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Timken Company Earnings Per Share Double on Record Third Quarter Sales; Outlook Raised for Year

CANTON, Ohio, Oct. 26 /PRNewswire-FirstCall/ -- The Timken Company today reported record third quarter sales of $1.3 billion, up 15 percent from $1.1 billion last year. Net income of $39.8 million or $0.43 per diluted share, was more than double last year's third quarter net income of $17.5 million or $0.19 per diluted share. Excluding special items, earnings per diluted share of $0.58 were more than double the $0.27 per diluted share reported a year ago. Special items in the third quarter of 2005 totaled $28.3 million of pretax expense, which was primarily for restructuring automotive operations as well as for industrial manufacturing rationalization.

"We delivered strong performance this quarter as we continued to capitalize on the ongoing strength of global industrial markets," said James W. Griffith, president and CEO. "While we had record third quarter results in the Industrial and Steel Groups, our Automotive Group performance continued to be challenged."

"We are focusing our growth initiatives to take advantage of the strong industrial demand. We have continued to add industrial bearing capacity around the world and invest in acquisitions in key markets to complement organic growth," Mr. Griffith said. "The record performance in our steel business reflects leveraging strong demand in industries such as aerospace and energy. In our automotive operations, we began our restructuring program to reduce fixed costs and improve performance as we deal with the difficult environment in the North American automotive industry."

For the first nine months of 2005, sales were $3.9 billion, an increase of 17 percent from the prior year. Earnings per diluted share for the first nine months were $1.79 in 2005 versus $0.79 in 2004. Excluding special items, earnings per diluted share in the first nine months of 2005 were $1.99 versus $0.91 in 2004. Special items in the first nine months of 2005 totaled $33.1 million of pretax expense, compared to $18.0 million a year ago.

The company's effective tax rate for the first nine months was 31.4 percent, down from 34.8 percent in the first half due primarily to benefits related to export tax incentives as well as improved earnings in certain foreign jurisdictions. Excluding special items, the effective tax rate for the first nine months was 33.1 percent. The company expects to maintain this rate going forward.

Total debt on September 30, 2005 was $802.6 million, or 36.4 percent of capital. Total debt was reduced $39.5 million from the end of the second quarter. The company expects to continue to reduce its debt levels and leverage during the fourth quarter.

Industrial Group Results

For the third quarter, Industrial Group sales were $468.2 million, up 13 percent from $414.0 million last year. Sales grew in all industrial segments, with the largest increases in distribution and rail.

Earnings before interest and taxes (EBIT) increased to $47.4 million from last year's $45.2 million, reflecting higher volume and pricing. EBIT margin was 10.1 percent, compared to 10.9 percent a year ago, reflecting higher costs to support the company's growth initiatives, the impact of currency and higher incentive compensation. The company expects EBIT margin to improve in the fourth quarter to levels above last year.

During the quarter, the Industrial Group expanded operations in Wuxi, China to serve industrial customers with spherical bearings. In October, the company continued to expand its aftermarket services business with the acquisition of Bearing Inspection, Inc., which provides bearing inspection and overhaul services to the aerospace industry.

During the quarter, the company also reached a new four-year agreement with the United Steelworkers union, covering employees in its Canton-area bearing and steel plants. As a result of the contract settlement, the company has refined its plans to rationalize the Canton bearing operations. This initiative is expected to deliver annual pretax savings of approximately $25 million through streamlining operations and workforce reductions, with costs of approximately $35 to $40 million over the next four years.

For the first nine months of 2005, Industrial Group sales were $1.4 billion, up 14 percent from a year ago, while EBIT for the first nine months of 2005 increased to $158.1 million - or 11.0 percent of sales - compared to 10.3 percent in the first nine months of 2004.

Automotive Group Results

Automotive Group sales were $408.0 million, up 10 percent from $370.9 million in the third quarter of last year. The increase in sales was due to improved pricing and growth in heavy truck volumes. The Automotive Group reported a loss before interest and taxes of $6.0 million, compared to a loss of $7.1 million the prior year. EBIT margin in the third quarter improved 40 basis points to a negative 1.5 percent from the same period a year ago. The Automotive Group has made progress with improved pricing offsetting high raw material costs. However, the Group was negatively affected by currency and the impact of Delphi's Chapter 11 filing. The company expects the Automotive Group to return to profitability in the fourth quarter.

