The Timken Company Reports First Quarter Results
20 April 1999
The Timken Company Reports First Quarter Results
Month-to-Month Improvements Seen in Quarter
Actions to Increase Profitability Continue
CANTON, Ohio, April 20 -- While North American automotive and
rail markets remained strong in the first quarter, economic weakness in most
other parts of the world adversely affected first quarter results, The Timken
Company reported today. During the quarter, however, the company
recorded month-to-month improvements in both sales and earnings. Earnings
also were higher than those recorded during the third and fourth quarters of
1998 when markets were deteriorating rapidly.
For the first quarter, net sales were $625.4 million, down from a record
$707.4 million in 1998's corresponding period. First quarter net income
totaled $16.6 million, down from a record $49.1 million a year ago. Earnings
per share, assuming dilution, were $0.27, compared to $0.78 in last year's
first quarter.
"Although our financial performance was disappointing compared to last
year's record first quarter, we were encouraged by improving performance as
the quarter progressed," said W. R. Timken, Jr., chairman, president and chief
executive officer. "We expect that improvement to continue in the second
quarter. During the first quarter, we saw heightened levels of customer
activity. At the same time, we continue to implement a range of stringent
actions begun during last year's third quarter to increase returns," he said.
"These actions include rationalization of operations around the world to
improve operating efficiency. Continuous improvement efforts are increasing
organizational effectiveness. A prime example is our supply chain cost
reduction program, which is lowering purchased-goods costs substantially.
Moreover, we have limited inventories and capital spending. During the past
year, excluding acquisitions, employment has been reduced by more than 1100."
Contributing to the sales decline from the year-ago period were weaknesses
in Bearings' industrial original equipment and aftermarket distribution
segments, and continued deterioration of Steel's oil country and service
center markets -- all fueled in part by customers' downward inventory
adjustments. A weakened European economy and strong market competition
contributed to a disappointing performance in our European operations. Latin
American markets also remained weak, while the Asia Pacific region showed some
signs of strengthening.
Bearings' Results
In Bearings, first quarter net sales were $438.7 million, down from a
record $462.8 million a year ago. Shrinking global industrial markets were
the largest factor causing this decline. Capital goods markets suffered as
commodity prices hit some of their lowest levels in years. "The shortfall in
sales to industrial markets -- brought on by global weakness in commodity
prices along with customer inventory adjustments -- was partially offset by
continued strength in North American light and heavy truck markets,"
Mr. Timken said. North American locomotive and freight car markets also
remained strong. While Asia Pacific markets showed early signs of
strengthening, economic weakness in Europe and the financial crisis in Latin
America combined to lower sales from a year ago.
Earnings before interest and taxes (EBIT)* declined to $23.2 million from
last year's $48.7 million but showed a substantial improvement, month-to-
month, through the quarter. Lower sales volume and production levels, along
with a less favorable product mix, were key factors in reducing performance.
In March, the company completed a transaction to increase its stake in
Tata Timken Limited in Jamshedpur, India, to 80 percent by acquiring the
40 percent stake held by The Tata Iron and Steel Company. The Indian public
continues to hold the remaining 20 percent equity.
Steel's Results
The dramatic decline in demand for the company's steel products that began
in the fourth quarter of 1998 extended into 1999's first quarter. "However,
order levels have begun to stabilize, which may indicate that we have reached
the bottom of a long inventory correction," said Mr. Timken. Net sales,
including intersegment sales, for the first quarter were $242 million, down
from $301.3 million in last year's corresponding period. Sales were lower in
all markets, with the oil country and service center sectors hit the hardest.
The company does not expect significant improvement in these two markets
before late in the second quarter. In Steel, as in Bearings, demand in the
automotive market remained strong.
Steel's first quarter earnings before interest and taxes (EBIT)* were
$11 million compared to $37.6 million a year ago. As in Bearings, Steel EBIT
improved during the quarter. Lower production volumes and a less profitable
product mix reduced earnings.
The Timken Company (http://www.timken.com) is a leading international
manufacturer of highly engineered bearings and alloy steels with operations in
25 countries. The company employs 21,000 people worldwide and reported 1998
sales of more than U.S. $2.6 billion.
* The Financial Accounting Standards Board (FASB) Statement No. 131
requires public companies to report segment profit or loss in the same manner
in which performance is measured internally. The Timken Company measures
segment profit or loss based on earnings before interest and taxes (EBIT).
Therefore, the company has begun reporting segment profit or loss as EBIT,
rather than operating income, which continues to be shown in consolidated
results.
