CANTON, Ohio — The Timken Co. has reported sales of $5.7 billion for 2008, an increase of 8 percent from a year ago. During the year, the company benefited from strong demand in global industrial markets, surcharges, pricing and currency, as well as acquisitions serving the aerospace and energy market sectors. Lower automotive demand partially offset these benefits.
The company achieved income from continuing operations of $267.7 million, or $2.78 per diluted share, up from $219.4 million, or $2.29 per diluted share, in 2007. The 2008 results included a goodwill impairment charge in the company’s Mobile Industries segment of $42.2 million, or $0.44 per diluted share. Excluding all special items, income from continuing operations increased 36 percent to $313.4 million or $3.26 per diluted share in 2008, compared with $229.9 million or $2.40 per diluted share in the prior year. Full-year earnings benefited from pricing, surcharges and acquisitions. These benefits were partially offset by higher raw-material costs and related LIFO charges, as well as manufacturing and logistics costs versus a year ago.
“Our strategy to reposition the company for more diversified, profitable growth in industrial markets contributed to the year’s record results,” said James Griffith, Timken president and chief executive officer. “We believe the steps we’ve taken to grow and optimize our business for long-term value creation also position the company to better manage through the current downturn.”
For the quarter ended Dec. 31, 2008, sales were $1.2 billion, a decrease of 10 percent from a year ago. The benefits of pricing, surcharges and acquisitions were more than offset by weaker demand across most of the company’s end markets and the impact of currency.
Income from continuing operations was a loss of 38 cents per diluted share in the fourth quarter of 2008, compared with income of 50 cents per diluted share in the same period a year ago. The 2008 results included an after-tax goodwill impairment charge in the company’s Mobile Industries segment of $42.2 million, or 44 cents per diluted share. Excluding special items, income from continuing operations was 7 cents per diluted share in the fourth quarter of 2008, compared with 51 cents a year ago. Benefits from pricing, surcharges and selling, administrative and general (SG&A) expense reductions were more than offset by the effects of lower demand, higher raw-material costs and related LIFO charges compared with a year ago. The company’s fourth-quarter results were negatively affected by the timing of raw-material cost recovery, which benefited the third quarter of 2008.
Fourth-quarter earnings were below the company’s prior estimate of 16 cents to 26 cents, primarily due to the impact of LIFO expense. The company expected to have LIFO income during the quarter, but with lower demand, incurred a net LIFO expense of $26.9 million. The company expects LIFO income in 2009.
Total debt was $624 million as of Dec. 31, 2008, or 27.8 percent of capital. Net debt at Dec. 31, 2008, was $508 million, or 23.8 percent of capital, compared with $693 million, or 26.1 percent, as of Dec. 31, 2007. The decrease in net debt reflects strong operating cash flow. Shareholders’ equity at Dec. 31, 2008, was $1.6 billion, a decrease of $338 million due primarily to an after-tax charge of $415 million to other comprehensive income to reflect valuation adjustments for pension and other post-retirement benefit obligations, primarily resulting from negative pension-plan asset returns in 2008.
The company continues to maintain a strong balance sheet and ample liquidity. In addition to cash and cash equivalents of $116 million at Dec. 31, 2008, the company had $573 million available under committed credit facilities. In the third quarter, Moody’s Investor Service increased Timken’s corporate credit rating to “Baa3” (investment-grade), reflecting the company’s improved financial condition. This is consistent with the company’s investment-grade rating from Standard & Poor’s Ratings Services (“BBB-”).
Timken’s outlook reflects a deteriorating global economic climate in 2009. Although the implications of this decline are difficult to predict, the company anticipates weakness in most of its end markets throughout the year. The company expects earnings per diluted share for 2009, excluding special items, to be $1.30 to $1.60 for the year, compared with $3.26 in 2008.
“We are proactively managing the company for this time of extreme economic uncertainty. We have decreased operating levels to better match production with demand, including a combination of permanent and temporary furloughs. We have also reduced capital investments and lowered SG&A spending in response to immediate challenges,” said Griffith. “We are monitoring market conditions and will take additional actions as appropriate to optimize the performance of our company.”