During the third quarter, the Automotive Group announced restructuring plans, including closing of facilities, workforce reductions and combining and relocating engineering resources. Additional announcements are expected in coming months. The restructuring initiative is targeted to deliver annual pretax savings of approximately $40 million, with costs of approximately $80 to $90 million over two years.

For the first nine months of 2005, Automotive Group sales were $1.3 billion, up 5 percent from the first nine months of last year. The Group recorded a loss of $12.4 million for the first nine months, compared to EBIT of $17.8 million in the first nine months of 2004.

Steel Group Results

The Steel Group had record third quarter sales of $427.9 million, up 20 percent from $355.3 million last year. The increase was due to strong demand in industrial, aerospace and energy segments as well as price increases and surcharges to recover high raw material costs.

The Steel Group reported record third quarter EBIT of $49.7 million, compared to $16.8 million last year. EBIT margin was 11.6 percent, compared to 4.7 percent a year ago. Price increases, surcharges for scrap steels and alloys, increased volume and high labor productivity drove the strong EBIT performance. While scrap costs fell below last year's extremely high levels, alloy costs increased from a year ago. The company continues to expect lower profitability in the fourth quarter due to seasonal factors.

For the first nine months, Steel Group sales were $1.3 billion, up 35 percent over the same period last year. EBIT for the first nine months was $170.2 million - or 12.7 percent of sales - compared to 2.3 percent of sales in the first nine months of 2004.


The company is increasing its full-year earnings estimate, excluding special items, to $2.55 to $2.65 per diluted share from the prior estimate of $2.40 to $2.55. Strong industrial markets should continue to benefit Industrial and Steel Group performance in the fourth quarter. The company also expects to see continued improvement in its Automotive Group, despite the challenging environment in the North American automotive industry. In commenting on the financial outlook, Mr. Griffith said: "We expect to continue benefiting from our participation in diverse industrial markets. In particular, increased activity in mining, oil and gas and other energy-related markets should result in additional demand for our products."

Conference Call Information

The company will host a conference call for investors and analysts today to discuss financial results.


    Conference Call:  Wednesday, October 26, 2005
                      11:00 a.m. Eastern Daylight Time

    All Callers:      Live Dial-In: 706-634-0975
                      (Call in 10 minutes prior to be included)
                      Replay Dial-In through November 2, 2005: 706-645-9291
                      Conference ID: 3420213

    Live Web cast:


The Timken Company, (NYSE: TKR, keeps the world turning, with innovative ways to make customers' products run smoother, faster and more efficiently. Timken's highly engineered bearings, alloy steels and related products and services turn up everywhere. With operations in 27 countries, sales of $4.5 billion in 2004 and 26,000 employees, Timken is Where You Turn™ for better performance.

Certain statements in this news release (including statements regarding the Company's forecasts, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements related to expected savings and costs of the Company's initiatives and expectations concerning the Company's financial performance, as well as statements contained in the paragraph under the heading "Outlook," are forward-looking. The Company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including fluctuations in raw material and energy costs and the operation of the Company's surcharge mechanisms; the Company's ability to respond to the changes in the industrial markets; changes in the financial health of the Company's customers; changes in the Company's effective tax rate; and the impact on operations of general economic conditions, higher raw material and energy costs, fluctuations in customer demand and the Company's ability to achieve the benefits of its future and ongoing programs, including the implementation of its Automotive Group restructuring, the rationalization of the Company's Canton bearing operations, manufacturing transformation and rationalization activities. These and additional factors are described in greater detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2004, in the Company's 2004 Annual Report, page 64 and in the Company's Form 10-Q for the quarter ended June 30, 2005. The Company undertakes no obligation to update or revise any forward-looking statement.

For more information, media, Denise Bowler, Manager - Associate & Financial Communications, 330-471-3485, or fax, 330-471-4118, or, or investors, Steve Tschiegg, Manager - Investor Relations, 330-471-7446, or fax, 330-471-2797, or, both of The Timken Company; for additional information: or

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