CANTON, Ohio -- The Timken Company (NYSE: TKR) today reported sales of $960.4 million during the first quarter of 2009, a decrease of 33 percent over the same period a year ago. Significant volume declines due to weaker demand across most of the company’s end markets and the impact of lower surcharges and currency more than offset benefits from pricing and mix.
First-quarter net income was $0.9 million, or $0.01 per diluted share, compared with $84.5 million, or $0.88 per diluted share, in the first quarter of 2008. Excluding special items, net income was $7.1 million or $0.07 per diluted share for the first quarter of 2009, compared with $78.9 million or $0.82 per diluted share in the prior-year period. Lower first-quarter earnings reflect decreased demand across most of the company’s market sectors and the timing impact of the company’s material surcharge recovery mechanism. Partially offsetting these items were favorable pricing, mix, and lower selling, general and administrative costs.
Special items, net of tax, in the first quarter of 2009 totaled $6.2 million of expense compared with $5.6 million of income in the same period last year. Special items in 2009 were primarily related to severance and impairment charges, while 2008 included a gain on a sale of assets.
“It’s now clear that the impact of the recession on the demand for our products will be deeper and longer lasting than we anticipated. In the short term, we are managing the company with a heightened emphasis on cash flow,” said James W. Griffith, Timken president and chief executive officer. “At the same time, we are taking actions to structure the company for profitability, even at current levels of demand, including efforts to strengthen our portfolio while improving the competitiveness of our manufacturing base.”
Accelerating Cost and Employment Reductions
The company has doubled its targeted reduction in selling and administrative costs to approximately $80 million annually. This will be achieved through reductions in professional staff, overhead costs and discretionary expenditures. In addition, compensation costs are expected to be down approximately $60 million in 2009 associated with the company’s performance-based incentive plans.
The company also is implementing further reductions in its manufacturing workforce targeted to better align capacity with demand. By the end of this year, the total reduction in operative and professional employment is expected to exceed 7,000 positions, or over 25 percent of the workforce since the beginning of 2008. During 2009, the company expects to record special charges of approximately $70 million primarily associated with these actions.
Maintaining Strong Balance Sheet and Liquidity
The company continues to maintain a strong balance sheet with ample liquidity. In addition to cash and cash equivalents of $112.0 million at March 31, 2009, the company had approximately $900 million available under various credit facilities.
Total debt was $630.3 million as of March 31, 2009, or 28.1 percent of capital. Net debt at March 31, 2009, was $518.3 million, or 24.3 percent of capital, compared with $507.5 million, or 23.4 percent, as of Dec. 31, 2008. During the quarter the company generated cash flow from operating activities of $37.4 million, driven by inventory reductions. The company expects to end 2009 with lower net debt and leverage than last year, providing additional financial flexibility.
Dividend Declaration
As part of the effort to preserve the company’s strong balance sheet and liquidity, Timken’s board of directors reduced the quarterly dividend by 50 percent, declaring a quarterly cash dividend of 9 cents per share. The dividend is payable June 2, 2009 to shareholders of record as of May 22, 2009. It will be the 348th consecutive dividend paid on the common stock of the company.
Bearings and Power Transmission Group Results
The Bearings and Power Transmission Group had first-quarter sales of $728.7 million, down 31 percent from $1.05 billion for the same period last year. Earnings before interest and taxes (EBIT) for the first quarter were $40.7 million, down 58 percent from $96.8 million in the first quarter of 2008.
Mobile Industries Segment Results
In the first quarter, Mobile Industries sales were $372.9 million, a decrease of 41 percent from $635.3 million for the same period a year ago. The significant decline in sales was driven by weaker demand across all market sectors and the impact of currency, partially offset by favorable pricing. The greatest declines occurred in the heavy-truck and light-vehicle sectors, which were down approximately 50 percent.
Mobile Industries incurred an EBIT loss of $24.9 million compared with EBIT of $30.6 million for the same period a year ago. The impact of lower demand and resulting manufacturing capacity underutilization reduced earnings by approximately $100 million. This was partially offset by improved pricing and reduced selling and administrative costs of approximately $50 million.
Process Industries Segment Results
Process Industries had first-quarter sales of $243.2 million, down 22 percent from $312.6 million for the same period a year ago. Lower demand across most industrial market sectors and currency more than offset favorable pricing. Sales into the metals, power transmission and aggregate sectors experienced the largest declines while power generation products were up from the same period a year ago.
First-quarter EBIT was $47.0 million, down 20 percent from $59.0 million in the same period a year ago. Lower EBIT primarily resulted from volume, mix and currency, which was partially offset by pricing.
