Timken Reports Third-Quarter 2020 Results

- Posted third-quarter sales of $895 million, down 2.1 percent from last year

- Third-quarter earnings per diluted share were $1.16 on a GAAP basis, with adjusted EPS of $1.13

- Generated strong cash from operations of $154 million and free cash flow of $124 million in the quarter

The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported third-quarter 2020 sales of $894.6 million, down 2.1 percent from the same period a year ago. The decline from the prior year was driven by lower demand in most end markets, partially offset by significant growth in renewable energy and the favorable impact of acquisitions. Third quarter sales were up 11.3 percent from the second quarter.

In the third quarter, Timken posted net income of $88.8 million or $1.16 per diluted share, versus net income of $64.2 million or $0.84 per diluted share for the same period a year ago. The year-over-year increase was driven primarily by pension remeasurement income, lower operating expenses reflecting the impact of cost reduction initiatives, favorable manufacturing performance and a lower tax rate, partially offset by the unfavorable impact of lower volume, price/mix and currency, and higher restructuring charges.

Excluding pension remeasurement, restructuring and other special items detailed in the attached tables, adjusted net income in the third quarter was $86.4 million or $1.13 per diluted share versus adjusted net income of $87.4 million or $1.14 per diluted share for the same period in 2019.

Net cash from operations for the third quarter was $153.6 million, up from $144.9 million in the same period a year ago. Free cash flow for the quarter was $124.4 million, which compares to $101.2 million in the year-ago period. For the nine months ended September 30, 2020, net cash from operations was $457.2 million and free cash flow was $371.5 million. During the third quarter, Timken paid its 393rd consecutive quarterly dividend.

"We are pleased with our performance in the third quarter," said Richard G. Kyle, Timken president and chief executive officer. "Our markets continued to recover from the April trough, and with our strong execution, revenue exceeded our expectations and approached last year's level. Additionally, our strategy to diversify our portfolio and increase our presence in sectors like renewable energy is contributing to our top-line performance in 2020. I am proud of how our Timken associates have shown resilience through the global pandemic. We continue to keep our operations safe, serve customers, deliver solid financial results and position the company for long-term success." 

Third-Quarter 2020 Segment Results

Process Industries sales of $466.0 million increased 1.5 percent from the same period a year ago. The year-over-year increase was driven primarily by strong growth in renewable energy, positive pricing and the benefit of acquisitions, partially offset by lower revenue across most other sectors.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter were $109.2 million or 23.4 percent of sales, compared with EBITDA of $116.5 million or 25.4 percent of sales for the same period a year ago. The decrease in EBITDA was driven primarily by the unfavorable impact of price/mix and currency, along with higher restructuring expenses, partially offset by the favorable impact of cost reductions and manufacturing performance.

Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was $115.2 million or 24.7 percent of sales, compared with $119.2 million or 26.0 percent of sales in the third quarter last year.

Mobile Industries sales of $428.6 million decreased 5.8 percent compared with the same period a year ago. The decline was driven primarily by lower shipments across most sectors, partially offset by the benefit of acquisitions. Mobile Industries' third quarter sales were up 25.1 percent from the second quarter.

EBITDA for the quarter was $64.0 million or 14.9 percent of sales, compared with EBITDA of $70.1 million or 15.4 percent of sales for the same period a year ago. The decrease in EBITDA reflects the impact of lower volume and higher restructuring expenses, partially offset by the favorable impact of cost reductions and manufacturing performance, lower material and logistics costs and the positive impact of acquisitions.

Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was $68.4 million or 16.0 percent of sales, compared with $71.9 million or 15.8 percent of sales in the third quarter last year.

Balance Sheet, Liquidity and Cost Savings Update

Timken ended the third quarter with a net debt to EBITDA ratio of 2.0 times. During the third quarter, the company reduced net debt by over $80 million. Timken has strong liquidity, with $313 million of cash on hand and over $600 million of availability under committed credit facilities as of September 30, 2020. The company expects to generate strong cash flow and further reduce net debt in the fourth quarter.

Timken continues to execute on cost reduction and other operational excellence initiatives across the enterprise. In total, cost reduction actions are now expected to generate year-on-year savings of approximately $55 to $60 million in the second half of 2020 compared to our previous outlook of $50 to $60 million.

"Timken is demonstrating our ability to perform through challenging times, as evidenced by our year-to-date results," said Kyle. "We expect markets to remain relatively stable with normal seasonality through the end of the year, and we are focused on finishing 2020 strong. While there remains a fair amount of uncertainty surrounding the pandemic, we're seeing solid demand across most of our markets and combined with our strong balance sheet and cash flow, we are well positioned heading into 2021. We remain focused on our strategy to deliver long-term profitable growth and advance Timken as a high-performing global industrial leader."

The company is not providing full year 2020 sales and earnings guidance at this time. 

Conference Call Information

Timken will host a conference call today at 11 a.m. Eastern Time to review its financial results. Presentation materials will be available online in advance of the call for interested investors and securities analysts.