|
|
|
|
The eBearing News
October 28, 2003
Timken Reports $1.3 Million Loss
For Third Quarter 2003
copyright © 2003 eBearing Inc.
The Timken Company (USA) reported third quarter 2003 results, showing a loss of USD $1.3 million,
reversing the $1.8 million profit earned in third quarter 2002. President and CEO, Jim Griffith,
repeatedly acknowledged during the subsequent earnings call that results following the Torrington
acquisition have been "unsatisfactory" and still are not meeting external or internal expectations.
But, he said, the company believes strongly in the Torrington acquisition and that it is still on
track to be accretive to fourth quarter earnings.
Sales, now including Torrington and its subsidiaries, hit $938 million in the quarter, from
$628.6 million a year ago.
Mr. Griffith said, "While we achieved sales increases in challenging markets, we recognize
the need to improve our earnings performance. Despite reports of a strengthening economy in the
U.S., we continue to suffer the effects of slow recovery in key markets as well as higher raw
material and energy costs. We have taken steps to reduce our cost structure as part of our ongoing
operations improvement programs, and we reduced debt. Additionally, the integration of Timken and
Torrington has produced approximately $15 million in pretax savings to date, and we expect to
achieve our target of $20 million of annualized pretax savings by year-end and $80 million by 2005."
In the earnings call, Mr. Griffith indicated how the $20 million Torrington savings are being
recovered. Half are coming from the elimination of at least 250 duplicate jobs, one-third from
leveraging and combining purchases of key components and products, and the remainder from the overall
synergy which reduces costs.
Cost of goods sold rose from 2002, putting gross profits for the second quarter at
$147.6 million, or 15.7% of sales, down from $111.3 million, or 17.7% of sales in 2002.
In the meantime, Timken showed a key measure of the expected merger synergies improved, as SG&A as a proportion
of sales fell slightly, to 13.2%, from 13.5% in 2002.
Accounts receivable, at over 60 days of sales, show Timken is still suffering inventory overhang from
Torrington. Pre-Torrington, Timken's A/R at this time last year was approximately 51 days of sales.
As many in the industry are aware, Ingersoll-Rand had Torrington aggressively selling
inventory down into its industrial (non-automotive) distribution network for a long time -- two to
three years -- apparently to show better-than-expected industrial bearing sales in
anticipation of finding a buyer for Torrington.
During the earnings call, Mr. Griffith noted it is taking much longer than
expected for Torrington's industrial distributors to sell down their bloated inventory, primarily due to
the U.S. industrial economy failing to rebound as many had expected.
Automotive Group sales for the quarter were $346.8 million, from $184.7 million in 2002. Timken
branded product sales were up $10.1 million, primarily from new tapered roller bearing products for
Ford and Nissan light trucks; Torrington sales accounted for the remainder of the growth.
The light truck gains were partially offset by an 11% drop in medium and heavy truck production over
2002, and an unexpected 20% decline in passenger car production by the Big 3 U.S. automakers. Automotive Group
results were also held down by new process startup costs for Advanced Green Components, the manufacturing
venture to produce hot-forged, cold-forged and machined rings.
The Automotive Group restructuring announced earlier in third quarter, is continuing. Approximately 450
people have been cut from the group. As Timken rationalizes North American needle bearing production,
180 out of 190 planned job cuts there have already taken place. In Europe, the production shift from
Germany to the Czech Republic is ongoing, and employment is being reduced in Germany. Overall, the group
took a $1.7 million hit to earnings in September for reorganization charges.
Into 2004 and 2005, Timken said the rate of new product introduction in the Automotive sector should
be $50 million to $80 million per year from Timken and $20 million to $30 million per year
for Torrington products.
Industrial Group sales continued to disappoint, as the expected recovery in the North American
industrial economy is not showing up in sales. However, Timken's automotive aftermarket and rail segments
reported solid increases and new business, as did aftermarket sales into Europe. The above-mentioned
Torrington industrial product
still in the distributor pipeline is holding back the key Torrington industrial product sales.
Third quarter sales were $386.5 million, up from $239.7 million in 2002. The increase reflects the
addition of Torrington, currency translation, and organic sales growth.
Steel Group sales were $236.6 million, down from $246.8 million in 2002, amid no signs of
recovery in demand for Timken steel products.
Steel margins were pushed lower by high raw material and natural gas costs, lower sales,
unfavorable changes in product mix to lower-margin products, and lower capacity utilization.
Steelmaking operations were shut down
intermittently throughout the quarter to control labor costs and inventory levels. Where possible, price
increases were put through and raw material surcharges were put in place. The effect of the raw
material surcharge, for example, will not be seen until next quarter because they follow rather
than lead the actual raw material cost increases.
Ironically, Timken's manufacturing technology is hurting its steel business. Moving away from using its
own tube for bearing races, Timken is using more slugs from sources such as Advanced Green Components.
The shift improves margins in the automotive
business but hurts sales and puts more pressure on the steel business.
The Torrington Integration is moving ahead. Mr. Griffith said no new factory rationalizations
are being planned in response to the 20% drop in sales, but that fixed costs are being removed at Torrington.
In addition, automotive is seeing a 6% to 8% productivity improvement at Torrington.
Looking Ahead, Timken said it expects fourth quarter will continue challenging, but
the company will continue to address weaker markets while still building a solid footing for
the long-anticipated industrial economy recovery.
Fourth quarter North American passenger car production is projected to trend upward, while North American
truck production should be stable to down slightly. Industrial is expected to be flat.
Timken said it also looks forward to fourth quarter for Torrington. Although Torrington sales year-to-date
are below expectations, it is traditionally Torrington's strongest sales period; the result should be
that Torrington produces profit accretion next quarter.
In the earnings call, some other miscellaneous details were disclosed and clarified.
The recent debt rating downgrade to junk status by Moody's will cost Timken $700,000 in higher debt service
expenses, and a meeting scheduled with Standard & Poor's later this year will tell more about a potential
downgrade by that service. The expected proceeds from the September sale of more stock was $55 million.
Next quarter, Timken expects overall corporate cash flow to reach breakeven.
|
|
|
printer-friendly version
|
|
- by Bruce A. Carr
from individual research,
tips and commercial sources.
Copyrighted material; unauthorized reproduction prohibited.
|
|
eBearing.com ... for everything that moves™
Copyright 1999-2010, eBearing Inc. All rights reserved.
Copyright information is on www.copyright.com
Unauthorized reproduction is prohibited.
eBearing Inc, eBearing.com, and "... for everything that moves" are registered
trademarks of eBearing Inc.
|
|
|
|
|
| |
eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2010, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
|
|
|
