Timken Reports Strong Third-Quarter 2018 Results; Raises Full-Year Earnings Outlook

- Raises 2018 earnings outlook; now expects 2018 GAAP earnings per diluted share of $3.98 to $4.03 and adjusted earnings per diluted share of $4.18 to $4.23

The Timken Company (NYSE: TKR; www.timken.com), a world leader in engineered bearings and power transmission products, today reported third-quarter 2018 sales of $881.3 million, up 14.2 percent from the same period a year ago. The increase was driven by continued growth across most end markets, as well as the favorable impact of pricing and acquisitions, partially offset by unfavorable currency.

Excluding special items (detailed in the attached tables), adjusted net income in the third quarter of 2018 was $82.9 million or $1.06 per diluted share, an earnings per share record for the third quarter, versus adjusted net income of $55.9 million or $0.71 per diluted share for the same period in 2017. Cash from operations for the quarter was $137.1 million, and free cash flow was $113.9 million.

"We posted another outstanding quarter," said Richard G. Kyle, Timken president and chief executive officer. "We generated double-digit top-line growth, expanded operating margins despite tariff and other cost headwinds and delivered a nearly 50 percent increase in adjusted earnings per share. Our recent acquisitions are off to a good start, and organically, we are doing an excellent job of serving our customers' needs while pursuing profitable growth opportunities."

During the quarter, the company:

• Completed the previously-announced acquisitions of Cone Drive, Rollon Group, and ABC Bearings, which add new and complementary products, capabilities and customers to the Timken portfolio,
  
• Priced a public offering of $400 million of 10-Year Senior Unsecured Notes at an interest rate of 4.50 percent, with the proceeds used to fund the acquisitions of Cone Drive and Rollon Group, and
  
• Returned $35 million in capital to shareholders with the payment of its 385th consecutive quarterly dividend and the repurchase of 300,000 shares, bringing full-year share repurchases up to 1.4 million shares.

Third-Quarter 2018 Segment Results

Mobile Industries reported sales of $464.2 million, up 9.8 percent compared with the same period a year ago, driven primarily by growth in the aerospace, automotive, off-highway and heavy truck sectors, partially offset by unfavorable currency.

Earnings before interest and taxes (EBIT) in the quarter were $50.6 million or 10.9 percent of sales, compared with EBIT of $35 million or 8.3 percent of sales for the same period a year ago. The increase in EBIT reflects the impact of higher volume and favorable price/mix, partially offset by higher material and logistics costs.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $52.5 million or 11.3 percent of sales, compared with $37.7 million or 8.9 percent of sales in the third quarter last year.

Process Industries sales of $417.1 million increased 19.7 percent from the same period a year ago, driven by broad growth across all sectors, as well as the favorable impact of pricing and acquisitions, partially offset by unfavorable currency.

EBIT for the quarter was $81.8 million or 19.6 percent of sales, compared with EBIT of $61.7 million or 17.7 percent of sales for the same period a year ago. The increase in EBIT was driven by higher volume and favorable price/mix, partially offset by higher material and logistics costs including tariffs, as well as increased selling, general and administrative expenses.

Excluding special items (detailed in the attached tables), adjusted EBIT in the quarter was $84 million or 20.1 percent of sales, compared with $61.7 million or 17.7 percent of sales in the third quarter last year.

2018 Outlook

"Looking ahead to the fourth quarter, our markets remain strong, and we continue to execute well and advance the company's strategy," said Kyle. "As a result, we have modestly increased our earnings outlook for the year, and we are planning for our strong execution and positive market momentum to carry into 2019."

The company expects 2018 revenue to be up approximately 19.5 percent in total versus 2017. This includes expected organic growth of approximately 14 percent plus the benefit of acquisitions, including the recently completed ABC Bearings, Cone Drive and Rollon Group acquisitions. Within its segments, the company estimates for full-year 2018:

• Mobile Industries sales to be up approximately 16 percent, driven primarily by broad growth across all sectors, led by off-highway, rail and heavy truck, as well as the benefit of acquisitions, and
  
• Process Industries sales to be up approximately 24 percent, reflecting growth across the distribution, original equipment and services sectors, as well as the benefit of acquisitions.

Timken now anticipates 2018 earnings per diluted share of $3.98 to $4.03 for the full year on a GAAP basis. Excluding special items (detailed in the attached tables), the company expects record 2018 adjusted earnings per diluted share in the range of $4.18 to $4.23, which at the midpoint represents an increase of 60 percent from 2017.

Conference Call Information

Timken will host a conference call tomorrow at 9 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.