Bearings and power transmission solutions manufacturer Timken reported its 2020 second quarter financial results on Monday, showing that sales declines accelerated amid impacts from the COVID-19 pandemic, leading the company to ramp up cost-cutting measures.
The North Canton, OH-based company posted total Q2 sales of $804 million, down 19.7 percent year-over-year (YoY) and down 12.9 percent from Q1. Q2 organic sales were down 20.1 percent. Timken said the YoY decline was driven by lower demand attributable to the broad economic slowdown caused by COVID-19, and unfavorable currency. YoY sales were down in all regions, including down 26 percent in North America.
Timken had a Q2 net profit of $61.9 million, compared to $92.5 million from a year earlier and $81 million in Q1. The company attributes the YoY decline to the impact of lower volume and related manufacturing utilization and unfavorable currency. Adjusted Q2 profit was $77 million, compared to $97.9 million a year earlier.
"We performed very well in the quarter despite the unprecedented impact from the COVID-19 pandemic, generating strong operating margins and cash flow, and delivering solid earnings per share," said Richard Kyle, Timken president and CEO. "The company responded quickly to the pandemic by taking decisive actions to protect employees and other stakeholders, adapt to rapid changes in customer demand, reduce costs and bolster liquidity."
By business segment in Q2:
- Process Industries sales of $461 million decreased 9 percent YoY and increased from $457 million in Q1, with organic sales down 8.4 percent. Timken said the YoY decrease was driven by lower revenue across most sectors, while its renewable energy vertical showed strong growth.
- Mobile Industries sales of $343 million decreased 30.6 percent YoY were flat compared to Q1, with organic sales 32.1 percent. Timken said the YoY decline was driven primarily by lower shipments across most sectors.
During Q2, Timken implemented cost reduction actions company-wide that included temporary compensation reductions and work furloughs, which meaningfully reduced operating expenses, while the company also withdrew $350 million from its revolving credit facility on April 3 to boost financial flexibility. Timken said it reduced its net debt by $195 million in Q2.
On top of its efforts in Q2, Timken said it is accelerating and expanding structural cost reduction initiatives to both align its costs with near-term demand expectations and improve the company's long-term cost structure and margins. Such actions — which include less temporary cost-savings measures and more permanent ones — are expected to produce YoY savings of about $50 million to $60 million in the second half of 2020.
"Timken remains well-positioned to advance as a global industrial leader despite this period of heightened uncertainty," Kyle said. "We took immediate cost reduction measures across the enterprise in the second quarter in response to the pandemic, and are implementing additional structural cost actions in the second half of the year. While the slope of the recovery and the impact from the pandemic remain uncertain, we will continue to focus on our customers and our strategy to drive strong performance and shareholder value through the business cycle."