Timken Company Announces Record Second Quarter Results; Raises Outlook

CANTON, Ohio, July 28 /PRNewswire-FirstCall/ -- The Timken Company today reported a 17 percent increase in sales and more than doubling of earnings per share for the second quarter of 2005, compared to a year ago. "We are pleased to report both record sales and second-quarter earnings per share. As these results demonstrate, we have leveraged the strength of the industrial markets we serve, while improving competitiveness," said James W. Griffith, president and CEO. Timken reported second-quarter sales of $1.3 billion, compared to $1.1 billion last year, and net income of $67.3 million or $0.73 per diluted share, up from $25.3 million or $0.28 per diluted share a year ago. Excluding special items, earnings per diluted share were $0.77, compared to $0.33 per diluted share last year. Special items in the second quarter of 2005 totaled $3.7 million of pretax expense, including expenses for manufacturing rationalization, integration and reorganization, partially offset by a gain on the sale of a non-strategic business. "While we are seeing strong industrial markets, automotive markets continue to be challenging. We have benefited from actions to improve our position, including price increases to recoup high raw material costs. However, these efforts have not been enough to offset significant changes occurring in the automotive industry. As a result, we are taking more aggressive actions. Over the next quarter, we will announce detailed plans to globally restructure our Automotive Group to reduce fixed costs, with targeted annual savings of approximately $40 million," Mr. Griffith said. For the first half of 2005, sales were $2.6 billion, an increase of 18 percent from the prior year. Earnings per diluted share for the first six months were $1.37 in 2005, versus $0.60 in 2004. Excluding special items, earnings per diluted share in the first half of 2005 were $1.42, versus $0.64 in 2004. Special items in the first half of 2005 totaled $4.8 million of pretax expense, compared to $6.9 million a year ago. Excluding special items, the company's effective tax rate for the first half of 2005 was 34.1 percent, down from 36.0 percent in the first quarter, due to higher earnings in low tax-rate jurisdictions. The company expects to maintain its rate from the first half. Total debt at June 30, 2005 was $842.1 million, or 38.6 percent of capital. Debt was higher than the 2004 year-end level of $779.3 million due to seasonality and higher working capital requirements to support growth. The company expects its leverage to be lower at the end of this year compared to last year. Industrial Group Results For the second quarter, Industrial Group sales were $498.2 million, up 14 percent from $437.7 million last year. Sales growth was strongest in distribution, rail, mining and agriculture. In addition to strong market demand, results reflect the benefit of the company's focus on profitable growth through new products and market expansion. During the quarter, the Industrial Group introduced a new line of Timken(R) industrial oil seals and expanded its maintenance tool line into the U.S. and Canada. Earnings before interest and taxes (EBIT) increased to $63.6 million, up 29 percent from last year's $49.3 million. EBIT margin improved to 12.8 percent from 11.3 percent a year ago. Driving margin improvement was increased volume, favorable mix that reflected higher distribution sales and improved pricing. For the first half of 2005, Industrial Group sales were $967.0 million, up 14 percent from a year ago, while EBIT for the first half of 2005 increased to $110.6 million - or 11.4 percent of sales - compared to 10.0 percent in the first half of 2004. Automotive Group Results Automotive Group sales were $425.9 million, up 5 percent from $404.2 million in the second quarter of last year. Increased sales into medium and heavy truck markets were partially offset by decreases in light vehicle markets. The Automotive Group reported a loss before interest and taxes of $1.2 million, compared with EBIT of $6.6 million the prior year. Despite improved pricing, the decline in earnings was due principally to reduced unit volume from light vehicle customers and the impact of high raw material costs. Over the next quarter, the Automotive Group will announce detailed plans to restructure operations, which will reduce fixed costs. Restructuring actions are expected to require approximately two years to complete. These actions are targeted to deliver annual savings of approximately $40 million, with expected net workforce reductions of 400 to 500 positions and restructuring costs of $80 to $90 million. For the first half of 2005, Automotive Group sales were $846.2 million, up 3 percent from the first half of last year. The Group recorded a loss of $6.3 million for the first half, compared to EBIT of $24.9 million in the first half of 2004. Steel Group Results For the second quarter, Steel Group sales were $445.3 million, up 35 percent from $330.4 million last year. The sales growth in the alloy and specialty steel businesses reflected strong demand from industrial customers as well as price increases and surcharges to recover high raw material and energy costs. EBIT was $56.7 million compared to $3.0 million last year. Increased volume, price increases, surcharges and continued high labor productivity drove the strong EBIT performance. During the quarter, the company also benefited from its investment in the new continuous rolling mill at its specialty steel operation in Latrobe, Pennsylvania. Last year's second quarter EBIT was reduced by nearly $8 million due to an unplanned shutdown of the Faircrest steel plant. For the first half, Steel Group sales were $912.8 million, up 43 percent over the first half of last year. EBIT for the first half was a record $120.5 million - or 13.2 percent of sales - compared to 0.9 percent of sales in the first half of 2004. Steel Group's second half results are expected to be lower than the record first half due to seasonality and lower raw material surcharges. Outlook As a result of the company's strong second-quarter performance and improved outlook for the year, the company is estimating third-quarter earnings per diluted share, excluding special items, of $0.50 to $0.55 and increasing its full-year estimates to $2.40 to $2.55 from $2.05 to $2.20. The improved outlook reflects continued strong industrial markets, benefiting the Industrial and Steel Groups, which should more than offset continued challenges within automotive markets.