter was $30.6 million or 8.7% of sales, compared with $46.1 million or 11.6% of sales in the third quarter last year.
Process Industries sales of $304 million for the third quarter declined 2% from the same period a year ago. Excluding unfavorable currency of 1%, sales were down 1%, driven by weaker demand in heavy industries, industrial services and wind energy, partially offset by higher military marine revenue and the benefit of acquisitions.
EBIT for the quarter was $40.7 million or 13.4% of sales, compared with EBIT of $43.1 million or 13.9% of sales for the same period a year ago. The decrease in EBIT was driven by the impact of lower volume, unfavorable price/mix and charges related to the Lovejoy acquisition, partially offset by favorable material costs and lower SG&A expenses.
Excluding acquisition-related charges and other items, adjusted EBIT in the quarter was $44.2 million or 14.5% of sales, compared with $45.4 million or 14.7% of sales in the third quarter last year.
The company expects 2016 revenue to be down approximately 7-8% 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 approximately 8%, including an unfavorable currency impact of 1.5%. The remaining decline reflects lower demand in rail, off-highway, aerospace and heavy truck, partially offset by growth in automotive and the net benefit of acquisitions.
- Process Industries' sales to be down approximately 7%, including an unfavorable currency impact of 1.5%. The remaining decline reflects lower demand in heavy industries and the industrial aftermarket, partially offset by the benefit of acquisitions.
Timken anticipates 2016 earnings per diluted share to range from $1.77 to $1.83 for the full year on a GAAP basis. The company expects 2016 adjusted earnings per diluted share to range from $1.92 to $1.98.