NOTE: Certain statements in this news release are or could be construed
as forward-looking. Factors that could cause actual results to differ
materially from these forward-looking statements include the ability to
achieve the benefits from the company's ongoing continuous improvement and
rationalization programs, and changes in customer demand. Additional factors
are described in the company's 1998 annual report, page 17, and the 1998 10-K.
The company undertakes no obligation to update any forward-looking statement.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars,
except share data) 1Q 99 1Q 98 4Q 98 3Q 98 2Q 98
Net sales $625,370 $707,381 $653,865 $616,848 $701,747
Cost of products
sold 498,811 533,015 531,291 496,875 537,005
Gross Profit $126,559 $174,366 $122,574 $119,973 $164,742
Selling, administrative
& general expenses 89,330 88,141 93,327 85,304 89,900
Operating Income $37,229 $86,225 $29,247 $34,669 $74,842
Other income (expense) (3,415) (1,305) (3,257) (4,304) (7,251)
Earnings Before
Interest and
Taxes (EBIT) $33,814 $84,920 $25,990 $30,365 $67,591
Interest expense (6,656) (5,863) (7,393) (6,639) (6,607)
Interest income 427 451 526 1,531 478
Income Before
Income Taxes $27,585 $79,508 $19,123 $25,257 $61,462
Provision for
income taxes 11,006 30,372 5,984 11,684 22,773
Net Income $16,579 $49,136 $13,139 $13,573 $38,689
Earnings Per Share $0.27 $0.79 $0.21 $0.22 $0.62
Earnings Per Share
-assuming dilution $0.27 $0.78 $0.21 $0.22 $0.61
Average Shares
Outstanding 61,859,612 62,481,627 61,938,470 62,303,033 62,213,764
Average Shares
Outstanding
-assuming
dilution 62,018,468 63,331,559 62,151,475 62,536,641 63,179,905
BUSINESS SEGMENTS
(Thousands of
U.S. dollars) 1Q 99 1Q 98 4Q 98 3Q 98 2Q 98
Bearings
Net sales to
external customers $438,717 $462,779 $450,063 $415,109 $469,793
Earnings before
interest and
taxes (EBIT) * $23,249 $48,748 $18,446 $24,860 $41,264
EBIT Margin 5.3% 10.5% 4.1% 6.0% 8.8%
Steel
Net sales to
external customers $186,653 $244,602 $203,802 $201,738 $231,954
Intersegment sales 55,378 56,677 38,554 49,038 56,643
Total net sales $242,031 $301,279 $242,356 $250,776 $288,597
Earnings before
interest and
taxes (EBIT) * $11,029 $37,606 $3,801 $4,581 $27,837
EBIT Margin 4.6% 12.5% 1.6% 1.8% 9.6%
* Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED BALANCE SHEET
(Thousands of U.S. dollars)
Mar 31 Dec 31 Sept 30 June 30 Mar 31
1999 1998 1998 1998 1998
ASSETS
Cash & cash
equivalents $11,012 $320 $18,906 $22,103 $15,985
Accounts
receivable 373,814 350,483 357,527 383,431 395,105
Deferred income
taxes 41,444 42,288 43,990 46,780 49,389
Inventories 456,220 457,246 510,629 488,058 480,106
Total Current
Assets $882,490 $850,337 $931,052 $940,372 $940,585
Property, plant
& equipment 1,368,014 1,349,539 1,300,752 1,279,409 1,244,802
Deferred income
taxes 25,079 20,409 10,917 19,807 15,645
Other assets 248,400 229,746 223,978 230,183 224,000
Total
Assets $2,523,983 $2,450,031 $2,466,699 $2,469,771 $2,425,032
LIABILITIES
Accounts payable
& other
liabilities $226,176 $221,823 $224,374 $239,706 $234,116
Short-term debt
& commercial
paper 183,865 144,312 138,668 118,738 204,869
Accrued expenses 149,845 124,288 136,210 143,599 170,587
Total Current
Liabilities $559,886 $490,423 $499,252 $502,043 $609,572
Long-term debt 327,076 325,086 340,179 339,759 239,814
Accrued pension
cost 155,524 149,366 126,051 124,719 112,225
Accrued
postretirement
benefits 391,897 390,804 391,031 390,242 390,161
Other non-current
liabilities 38,994 38,271 45,908 49,417 35,140
Total
Liabilities $1,473,377 $1,393,950 $1,402,421 $1,406,180 $1,386,912
SHAREHOLDERS'
EQUITY 1,050,606 1,056,081 1,064,278 1,063,591 1,038,120
Total
Liabilities
and
Shareholders'
Equity $2,523,983 $2,450,031 $2,466,699 $2,469,771 $2,425,032