Timken Reports First-Quarter 2020 Results

Posted first-quarter sales of $923 million, down 5.7 percent from last year

- First-quarter earnings per diluted share were $1.06 on a GAAP basis, with adjusted EPS of $1.11

- Well-positioned with solid balance sheet and significant liquidity; company expects to generate strong cash flow over the remainder of 2020

The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported first-quarter 2020 sales of $923.4 million, down 5.7 percent from the same period a year ago. The decline was driven by lower demand in most end markets and unfavorable currency, partially offset by the favorable impact of acquisitions and positive pricing.

In the first quarter, Timken posted net income of $80.7 million or $1.06 per diluted share, versus net income of $91.9 million or $1.19 per diluted share for the same period a year ago. The year-over-year decrease was driven primarily by the impact of lower volume and related manufacturing utilization due in part to COVID-19, and unfavorable currency, partially offset by favorable price/mix, lower material and logistics costs, and lower organic selling, general and administrative (SG&A) expenses. In addition, special items in the quarter were favorable versus the year-ago period, driven mainly by reduced property losses and lower discrete tax expenses, offset partially by higher restructuring charges.

Excluding special items, adjusted net income in the first quarter of 2020 was $84.7 million or $1.11 per diluted share versus adjusted net income of $104.2 million or $1.35 per diluted share for the same period in 2019.

"First quarter revenue and profitability improved meaningfully from the fourth quarter of 2019 as we expected, despite the impact from the COVID-19 pandemic," said Richard G. Kyle, Timken president and chief executive officer. "The Timken team responded quickly to the pandemic, prioritizing the health and safety of our global associates and stakeholders. We have also taken significant short-term cost-reduction actions across the enterprise to mitigate the impact of COVID-19 on our second-quarter performance. We are confident in our ability to successfully manage through the challenges that lie ahead."

Net cash from operations for the quarter was $56.2 million and free cash flow was $24.4 million. During the quarter, Timken paid its 391st consecutive quarterly dividend and repurchased one million shares of company stock. Due to the uncertainty caused by COVID-19, the company has suspended its share buyback program until further notice.

First-Quarter 2020 Segment Results

Mobile Industries sales of $466.7 million decreased 6.7 percent compared with the same period a year ago. The decline was driven primarily by lower shipments in the off-highway, automotive and heavy truck sectors, along with unfavorable currency, partially offset by the benefit of acquisitions and growth in the aerospace sector.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter was $75.1 million or 16.1 percent of sales, compared with EBITDA of $79.3 million or 15.9 percent of sales for the same period a year ago. The decrease in EBITDA reflects the impact of lower volume and related manufacturing utilization due in part to COVID-19, and unfavorable currency, partially offset by favorable price/mix, lower material and logistics costs, reduced property losses versus the year-ago period and the favorable impact of acquisitions.

Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was $76.0 million or 16.3 percent of sales, compared with $83.9 million or 16.8 percent of sales in the first quarter last year.

Process Industries sales of $456.7 million decreased 4.8 percent from the same period a year ago. The year-over-year decrease was driven primarily by lower revenue in the industrial distribution and general and heavy industrial sectors, along with unfavorable currency, partially offset by the benefit of acquisitions and strong growth in renewable energy.

EBITDA for the quarter was $107.5 million or 23.5 percent of sales, compared with EBITDA of $127.6 million or 26.6 percent of sales for the same period a year ago. The decrease in EBITDA was driven by the impact of lower volume and related manufacturing utilization due in part to COVID-19, and unfavorable currency, partially offset by lower SG&A expenses and the favorable impact of acquisitions.

Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was $111.5 million or 24.4 percent of sales, compared with $131.2 million or 27.4 percent of sales in the first quarter last year.

Balance Sheet, Cash Flow and Capital Allocation Update

Timken has sufficient liquidity to meet its near-term needs with $388 million of cash and cash equivalents on the balance sheet as of March 31, 2020. The company drew $350 million on its revolving credit facility on April 3, 2020, to enhance financial flexibility during this period of uncertainty caused by the COVID-19 pandemic. As of April 3, 2020, the company had over $700 million of cash on hand.

Timken ended the first quarter with a net debt to EBITDA ratio of 2.2 times. The company expects to generate strong free cash flow for the remainder of 2020, and will be focused on reducing net debt.

"The health and safety of our associates and our communities has been a top priority and we will continue to adopt best practices everywhere we operate," said Kyle. "The COVID-19 pandemic has created a shock to demand across most of our markets. While we are confident that demand for our products and technology will endure and recover, the timing and strength of the rebound remain highly uncertain. Timken is taking actions in response by enhancing liquidity, reducing costs and generating strong cash flow. While short-term uncertainty remains high, we know that our products, our technology and the value we bring to the world are essential, and we are confident that Timken will emerge from this environment well positioned to advance as a global industrial leader."

On April 3, 2020, Timken withdrew its 2020 financial guidance due to the evolving impact of COVID-19 on the economy. Given the continued uncertainty surrounding COVID-19, the company has suspended its practice of providing detailed sales and earnings guidance. Timken is planning for revenue to decline significantly in the second quarter of 2020 compared to the year-ago period, with markets anticipated to improve from second-quarter levels over the remainder of the year. The company expects to generate strong free cash flow in 2020. Timken plans to reinstate full-year financial guidance at the earliest reasonable opportunity.