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Timken Reports First-Quarter Results
Earnings driven by strong execution, solid demand in industrial markets
Automotive restructuring actions producing benefits, on track to achieve full savings by 2008
Company advances key initiatives to accelerate growth, improve performance

CANTON, Ohio--(BUSINESS WIRE)--April 26, 2007--The Timken Company (NYSE:TKR) today reported sales of $1.28 billion during the first quarter of 2007, an increase of 2 percent over the same period a year ago. First-quarter income from continuing operations was $41.6 million, or $0.44 per diluted share, compared to $57.1 million, or $0.61 per diluted share, in the first quarter a year ago.

 

The decline in income from last year's first quarter was due predominately to increased restructuring costs. In addition, the company's tax rate in the quarter was higher, primarily due to losses caused in part by restructuring activities in certain foreign jurisdictions where no tax benefit could be recorded.

 

Excluding special items, income from continuing operations per diluted share was $0.66 during the first quarter of 2007, up 6 percent from $0.62 in last year's first quarter. Special items in the first quarter included restructuring and rationalization charges totaling $27.0 million of pretax expense, compared to $4.8 million in the prior-year period.

 

"Our first-quarter results rebounded following the challenges we encountered during the second half of 2006," said James W. Griffith, Timken's president and chief executive officer. "We are confident that our strategic initiatives, including Automotive restructuring and targeted Industrial capacity additions, will combine with continued strong Steel performance to deliver improved results in 2007."

 

    During the quarter, the company:

    --  Announced a $60 million expansion for special small-bar steel
        capabilities, further differentiating its product portfolio,
        and commissioned a new induction heat-treat line focused on
        steel products for the energy and industrial sectors;

    --  Advanced programs to improve the performance of its Automotive
        Group, including announcement of the closure of its Sao Paulo,
        Brazil, bearing production facility by the end of the year;
        and

    --  Grew sales in Asia by 17 percent and made progress on capacity
        additions in both China and India.

 

Total debt at March 31, 2007, was $668.5 million, or 30.5 percent of capital. Debt was higher than the 2006 year-end level of $597.8 million, or 28.8 percent of capital, due to seasonal working capital requirements. Net debt at March 31, 2007, was $567.7 million, or 27.2 percent of capital. The company expects to end 2007 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.

 

Industrial Group Results

 

The Industrial Group had record first-quarter sales of $544.4 million, up 8 percent from $503.9 million for the same period last year. Favorable pricing and higher volume drove the increase, with sales strength coming from multiple market sectors, especially aerospace and heavy industry.

 

The Industrial Group's earnings before interest and taxes (EBIT) were $49.2 million, up 7 percent from $45.9 million in the first quarter of 2006. EBIT performance benefited from favorable pricing and volume, partially offset by higher raw material and logistics costs, as well as manufacturing costs associated with capacity additions.

 

The company expects to see continued top-line growth in the Industrial Group throughout the year as capacity additions come online, as well as improved operating margins for the full year.

 

Automotive Group Results

 

The Automotive Group's first-quarter sales of $388.0 million were down 8 percent from $421.0 million for the same period last year. The decrease was driven by the sale of its steering business at the end of 2006 and lower demand from North American light vehicle and heavy truck customers.

 

The Automotive Group incurred a loss of $7.2 million compared to a loss of $3.1 million for the same period a year ago. The net benefits associated with restructuring initiatives, including reductions in selling, general and administrative costs, were more than offset by the underutilization of manufacturing capacity caused by weakness in North American automotive demand.

 

During the quarter, Timken continued to advance its previously announced initiatives to improve the performance of its Automotive business. These initiatives include facility rationalization, workforce reduction and asset divestment and are on track to deliver targeted savings of $75 million by 2008.

 

Steel Group Results

 

Steel Group sales, including inter-segment sales, were a record $390.3 million, up 4 percent from $375.4 million for the same period a year ago. The increase was driven by higher demand in the energy and service center sectors, which was partially offset by lower demand in automotive-related sectors. In addition, the Steel Group benefited from price increases and surcharges to help recover continued high raw material costs.

 

First-quarter EBIT was a record $61.8 million, up 8 percent from $57.0 million in the prior-year period. Performance was driven by improved product mix, pricing, capacity utilization and productivity, which were partially offset by higher raw material costs.

 

The company expects the Steel Group to continue its strong performance in 2007 with historically high levels of profitability comparable to 2006.

 

Outlook

 

Timken anticipates global industrial markets will remain strong, and investments in Industrial Group capacity are expected to become operational throughout the year. In addition, the company expects improved Automotive Group performance for the full year compared to 2006, as it benefits from its operating-improvement initiatives. The company expects earnings per diluted share for 2007 from continuing operations, excluding special items, to be $2.55 to $2.70 for the year and $0.65 to $0.75 for the second quarter, compared to $2.13 and $0.80, respectively, for the same periods in 2006.

 

Conference Call Information

 

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

 

Conference Call: Thursday, April 26, 2007
                 11:00 a.m. Eastern Time

Live Dial-In:    800-344-0593 or 706-634-0975
                 (Call in 10 minutes prior to be included)
                 Conference ID: 5457020

                 Replay Dial-In through May 3, 2007:
                 800-642-1687 or 706-645-9291

Live Webcast:    www.timken.com/investors

 

About The Timken Company

The Timken Company (NYSE: TKR, www.timken.com) keeps the world turning, with innovative friction management and power transmission products and services, enabling our customers to perform faster and more efficiently. With sales of $5.0 billion in 2006, operations in 26 countries and approximately 25,000 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 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 completion of the company's financial statements for the first quarter of 2007; the impact of the first major U.S. implementation of Project O.N.E., a program designed to improve business processes and systems; 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; the company's ability to respond to the changes in its end markets; changes in the financial health of the company's customers; changes in the expected costs associated with product warranty claims; 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 December 31, 2006, page 40. The company undertakes no obligation to update or revise any forward-looking statement.

 

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