CANTON, Ohio – The Timken Co. has reported sales of $1.1 billion for the second quarter of 2013, a decrease of 16 percent from the prior year. The company said this decline primarily reflects lower off-highway, industrial distribution and oil and gas demand as well as the impact of the company’s market strategy in the light-vehicle sector, partially offset by the benefit of acquisitions. In addition, sales reflect a $49 million decline in raw material surcharges from the prior-year quarter.
 
Timken generated net income in the second quarter of $82.8 million, or 86 cents per diluted share. This compared with $183.6 million, or $1.86 per diluted share, during the same period a year ago, which included income of $69 million, or 70 cent per share, from Continued Dumping and Subsidy Offset Act (CDSOA) receipts. The company said the decrease in second quarter earnings also reflects lower demand as well as unfavorable sales mix. The decrease was partially offset by lower raw material costs (net of surcharges) and selling and administrative expenses as well as lower costs related to previously announced plant closures.
 
"We continue to perform very well, maintaining double-digit operating margins despite weak demand lingering in many global markets," said James Griffith, Timken president and CEO. "Although our outlook for the year now reflects a more modest market recovery in the second half, we continue to expect strong financial performance for the remainder of the year."
 
Timken posted sales of $2.2 billion in the first half of 2013, down 20 percent from the same period in 2012. The decrease reflects lower off-highway, industrial distribution and oil and gas demand as well as the impact of the company’s market strategy in the light-vehicle sector, partially offset by acquisitions. In addition, a $121 million decline in raw material surcharges from the prior-year period negatively impacted first-half revenues.  
 
In the first half of 2013, the company generated net income of $157.9 million, or $1.63 per diluted share. That compares with $339.3 million, or $3.44 per diluted share, in the same period last year, which included CDSOA receipts of $69 million, or 70 cents per share. The decrease in earnings during the first half of 2013 was driven by lower demand, sales mix and higher manufacturing costs, partially offset by improved pricing and lower selling and administrative expenses as well as lower costs related to previously announced plant closures.
 
As of June 30, 2013, total debt was $462.5 million, or 16.6 percent of capital. The company had cash of $396.8 million, resulting in $65.7 million of net debt, compared with a net cash position of $107.4 million as of Dec. 31, 2012.  
 
Outlook
The company revised its outlook for the full year based on a slower-than-expected economic recovery in the second half of 2013. The Timken Company now expects 2013 sales to be 10 percent lower year-over-year with:
 
* Mobile Industries sales down 7 to 12 percent for the year due to the impact of lower customer demand and the company’s market strategy;
* Process Industries sales to be down 2 to 7 percent, due to weaker industrial markets, partially offset by the benefit of acquisitions;
* Aerospace sales up 3 to 8 percent, due to increased demand in civil and defense markets; and
* Steel sales down 15 to 20 percent, driven by lower industrial and oil and gas end-market demand and surcharges.
 
Timken projects 2013 annual earnings per diluted share to range from $3.30 to $3.60, which includes approximately 15 cents per share for previously announced plant closure costs. The company expects to generate cash from operations of approximately $475 million in 2013.  Free cash flow is projected to be $25 million after making capital expenditures of about $360 million and paying about $90 million in dividends. The company does not anticipate making further discretionary pension contributions this year beyond the $66 million, net of tax, made in the first quarter, as it expects its pension plans to be essentially fully funded by year end given the recent increase in interest rates. Excluding discretionary pension contributions, the company forecasts free cash flow of approximately $90 million in 2013.