Q2 2012 Earnings Call
July 26, 2012 11:00 am ET
Steve Tschiegg - Director of Capital Markets & Investor Relations
James W. Griffith - Chief Executive Officer, President and Director
Glenn A. Eisenberg - Executive Vice President of Finance and Administration
Christopher A. Coughlin - President of Process Industries
Richard G. Kyle - President of Mobile Industries and Aerospace
Salvatore J. Miraglia - President of Steel
Michael C. Arnold - Former Executive Vice President and President of Bearings & Power Transmission Group
Holden Lewis - BB&T Capital Markets, Research Division
David Raso - ISI Group Inc., Research Division
Gary Farber - CL King & Associates, Inc.
Samuel H. Eisner - William Blair & Company L.L.C., Research Division
Eli S. Lustgarten - Longbow Research LLC
Previous Statements by TKR
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Good morning. My name is Augusta, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everyone to the Timken Second Quarter Earnings Release Conference Call. [Operator Instructions] Thank you.
Mr. Steve Tschiegg, you may begin your conference.
Thank you. And welcome to our second quarter 2012 earnings conference call. I'm Steve Tschiegg, Director of Capital Markets and Investor Relations. Thanks for joining us today, and should you have further questions after our call, please feel free to contact me at (330) 471-7446.
Before we begin our call this morning, I wanted to point out that we posted to the company's website presentation materials to supplement our review of the quarterly results as part of this earnings teleconference call. This material is also available via Download feature from our earnings call webcast link.
With me today are Jim Griffith, President and CEO; Glenn Eisenberg, Executive Vice President of Finance and Administration and CFO; Rich Kyle, President of our Mobile and Aerospace and Defense businesses; Chris Coughlin, President of Process Industries; Sal Miraglia, President of Steel. We have remarks this morning from Jim and Glenn, and then all of us will be available for Q&A. [Operator Instructions]
Before we begin, I'd like to remind you that during our conversation today, you may hear forward-looking statements related to future financial results, plans and business operations. Actual results may differ materially from those projected or implied due to a variety of factors. These factors are described in a greater detail on today's press release and in our reports filed with the SEC, which are available on our website, www.timken.com. Reconciliations between non-GAAP financial information and its GAAP equivalent are included as part of the press release. This call is copyrighted by the Timken Company. Any use, recording or transmission of any portion without the express written consent of the company is prohibited.
With that, I'll turn the call over to Jim.
James W. Griffith
Thanks, Steve, and good morning, everyone. As you saw in our release, Timken reported a very solid second quarter. We posted revenues of $1.3 billion, in line with the second quarter of last year as the impact of our acquisitions offset the weakness in some market segments.
Our profitability remains strong, continuing to demonstrate the improved earnings power of the new Timken Company. Having said that, many companies are reporting a slowing of the global economy, and in the second quarter, we began to feel the impact. North America remains our strongest market. We continue to see growing demand in the railroad, energy and mining sectors and in the aftermarket. But we saw a tempering of that growth toward the end of the second quarter and anticipate further slowing in the last half of the year. Our customers are managing the situation very well, taking conservative positions with their inventory levels. This is translating into a general slowness for Timken rather than a dramatic reduction.
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.