NSK Reports Third Quarter Fiscal 2005 Results

NSK Ltd. (Japan; TSE1: 6471) has reported third quarter fiscal 2005 results, for the period ended December 31, 2005. Sales for the quarter were ¥ 159.6 billion (USD $1.35 billion), up 11% over third quarter 2004's ¥ 144.0 billion ($1.22 billion). Operating income was ¥ 11.1 billion, up 18% over 2004, representing an operating income margin of 7%. Net income was ¥ 8.3 billion ($70.3 million), doubling 2004's ¥ 4.2 billion ($35.6 million). Due to delays in accounting for international sales, NSK's sales for any quarter are the sum of that quarter's sales in Japan, and the previous quarter's sales in overseas markets. Both overseas sales and profitability figures lag by a quarter. Sales as yet do not include Amatsuji Steel Ball, an acquisition which the company said it will complete in fourth quarter and include in fourth quarter financials. NSK said sales in Japan were strong due to demand from automation and machine tool markets, along with general industrial demand. In the Americas, NSK benefited from higher sales to OEM Japanese auto manufacturers. Across Europe, sales generally increased to automotive and industrial customers, although somewhat softened by seasonality. In Asia, sales to auto manufacturers in Thailand and China were up, as was demand for precision machinery and parts. NSK operates in four segments. Industrial bearings Sales for the quarter were ¥ 49.2 billion ($417 million ), up 5.4% from 2004. NSK said demand remained strong in the quarter, and operating income margin rose to 11%. Automotive products, including bearings Sales in the quarter were ¥ 90.0 billion ($762.5 million), up 15.4% from 2004. NSK said the impact from stronger sales worldwide was helped by higher operating income, despite increased material costs and some additional costs related to operating at higher-than-expected levels. Precision Machinery Sales were ¥ 17.2 billion ($145.7 million) in the quarter, up 9.7% from 2004. The company pointed to recovering demand for semiconductor and liquid crystal manufacturing equipment as the primary drivers for sales in the segment. All Other Sales were ¥ 5.3 billion ($45 million), up 5.1% from 2004. Inventory build has developed into an issue for NSK, reaching its highest level, ¥ 96.9 billion ($821 million), and turns down to only 6.9, its lowest level in two years. The company ended 2004 with turns in the area of 7.4, but it has been at only 6.9 and 7.0 in fiscal 2005. For the year so far, NSK said the Japanese economy had been recovering gradually, backed by steady increases in consumer spending and capital investment, although it noted early weakness in exports and IT spending. In the U.S., NSK's experience was that the economic environment remained healthy, driven by consumer spending. European sales also recovered steadily. Across Asia, the fastest-growing areas remained China, Taiwan, and Thailand. South Korea continued its gradual economic recovery. Overall, NSK said its manufacturing locations, "continue to operate at high levels due to the positive global economic environment and healthy demand in capital expenditures." Price increases were put in place as possible throughout the year, offsetting increases in material costs, capital expenditures and distribution costs. In addition to price hikes, NSK also pursued programs to enhance productivity and reduce commodity procurement costs. Through the first three quarters, NSK said it saw demand from the Japanese domestic machine tool industry and electric equipment markets strengthen. In the Americas, aftermarket demand continued healthy, although sales to electric and general industries were weaker. In Europe, aftermarket demand, electric and general industrial demand all increased. Asian sales to the general industrial sector were strong, while Asean nation and South Korean markets for electrical and IT sectors declined. Automotive market sales of unitized HUB wheel bearings increased worldwide. Sales of other bearings and automotive components also improved, led by demand for electric power steering systems and automatic transmission components. Steering column demand was also up. Operating income did not reflect all the strength, however, being up only 2.4% for the year. NSK blamed the weak net results on unrecovered increases in material prices, labor and capital expenditures, and distribution costs. For the full year, NSK said it continues on track to meet its goals and still forecasts sales will come in at ¥ 620 billion ($5.25 billion), with net income of ¥ 22.5 billion ($190.5 million).