Timken Reports Fourth-Quarter and Full-Year 2020 Results; Expects Strong Growth in 2021

 

  • Posted fourth-quarter sales of $892 million, down less than one percent from last year
  • Fourth-quarter earnings per diluted share were $0.69 on a GAAP basis, with adjusted EPS of $0.84
  • Achieved full-year 2020 earnings per diluted share of $3.72 on a GAAP basis, with adjusted EPS of $4.10
  • Generated strong full-year 2020 net operating cash flow of $578 million and free cash flow of $456 million
  • Company expects strong revenue growth in 2021; sets initial outlook for 2021 earnings per diluted share of $4.45-$4.85 on a GAAP basis, with adjusted EPS of $4.70 to $5.10

The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported fourth-quarter 2020 sales of $891.7 million, down 0.5 percent from the same period a year ago, as the net impact of lower demand offset the favorable impact of acquisitions, currency translation and pricing.

Timken posted net income of $53.1 million or $0.69 per diluted share in the fourth quarter, versus net income of $113.5 million or $1.48 per diluted share for the same period a year ago. The year-over-year decrease in GAAP net income was primarily driven by the net unfavorable impact of special items (detailed in the attached tables), including pension remeasurements and discrete taxes.

Excluding special items, adjusted net income in the fourth quarter was $65.0 million or $0.84 per diluted share versus adjusted net income of $64.3 million or $0.84 per diluted share for the same period in 2019. The slight increase in adjusted net income reflects lower operating expenses resulting from cost reduction initiatives and reduced interest and tax expense, which offset the impact of lower volume and unfavorable price/mix and currency.

Net cash from operations for the fourth quarter was $120.5 million, and free cash flow was $84.6 million. During the quarter, Timken returned $29 million of cash to shareholders with the payment of its 394th consecutive quarterly dividend and the repurchase of 100 thousand shares of company stock. Timken also completed the acquisition of the assets of Aurora Bearing Company, which builds on the company’s global leadership in engineered bearings.

“Fourth quarter revenue came in above our expectations, and we generated strong cash flow to finish out a solid year in a turbulent market environment,” said Richard G. Kyle, Timken president and chief executive officer. “Our full-year operating margin performance was very good despite the decline in revenue from the global pandemic. In 2020, Timken demonstrated its resiliency and ability to generate strong financial performance through challenging end markets. During the COVID-19 pandemic, we prioritized employee safety, served customers, reduced costs and strengthened our financial position, while investing for future growth. This performance demonstrates the power of Timken – a more diverse, higher-performing industrial company.”

2020 Full-Year Results and Highlights

For 2020, sales were $3.5 billion, down 7.3 percent compared with 2019. The decline was driven by lower demand in most end markets, due to the broad economic slowdown caused by COVID-19, and unfavorable currency, partially offset by significant growth in renewable energy and the favorable impact of acquisitions.

Net income was $284.5 million or $3.72 per diluted share for the year, compared with net income of $362.1 million or a record $4.71 per diluted share a year ago. The year-over-year decline reflects the impact of lower volume and related manufacturing utilization, unfavorable currency, and the net unfavorable impact from special items (detailed in the attached tables), partially offset by lower selling, general and administrative (SG&A) expenses resulting from cost reduction initiatives, lower material and logistics costs and the benefit of acquisitions.

Excluding special items, adjusted net income was $313.1 million or adjusted earnings of $4.10 per diluted share in 2020. This compares with adjusted net income of $353.8 million or record adjusted earnings of $4.60 per diluted share in 2019.

Timken generated strong cash flow in 2020, with net cash from operations for the full year of $577.6 million, and free cash flow of $456.0 million. During the year, the company reduced gross debt by $166 million and net debt by $276 million. The company ended the year with net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at 1.9 times compared to 2.1 times at the end of 2019.

Additionally, Timken paid dividends totaling $1.13 per share in 2020, which represents its seventh consecutive year of annual dividend increases, and repurchased 1.1 million shares of company stock. Between dividends and share repurchases, the company returned a total of $136 million of cash to shareholders in 2020.

Renewable energy sales increased significantly in 2020 and is now the company’s largest individual sector at over 12 percent of total sales. During the year, Timken announced more than $75 million in capital investments to increase the company’s renewable energy capabilities across its global footprint. This latest round of investments strengthens Timken’s commitment to the renewable energy sector and reinforces the company’s positive long-term growth outlook for its wind and solar business.

Fourth-Quarter 2020 Segment Results

Process Industries sales of $458.0 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, higher marine revenue, the favorable impact of currency translation, positive pricing and the benefit of acquisitions, partially offset by lower revenue in distribution and other industrial sectors.

EBITDA for the quarter was $99.9 million or 21.8 percent of sales, compared with EBITDA of $96.8 million or 21.5 percent of sales for the same period a year ago. The increase in EBITDA was driven primarily by the impact of cost reduction initiatives and favorable manufacturing performance, partially offset by the impact of lower volume and the unfavorable impact of price/mix and currency.

Excluding special items (detailed in the attached tables), adjusted EBITDA in the quarter was $102.4 million or 22.4 percent of sales, compared with $98.3 million or 21.8 percent of sales in the fourth quarter last year.

Mobile Industries sales of $433.7 million decreased 2.6 percent compared with the same period a year ago. The decline was driven primarily by lower shipments in the rail, aerospace and automotive sectors, partially offset by growth in the off-highway and heavy truck sectors and the benefit of acquisitions.

EBITDA for the quarter was $54.6 million or 12.6 percent of sales, compared with EBITDA of $57.5 million or 12.9 percent of sales for the same period a year ago. The decrease in EBITDA reflects the impact of lower volume and the unfavorable impact of price/mix and currency, partially offset by the impact of cost reduction initiatives and the net favorable impact from special items (detailed in the attached tables) in the quarter.

Excluding special items, adjusted EBITDA in the quarter was $53.9 million or 12.4 percent of sales, compared with $60.3 million or 13.5 percent of sales in the fourth quarter last year.

2021 Outlook

Timken anticipates 2021 earnings per diluted share to range from $4.45 to $4.85 for the full year on a GAAP basis. Excluding special items (detailed in the attached tables), the company expects 2021 adjusted earnings per diluted share ranging from $4.70 to $5.10, which at the midpoint is up almost 20 percent versus 2020. At the midpoint of the outlook, the company expects 2021 revenue to be up approximately 12 percent in total versus 2020.

“We plan to deliver strong sales and earnings growth in 2021, driven by improving industrial markets, an active pipeline of new business wins and continued outgrowth in sectors like renewable energy and marine,” said Kyle. “While we anticipate some near-term uncertainty and supply chain challenges related to the COVID-19 pandemic, we are seeing sequential strengthening in our business to start the year and we believe a sustainable industrial expansion is underway. Timken expects to deliver another year of solid margin performance and cash generation, while maintaining industry-leading customer service. We are well-positioned for the opportunities that lie ahead as we continue to advance Timken as a global industrial leader in 2021 and beyond.”

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.

Conference Call:

Thursday, February 4, 2021
11:00 a.m. Eastern Time
Live Dial-In: 800-458-4121 Or +1 323-794-2093
(Call in 10 minutes prior to be included.)
Conference ID: Timken’s 4Q Earnings Call
Or Click to Join: http://tmkn.biz/3rYiKC8

Conference Call Replay:

Replay Dial-In available through
February 18, 2021:
888-203-1112 or 719-457-0820
Replay Passcode: 7727792

Live Webcast: http://investors.timken.com

Contact:
Neil Frohnapple
234.262.2310
neil.frohnapple@timken.com