Timken Co. posted an $82.8 million second quarter profit, but the amount was far lower than last year’s $183.6 million.
Citing a sluggish recovery in U.S. and international markets, Timken Co. downgraded its projected earnings for the remainder of the year.
The announcement came as the company reported second quarter net income of $82.8 million, or 86 cents per share, compared with $183.6 million, or $1.86 per share, during the 2012 second quarter. Sales for the quarter that ended June 30 came in at $1.13 billion compared with $1.34 billion last year.
Timken projected annual earnings per share would range between $3.30 and $3.60, with sales falling 10 percent. That compares with earlier projections of $3.75 to $4.05 per share and a 5 percent sales drop.
Investors reacted by driving down Timken’s stock price in heavier than average trading. The stock closed Thursday at $56.99, down $2.95 per share.
Top management, however, noted the company is posting good margins in a sluggish economy. The results are “further evidence of the positive impact coming from executing our strategy,” James W. Griffith, president and chief executive officer, told stock analysts.
“Our performance in this economy, combined with our continuing steps to strategically reposition the company, demonstrate the company’s upside potential as the market conditions improve,” Griffith added.
The question is when will market conditions improve?
Timken is seeing lower demand in several markets for bearings and steel. Griffith said customers advised Timken earlier this year that they needed to deplete inventories before buying more products. Customers expected to clear through the inventory during the first part of the year and begin buying during the second half, but several still have inventories and are trimming production schedules, Griffith said.
The problem exists in the North American market, with the exception of the light vehicle market, as well as in China, India and Europe, Griffith said.
ACROSS THE BOARD
All four of Timken’s business segments saw sales drop, with the steel business posting a 29 percent decline. Aerospace and process industry segments saw sales fall 6 percent, while mobile industries suffered a 12-percent drop.
Timken now expects to see limited recovery during the second half, with sales and profits expected to top the first half results.
The company’s first half net income was $157.9 million, or $1.63 per share, compared with $339.3 million, or $3.44 per diluted share, in 2012. Sales are $2.22 billion, down from $2.76 billion last year.
During 2012, Timken’s earnings were helped as it took in $69 million through the Continued Dumping and Subsidy Act.
During the discussion with stock analysts, Griffith noted the Timken board’s decision to create a strategy committee of independent directors and hire Goldman Sachs to evaluate a potential split between the steel and bearings businesses. Griffith said it would be inappropriate to address questions about the committee’s work. The committee is supposed to report its findings in September.