The Timken Company Reports Second Quarter and First Half Results
19 July 1999
The Timken Company Reports Second Quarter and First Half Results
CANTON, Ohio, July 19 -- The global market weakness that hit
most manufacturing industries a year ago continued to negatively impact sales
and earnings for both the second quarter and the first half ended June 30, The
Timken Company reported today. Industrial and energy markets
remain depressed, while automotive continues strong.
"We still have not seen the broad-based increase in customer activity that
we had anticipated earlier this year; however, there has been some stabilizing
of orders," said W. R. Timken, Jr., chairman, president and chief executive
officer. "Further customer reductions of inventories and lower plant
operating levels also contributed to lower earnings in the second quarter.
Meanwhile, in the second quarter alone, we reduced our own inventory levels by
about six days."
For the second quarter, net sales were $636.1 million versus $701.7
million in 1998's record-setting second quarter. For the first six months of
1999, net sales were $1.26 billion, down from the record $1.41 billion in
1998.
Second quarter net income totaled $12.3 million compared to $38.7 million
in last year's corresponding period. Net income for the first six months of
1999 totaled $28.8 million, down from the year-earlier period of
$87.8 million.
For the quarter, earnings per share, assuming dilution, were $0.20
compared to $0.61 the previous year. For the first six months, earnings per
share, assuming dilution, were $0.46 compared to $1.39 in 1998.
Contributing to the sales and earnings declines from the year-ago period
were weaknesses in Bearings' industrial original equipment and aftermarket
distribution markets, and continued deterioration of Steel's oil country and
service center markets -- all fueled in part by customers' downward inventory
adjustments.
The company continued taking actions to bring costs in line with current
conditions. It reduced selling, general and administrative expenses in the
second quarter by more than $2 million from the year-earlier period. These
expenses would have been even lower, except for the amounts resulting from the
acquisitions of Timken Desford Steel and Timken India Limited, both vital to
the company's growth plans.
"We continue to be selective in capital spending and to improve efficiency
as measured by number of inventory days, both of which contribute to strong
cash generation," said Mr. Timken. "As a result, in the second quarter, we
reduced debt by about $35 million. In addition, we are accelerating
rationalization of operations worldwide to offset the lower demand level and
to continue improving operating efficiency."
Bearings' Results
In Bearings, second quarter net sales were $451.4 million, down from last
year's $469.8 million. For the first half, sales were $890.2 million,
compared to $932.6 million in 1998's corresponding period. Strong sales in
North American automotive and truck markets have not been sufficient to
entirely offset the ongoing weakness in industrial markets around the world.
While Asia Pacific markets continue to show some strengthening, economic
weakness persists in Europe and Latin America.
Earnings before interest and taxes (EBIT) in the second quarter declined
to $20.1 million from last year's $41.3 million. EBIT for the first six months
was $43.3 million compared to last year's $90 million. Lower sales volume and
less efficient production levels, along with a less favorable product mix,
were key factors in reducing performance. Simultaneously, Bearings moved
aggressively on inventory levels, reducing them by more than 10 percent.
The company received final government approval to rename Tata Timken
Limited to Timken India Limited. This follows the March announcement that
Timken had increased its stake in the company to 80 percent. Timken India
will operate as a subsidiary of The Timken Company.
Steel's Results
Compared to the robust markets prevalent during last year's first six
months, 1999's second quarter and first half results reflect a slower-than-
expected recovery of steel markets. Net sales, including intersegment sales,
for the second quarter were $232.9 million, compared to last year's $288.6
million. For the first half, net sales totaled $475 million compared to
$589.9 million in the year-earlier period. Oil country and service center
markets remain markedly depressed, while automotive and precision steel
components markets continued strong.
Earnings before interest and taxes (EBIT) for the second quarter were
$7.3 million, down from last year's $27.8 million. For the first six months,
EBIT was $18.3 million, down from the $65.4 million in the same period in
1998. Lower production in the company's Bearings business affected
intersegment sales and, thus, Steel's EBIT. While raw materials prices were
lower, they did not offset the effects of lower sales volume and lower
operating levels.
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 about 21,000 people worldwide and reported
1998 sales of more than U.S. $2.6 billion.
