CANTON, Ohio, Feb. 1 /PRNewswire-FirstCall/ -- The Timken Company (NYSE: TKR) today announced record sales of $5.2 billion, up 15 percent from a year ago. Net income in 2005 increased sharply to a record $260.3 million, or $2.81 per diluted share, from $135.7 million, or $1.49 per diluted share, last year. Excluding the impact of special items, the company reported adjusted 2005 net income of $234.2 million or $2.53 per diluted share, compared to $122.3 million or $1.35 per diluted share in 2004. These special items include the benefits received under the Continued Dumping and Subsidy Offset Act [CDSOA], partially offset by charges related to restructuring and rationalization of operations.
"In 2005, demand across a broad range of industrial markets drove record sales. The combination of strong markets and our execution translated into significantly improved results," said James W. Griffith, president and CEO. "We have made considerable strides in our efforts to structurally improve Timken's profitability. We continued that process in 2005 by launching several key initiatives to position the company for continued success."
During 2005, the company:
Leveraged demand and implemented surcharges and price increases to recover high raw material costs;
Improved the business mix and increased production capacity in targeted areas, including significant investments in the U.S., China and Romania;
Launched a major growth initiative in Asia with the objective of increasing market share, influencing major design centers and expanding our network of sources of globally competitive friction management products;
Initiated Project ONE, a five-year program designed to improve business processes and systems to deliver enhanced customer service and financial performance. With an expected cost of $90 million, Project ONE is targeted to achieve annual savings of approximately $75 million upon project completion, as well as improved working capital management;
Began restructuring automotive operations to address challenging market issues, with expected costs of $80 to $90 million and targeted annual savings of approximately $40 million by the end of 2007;
Reached a new four-year agreement with the United Steelworkers union, covering employees in the Canton, Ohio bearing and steel plants. As a result of the contract settlement, the company has refined its plans to rationalize the Canton bearing operations, with expected costs of approximately $35 to $40 million over the next four years and targeted annual savings of approximately $25 million;
Improved the business portfolio. The company expanded its presence in the aerospace aftermarket through acquisitions and alliances, providing a broader range of engine bearing repair and reconditioning, while also completing the divestiture of several non-strategic product lines; and
Strengthened the balance sheet, reducing debt while contributing $226 million to the company's U.S. pension plans.
Fourth quarter results
For the quarter ended December 31, 2005, sales were $1.3 billion, an increase of 8 percent from a year ago. Sales across all three business groups improved from the fourth quarter of 2004. Earnings per diluted share for the fourth quarter were $1.01, compared to $0.71 in the same period a year ago.
Excluding special items, the company's adjusted fourth quarter earnings per diluted share were $0.54, versus $0.44 a year ago. Special items in the fourth quarter included income from CDSOA, a gain on the sale of assets and restructuring and rationalization charges.
"While adjusted fourth quarter earnings per diluted share were up 23 percent over the same period last year, they were lower than anticipated due to higher manufacturing costs, a write-off of obsolete and slow-moving inventory and increased reserves for automotive industry credit exposure," said Mr. Griffith.
Industrial Group Results
Industrial Group 2005 sales increased 13 percent from the prior year to a record $1.9 billion. The increase was driven by higher volume and improved product mix. Many end markets were strong, especially mining, metals, rail, aerospace and oil and gas, which also drove strong distribution sales. The Industrial Group also benefited from growth in emerging markets, especially China.
Industrial Group 2005 earnings before interest and taxes (EBIT) increased to $199.9 million from $177.9 million in 2004, reflecting volume growth and price increases, partially offset by investments in Project ONE and Asia growth initiatives.
Industrial Group sales in the 2005 fourth quarter increased to $491.9 million, up 10 percent from the prior year with continued market strength. EBIT was $41.9 million, down from $47.6 million a year ago. The positive impact of improvements in volume and mix were more than offset by higher manufacturing costs associated with the ramping up of capacity to meet customer demand, investments in Project ONE and Asia growth initiatives, and a write-off of obsolete and slow-moving inventory.
Automotive Group Results
Automotive Group 2005 sales increased 5 percent to a record $1.7 billion. Sales grew due to favorable pricing actions and growth in medium and heavy truck markets. The Automotive Group had a loss in 2005 of $19.9 million, compared to EBIT of $15.9 million in 2004. Increased volume and pricing were more than offset by higher manufacturing costs associated with ramping up plants serving industrial customers and from reduced unit volume from light vehicle customers. Automotive results were also impacted by investments in Project ONE and an increase in accounts receivable reserves. In the third quarter, the company announced a restructuring plan as part of its effort to improve Automotive Group performance and address challenges in the automotive markets.
In the fourth quarter, the Automotive Group had sales of $406.9 million, a 4 percent increase from a year ago. The Automotive Group had a loss of $7.5 million in the fourth quarter of 2005, compared to a loss of $1.9 million for the same period a year ago. Despite higher pricing, fourth quarter results were negatively impacted by higher manufacturing costs, investments in Project ONE and an increase in accounts receivable reserves.
Steel Group Results
Steel Group 2005 sales, including inter-segment sales, were a record $1.8 billion, up 27 percent from 2004. The sales growth reflected record shipments, driven by strong industrial markets, as well as surcharges and price increases to offset higher raw material and energy costs. For 2005, EBIT increased to $219.8 million from $54.8 million in 2004, driven by higher volume, raw material surcharges and price increases. High capacity utilization and record productivity also improved the results.
Steel Group sales in the fourth quarter, including inter-segment sales, were $419.7 million, an 8 percent increase from the prior year. Fourth- quarter EBIT was $49.6 million, compared to $32.2 million a year ago. Both sales and EBIT reflected the strong business performance experienced throughout the year.
Outlook
The company expects continued financial improvement in 2006. Global industrial markets are expected to remain strong, while improvements in Timken's operating performance will be partially constrained by investments in Project ONE and Asia growth initiatives as well as the expensing of stock options. Earnings per diluted share for 2006, excluding special items, are estimated at $2.65 to $2.80 for the full year and $0.55 to $0.60 for the first quarter.
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Wednesday, Feb. 1, 2006
11:00 a.m. Eastern Standard Time
All Callers: Live Dial-In: 706-634-0975
(Call in 10 minutes prior to be included)
Replay Dial-In through Feb. 8, 2006: 706-645-9291
Conference ID: 3960158
Live Webcast: www.timken.com
About The TImken Company
The Timken Company (NYSE: TKR, www.timken.com) 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 $5.2 billion in 2005 and 27,000 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 programs and 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 its end markets; changes in the financial health of the Company's customers; 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 and initiatives, 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 September 30, 2005. The Company undertakes no obligation to update or revise any forward-looking statement.
CONTACT: Media, Denise Bowler, Manager-Global Corporate & Financial Communications, +1-330-471-3485, or facsimile, +1-330-471-4118, ordenise.bowler@timken.com, or Investors, Steve Tschiegg, Manager-Investor Relations, +1-330-471-7446, or facsimile, +1-330-471-2797, orsteve.tschiegg@timken.com, both of The Timken Company
SOURCE The Timken Company
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