Timken sees positive outlook for 2006
Canton, Ohio -- The Timken Company record sales of $5.2 billion for its 2005 year end, up 15% from year-ago results...
Canton, Ohio — The Timken Company record sales of $5.2 billion for its 2005 year end, up 15% from year-ago results. Net income in 2005 increased sharply to a record $260.3 million, or $2.81 per diluted share, from $135.7 million, or $1.49 per diluted share, last year.
Excluding the impact of special items, the company reported adjusted 2005 net income of $234.2 million or $2.53 per diluted share, compared to $122.3 million or $1.35 per diluted share in 2004. These special items include the benefits received under the Continued Dumping and Subsidy Offset Act [CDSOA], partially offset by charges related to restructuring and rationalization of operations.
“In 2005, demand across a broad range of industrial markets drove record sales. The combination of strong markets and our execution translated into significantly improved results,” said James W. Griffith, president and CEO. “We have made considerable strides in our efforts to structurally improve Timken’s profitability. We continued that process in 2005 by launching several key initiatives to position the company for continued success.”
During 2005, the company:
– Leveraged demand and implemented surcharges and price increases to recover high raw material costs;
– Improved the business mix and increased production capacity in targeted areas, including significant investments in the U.S., China and Romania;
– Launched a major growth initiative in Asia with the objective of increasing market share, influencing major design centres and expanding its network of sources of globally competitive friction management products;
– Initiated Project ONE, a five-year program designed to improve business processes and systems to deliver enhanced customer service and financial performance. With an expected cost of $90 million, Project ONE is targeted to achieve annual savings of approximately $75 million upon project completion, as well as improved working capital management;
– Began restructuring automotive operations to address challenging market issues, with expected costs of $80 million to $90 million and targeted annual savings of about $40 million by the end of 2007;
– Reached a new four-year agreement with the United Steelworkers union, covering employees in the Canton, Ohio bearing and steel plants. As a result of the contract settlement, the company has refined its plans to rationalize the Canton bearing operations, with expected costs of approximately $35 to $40 million over the next four years and targeted annual savings of approximately $25 million;
– Improved the business portfolio. The company expanded its presence in the aerospace aftermarket through acquisitions and alliances, providing a broader range of engine bearing repair and reconditioning, while also completing the divestiture of several non-strategic product lines; and
– Strengthened the balance sheet, reducing debt while contributing $226 million to the company’s U.S. pension plans.
INDUSTRIAL GROUP RESULTS
Industrial Group 2005 sales increased 13% from the prior year to a record $1.9 billion. The increase was driven by higher volume and improved product mix. Many end markets were strong, especially mining, metals, rail, aerospace and oil and gas, which also drove strong distribution sales. The Industrial Group also benefited from growth in emerging markets, especially China.
Industrial Group 2005 earnings before interest and taxes (EBIT) increased to $199.9 million from $177.9 million in 2004, reflecting volume growth and price increases, partially offset by investments in Project ONE and Asia growth initiatives.
Industrial Group sales in the 2005 fourth quarter increased to $491.9 million, up 10% from the prior year with continued market strength. EBIT was $41.9 million, down from $47.6 million a year ago. The positive impact of improvements in volume and mix were more than offset by higher manufacturing costs associated with the ramping up of capacity to meet customer demand, investments in Project ONE and Asia growth initiatives, and a write-off of obsolete and slow-moving inventory.
The company expects continued financial improvement in 2006. Global industrial markets are expected to remain strong, while improvements in Timken’s operating performance will be partially constrained by investments in Project ONE and Asia growth initiatives as well as the expensing of stock options. Earnings per diluted share for 2006, excluding special items, are estimated at $2.65 to $2.80 for the full year and $0.55 to $0.60 for the first quarter.