CANTON, Ohio — The Timken Co. has reported sales of $763.6 million for the third quarter of 2009, a decrease of 43 percent over the same period a year ago. The sales decline reflects weaker demand in many of the company’s end markets and lower surcharges, partially offset by improved pricing. Sales for all periods exclude the results of the Needle Roller Bearings business, accounted for as “discontinued operations.”
The company incurred a third-quarter loss of $50.1 million, or 52 cents per share, including a loss of $30.8 million, or 32 cents per share, from the Needle Roller Bearings business. The company’s continuing operations incurred a loss of $19.3 million, or 20 cents per share, in the third quarter, compared with income of $123.9 million, or $1.28 per diluted share, a year ago.
Excluding special items, net income was $5.2 million, or 5 cents per share, for the third quarter, including a loss of $2.3 million, or 3 cents per share, from discontinued operations. Income from the company’s continuing operations for the third quarter was $7.5 million, or 8 cents per share, excluding special items, compared with $129.2 million, or $1.34 per diluted share, in the prior year. Earnings reflect lower sales volume and manufacturing utilization, reduced surcharges and lower LIFO (last-in, first-out accounting) income. These items were partially offset by cost reductions, improved pricing and lower material costs compared with a year ago.
Special items, net of tax, in the third quarter of 2009 amounted to $55.4 million of expense, compared with $5.5 million in the same period last year. Special items in the third quarter of 2009 included manufacturing rationalization, impairment and restructuring charges, the largest being a $25.1-million impairment, net of tax, associated with the pending sale of the Needle Roller Bearings business.
“This quarter’s performance is more about how we’re managing the business than a shift in marketplace trends,” said James Griffith, Timken president and chief executive officer. “Without the benefit of improved volume, we’re yielding better results from structural changes we’ve made, in part from our Project O.N.E. and portfolio management initiatives.”
In recent months, the company also:
• Signed an agreement to sell the assets of its Needle Roller Bearings business to JTEKT Corporation, for which Timken will receive approximately $330 million, subject to certain closing conditions;
• Announced plans to streamline its distribution footprint by consolidating its Ohio and South Carolina distribution centers into a new facility;
• Entered into a three-year, $500-million unsecured Senior Credit Facility, replacing a previous facility set to expire in June 2010;
• Completed a $250-million public offering of 6 percent unsecured Senior Notes due 2014, proceeds of which will be used to repay the company’s 5.75 percent notes due Feb. 15, 2010;
• Expanded its ability to offer engineered steel solutions in Asia through collaboration with Daido Steel Co. Ltd.; and
• Reached a tentative four-year labor agreement with the United Steelworkers union, covering approximately 2,300 associates in Canton, Ohio.
The company continues to maintain a strong balance sheet with ample liquidity. Total debt was $800.9 million as of Sept. 30, or 33.5 percent of capital. Net debt at Sept. 30 was $169.9 million, or 9.6 percent of capital, compared with $490.5 million, or 22.8 percent, as of Dec. 31, 2008. During the quarter the company generated cash from operating activities of $170.9 million, driven primarily by inventory reductions.
For the first nine months of 2009, sales were $2.37 billion, a decrease of 40 percent from the same period in 2008. The company incurred a loss of 56 cents per share from continuing operations for the first nine months of 2009, compared with earnings of $2.87 per diluted share last year. Special items, net of tax, in the first nine months of 2009 totaled $81.4 million of expense, compared with $3 million in the prior-year period. Special items in 2009 primarily reflect impairment and severance charges, while prior-year special items included a gain on a real estate divestment associated with a prior plant closure, offset by charges related to restructuring, rationalization and impairment. Excluding special items, year-to-date income from continuing operations was 22 cents per diluted share, versus earnings of $2.91 per diluted share in the same period last year. During the first nine months of 2009, the company was affected by weaker demand across most of its end markets, partially offset by pricing and cost-reduction initiatives.
Timken’s sales for the full year 2009, excluding discontinued operations, are expected to be down approximately 35 to 40 percent from the prior year, principally due to weak end-market demand. Mobile Industries sales are expected to be down approximately 30 to 35 percent for the year, driven by lower North American light-vehicle production, and significant declines in heavy-truck builds in North America and Europe. Process Industries sales are expected to be down by about 30 to 35 percent in 2009, with broad-based volume declines in most end markets, especially heavy industrial equipment. Sales in the Aerospace and Defense segment are expected to be up modestly for 2009, driven by a strong defense sector, offsetting softer commercial and civil sectors. Steel Group sales are expected to decline approximately 60 to 65 percent for the year due to lower demand across all market sectors and reduced surcharges.
The company is raising its full-year earnings estimate (including discontinued operations and excluding special items), to a loss of 10 cents to 30 cents per share, compared with its prior estimate of a loss of 40 cents to a loss of 90 cents per share. The company expects to deliver strong free cash flow in 2009, driven by effective working capital management and reduced spending.
