The Timken Company NYSE: TKR) reported financial results for second quarter 2007, ended June 30, 2007.

Sales in the quarter were USD $1.35 billion, up 4% from $1.3 billion in 2006.

Gross profit dropped to $289 million in 2007 from $294 million in 2006.

Operating income was $102 million or 7.6% of sales, down from 2006's $104 million or 8% of sales.

Part of the impact in both 2006 and 2007 is due to ongoing reorganization expenses; $21 million in 2006 and $16.6 million in 2007.

In the end, net income in the second quarter fell 26%, to $55.3 million from 2006's $74.7 million.

Inventory at the end of second quarter stood at $981.3 million, or 5.3 turns at the current run rate.

Timken reports across three Groups:

Industrial Group sales were $566 million, up 7% from 2006's $529 million.

Timken said the increase reflects its ability to pass along some price increases in the segment, and continued broad industrial market performance, particularly from heavy industry and aerospace. Automotive aftermarket -- included in Industrial Group -- also saw sales gains. Those plusses, including some foreign currency exchange effects, were offset somewhat by a less favorable product sales mix, and higher raw materials and logistics costs.

Industrial's strategy is to pursue growth in selected industrial markets and achieve a leadership position in targeted Asian markets. Timken said it is increasing large bore production capacity in Romania, China, India and the U.S. to meet growing demand. As this capacity comes online, Industrial will be able to increase sales in parallel. The new aerospace bearing manufacturing facility in China still plans to be up and running by early 2008.

Automotive Group sales for this troubled group were $407.2 million, down 5% from 2006's 426.7 million.

The sales decline primarily resulted from Timken exiting and selling off the former Torrington steering gear operations as non-core in late 2006. While sales into light truck markets grew slightly, the improvement was offset by lower demand from heavy-duty Class 8 trucks.

Automotive was hit particularly hard by the inability to raise prices and pass on higher raw materials costs, and plant capacity underutilization. Capacity underutilization hit hard at the Clinton, South Carolina plant, on track to close by the end of 2007. A plant in Sao Paulo, Brazil is being closed by early 2008. Those factors hurt profitability more than could be offset by the sale of the steering gear business and the impacts of restructuring initiatives.

Through first quarter, Timken said it continued Automotive's restructuring, efforts it says continue on course to a return to profitability in 2008 as demand seems to have stabilized.

Steel Group had sales in the quarter of $411 million, up 7% from 2006's $383.3 million.

Steel's results benefited from the ability to press surcharges for raw materials and energy costs, in addition to experiencing generally stronger markets overall.


Jim Griffith, President and CEO, said: "Timken gained further momentum in the second quarter, as demand remained strong in our major industrial market sectors. We expect enhanced performance going forward as we drive operations improvements, realize pricing across selected market sectors, bring new capacity online and complete our restructuring efforts."