Timken Delivers Fourth Quarter Report

Fourth quarter sales of $910 million were up 17 percent from prior year.

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The Timken Company, a world leader in engineered bearings and power transmission products, reported fourth-quarter 2018 sales of $910.1 million, up 17 percent 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 acquisitions and pricing, partially offset by unfavorable currency.

In the fourth quarter, Timken posted net income of $60 million or $0.77 per diluted share, versus net income of $29.2 million or $0.37 per diluted share for the same period a year ago. The year-over-year improvement was driven by higher volume and favorable price/mix, partially offset by higher material and manufacturing costs including tariffs. The year-ago period included higher income tax expense driven primarily by one-time charges related to U.S. tax reform, while the current period included higher interest expense.

Excluding special items (detailed in the attached tables), adjusted net income in the fourth quarter of 2018 was $77.4 million or $1.00 per diluted share, an adjusted earnings per share record for the fourth quarter, versus adjusted net income of $53.9 million or $0.68 per diluted share for the same period in 2017. The improvement reflects higher volume, favorable price/mix, the benefit of acquisitions and the impact of a lower tax rate as a result of U.S. tax reform, partially offset by higher material and manufacturing costs including tariffs and higher interest expense.

Cash from operations for the quarter was $137.5 million, and free cash flow was $87.7 million. During the quarter, the company returned $57 million in capital to shareholders with the payment of its quarterly dividend and the repurchase of more than 900 thousand shares. 

"We generated strong growth and financial performance again in the fourth quarter," says Richard G. Kyle, Timken president and chief executive officer. "In 2018, Timken delivered record adjusted earnings per share, significant year-over-year revenue gains and higher operating margins. Our relentless focus on winning with customers with innovative problem solving and industry-leading customer service helped us deliver market outgrowth across multiple sectors during the year. The execution of our strategy, along with our consistent and deliberate approach to capital allocation has positioned us to deliver even higher levels of performance going forward."

2018 Full-Year Results

For 2018, sales were $3.6 billion, up 19.2 percent compared with 2017. The increase was driven by broad organic growth across most end-market sectors, as well as the favorable impact of acquisitions and pricing.

Net income was $302.8 million or a record $3.86 per diluted share for the year, compared with net income of $203.4 million or $2.58 per diluted share a year ago.  The year-over-year improvement was driven by higher volume, favorable price/mix and the benefit of acquisitions, partially offset by higher operating costs including tariffs as well as higher interest expense and the impact of a higher tax rate driven by net discrete benefits in the prior year.

Excluding special items (detailed in the attached tables), adjusted net income was $327.5 million or an adjusted earnings per share record of $4.18 per diluted share in 2018. This compares with adjusted net income of $207.5 million or $2.63 per diluted share in 2017. The improvement in adjusted net income reflects higher volume, favorable price/mix, the benefit of acquisitions and the impact of a lower adjusted tax rate as a result of U.S. tax reform, partially offset by higher operating costs including tariffs and higher interest expense.

During the year, the company significantly expanded its power transmission portfolio with the acquisitions of Cone Drive and Rollon. Cone Drive advanced the company's position in precision gear drives, and Rollon introduced engineered linear motion products to the Timken portfolio. Both businesses further the company's evolution into attractive markets such as solar energy, logistics and packaging, and automation.  Timken also added to its leadership position in engineered bearings with the acquisition of ABC Bearings in India. Together these acquisitions expand the company's global presence in China, Europe and India.  Additionally, Timken increased its quarterly dividend to $0.28 in May, paid its 386th consecutive quarterly dividend in December and repurchased nearly 2.3 million shares of stock during the year. Between dividends and share repurchases, the company returned a total of $184 million to shareholders in 2018.

Fourth-Quarter 2018 Segment Results

Mobile Industries reported sales of $461.9 million, up 8.5 percent compared with the same period a year ago, driven primarily by growth in the rail, off-highway and aerospace sectors, as well as the favorable impact of acquisitions, partially offset by unfavorable currency.

Earnings before interest and taxes (EBIT) in the quarter were $42.5 million or 9.2 percent of sales, compared with EBIT of $37 million or 8.7 percent of sales for the same period a year ago. The increase in EBIT reflects the impact of higher volume, lower selling, general and administrative (SG&A) expenses and the benefit of acquisitions, partially offset by higher material and manufacturing costs.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $46.4 million or 10.0 percent of sales, compared with $41.4 million or 9.7 percent of sales in the fourth quarter last year.

Process Industries sales of $448.2 million increased 27.3 percent from the same period a year ago, driven primarily by growth in the industrial distribution and general and heavy industrial OE sectors, as well as the favorable impact of acquisitions and pricing, partially offset by unfavorable currency.

EBIT for the quarter was $79.8 million or 17.8 percent of sales, compared with EBIT of $56.3 million or 16 percent of sales for the same period a year ago. The increase in EBIT was driven by higher volume, favorable price/mix and the benefit of acquisitions, partially offset by higher material costs including tariffs, as well as increased SG&A expenses. The current period also included higher acquisition-related charges.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $88 million or 19.6 percent of sales, compared with $56.5 million or 16 percent of sales in the fourth quarter last year.

2019 Outlook

The company expects 2019 revenue to be up approximately 8 to 10 percent in total versus 2018. This includes expected organic growth of 4 to 6 percent plus the benefit of acquisitions made during 2018, partially offset by unfavorable currency. Within its segments, the company estimates for full-year 2019:

  • Mobile Industries sales to be up approximately 4 to 6 percent, driven primarily by organic growth in the rail, off-highway and aerospace sectors, as well as the benefit of acquisitions, partially offset by unfavorable currency; and
  • Process Industries sales to be up approximately 13 to 15 percent, reflecting growth across all sectors, as well as the benefit of acquisitions, partially offset by unfavorable currency.

"In 2019, we plan to deliver another record year of EPS with strong revenue growth and further margin expansion," says Kyle. "We will continue to balance our pursuit of growth with our drive for margins, returns and cash flow. The fundamentals underlying our markets remain positive and, combined with our market penetration and inorganic actions, we are planning for a third consecutive year of double-digit revenue growth in 2019. We are confident that our strategy and track record of strong execution will enable us to continue to drive profitable growth and create shareholder value in 2019 and beyond."

Timken anticipates 2019 earnings per diluted share to range from $4.55 to $4.75 for the full year on a GAAP basis. Excluding special items (detailed in the attached tables), the company expects record 2019 adjusted earnings per diluted share ranging from $4.70 to $4.90.

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