Aerospace and Defense Segment Results
Aerospace and Defense had first-quarter sales of $112.7 million, up 10 percent from $102.1 million for the same period last year. The increase was driven by demand, favorable pricing and acquisitions. The company acquired EXTEX, a leading designer and marketer of high-quality replacement engine parts for the aerospace aftermarket, in November 2008. The EXTEX acquisition accounted for approximately 30 percent of the sales increase.
First-quarter EBIT was $18.6 million, up 159 percent from $7.2 million in the same period a year ago. Performance benefited primarily from pricing and manufacturing improvements.
Steel Group Results
Sales for the Steel Group, including inter-group sales, were $248.6 million, a decrease of 42 percent from $425.0 million for the same period last year. The decline was driven by lower demand across all market sectors, ranging from the service center sector, down approximately 15 percent, to the automotive sector, down approximately 60 percent from the same period a year ago. Sales were also impacted by a significant decline in raw-material surcharges of approximately $80 million from the first quarter last year.
The Steel Group incurred an EBIT loss of $7.3 million compared with EBIT of $53.4 million for the same period a year ago. The decline primarily resulted from lower demand of approximately $30 million and underutilization of manufacturing capacity of roughly $30 million. Lower surcharges of about $80 million were offset by approximately $50 million in favorable material costs and a change in LIFO of approximately $30 million. The change in LIFO was due to expected lower year-end inventory quantities and material costs.
Outlook
The company now expects the impact of the global recession to continue through the rest of the year with sales in most of its market sectors being down significantly from last year. Steel Group sales are expected to decline approximately 55 to 65 percent for the year due to lower surcharges and demand across all sectors. Mobile Industries sales are expected to be down approximately 30 to 35 percent for the year, driven by lower North American light-vehicle production, and significant declines in heavy-truck builds in North America and Europe. Process Industries sales are expected to be down by about 25 to 30 percent in 2009, with broad-based volume declines in most end markets, especially heavy industrial equipment. Sales in the Aerospace and Defense segment are expected to be up approximately 5 to 10 percent for 2009, driven by a strong defense sector, while recent softening in the civil sector is expected to have a minimal effect given current order backlogs.
As a result of the company’s global market outlook, it now expects earnings per diluted share for 2009, excluding special items, to be $-0.15 to $0.15. Despite the lower earnings outlook, the company expects to generate strong cash from operations in 2009, driven by lower working capital. In addition, the company will significantly reduce capital spending from 2008 levels, and will continue to take the actions required to manage in the current environment while maintaining its strong liquidity and balance sheet.
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Conference Call: |
Monday, April 27, 2009 |
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About The Timken Company
The Timken Company (NYSE: TKR, http://www.timken.com) keeps the world turning, with innovative friction management and power transmission products and services, enabling our customers' machinery to perform more efficiently and reliably. With sales of $5.7 billion in 2008, operations in 26 countries and approximately 25,000 employees, Timken is Where You Turn™ for better performance.
SOURCE: The Timken Company
Media Contact: Lorrie Paul Crum
Manager - Global Media and Strategic Communications
Mail Code: GNW-37
1835 Dueber Avenue, S.W.
Canton, OH 44706 U.S.A.
Telephone: (330) 471-3514
Facsimile: (330) 471-7032
lorrie.crum@timken.com
Investor Contact: Steve Tschiegg
Director - Capital Markets and Investor Relations
Mail Code: GNE-26
1835 Dueber Avenue, S.W.
Canton, OH 44706 U.S.A.
Telephone: (330) 471-7446
Facsimile: (330) 471-2797
steve.tschiegg@timken.com
For Additional Information:
www.timken.com/media
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 expectations regarding the company’s future financial performance and cost reduction initiatives, including the information under the headings “Accelerating Cost and Employment Reductions” and “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 finalization of the company’s financial statements for the first quarter of 2009; the company’s ability to respond to the changes in its end markets that could affect demand for the company’s products; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company’s customers, including any disruptions or bankruptcies in the automotive industry which may have an impact on the company’s revenues, earnings and impairment charges; fluctuations in raw-material and energy costs and their impact on the operation of the company’s surcharge mechanisms; the impact of the company’s LIFO accounting; changes in global economic conditions and financial markets; changes in the expected costs associated with product warranty claims; the results of the company’s discussions with the union that represents company associates at the Canton area manufacturing facilities; the impact on operations of general economic conditions, higher or lower 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 initiative to reduce its employment levels and other costs, the implementation of its Mobile Industries Segment 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, 2008, page 44. The company undertakes no obligation to update or revise any forward-looking statement.