CANTON, Ohio, Oct. 25 /PRNewswire-FirstCall/ -- The Timken Company (NYSE: TKR) today reported sales of $1.27 billion in the third quarter, up slightly from the same period a year ago. Strong sales in industrial markets were largely offset by significant declines in automotive markets. The company achieved third-quarter net income of $46.5 million, or $0.49 per diluted share, up from $39.8 million, or $0.43 per diluted share, in last year's third quarter.
Excluding special items, earnings per diluted share were $0.57 compared to $0.58 for the same period in 2005. Special items in the third quarter included manufacturing restructuring and rationalization charges that totaled $7.1 million of pretax expense, compared to $28.3 million in the same period a year ago.
"Our industrial and steel businesses performed well in the third quarter with industrial markets continuing to drive strong demand for our products," said James W. Griffith, president and chief executive officer. "Dramatic volume reductions are posing significant challenges across the North American automotive market. We are taking actions to adapt to the decline in demand and will continue to pursue structural changes to bring our Automotive business to profitability."
For the first nine months of 2006, sales were $4.0 billion, an increase of 3 percent from the same period in the prior year, driven by strong industrial markets. Earnings per diluted share for the first nine months of 2006 increased to $1.99 from $1.79 in the same period a year ago.
Special items in the first nine months of 2006 totaled $32.9 million of pretax expense, compared to $33.1 million in the same period a year ago, and included manufacturing, restructuring and rationalization charges and the impact of asset dispositions. Excluding special items, earnings per diluted share in the first nine months of 2006 were $2.19, compared to $1.99 during the same period in 2005, due to continued strong industrial market demand.
Total debt was $752.8 million as of Sept. 30, 2006, or 30.7 percent of capital. Net debt at Sept. 30, 2006, was $698.7 million, or 29.2 percent of capital, compared to $655.6 million, or 30.5 percent of capital, as of Dec. 31, 2005. Year-to-date, the increase in net debt was primarily due to capital expenditures to support the company's growth initiatives, pension contributions and seasonal working capital requirements. The company anticipates ending the year with lower net debt and leverage, compared to Dec. 31, 2005.
Industrial Group Results
The Industrial Group had third-quarter sales of $501.8 million, up 7 percent from $468.2 million for the same period last year. The company continued to benefit from strong demand across its broad industrial segments, led by increases in the aerospace, industrial distribution and heavy industry segments.
The Industrial Group's earnings before interest and taxes (EBIT) in the third quarter were $48.2 million, compared to $47.4 million for the same period last year. EBIT performance reflected continued strong volume and pricing, which were offset primarily by higher manufacturing costs, including those for capacity additions and increased investments for growth initiatives. Timken continues to make investments in Asia and key global industrial markets, including construction of the company's fifth manufacturing facility in China, opening of a global aerospace facility in Arizona and introduction of a new line of large-bore seals.
For the first nine months of 2006, Industrial Group sales were $1.5 billion, up 7 percent over the same period a year ago. EBIT for the first nine months of 2006 was $157.6 million, compared to EBIT of $158.1 million over the prior-year period.
Automotive Group Results
The Automotive Group's third-quarter sales of $363.6 million were 11 percent below the same period a year ago. The decline in sales was the result of significant reductions in vehicle production by automakers headquartered in North America, which was partially offset by improved pricing.
The Automotive Group recorded a third-quarter loss of $26.3 million, compared to a loss of $6.0 million for the same period a year ago. EBIT during the quarter was negatively impacted by lower volume, leading to underutilization of manufacturing capacity. In response to the recent drop in demand, Timken announced in September 2006 the reduction of 700 positions from its Automotive Group. This action is expected to result in savings of approximately $35 million, which will be fully realized by the middle of 2007, at a cost of approximately $25 million. This program is in addition to the automotive restructuring plan announced in July 2005, which has targeted savings of approximately $40 million by the end of 2007. The company anticipates taking additional actions to structurally improve the performance of this business going forward.
For the first nine months of 2006, Automotive Group sales of $1.2 billion were 3 percent below the same period last year. The group recorded a loss of $31.4 million for the first nine months of 2006, compared to a loss of $12.4 million in the first nine months of 2005.
Steel Group Results
Steel Group third-quarter sales were $442.6 million, a 3 percent increase from $427.9 million in the same period a year ago. The sales were driven by increased pricing, surcharges and higher demand in the service center, aerospace and energy segments, and were negatively impacted by lower automotive demand.
Third-quarter EBIT was $63.0 million, compared to $49.7 million for the same period last year. The strong results were due to price increases, surcharges, better sales mix and improved manufacturing productivity.
During the quarter, the Steel Group announced an investment in a new induction heat-treat line that will increase Timken's capacity and ability to provide differentiated products to more customers in important global energy markets. In addition, the group recently announced its intention to exit its European seamless steel tube manufacturing operation as part of its strategy to strengthen its business portfolio.
For the first nine months of 2006, Steel Group sales were $1.4 billion, a 3 percent increase over the first nine months of last year. EBIT for the first nine months of 2006 was $209.6 million compared to EBIT of $170.2 million in the first nine months of 2005.
Based on third-quarter performance, Timken is estimating 2006 earnings per diluted share, excluding special items, of $2.65 to $2.75. In 2005, the company earned $2.53 per diluted share, excluding special items.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Wednesday, Oct. 25, 2006
11:00 a.m. Eastern Daylight Time
All Callers: Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Replay Dial-In through Nov. 1, 2006:
800-642-1687 or 706-645-9291
Conference ID: 5677550 (Valid for live call and
Live Webcast: www.timken.com/investors
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, statements related to expected savings and costs of the company's programs and initiatives and expectations regarding the company's financial performance, including the information 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: the company's ability to respond to the changes in its end markets, especially the North American automotive industry; fluctuations in raw-material and energy costs and the operation of the company's surcharge mechanisms; 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, without limitation, the implementation of its Automotive Group restructuring program and initiatives and the rationalization of the company's Canton bearing operations. These and additional factors are described in greater detail in the company's Annual Report on Form 10-K for the year ended Dec. 31, 2005, page 65, and in the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. The company undertakes no obligation to update or revise any forward-looking statement.
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