Timken Posts Q2 Results
22 July 1998
The Timken Company Posts First Half and Second Quarter Results
Record Sales for Second Quarter and Year-to-Date
CANTON, Ohio, July 22 -- The Timken Company
announced today increases in sales for both the first half and second quarter
ended June 30. However, the bearing and steel maker's net income for the
second quarter was curbed as a result of lower-margin sales and operational
complications stemming in part from electrical power outages in its Ohio steel
plants.
"The second quarter was a challenge to The Timken Company and required
adjustments and flexibility within both our Bearing and Steel Businesses,"
said W.R. Timken, Jr., chairman, president and chief executive officer.
"Nevertheless, net income exceeded all previous second quarters with the
exception of 1997."
For the second quarter, net sales were $701.7 million, or 3.8 percent
higher than the $676 million in 1997's second quarter. For the first six
months of 1998, the company achieved net sales of $1.409 billion, an increase
of 7 percent from the $1.317 billion in the year-earlier period. Both
represent new sales records for the respective periods.
Second quarter net income totaled $38.7 million. This includes some
expense related to the disposal of fixed assets, which will be completed next
quarter. The quarter's net income represents a decrease of 13.8 percent from
1997's second quarter net income of $44.9 million.
Net income for the first six months of 1998 totaled $87.8 million, a
2.1 percent increase over the year-earlier period of $86 million. For the
quarter, earnings per share, assuming dilution, were $.61 compared to $.70 the
previous year. For the first six months, earnings per share, assuming
dilution, were $1.39 compared to $1.35 in 1997.
"Our associates are working more effectively around the world to provide
the value our shareholders and customers expect from Timken," Mr. Timken said.
"Although our efforts are trained on near-term accomplishments," he said, "our
intent is also to sustain our improving long-term performance. Operational
excellence, continued growth through new products and new markets, and a
common vision for the future will allow us to achieve that goal. It gives us
every reason to be confident."
Bearing Business Results
Within the Bearing Business, net sales for the quarter were
$469.8 million, a 5.6 percent increase from the year-earlier period's
$444.9 million. For the first half, sales were $932.6 million compared to
$867.8 million a year ago.
Sales to North American automotive and truck manufacturers were brisk,
although the General Motors' strike did reduce sales in June and will continue
to impact sales until the strike is settled. Sales to rail car manufacturers
were up more than 50 percent. European economic activity is encouraging, and
sales into Latin America are continuing at a good pace. The severe economic
problems in Asia, however, are beginning to affect other markets around the
world. The sustained trend is of concern, particularly as the continuing
weakness of Asian currencies begins to reshape the competitive landscape.
In the second quarter, operating income was down 3.4 percent to
$45.6 million from $47.2 million in 1997's second period. For the first half,
operating income totaled $95.7 million versus $90.6 million in last year's
first half. These results were influenced by actions taken during the quarter
to reduce inventories, an unfavorable product mix, and Asian market volume
reductions driven by weak demand.
Steel Business Results
The Steel Business reported net sales of $231.9 million for 1998's second
quarter, compared to $231.1 million in the yearearlier period. Net sales for
the first half totaled $476.5 million, up 6.2 percent compared to
$448.8 million last year.
Demand remains strong in the automotive and industrial segments; however,
manufacturers and distributors in the oil and service center markets are
adjusting inventories, which is softening demand for some products. The order
book for Timken steel looks promising through year-end, providing the General
Motors strike is not protracted.
Operating income in the second quarter was $29.3 million, down
12.5 percent compared to $33.5 million in last year's corresponding period,
due mostly to the electrical power outages and previously announced plant
startups. For the first six months, operating income was $65.4 million, up
compared to $63.1 million in the same period in 1997.
All rolling mills, melt shops and tube mills continue to operate at or
near capacity with the exception of the Faircrest Steel Plant's melt
operations. A transformer malfunction there, which curtailed melt operations
in early July, is expected to affect third quarter operations. During June
and July, the Steel Business advanced planned maintenance and planned
inventory adjustments to reduce the impact of both the transformer and the
power outages.
