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Timken Company: Timken Reports Third-Quarter Results

The following excerpt is from the company's SEC filing.

Generated adjusted earnings of $0.55 per diluted share

Delivered strong free cash flow of $119 million

Repurchased 1.55 million shares during the quarter

Closed on acquisition of industrial belts business

Revises full-year adjusted EPS guidance range to $2.05 to $2.10

The Timken Company (NYSE: TKR;

www.timken.com

), a global leader in bearings,

today reported sales of $707.4 million for the third quarter of 2015, down 10 percent from a year ago. Currency accounted for half of the decrease. The remaining decline was p rimarily due to continued softening across industrial end markets, partially offset by the benefit of acquisitions.

Net income from continuing operations was $63.4 million or $0.75 per diluted share for the quarter, versus a loss of $10.9 million or $0.12 per share a year ago. The third quarter of 2014 included a $118 million pre-tax charge related to the restructuring of the company’s aerospace business.

Adjusted net income from continuing operations (see table) was $46.7 million or $0.55 per diluted share. This compares with $70.0 million or $0.77 per diluted share for the same period in 2014. The year-over-year change in adjusted net income reflects the impact of negative currency, lower volume and unfavorable price/mix, partially offset by favorable material, operating and SG&A costs, and a lower tax rate. Earnings per share benefited from the company’s share buyback program, with 1.55 million shares repurchased in the third quarter, bringing the year-to-date total to 5.9 million shares.

Free cash flow (net cash from operations minus capital expenditures) for the quarter was $119 million.

“Given the market environment, we performed well in the quarter. We generated strong cash flow, closed on an acquisition, purchased over 1.5 million shares and made progress on both our outgrowth and cost-reduction initiatives,” Timken President and CEO Richard G. Kyle reported. “We continue to experience downward pressure in several of our end markets, including agriculture, metals, mining, oil and gas, and broadly across the industrial distribution channel.

“End markets have declined more than expected and the timing of a recovery remains uncertain,” Kyle added. “As a result, we are accelerating our cost-reduction actions to return operating margins to our targeted ranges. Although many of our end markets are in cyclical downturns, the diversity of our markets serves us well and we expect them to continue to present attractive long-term profitable growth opportunities for Timken.”

Adjusted Net Income and Diluted Earnings Per Share (EPS) from Continuing Operations

2015 - 3Q

2014 - 3Q

($ in Mils.)

Net Income (Loss) from Continuing Operations

$ 63.4

$(10.9)

$(0.12)

Adjustments:

Pension settlement charges

$ 3.6

$0.04

Impairment and restructuring charges

4.8

0.06

119.5

1.33

Acquisition-related one-time charges

1.9

0.02

Benefit from income taxes

(27.0)

(0.32)

(38.6)

(0.44)

Total adjustments

(16.7)

(0.20)

80.9

0.89

Net Income, after adjustments

$ 46.7

$ 0.55

$ 70.0

$ 0.77

TIMKEN

Among recent developments, the company:

Completed an acquisition to expand its portfolio of power transmission products, adding belts used in industrial, commercial and consumer applications and sold under well-recognized brands that include Carlisle, Ultimax and Panther;

Sold Timken Alcor Aerospace Technologies, Inc., located in Mesa, Ariz., for approximately $45 million;

Broke ground on a $20 million expansion of the company’s Jamshedpur bearing manufacturing facility in India to serve the demands of local and international Mobile Industries markets;

Opened a motor and gearbox repair facility in Pasco, Wash., adding new capabilities to repair large electric motors, wind turbine generators and industrial gearboxes;

Received a $46 million multi-year contract from the U.S. Defense Department for the overhaul of Apache helicopter transmissions; and

Repurchased 1.55 million shares in the third quarter for an aggregate of $50.7 million.

Third-Quarter Segment Results

reported third-quarter sales of $396.4 million, down approximately 7 percent from the same period a year ago. Excluding negative currency of 6 percent, sales were down 1 percent, driven largely by lower off-highway and aerospace demand, partially offset by growth in automotive and rail and the benefit of acquisitions.

Earnings before interest and taxes (EBIT) for the third quarter were $43 million or 10.8 percent of sales, compared with a prior-year loss of $63.4 million or 14.8 percent of sales. The third quarter of 2014 included a $118 million charge related to the restructuring of our aerospace business. Adjusted EBIT was $46.1 million or 11.6 percent of sales, compared with $56.5 million or 13.2 percent of sales in the third quarter last year. The difference in year-over-year earnings was driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses.

Process Industries

sales of $311.0 million for the third quarter were down 14 percent from the prior year. Excluding currency of 5 percent, sales were down 9 percent, driven by weaker demand in heavy industries and the industrial aftermarket, partially offset by the benefit of acquisitions.

EBIT for the quarter was $43.1 million or 13.9 percent of sales, compared with prior-year EBIT of $74.4 million or 20.6 percent of sales. Adjusted EBIT was $45.4 million or 14.6 percent of sales, compared with $74.0 million or 20.5 percent of sales in the third quarter last year. The decrease in earnings was driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lower SG&A expenses.

2015 Outlook

The company revised its full-year outlook to reflect year-to-date results and expected continued softening in many of its industrial end markets. The company now expects year-over-year revenue to be down approximately 8 percent, which includes 5 percent from currency. The segment outlook for full-year 2015 is now as follows:

Mobile Industries' sales expected to be down approximately 8 percent. Without the impact of currency, sales are expected to be down approximately 3 percent reflecting lower shipments in off-highway and aerospace, partially offset by organic growth in automotive and rail, and the benefit of acquisitions.

Process Industries' sales expected to be down approximately 8 percent. Excluding currency, sales are expected to be down approximately 3 percent, as growth in wind energy and military marine and the benefit of acquisitions are more than offset by weaker demand in heavy industries and the industrial aftermarket.

Timken now expects 2015 earnings per diluted share to range from $0.65 to $0.70 on a GAAP basis. Excluding unusual...


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