Timken Reports Strong Third-Quarter 2022 Results; Raises Full-Year Outlook

Sales of $1.14 billion, up nearly 10 percent in total and 14 percent organically from last year

Third-quarter earnings per diluted share of $1.18 on a GAAP basis, with adjusted EPS of $1.52

Raises adjusted earnings outlook; now expects 2022 GAAP earnings per diluted share of $5.15 to $5.30 and adjusted EPS of $5.80 to $5.95

The Timken Company (NYSE: TKR; www.timken.com), a global leader in engineered bearings and industrial motion products, today reported third-quarter 2022 sales of $1.14 billion, up 9.6 percent from the same period a year ago. The increase was driven primarily by growth across most end-market sectors led by industrial distribution and off-highway, and the impact of higher pricing, partially offset by unfavorable foreign currency translation. Organically, third-quarter sales were up 13.6 percent versus the prior year.

Timken posted net income in the third quarter of $87.0 million or $1.18 per diluted share. This compares to net income of $88.1 million or $1.14 per diluted share for the same period a year ago. The slight year-on-year decrease in net income reflects the net unfavorable impact of special items (detailed in the attached tables), higher operating costs and a higher tax rate, offset by positive price/mix and the favorable impact of higher volume. Current-period special items include an impairment charge related to the anticipated divestiture of the company's Aerospace Drive Systems (ADS) business.

Excluding special items, adjusted net income in the third quarter was $112.6 million or $1.52 per diluted share, a record for the third quarter. This compares to adjusted net income of $91.0 million or $1.18 per diluted share for the same period in 2021.

Net cash from operations for the third quarter was $145.2 million, and free cash flow was $97.9 million. Timken ended the third quarter with net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at 1.8 times. During the quarter, the company returned $71.8 million of cash to shareholders through dividends and the repurchase of 750 thousand shares of company stock.

"Timken delivered excellent performance again in the third quarter, achieving double-digit organic revenue growth and solid year-over-year margin expansion," said Richard G. Kyle, Timken president and chief executive officer. "As we outlined at our recent Investor Day, our strong results reflect the successful execution of our strategy and proven business model, the diversity of our portfolio and attractive end-market mix, and our consistent and disciplined approach to capital allocation."

Among other recent developments,

In September, Timken reached an agreement to acquire GGB Bearings, a global supplier of highly engineered and customized plain bearings and a leader in metal polymer bearings. GGB Bearings revenue is expected to be around $200 million in 2022. The acquisition remains on track to close in the fourth quarter;

The company published its annual Corporate Social Responsibility (CSR) report, which included a 2030 target to reduce aggregate Scope 1 and Scope 2 greenhouse gas emissions intensity by 50 percent[i];

Timken held its 2022 Investor Day on September 28 in New York City, where the company highlighted past performance, provided new long-term financial targets and outlined opportunities to drive further shareholder value; and Earlier this month, Timken reached an agreement to divest ADS, a supplier of drive system components and sub-assemblies for military and civil rotorcraft applications. ADS revenue is expected to be around $50 million in 2022. Timken expects to close on the sale of ADS in the fourth quarter.

Third-Quarter 2022 Segment Results

Process Industries sales of $609.5 million increased 10.8 percent from the same period a year ago. The increase was driven primarily by growth across most sectors led by distribution, general industrial and heavy industries, as well as the impact of higher pricing and the benefit of acquisitions, partially offset by lower revenue in the renewable energy sector and unfavorable foreign currency translation.

EBITDA for the quarter was $165.3 million or 27.1 percent of sales, compared with EBITDA of $129.7 million or 23.6 percent of sales for the same period a year ago. The increase in EBITDA was driven primarily by positive price/mix and the favorable impact of higher volume, partially offset by higher operating costs.

Excluding special items (detailed in the attached tables), adjusted EBITDA in the quarter was $166.7 million or 27.4 percent of sales, compared with $130.7 million or 23.8 percent of sales in the third quarter last year.

Mobile Industries sales of $526.9 million increased 8.1 percent compared with the same period a year ago. The increase was driven primarily by higher shipments across most sectors led by off-highway and automotive, and the impact of higher pricing, partially offset by unfavorable foreign currency translation.

EBITDA for the quarter was $20.0 million or 3.8 percent of sales, compared with EBITDA of $53.2 million or 10.9 percent of sales for the same period a year ago. The decrease in EBITDA was driven primarily by higher operating costs and the ADS impairment charge, partially offset by positive price/mix and the favorable impact of higher volume.

Excluding special items (detailed in the attached tables), adjusted EBITDA in the quarter was $55.1 million or 10.5 percent of sales, compared with $58.2 million or 11.9 percent of sales in the third quarter last year.

2022 Outlook

Timken now anticipates 2022 earnings per diluted share to range from $5.15 to $5.30 for the full year on a GAAP basis. Excluding special items, the company is increasing its 2022 adjusted earnings outlook to a range of $5.80 to $5.95 per share, which represents around 25 percent growth versus 2021 at the midpoint. The company now expects 2022 revenue to be up approximately 9 percent in total at the midpoint from 2021.

"Timken is raising its 2022 outlook to reflect strength in market demand as well as our improving performance," said Kyle. "We are seeing positive momentum as we approach 2023, and we are continuing to improve our operational execution in a dynamic environment. Our backlog is at a high level, price-cost remains positive, and we are confident in our ability to create value with the GGB Bearings acquisition. Our team remains focused on executing our proven strategy to scale our position as a diversified industrial leader and deliver top-quartile financial performance."

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.