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 in 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)
2Q 99 2Q 98 1Q 99 4Q 98 3Q 98
Net sales $636,099 $701,747 $625,370 $653,865 $616,848
Cost of
products
sold 516,498 537,005 498,811 531,291 496,875
Gross
Profit $119,601 $164,742 $126,559 $122,574 $119,973
Selling,
administrative
& general
expenses 87,781 89,900 89,330 93,327 85,304
Operating
Income $31,820 $74,842 $37,229 $29,247 $34,669
Other income
(expense) (2,748) (7,251) (3,415) (3,257) (4,304)
Earnings Before
Interest and
Taxes
(EBIT) $29,072 $67,591 $33,814 $25,990 $30,365
Interest
expense (6,869) (6,607) (6,656) (7,393) (6,639)
Interest income 721 478 427 526 1,531
Income Before
Income
Taxes $22,924 $61,462 $27,585 $19,123 $25,257
Provision for
income taxes 10,660 22,773 11,006 5,984 11,684
Net Income $12,264 $38,689 $16,579 $13,139 $13,573
Earnings Per
Share $0.20 $0.62 $0.27 $0.21 $0.22
Earnings Per
Share-assuming
dilution $0.20 $0.61 $0.27 $0.21 $0.22
Average Shares
Outstand-
ing 61,906,626 62,213,764 61,859,612 61,938,470 62,303,033
Average Shares
Outstanding
-assuming
dilution 62,224,795 63,179,905 62,018,468 62,151,475 62,536,641
BUSINESS SEGMENTS
(Thousands of U.S. dollars)
2Q 99 2Q 98 1Q 99 4Q 98 3Q 98
Bearings
Net sales
to external
customers $451,438 $469,793 $438,717 $450,063 $415,109
Earnings before
interest and
taxes
(EBIT)* $20,070 $41,264 $23,249 $18,446 $24,860
EBIT Margin 4.4% 8.8% 5.3% 4.1% 6.0%
Steel
Net sales
to external
customers $184,661 $231,954 $186,653 $203,802 $201,738
Intersegment
sales 48,265 56,643 55,378 38,554 49,038
Total net
sales $232,926 $288,597 $242,031 $242,356 $250,776
Earnings
before
interest and
taxes (EBIT)* $7,250 $27,837 $11,029 $3,801 $4,581
EBIT Margin 3.1% 9.6% 4.6% 1.6% 1.8%
Six Months 99 Six Months 98
Net sales $1,261,469 $1,409,128
Cost of products sold 1,015,309 1,070,020
Gross Profit $246,160 $339,108
Selling, administrative & general expenses 177,111 178,041
Operating Income $69,049 $161,067
Other income (expense) (6,163) (8,556)
Earnings Before Interest and Taxes (EBIT) $62,886 $152,511
Interest expense (13,525) (12,470)
Interest income 1,148 929
Income Before Income Taxes $50,509 $140,970
Provision for income taxes 21,666 53,145
Net Income $28,843 $87,825
Earnings Per Share $0.47 $1.41
Earnings Per Share-assuming dilution $0.46 $1.39
Average Shares Outstanding 61,884,046 62,379,675
Average Shares Outstanding-assuming
dilution 62,122,559 63,287,712
BUSINESS SEGMENTS
(Thousands of U.S. dollars) Six Months 99 Six Months 98
Bearings
Net sales to external customers $890,155 $932,572
Earnings before interest and taxes (EBIT)* $43,319 $90,012
EBIT Margin 4.9% 9.7%
Steel
Net sales to external customers $371,314 $476,556
Intersegment sales 103,643 113,320
Total net sales $474,957 $589,876
Earnings before interest and taxes (EBIT) * $18,279 $65,443
EBIT Margin 3.8% 11.1%
* 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)
June 30 Mar 31 Dec 31 Sept 30 June 30
1999 1999 1998 1998 1998
ASSETS
Cash & cash
equivalents $19,577 $11,012 $320 $18,906 $22,103
Accounts
receivable 356,619 373,814 350,483 357,527 383,431
Deferred
income
taxes 43,712 41,444 42,288 43,990 46,780
Inventories 415,637 456,220 457,246 510,629 488,058
Total Current
Assets $835,545 $882,490 $850,337 $931,052 $940,372
Property, plant
&
equipment 1,369,316 1,368,014 1,349,539 1,300,752 1,279,409
Deferred income
taxes 27,209 25,079 20,409 10,917 19,807
Other assets 239,446 248,400 229,746 223,978 230,183
Total
Assets $2,471,516 $2,523,983 $2,450,031 $2,466,699 $2,469,771
LIABILITIES
Accounts
payable &
other
liabilities $220,990 $226,176 $221,823 $224,374 $239,706
Short-term
debt &
commercial
paper 148,169 183,865 144,312 138,668 118,738
Accrued
expenses 149,357 149,845 124,288 136,210 143,599
Total Current
Liabilities $518,516 $559,886 $490,423 $499,252 $502,043
Long-term
debt 327,978 327,076 325,086 340,179 339,759
Accrued pension
cost 146,654 155,524 149,366 126,051 124,719
Accrued
postretirement
benefits 393,710 391,897 390,804 391,031 390,242
Other non-current
liabilities 36,626 38,994 38,271 45,908 49,417
Total
Liabil-
ities $1,423,484 $1,473,377 $1,393,950 $1,402,421 $1,406,180
SHAREHOLDERS'
EQUITY 1,048,032 1,050,606 1,056,081 1,064,278 1,063,591
Total Liabilities
and Shareholders'
Equity $2,471,516 $2,523,983 $2,450,031 $2,466,699 $2,469,771