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Timken Management Discusses Q2 2012 Results - Earnings Call Transcript

In Asia, demand has slowed significantly for us with year-over-year sales down 14% in the second quarter. The impact on Timken is greater than for the economy as a whole, given our exposure to infrastructure markets and especially wind. We now anticipate the second half will not rebound as we have previously expected.

Turning to Europe. Our revenues dropped by 8% in the second quarter, a distinct change from the first quarter of the year. This is another market where we've now scaled back our expectations for recovery in the second half of the year. As a direct result of lower market expectations, we reduced our estimate of earnings for the balance of the year. I would like to point out that our current outlook, which we shared in today's earnings release, will result in 2012 annual earnings, beating a record for the company. We continue to take actions to grow the company and to strengthen its performance.

From a growth perspective, our recent strategic acquisitions of Philadelphia Gear with and Drives added 5% to the top line during the second quarter, helping counter lower demand in other areas. From a performance viewpoint, we announced plans to close our Canadian bearing plant in St. Thomas, Ontario, and consolidate those operations into existing U.S. facilities. St. Thomas has been operating at low levels capacity utilization, and consolidating its production in other plants improves our overall competitiveness.

Our investment program in the Steel business is proceeding on schedule. The intermediate finishing line designed to automate our steel tubing production starts operating at the end of 2012. This will be followed by our new forge press, which comes online early in 2013, a ladle refiner in late 2013, and a Faircrest caster in early 2014. When complete, the Steel business will have 20% better labor productivity, 10% better energy efficiency, and 15% more capacity in our most attractive segments.

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