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Timken Reports Second-Quarter Results
Continued strong demand in global industrial markets
Execution of capacity, restructuring initiatives on track

CANTON, Ohio--(BUSINESS WIRE)--July 31, 2007--The Timken Company (NYSE:TKR) today reported sales of $1.35 billion in the second quarter of 2007, an increase of 4 percent over the same period a year ago. Strong sales in industrial markets were partially offset by the strategic divestment of the company's automotive steering and European steel operations.

 

Second-quarter income from continuing operations was $55.6 million, or $0.58 per diluted share, compared to $64.9 million, or $0.69 per diluted share, in the second quarter a year ago. Excluding special items, income from continuing operations per diluted share was $0.73 during the second quarter of 2007, compared to $0.80 in prior-year period and in line with the company's previous second-quarter estimate of $0.65 to $0.75. Second-quarter special items included restructuring and rationalization charges totaling $16.6 million of pretax expense, compared to $21.0 million of similar charges in the second quarter of 2006.

 

"Timken gained further momentum in the second quarter, as demand remained strong in our major industrial market sectors," said James W. Griffith, Timken's president and chief executive officer. "We expect enhanced performance going forward as we drive operations improvements, realize pricing across selected market sectors, bring new capacity online and complete our restructuring efforts."

 

    During the quarter, the company:

     - Completed the first major U.S. implementation of Project
        O.N.E., a program designed to improve business processes and
        systems;

     - Made further progress on key additions to Industrial Group
        capacity in Asia and North America;

     - Advanced its restructuring initiatives within its Automotive
        and Industrial Groups; and

     - Completed the closure of its steel tube manufacturing
        operations in Desford, England.

 

Total debt at June 30, 2007, was $598.5 million, or 26.5 percent of capital. Net debt at June 30, 2007, was $525.2 million, or 24.1 percent of capital, compared to $567.7 million, or 26.7 percent of capital, at March 31, 2007. The company expects to end 2007 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.

 

For the first half of 2007, sales were $2.63 billion, an increase of 3 percent from the same period in the prior year. Income from continuing operations per diluted share for the first six months of 2007 increased 5 percent to $1.36, from $1.30 last year. Special items in the first half of 2007 totaled $43.5 million of pretax expense, compared to $25.8 million in the same period a year ago. Excluding special items, income from continuing operations per diluted share in the first half of 2007 was $1.39, versus $1.41 in the first half of 2006. During the first six months of 2007, the company benefited from strong industrial market demand and record Steel Group performance, which were countered by lower demand from the company's North American automotive customers.

 

Industrial Group Results

 

The Industrial Group had second-quarter sales of $565.9 million, up 7 percent from $529.1 million for the same period last year. The increase resulted from favorable pricing and continued broad market-sector strength, especially from heavy industry and aerospace.

 

The Industrial Group's earnings before interest and taxes (EBIT) were $61.8 million, compared to $63.5 million in the second quarter of 2006. EBIT performance in the quarter benefited from favorable pricing, which was offset by product mix, higher raw-material and logistics costs, as well as manufacturing costs associated with capacity additions, compared to the year-ago period.

 

For the first half of 2007, Industrial Group sales were $1.11 billion, up 7 percent from the same period a year ago. First-half 2007 EBIT was $111.0 million, or 10.0 percent of sales, compared to EBIT of $109.4 million, or 10.6 percent of sales, in the first half of 2006.

 

The company expects to see top-line growth for the Industrial Group throughout the year due to strong markets and capacity additions. The group is also expected to deliver improved operating margins for the full year compared to 2006.

 

Automotive Group Results

 

The Automotive Group's second-quarter sales of $407.2 million were down 5 percent from $426.7 million for the same period last year. The decrease primarily reflects the company's decision to exit its steering operations at the end of 2006 as part of its portfolio management strategy. Increased sales into light-truck markets during the quarter were counterbalanced by lower heavy-truck demand.

 

The Automotive Group incurred a loss of $7.4 million in the second quarter of 2007 compared to a loss of $2.0 million for the same period a year ago. The net benefits associated with restructuring initiatives and divestiture of the company's steering operations were more than offset by higher raw-material costs.

 

For the first half of 2007, Automotive Group sales of $795.1 million were down 6 percent from the same period a year ago. The decrease was driven by the sale of its steering operations at the end of last year and lower demand from North American heavy-truck customers. The group recorded a loss of $14.6 million for the first half of 2007, compared to a loss of $5.1 million in the first half of 2006.

 

During the quarter, Timken continued to advance its previously announced initiatives to improve the performance of its Automotive business, which remain on track. The company expects the Automotive Group to return to profitability in 2008.

 

Steel Group Results

 

Steel Group sales, including inter-segment sales, were $410.8 million in the second quarter of 2007, up 7 percent from $383.3 million for the same period a year ago. All market sectors participated in the increase, especially energy. The Steel Group benefited from surcharges, which more than offset the impact of exiting the group's manufacturing operations in Europe.

 

Second-quarter EBIT of $61.1 million was comparable to the same period a year ago. The impact of surcharges on EBIT performance counteracted higher raw-material costs and manufacturing expenses related to construction of the company's small-bar mill and initiatives to improve productivity.

 

For the first six months of 2007, Steel Group sales were $801.1, up 6 percent over the first half of last year. EBIT for the first half of 2007 was a record $122.9 million, or 15.3 percent of sales, compared to EBIT of $116.7 million, or 15.4 percent of sales in last year's first half.

 

The company expects the Steel Group to continue its strong performance in 2007, exceeding last year's record profitability.

 

Outlook

 

Timken anticipates continued strength in global industrial markets, while automotive markets are expected to remain stable. The combination of strong markets, capacity additions and operating improvements is expected to drive earnings improvement for the remainder of the year compared to the same period in 2006.

 

The company anticipates earnings per diluted share for 2007 from continuing operations, excluding special items, to be $2.60 to $2.70 for the year and $0.55 to $0.65 for the third quarter, compared to $2.13 and $0.49, 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:     Tuesday, July 31, 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:  5457191

 

                                    Replay Dial-In through August 7, 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 second quarter of 2007; 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 Dec. 31, 2006, page 40, and in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. The company undertakes no obligation to update or revise any forward-looking statement.

 

Click here for further details.

 

CONTACT: The Timken Company 
Media Contact:
Jeff Dafler, 330-471-3514
Manager - Global Media & Government Relations
Facsimile: 330-471-7032
jeff.dafler@timken.com

or
Investor Contact:
Steve Tschiegg, 330-471-7446
Manager - Investor Relations
Facsimile: 330-471-2797
steve.tschiegg@timken.com

or
For Additional Information:
www.timken.com/media
www.timken.com/investors

 

SOURCE: The Timken Company