The Timken Company (USA) reported operating results for third quarter 2004, with sales and earnings
both up from the same period in 2003 when the company reported a net loss.
Results improved in line with stated expectations, as the world's industry economy continued to grow
and strain capacity, and as synergies inherent in Timken's early
2003 acquisition of Torrington begin to bear fruit.
Third quarter sales were USD $1.1 billion, up 17% from 2003's $938 million.
Cost of goods sold was 83% of sales in 2004, from just over 84% of sales in 2003, leading to gross profit
of $194 million in the quarter, or 16.8% of sales, from $147.6 million, or 15.7% of sales, in 2003.
Operating income in the quarter hit $46.1 million, or 4.2% of sales, from $17.3 million, or just 1.8% of sales
in 2003.
Bottom line, Net Income for fourth quarter 2004 was $17.5 million, reversing 2003's $1.3 million loss.
During third quarter, Timken's debt increased to $861 million from second quarter's $784 million, due to
cash contributions to pension plans and miscellaneous working capital requirements. Nevertheless, Timken
said in this fourth quarter it intends to drive down net debt to capital from the current 42.9% to
under 39.3%.
At $21 million in the quarter, Timken's run rate for Torrington integration savings have reached the
company's stated objective of $80 million per year. The company said it reasonably expects that rate
to continue to improve, but would resist the temptation to reset the target higher.
Automotive Group
Third quarter sales were $371 million, up 7% from 2003's $347 million.
Timken said car and light truck application sales were up from 2003, due to new product launches using
Timken bearings, despite a 1% reduction in North American car and light truck builds and a flat
production picture in Europe.
Specifically, new platform launches at Ford and Nissan came online in the quarter, and they were combined
with successful product launch programs in 2003.
As expected, medium and heavy truck production and demand continued strong; North American medium and heavy
truck production rose 38% over 2003.
Rapidly increasing raw material costs, however, more than offset the Group's higher sales and continued
productivity gains. Third quarter saw Automotive Group, lose $7.1 million, against a loss of $8.5 million
a year ago.
Timken said sales and profitability were lower in third quarter from second quarter, due to normal
seasonality in the OEM business, particularly lower production schedules. Those volumes should improve
again in fourth quarter. In addition, manufacturing inefficiencies
from the Timken and Torrington plant rationalization process, which impacted performance in 2003, have been
corrected.
With no relief in sight from escalating raw material costs, Automotive is implementing surcharges
and pricing programs to gain back as much of that lost margin as possible.
CEO Jim Griffith said, "We have been successful in a modest recovery of cost increases this quarter,
and we will see continued improvement in our ability to recover in coming months." (his emphasis).
Fortunately for Timken, that need coincides with the 3-year OEM contract pattern.
Approximately 25% of its OEM supply contracts are under renegotiation in 2004, with another 45% reopening in 2005.
By mid-2005, Timken expects to have had the opportunity to renegotiate more than 70% of its Automotive Group
OEM business, reflecting repricing and raw material considerations.
If all else fails, Timken pointed out it can shift automotive bearing production capacity over to relieve
strained industrial capacity.
Industrial Group
Third quarter sales were $414 million, up 7% over 2003's $387 million.
Timken said the group saw strengthening markets across most sectors, with the strongest growth in
construction, agriculture and rail.
In the industrial power transmission markets, demand was strong but the company pointed out
bearing demand is growing more slowly than demand for other power distribution products.
The Group has struggled to keep up with customer demand, straining manufacturing
and distribution. It has faced some structural product shortages, which the company said it is addressing by
adding production capacity and by altering the sales mix to meet the stronger demand.
For Torrington product, distributors are still selling down excess inventory from 2002, pushed down the supply
chain by Ingersoll-Rand in advance of the Timken acquisition. This caused distribution orders to grow more
slowly, year-to-date.
Steel Group
Third quarter sales were $355 million, up 50% over 2003's $237 million.
$355 million is a record high quarterly sales mark for Steel, backed by record high costs. $50 million of the gain
over 2003 came entirely from organic growth in demand. The other $68 million was due to price increases and
surcharges that Timken was successful in passing on to customers, reflecting equally record high prices
for raw materials, particularly scrap, alloys and energy.
The strongest market sectors for Steel were aerospace, oil production and industrial.
The normal third quarter service shutdown was delayed due to the shutdown caused by radioactive scrap
found at the Faircrest mill. The service shutdown will take place during fourth quarter.
Going forward, Steel expects to see productivity improvements, but costs remain high in 2005. Those
higher prices will be reflected in real price increases, as opposed to surcharges, as time goes on.
Fourth Quarter and Beyond
Looking forward, Timken management was upbeat about its markets but cognizant of the challenges it faces
dealing with production and cost constraints.
Production is being ramped up at Torrington plants, many of which are seeing, "higher demand than
in a long time." Other lines in other Timken plants are being brought up to speed, in addition
to adding additional capacity. The Timken plant in Suzhou, China, is in its ramp-up phase, and capacity
increases are coming online, "across the board," in Canton, South Carolina and China.
Mr. Griffith, said, "We are in the midst of a rapid cyclical upturn," as global industrial
markets continue to improve and continue to strain the supply chain.
A cyclical but significant uptick in industrial distributor buys is expected to continue from third to
fourth quarter.
Asked about the labor contract situation in Canton and the plant closings there, Mr. Griffith said the
early opening of the contract gave the union a couple of months to decide what they would do. Negotiations
began in October, and are scheduled to continue through November. He said the company has actually hired more
workers for the Canton facilities, despite their bleak future, to ramp up existing capacity there.
Into 2005, Timken said it expects to see continued sales improvement across all three operating groups.
- by Bruce A. Carr
from individual research, tips and commercial sources.
Bruce Carr edited this content. Copyrighted material; unauthorized reproduction prohibited.
eBearing.com ... for everything that moves™ Copyright 1999-2011, 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.
Beta test: Translate this article into another language
printer-friendly version
