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Timken shares plunge on surprise earnings drop

By Jim Mackinnon
Beacon Journal business writer

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Timken Co. shares nosedived on Thursday after the Canton bearings and steel manufacturer reported much-lower-than-expected quarterly earnings and also lowered its earnings outlook for the year.

Shares fell $7.68, or 12.8 percent, to $52.45 on a day when the overall stock market rose 95 points to 15,509. The one-day drop in per-share price lopped nearly $730 million off the company’s market value, based on share price and number of outstanding shares.

Third-quarter earnings and revenue reflect a weaker recovery in the global economy that neither the company nor its customers had anticipated, said Jim Griffith, president and chief executive officer.

“And we’ve lowered our outlook for the balance of the year as a result,” he said in an opening statement during a conference call with industry analysts. Timken is continuing with plans to spin off its steel division as an independent company next year.

Timken said it now expects annual revenue will be about 13 percent lower than what it took in for 2012. Fiscal 2013 earnings will be between $2.70 to $2.90, including costs of 7 cents per share for costs associated with spinning off its steel division, the company said. The company previously said it expected to earn $3.30 to $3.60 per share and that revenue would drop 10 percent compared to last year.

Timken reported third-quarter net income of $52.2 million, or 54 cents a share, on sales of $1.06 billion. Analysts had expected Timken to earn 88 cents per share. Revenue was about $90 million less than what analysts expected.

Net income was down from $80.9 million, or 83 cents a share, on sales of $1.14 billion for the same period a year ago.

Timken said it is cutting costs as a result of weaker markets, including closing three plants in North America and western Europe.

“Our revised 2013 outlook reflects a weaker recovery in the global economy,” Glenn Eisenberg, chief financial officer, told analysts.

Analyst Eli Lustgarten questioned what he called “dramatically revised guidance” from the company.

“It probably almost warranted a pre-announcement or something based on this dramatic shift,” he said during the conference call.

Griffith said the change in outlook was largely because there was no increase in quarterly demand that executives had expected.

He said the company believes the markets it operates in have bottomed out and that they will see those markets slowly improve. He also said the company is not expecting the economy to help.

“So, the improvement in our performance is going to come through execution and cost reductions,” he said.

Griffith said the current economy is similar to what the company went through in 2001, with a strong North American auto market and a weak global commodity market. Timken now is more diversified and more profitable than it was then and its current performance is “a testament to the definition of the new Timken Co.,” he said.

Griffith said he expected the conference call with analysts would be difficult.

“These are surprising results. As we indicated, they were not up to our expectations,” he said. “I think it’s important for you to understand that we’re continuing to redefine the Timken Co. for long-term profitability.”

For nine months of the fiscal year, Timken said profits totaled $210 million, or $2.18 a share, on sales of $3.28 billion. That was down from $420 million, or $4.28 a share, on sales of $3.91 billion, for the same period in 2012.

Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.


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