- Posted second-quarter sales of $804 million
- Second-quarter earnings per diluted share were $0.82 on a GAAP basis, with adjusted EPS of $1.02
- Significant cost reduction actions delivered solid operating margins in the quarter
- Generated strong cash from operations of $247 million and free cash flow of $223 million
- Accelerating and expanding structural cost reduction actions in the second half of 2020
The Timken Company, a world leader in engineered bearings and power transmission products, today reported second-quarter 2020 sales of $803.5 million, down 19.7 percent from the same period a year ago. The decline was driven by lower demand attributable to the broad economic slowdown caused by COVID-19, and unfavorable currency, partially offset by the favorable impact of acquisitions.
In the second quarter, Timken posted net income of $61.9 million or $0.82 per diluted share, versus net income of $92.5 million or $1.20 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, and unfavorable currency, partially offset by lower selling, general and administrative (SG&A) expenses, favorable price/mix, and lower material and logistics costs. In the quarter, the company implemented cost reduction actions across the enterprise, including temporary compensation reductions and work furloughs, which meaningfully reduced operating expenses. Net special charges were higher versus the year-ago period, driven mainly by a pension remeasurement loss, higher restructuring charges and discrete tax expenses, partially offset by lower expenses related to acquisitions and a legal accrual.
Excluding special items, adjusted net income in the second quarter was $77.0 million or $1.02 per diluted share versus adjusted net income of $97.9 million or $1.27 per diluted share for the same period in 2019.
Net cash from operations for the second quarter was $247.4 million, up from $157.6 million in the same period a year ago, as favorable working capital and lower cash taxes more than offset the decline in net income. Free cash flow for the quarter was $222.7 million. During the second quarter, Timken paid its 392nd consecutive quarterly dividend and reduced net debt by almost $200 million compared to March 31, 2020.
“We performed very well in the quarter despite the unprecedented impact from the COVID-19 pandemic, generating strong operating margins and cash flow, and delivering solid earnings per share,” said Richard G. Kyle, Timken president and chief executive officer. “The company responded quickly to the pandemic by taking decisive actions to protect employees and other stakeholders, adapt to rapid changes in customer demand, reduce costs and bolster liquidity. The advances we have made over the past several years have transformed Timken into a more resilient and higher performing company, as evidenced by our second-quarter and year-to-date results.”
Second-Quarter 2020 Segment Results
Process Industries sales of $460.9 million decreased 9 percent from the same period a year ago. The year-over-year decrease was driven primarily by lower revenue across most sectors, along with unfavorable currency, partially offset by strong growth in renewable energy and the benefit of acquisitions.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter were $126.3 million or 27.4 percent of sales, compared with EBITDA of $125.7 million or 24.8 percent of sales for the same period a year ago. The slight increase in EBITDA was driven primarily by the favorable impact of cost reductions including lower compensation expense, and lower material and logistics costs, mostly offset by the impact of lower volume and unfavorable currency.
Excluding special items detailed in the attached tables, adjusted EBITDA in the quarter was $128.8 million or 27.9 percent of sales, compared with $129.7 million or 25.6 percent of sales in the second quarter last year.
Mobile Industries sales of $342.6 million decreased 30.6 percent compared with the same period a year ago. The decline was driven primarily by lower shipments across most sectors, along with unfavorable currency, partially offset by the benefit of acquisitions.
EBITDA for the quarter was $38.8 million or 11.3 percent of sales, compared with EBITDA of $78.0 million or 15.8 percent of sales for the same period a year ago. The decrease in EBITDA reflects the impact of lower volume and related manufacturing utilization, and unfavorable currency, partially offset by the favorable impact of cost reductions including lower compensation expense, positive price/mix, 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 $42.0 million or 12.3 percent of sales, compared with $78.6 million or 15.9 percent of sales in the second quarter last year.
Balance Sheet, Cash Flow and Cost Savings Update
Timken ended the second quarter with a net debt to EBITDA ratio of 2.1 times, an improvement from 2.2 times as of March 31, 2020. The company has strong liquidity, with $416 million of cash on hand and over $400 million of availability under committed credit facilities as of June 30, 2020. Timken expects to generate strong free cash flow over the rest of the year, and will continue to reduce net debt.
Timken is accelerating and expanding structural cost reduction initiatives to both align its costs with near-term demand expectations and improve the cost structure and margins of the company longer-term. In total, cost reduction actions are expected to generate year-on-year savings of approximately $50 to $60 million in the second half of 2020.
“Timken remains well positioned to advance as a global industrial leader despite this period of heightened uncertainty,” said Kyle. “We took immediate cost reduction measures across the enterprise in the second quarter in response to the pandemic, and are implementing additional structural cost actions in the second half of the year. While the slope of the recovery and the impact from the pandemic remain uncertain, we will continue to focus on our customers and our strategy to drive strong performance and shareholder value through the business cycle.”
Given the continued uncertainty surrounding COVID-19, the company is not providing full year 2020 sales and earnings guidance at this time.