Canton, OH - The Timken Company reported third-quarter 2013 sales of $1.1 billion. Sales decreased 7 percent when compared with the same period a year ago, primarily due to weaker demand from the company's broad end markets, partially offset by acquisitions.
Timken generated third-quarter net income of $52.2 million, or $0.54 per diluted share. Compared with net income of $80.9 million or $0.83 per diluted share during the same period a year ago, third-quarter earnings primarily reflect lower volume and manufacturing utilization as well as unfavorable sales mix. The decrease was partially offset by lower raw material and plant closure costs as well as favorable pricing.
"On a macro basis, economic growth across the world has been much slower than we and our customers envisioned, and our third-quarter results were below our expectations," said James W. Griffith, Timken president and chief executive officer. "As a result, we've implemented and are continuing to take additional actions to allow us to enhance margins despite the lower demand levels. These include leveraging our strategic investments as well as implementing tactics to rationalize capacity levels and taking further actions to reduce costs, with a focus on SG&A."
Among recent developments, the company:
-- Announced that its board of directors has approved a plan to pursue a separation of the company's steel business from its bearings and power transmission business through a tax-free spinoff, creating a new independent publicly traded steel company in 2014;
-- Expanded its product portfolio, launching new Timken@ SNT plummer blocks and seals; introducing new Timken@ encoders that utilize the latest magnetic encoder technology; and designing two new high-performance Timken@ alloy steels to meet the specific needs of the oil and gas industry;
-- Further aligned its operations with market needs, which includes capacity rationalizations, supply chain improvements and workforce reductions; and
-- Returned $47 million in capital to shareholders through dividends and repurchases of company shares in the quarter, bringing the total capital returned through September 2013 to approximately $175 million. The company has approximately 5.6 million shares remaining under its board-approved share repurchase program.
Nine Months' Results Timken posted sales of $3.3 billion in the first nine months of 2013, down 16 percent from the same period in 2012. The change reflects lower demand across most of the company's broad end markets. In addition, a $124 million decline in raw material surcharges from the prior-year period negatively impacted revenues. The decrease was partially offset by the benefit of acquisitions.
In the first nine months of 2013, the company generated net income of $210.1 million, or $2.18 per diluted share. That compares with $420.2 million, or $4.28 per diluted share, in the same period last year, which included CDSOA receipts of $68 million, or $0.70 per share. Lower volume and manufacturing utilization, as well as sales mix, drove earnings during the first nine months of 2013. The decrease was partially offset by lower raw material costs, lower selling and administrative expenses, favorable pricing and lower costs related to previously announced plant closures.
Outlook
The company revised its outlook for the full year based on a slower-than-expected economic recovery. The Timken Company expects 2013 sales to be approximately 13 percent lower year-over-year with:
-- Mobile Industries sales down 11 to 13 percent for the year due to the impact of lower customer demand and the company's market strategy;
-- Process Industries sales to be down 7 to 9 percent, due to broad-based weakness in industrial markets, partially offset by the benefit of acquisitions;
-- Aerospace sales down 3 to 5 percent, due to decreased demand in critical motion, civil aviation and defense; and
-- Steel sales down 20 to 22 percent, driven by lower industrial and oil and gas end-market demand and lower surcharges, partially offset by growth in mobile on-highway.
Timken projects 2013 annual earnings per diluted share to range from $2.70 to $2.90, which includes approximately $0.13 per share for previously announced plant closure costs and $0.07 associated with one-time implementation costs related to its planned separation of the steel business.
The company expects to generate cash from operations of approximately $415 million in 2013. Free cash flow is projected to be $5 million after making capital expenditures of about $320 million and paying about $90 million in dividends. The company does not anticipate making further discretionary pension contributions this year beyond the $66 million, net of tax, made in the first quarter, as it expects its pension plans to be essentially fully funded by year end given the recent increase in interest rates. Excluding discretionary pension contributions, the company forecasts free cash flow of approximately $70 million in 2013. In addition, the company has repurchased $107 million of its shares and expects to continue to repurchase shares under its current board-authorized program.
Excluding one-time implementation costs for the separation, the company expects sales and earnings in 2014 to improve as a result of cost reductions and the company's strategic initiatives as well as a gradual economic recovery.
