The Timken Company, a world leader in engineered bearings and power transmission products, has reported third-quarter 2018 sales of $881.3 million, up 14.2% from the same period a year ago. The increase was driven by continued growth across most end markets, as well as the favorable impact of pricing and acquisitions, partially offset by unfavorable currency.
In the third quarter, Timken posted net income of $71.6 million or $0.91 per diluted share, versus net income of $53.5 million or $0.68 per diluted share for the same period a year ago. The year-over-year improvement was driven by higher volume, favorable price/mix and the impact of acquisitions, partially offset by higher material and logistics costs including tariffs. The current period also included higher pension- and acquisition-related charges.
Excluding special items, adjusted net income in the third quarter of 2018 was $82.9 million or $1.06 per diluted share, an earnings per share record for the third quarter, versus adjusted net income of $55.9 million or $0.71 per diluted share for the same period in 2017. Cash from operations for the quarter was $137.1 million, and free cash flow was $113.9 million.
"We posted another outstanding quarter," says Richard G. Kyle, Timken President and Chief Executive Officer. "We generated double-digit top-line growth, expanded operating margins despite tariff and other cost headwinds and delivered a nearly 50% increase in adjusted earnings per share. Our recent acquisitions are off to a good start, and organically, we are doing an excellent job of serving our customers' needs while pursuing profitable growth opportunities."
During the quarter, the company:
- Completed the previously-announced acquisitions of Cone Drive, Rollon Group, and ABC Bearings, which add new and complementary products, capabilities and customers to the Timken portfolio,
- Priced a public offering of $400 million of 10-Year Senior Unsecured Notes at an interest rate of 4.50%, with the proceeds used to fund the acquisitions of Cone Drive and Rollon Group, and
- Returned $35 million in capital to shareholders with the payment of its 385th consecutive quarterly dividend and the repurchase of 300,000 shares, bringing full-year share repurchases up to 1.4 million shares.
Third-Quarter 2018 Segment Results
Mobile Industries reported sales of $464.2 million, up 9.8% compared with the same period a year ago, driven primarily by growth in the aerospace, automotive, off-highway and heavy truck sectors, partially offset by unfavorable currency.
Earnings before interest and taxes (EBIT) in the quarter were $50.6 million or 10.9% of sales, compared with EBIT of $35 million or 8.3% of sales for the same period a year ago. The increase in EBIT reflects the impact of higher volume and favorable price/mix, partially offset by higher material and logistics costs.
Excluding special items, adjusted EBIT in the quarter was $52.5 million or 11.3% of sales, compared with $37.7 million or 8.9% of sales in the third quarter last year.
Process Industries sales of $417.1 million increased 19.7% from the same period a year ago, driven by broad growth across all sectors, as well as the favorable impact of pricing and acquisitions, partially offset by unfavorable currency.
EBIT for the quarter was $81.8 million or 19.6% of sales, compared with EBIT of $61.7 million or 17.7% 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 and logistics costs including tariffs, as well as increased selling, general and administrative expenses.
Excluding special items, adjusted EBIT in the quarter was $84 million or 20.1% of sales, compared with $61.7 million or 17.7% of sales in the third quarter last year.
2018 Outlook
"Looking ahead to the fourth quarter, our markets remain strong, and we continue to execute well and advance the company's strategy," says Kyle. "As a result, we have modestly increased our earnings outlook for the year, and we are planning for our strong execution and positive market momentum to carry into 2019."
The company expects 2018 revenue to be up approximately 19.5% in total versus 2017. This includes expected organic growth of approximately 14% plus the benefit of acquisitions, including the recently completed ABC Bearings, Cone Drive and Rollon Group acquisitions. Within its segments, the company estimates for full-year 2018:
- Mobile Industries sales to be up approximately 16%, driven primarily by broad growth across all sectors, led by off-highway, rail and heavy truck, as well as the benefit of acquisitions, and
- Process Industries sales to be up approximately 24%, reflecting growth across the distribution, original equipment and services sectors, as well as the benefit of acquisitions.
Timken now anticipates 2018 earnings per diluted share of $3.98 to $4.03 for the full year on a GAAP basis. Excluding special items, the company expects record 2018 adjusted earnings per diluted share in the range of $4.18 to $4.23, which at the midpoint represents an increase of 60% from 2017.
