The Timken Co. reported significantly lower first-quarter earnings and revenue compared to record results in 2012 while continuing to say it expects a strong finish to 2013 as demand improves for its steel and bearings products.
Shares rose as the Canton manufacturer on Wednesday reaffirmed its earnings outlook for the current fiscal year and a prominent proxy advisory firm backed a shareholder proposal to split the company.
While the company did not directly address strong pressure by its largest shareholder to spin off the steel division, Timken’s top executive prominently mentioned the company’s “integrated business model” in discussing quarterly results. Timken opposes splitting its bearings and steel operations into two publicly traded companies.
“First-quarter results were in line with our expectations, reflecting difficult comparisons from record first quarter 2012 results,” James W. Griffith, president and chief executive officer, said in a news release. “Our integrated business model, along with our continued focus on driving efficiencies across our business, enabled us to sustain double-digit operating margins. ... We saw orders increase as the quarter unfolded and we remain confident in our ability to drive improved profitability throughout the remainder of the year.”
Timken reported earning $75.1 million, or 77 cents per share, on revenue of nearly $1.1 billion for the quarter ending March 31. Earnings were down 51.8 percent from a year ago when Timken reported making a record $155.7 million, or $1.58 a share, on revenue of more than $1.4 billion. Revenue was down about 23 percent from the first quarter of 2012.
For the year, Timken said it still expects to earn $3.75 to $4.05 a share as previously announced. Sales are expected to be about 5 percent lower compared to 2012.
Timken shares rose 17 cents to $52. Shares are up 9.2 percent, including dividends, since Jan. 1 and are up 3.7 percent from a year ago.
“Our ability to leverage the strengths across our business remains a tremendous source of competitive advantage and we remain committed to continue leveraging that advantage,” Griffith said in a news release to industry analysts during a conference call.
Griffith and other executives told the analysts Timken already is seeing stronger orders in the current quarter compared to the first three months of the year.
Timken’s full-year segment sales forecast calls for:
• Its mobile industries segment to be down 5 to 10 percent because of lower customer demand.
• The process industries segment to be flat.
• The aerospace unit to be up 7 to 12 percent.
• The steel unit to be down 7 to 12 percent largely because of lower oil and gas industry demand and lower demand from other industrial customers.
Timken also said that it expects its pension fund to be fully funded by the end of the year.
Timken’s financial performance reflects the significant changes the company has undergone in recent years, including a new flexible cost structure for the steel business, Griffith said.
“Our results this quarter reflect the new Timken Co.,” he said.
None of the analysts asked about the shareholder ballot proposal by Relational Investors LLC and the California State Teachers Retirement System to split the company in two. Investment firm Relational owns about 6.9 percent of Timken shares and pension fund CalSTRS owns about 0.4 percent.
The two California shareholders argue that having two publicly traded companies, one specializing in steel and the other in bearings, would unlock shareholder value.
Relational and CalSTRS on Wednesday said that proxy advisory firm Institutional Shareholder Services is recommending that shareholders vote in favor of the proposal to spin off Timken’s steel business.
Timken’s annual shareholders meeting is May 7 in Canton.
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org