The Timken Company, a world leader in engineered bearings and power transmission products, has reported second-quarter 2018 sales of $906.3 million, up approximately 21% from the same period a year ago. The increase was driven by continued strength across most end markets, as well as the benefit of acquisitions and currency.
In the second quarter, Timken posted net income of $91 million or $1.16 per diluted share, versus net income of $82.5 million or $1.04 per diluted share for the same period a year ago. In the quarter, the company benefitted from higher volume, favorable price/mix and manufacturing performance, and the impact of acquisitions, which were partially offset by higher material, logistics and selling, general and administrative (SG&A) costs. The year-ago period also included a large tax benefit.
Excluding special items, adjusted net income in the second quarter of 2018 was $87.2 million or a record $1.11 per diluted share, versus net income of $54 million or $0.68 per diluted share for the same period in 2017.
"We delivered an outstanding quarter and remain on track for an excellent year," says Richard G. Kyle, Timken President and Chief Executive Officer. "We are successfully growing our business organically, and the acquisitions we completed last year are performing at high levels. As a result, we posted significant revenue gains, expanded operating margins and reported record earnings per share. In addition, we further advanced our strategy, announcing plans to add Cone Drive and Rollon to our Timken portfolio of strong industrial brands."
Cash from operations for the quarter was $102.1 million, and free cash flow was $80.3 million. The company ended the quarter with net debt of $899.8 million, or 36.7% of capital.
Among recent developments, the company:
- Announced that it will acquire Cone Drive, a leader in precision drives, and Rollon, a leader in linear motion, further expanding the company's portfolio and strengthening its presence in attractive markets around the world,
- Increased the company's quarterly dividend by 4% to 28 cents per share, and
- Returned $49 million in capital to shareholders in the second quarter through the repurchase of 570,000 shares and the payment of its 384th consecutive quarterly dividend.
Second-Quarter 2018 Segment Results
Mobile Industries reported sales of $489.1 million, up 19.8% compared with the same period a year ago. Acquisitions added revenue of $30.7 million in the quarter, or 7.5%. Excluding acquisitions, revenue was up 12.2%, driven primarily by increased demand in the off-highway, rail and heavy truck sectors.
Earnings before interest and taxes (EBIT) in the quarter were $54.5 million or 11.1% of sales, compared with EBIT of $34.4 million or 8.4% of sales for the same period a year ago. The increase in EBIT reflects the impact of higher volume, favorable price/mix and manufacturing performance, and the benefit of acquisitions, partially offset by higher material and SG&A costs.
Excluding special items, adjusted EBIT in the quarter was $54.9 million or 11.2% of sales, compared with $35.9 million or 8.8% of sales in the second quarter last year.
Process Industries sales of $417.2 million increased 21.9% from the same period a year ago, driven by broad strength across the distribution, original equipment and services sectors, as well as the impact of favorable pricing and currency.
EBIT for the quarter was $90.6 million or 21.7% of sales, compared with EBIT of $60.2 million or 17.6% of sales for the same period a year ago. The increase in EBIT was driven by higher volume and favorable price/mix, partially offset by higher material, logistics and SG&A costs.
Excluding special items, adjusted EBIT in the quarter was $90.8 million or 21.8% of sales, compared with $60.2 million or 17.6% of sales in the second quarter last year.
2018 Outlook
"We continue to see strong growth in our markets and are successfully capturing new business," says Kyle. "As we advance our strategy, we are expanding our industry-leading portfolio to serve existing and new customers in attractive end markets around the world. We are raising our outlook for the year, despite currency and trade headwinds, and we remain confident in the company's future."
The company now expects 2018 revenue to be up approximately 21% in total versus 2017. This includes expected organic growth of approximately 15% plus the benefit of acquisitions, including the recently announced Cone Drive and Rollon acquisitions. Within its segments, the company estimates for full-year 2018:
- Mobile Industries sales to be up approximately 18%, driven primarily by organic growth in the off-highway, heavy truck and rail sectors, as well as the benefit of acquisitions.
- Process Industries sales to be up approximately 25%, reflecting strong demand across the distribution, original equipment and services sectors, as well as the benefit of acquisitions and favorable currency.
Timken now anticipates 2018 earnings per diluted share of $3.90 to $4.00 for the full year on a GAAP basis. Excluding special items, the company expects 2018 adjusted earnings per diluted share to range from $4.10 to $4.20, which at the midpoint represents an increase of 58% from 2017.