The Timken Company (http://www.timken.com) is a leading international
manufacturer of highly engineered bearings and alloy steels. The company
employs 21,000 people worldwide and reported 1997 sales of more than U.S.
$2.6 billion.
The Timken Company and Subsidiaries
Consolidated Statements Second Quarter First Quarter Six Months
of Income Ended June 30 Ended Mar 31 Ended June 30
(Thousands of dollars,
except share data) 1998 1997 1998 1998 1997
Net sales $701,747 $676,003 $707,381 $1,409,128 $1,316,587
Cost of products sold 537,005 510,423 533,015 1,070,020 999,578
Gross Profit $164,742 $165,580 $174,366 $339,108 $317,009
Selling, administrative
and general expenses 89,900 84,842 88,141 178,041 163,245
Operating Income $74,842 $80,738 $86,225 $161,067 $153,764
Interest expense (6,607) (5,588) (5,863) (12,470) (11,053)
Other income (expense) (6,773) (1,149) (854) (7,627) (1,718)
Income Before
Income Taxes $61,462 $74,001 $79,508 $140,970 $140,993
Provision for
income taxes 22,773 29,061 30,372 53,145 54,987
Net Income $38,689 $44,940 $49,136 $87,825 $86,006
Earnings Per Share $0.62 $0.72 $0.79 $1.41 $1.37
Earnings Per Share -
assuming dilution $0.61 $0.70 $0.78 $1.39 $1.35
Average Shares
Outstanding 62,213,764 62,751,517 62,481,627 62,379,675 62,616,397
Average Shares
Outstanding -
assuming
dilution 63,179,905 64,198,860 63,331,559 63,287,712 63,810,385
Consolidated Balance Sheets June 30 Dec 31 Mar 31
(Thousands of dollars) 1998 1997 1998
ASSETS
Cash and cash equivalents $22,103 $9,824 $15,985
Accounts receivable 383,431 357,423 395,105
Deferred income taxes 46,780 42,071 49,389
Inventories 488,058 445,853 480,106
Total Current Assets $940,372 $855,171 $940,585
Property, plant and equipment 1,279,409 1,220,516 1,244,802
Deferred income taxes 19,807 26,605 15,645
Other assets 230,183 224,258 224,000
Total Assets $2,469,771 $2,326,550 $2,425,032
LIABILITIES
Accounts payable and
other liabilities $239,706 $253,033 $234,116
Short-term debt and
commercial paper 118,738 156,585 204,869
Accrued expenses 143,599 157,343 170,587
Total Current Liabilities $502,043 $566,961 $609,572
Long-term debt 339,759 202,846 239,814
Accrued pension cost 124,719 103,061 112,225
Accrued postretirement benefits 390,242 389,749 390,161
Other non-current liabilities 49,417 31,857 35,140
Total Liabilities $1,406,180 $1,294,474 $1,386,912
SHAREHOLDERS' EQUITY 1,063,591 1,032,076 1,038,120
Total Liabilities and
Shareholders' Equity $2,469,771 $2,326,550 $2,425,032
BEARING BUSINESS SEGMENT FINANCIAL RESULTS
(Dollars in millions)
Second Quarter First Quarter Six Months
Ended June 30 Ended Mar 31 Ended June 30
1998 1997 1998 1998 1997
Net Sales $469.8 $444.9 $462.8 $932.6 $867.8
Operating Income $45.6 $47.2 $50.1 $95.7 $90.6
Operating Margin 9.7% 10.6% 10.8% 10.3% 10.4%
STEEL BUSINESS SEGMENT FINANCIAL RESULTS
(Dollars in millions)
Second Quarter First Quarter Six Months
Ended June 30 Ended Mar 31 Ended June 30
1998 1997 1998 1998 1997
Net Sales $231.9 $231.1 $244.6 $476.5 $448.8
Operating Income $29.3 $33.5 $36.1 $65.4 $63.1
Operating Margin 12.6% 14.5% 14.8% 13.7% 14.1%