Timken Posts Record First Quarter And Raises Full-Year Outlook

Record sales of $1.4 billion in the first quarter of 2012 reflects an increase of 13 percent over the same period a year ago . . .

Canton, OH - The Timken Company (NYSE: TKR) today reported record sales of $1.4 billion in the first quarter of 2012, an increase of 13 percent over the same period a year ago. The increase reflects stronger demand across most of the company's end markets, pricing, mix and the impact of acquisitions.

The company generated record income in the first quarter of $155.7 million, or $1.58 per diluted share, compared with $112.7 million, or $1.13 per diluted share during the same period a year ago.  The increase in first-quarter earnings reflects the benefits of improved pricing, demand, mix and the impact of acquisitions, partially offset by higher selling and administrative expenses.

"Our record performance, as well as our confidence in our improved full-year earnings outlook, stand as further testimony to the company's ability to execute at a structurally higher level of performance," said James W. Griffith, Timken president and chief executive officer.  "Around the globe, our company is operating very well, leveraging momentum we see in our target markets, earning new business through our expanded product and services portfolio, and successfully driving those gains to the bottom line."

At quarter-end, total debt was $505 million, or 18.7 percent of capital.  As of Mar. 31, 2012, the company had cash of $359 million, resulting in $146 million of net debt, compared with a net debt position of $47 million as of Dec. 31, 2011.  The change reflects strong cash flow from earnings, which was more than offset by working capital requirements of approximately $110 million to support increased demand, as well as discretionary pension contributions of $94 million.

Among recent developments, the company:

-- Broke ground on a $225 million expansion at its Faircrest Steel Plant in Canton, Ohio, after securing a new five-year basic labor agreement with members of the United Steelworkers of America;

-- Raised the quarterly dividend by 15 percent to 23 cents per share;

-- Announced an increased share repurchase program for up to 10 million common shares through 2015, with 500,000 shares purchased in the first quarter;

-- Earned recognition, for the second year, as one of the World's Most Ethical Companies by the Ethisphere Institute; and

-- Received approximately $80 million in distributions under the Continued Dumping and Subsidy Offset Act (CDSOA) in April from amounts previously withheld for anti-dumping cases, and expects to receive approximately $30 million in further distributions in the second quarter.

Mobile Industries Segment Results

In the first quarter, Mobile Industries' sales were $469.1 million, up 6 percent from last year's first-quarter sales of $443 million. The increase was primarily driven by higher demand in the off-highway and rail sectors along with the impact of the Drives acquisition, partially offset by exited business in the light-vehicle sector. EBIT for the segment was $86.7 million for the first quarter, or 18.5 percent of sales, up 20 percent from $72.1 million, or 16.3 percent of sales in the same period a year ago. The increase was driven by higher volumes and improved manufacturing and logistics costs, partially offset by the impact of exited business and selling and administrative expenses.

Process Industries Segment Results

Process Industries' first-quarter sales were $355.6 million, up 25 percent from $285 million for the same period a year ago. The increase reflects stronger industrial distribution demand, pricing and the impact of the Drives and Philadelphia Gear acquisitions. Process Industries' first-quarter EBIT was $82.3 million, or 23.1 percent of sales, up 26 percent from $65.3 million, or 22.9 percent of sales for the same period a year ago.  The increase reflects the benefit of higher volume, pricing and acquisitions, partially offset by higher selling and administrative expenses.

Aerospace and Defense Segment Results

Aerospace and Defense had first-quarter sales of $91.3 million, up 15 percent from $79.1 million for the same period last year.  The increase reflects higher volume across most end-markets, led by the defense and motion control sectors.

First-quarter EBIT was $10.7 million, or 11.7 percent of sales, up from $1.6 million, or 2 percent of sales for the same period a year ago. The improvement reflects higher volume and lower selling and administrative expenses.

Steel Segment Results

Sales for Steel, including inter-segment sales, were $535.5 million in the first quarter, an increase of 11 percent from $481.5 million for the same period last year.  The results reflect increased pricing and favorable mix driven by strengthening demand in the oil and gas markets, partially off-set by lower shipments to the industrial and mobile on-highway sectors.  Raw-material surcharges increased approximately $5 million from the first quarter last year.

First-quarter EBIT was $88 million, or 16.4 percent of sales, up 48 percent from $59.3 million, or 12.3 percent of sales, for the same period a year ago.  EBIT performance benefited from improved pricing and mix, partially offset by lower volume, and higher material and labor costs.

Outlook

Timken now expects sales growth of 7 to 10 percent in 2012, with:

-- Mobile Industries sales expected to be flat to up 5 percent for the year, reflecting improved off-highway and rail demand and the impact of acquisitions, offset by reduced light-vehicle business;

-- Process Industries sales up 10 to 15 percent, projecting increased global industrial distribution demand, new product sales and the full-year impact of acquisitions;

-- Aerospace and Defense sales up 10 to 15 percent, driven by increased demand across most end markets, led by the defense and civil aerospace sectors; and

-- Steel sales up 5 to 10 percent, driven by demand in the energy markets as well as pricing.

Timken projects 2012 annual earnings to range from $6.10 to $6.40 per diluted share, reflecting improved operating performance and the one-time benefit of CDSOA receipts expected in the second quarter totaling approximately 70 cents per share.

The company expects to generate approximately $565 million in cash from operations, which includes discretionary pension and VEBA trust contributions of approximately $220 million, net of tax. Free cash flow is projected to be $140 million after making capital expenditures of about $335 million and paying roughly $90 million in dividends. In addition, the company anticipates receiving a total of approximately $70 million, net of tax, in CDSOA distributions. Excluding the discretionary pension and VEBA trust contributions, and CDSOA receipts, the company forecasts free cash flow of approximately $290 million in 2012.

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