CANTON, Ohio — Timken has reported record third-quarter sales of $1.48 billion, an increase of 18 percent over the same period a year ago. During the quarter, the company benefited from the favorable impact of surcharges, pricing and currency, as well as acquisitions that serve the aerospace and energy market sectors. The company said strong sales in global industrial markets largely offset the impact of weaker automotive demand.
Third-quarter income from continuing operations was $130.4 million, or $1.35 per diluted share, compared to $41.2 million, or 43 cents per diluted share, in the third quarter a year ago. Excluding special items, income from continuing operations increased 179 percent to $135.8 million, or $1.41 per diluted share, in the third quarter of 2008, compared to $48.6 million, or 51 cents per diluted share, in the third quarter of 2007. Third-quarter earnings exceeded the company’s prior estimate of $1 to $1.10, principally due to the impact of last-in, first-out (LIFO) accounting, resulting from projected lower raw-material costs, and the timing of raw-material cost recovery.
Timken said the record quarterly earnings benefited from raw-material surcharges, pricing and mix, as well as income from LIFO. These benefits were partially offset by higher manufacturing, logistics and material costs in the quarter compared to a year ago. Third-quarter special items, net of tax, included manufacturing rationalization, impairment and restructuring charges totaling $5.4 million, compared to $7.4 million of similar charges in the third quarter of 2007.
“Our strategy of shifting our portfolio toward more attractive global industrial markets is clearly delivering results,” said James Griffith, Timken’s president and chief executive officer. “While the economy today is unsettled, we still see strong demand for our products from aerospace, energy and heavy industry market sectors, as well as growth in Asia. We continue to take actions to deal with declining automotive demand. Our company is well-positioned to navigate the uncertain markets we face.”
Total debt at Sept. 30 was $739.2 million, or 25.1 percent of capital. Net debt at Sept. 30 was $644.5 million, or 22.6 percent of capital, compared to $693 million, or 26.1 percent of capital, at Dec. 31, 2007. The decrease in net debt reflects strong operating cash flow.
In addition to cash and cash equivalents of $94.7 million at Sept. 30, the company has liquidity available under a $500 million senior credit facility and a $200 million accounts-receivable securitization program. Availability under these committed facilities totaled $563.5 million at Sept. 30. The company expects to generate positive free cash flow for the remainder of the year and to end 2008 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.
For the first nine months of 2008, sales were $4.45 billion, an increase of 14 percent from the same period in 2007. Income from continuing operations per diluted share for the first nine months of 2008 was $3.15, compared to $1.79 last year. Special items, net of tax, in the first nine months of 2008 totaled $3.3 million of expense compared to $9.7 million of expense in the prior-year period. These special items included charges related to restructuring, rationalization and impairment, partially offset by a gain on a real-estate divestment associated with a prior plant closure. Excluding special items, income from continuing operations per diluted share in the first nine months of 2008 increased 69 percent to $3.19, versus $1.89 in the same period a year ago.
During the first nine months of 2008, the company benefited from strong industrial market demand, pricing, surcharges, mix and currency, which were partially offset by higher raw-material costs and related LIFO charges, and the impact of lower automotive demand.
The company said it is seeing weakness in its North American and Western European markets, while demand in Asia continues to grow at a slower pace. Demand for the company’s products in aerospace, energy and heavy industry markets remains relatively strong on a global basis.
The company expects earnings per diluted share for 2008, excluding special items, to be $3.35 to $3.45 for the year and 16 cents to 26 cents for the fourth quarter, compared to $2.40 and 51 cents, respectively, for the same periods in 2007. Fourth-quarter expectations are below the company’s previous estimate due primarily to the timing of raw-material cost recovery in the Steel Group, which benefited the third quarter, and weaker automotive demand for both Steel and Mobile Industries. The company has reaffirmed its expectation for record full-year earnings.
