CANTON, Ohio — The Timken Co. reported sales of $1.3 billion in the third quarter of 2011, an increase of 25 percent over the same period a year ago. The company says the increase primarily reflects demand growth across the company’s diverse industrial markets, as well as favorable effects from pricing, material surcharges and acquisitions.
The company generated higher third-quarter income from continuing operations, up 55 percent to $111 million, or $1.12 per diluted share, net of non-controlling interest, compared with $71.4 million, or 73 cents per diluted share a year ago. The improvement reflects higher volume, favorable mix, surcharges and pricing, which more than offset increased raw-material costs, as well as higher selling and administrative costs. The results also reflect a higher tax rate during the quarter, at 38.5 percent, primarily from a recent change in French tax law that was retroactive to the beginning of the year.
"With the addition of this quarter’s strong performance, we earned more in nine months than our previous annual record," said James Griffith, Timken president and CEO. "This accelerated performance shows our strategy is working, positioning Timken to serve attractive industrial markets that today are growing faster than the economy in general. We are leveraging that growth to higher profitability."
Timken posted sales of $3.9 billion in the first nine months of 2011, up 31 percent from the same period in 2010. Strong end-market demand drove the increase, along with favorable pricing, surcharges and currency effects.
The company’s earnings from continuing operations increased 91 percent to $345.2 million, or $3.48 per diluted share, net of non-controlling interest. That compares with $181.1 million, or $1.86 per diluted share, earned in the same period last year. The first nine months of 2011 earnings benefited from increased demand, higher surcharges and a combination of favorable pricing and mix, which more than offset higher raw-material and logistics costs, as well as selling and administrative costs. The nine-month tax rate of 35.2 percent was lower than the prior year’s rate of 40.2 percent, which included the effect of U.S. healthcare legislation.
Total debt as of Sept. 30, 2011, was $512.1 million, or 18.7 percent of capital. The company had cash of $406.5 million and net debt of $105.6 million at the end of the third quarter, compared with a net cash position of $363.4 million at the end of 2010.
For the first nine months, the company used $67.4 million in cash from operating activities, as strong earnings were more than offset by higher working capital requirements to support demand and $256 million of discretionary contributions, net of tax, to the pension and VEBA trust plans. Excluding these discretionary contributions, free cash flow (operating cash after capital expenditures and dividends) was $26 million. The company continues to maintain a strong balance sheet and ended the quarter with $1.3 billion of available liquidity.
Timken projects annual earnings in the range of $4.45 to $4.55 per diluted share. The company should generate approximately $210 million in cash from operations and expects to use $65 million in free cash flow after making capital expenditures of about $200 million and paying $75 million in dividends. Excluding year-to-date discretionary pension and VEBA trust contributions of $256 million, net of tax, the company expects annual free cash flow of approximately $190 million.
