Timken (TKR)

Q2 2011 Earnings Call

July 28, 2011 11:00 am ET

Executives

Richard Kyle - President of Mobile Industries and Aerospace

Salvatore Miraglia - President of Steel

James Griffith - Chief Executive Officer, President and Director

Steve Tschiegg - Director of Capital Markets & Investor Relations

Christopher Coughlin - President of Process Industries

Glenn Eisenberg - Principal Financial Officer and Executive Vice President of Finance & Administration

Analysts

Stephen Volkmann - Jefferies & Company, Inc.

Gary Farber - CL King & Associates, Inc.

Eli Lustgarten - Longbow Research LLC

Theodore O'Neil - Wunderlich Securities Inc.

Presentation

Operator

Compare to:
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Good morning, my name is Paula, and I will be your conference operator today. At this time, I would like to welcome everyone to Timken's Second Quarter Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Tschiegg. Mr. Tschiegg, you may begin your conference.

Steve Tschiegg

Good morning, this is Steve Tschiegg from the Timken Company can everybody hear us okay? Operator?

Operator

Yes, sir. I can hear you.

Steve Tschiegg

Thank you and welcome to our Second Quarter 2011 Conference Call. I'm Steve Tschiegg, Director of Capital Markets and Investors Relations. Thank you for joining us today and should you have further questions after our call, feel please feel free to contact me at (330) 471-7446. 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; and Sal Miraglia, President of our Steel Group.

We have remarks this morning from Jim and Glenn, and then we'll all 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 greater detail in today's press release and our reports filed with the SEC, which are available on our website, www.timken.com.

Reconciliations between GAAP and non-GAAP financial information are included as a part of the press release. This call is copyrighted by the Timken Company. Any use, recording or transmission of any portion without the expressed written consent of the Company is prohibited. With that, I'll turn the call over to Jim.

James Griffith

Good morning. As you saw in our release today, Timken had another excellent quarter. Top line growth was solid. We're seeing broad-based strength in the industrial areas we've targeted for expansion. We set a new record for second-quarter earnings of 49% from a year ago. Timken's performance stands in stark contrast in the overall economy, at least as you hear it reported in the media. Before Glenn takes you through the details of our performance. I'd like to put the economy in which Timken competes in the proper context to build your confidence in our ability to sustain this higher level of performance.

The U.S. and the European economies on the whole, continue to recover slowly. Stymied by government debt crises and a lack of consumer confidence. This tepid economic growth and the unemployment that accompanies it dominate the headlines. Fortunately, although not reported as broadly, there's another stronger economy creating real market opportunities. This more vibrant economy is driven by developing countries. Or an ascending middle class is generating new demands for energy, transportation and infrastructure. While there's much concern about the credit tightening in China, even in a bad year, the economy will grow 6% to 8%. On top of that, India's GDP grew 8.5%, Brazil by over 5% and Indonesia by almost 6.5%.

Timken has positioned itself well to serve the demands created by this growth. This growth is also led to unprecedented demand for commodities including copper, iron ore, coal, gold and silver. As well as agriculture commodities such as corn and wheat. The mining and farming industries are expanding globally to meet this demand. Mining equipment shipments are all-time record levels. Wherever they expand, whether they are operating or repairing older equipment, which is fueling the growth of our distribution business. Or creating today's record demand for new machinery, there is ripe opportunity for Timken. This is reflected by the fact that the demand in our off-highway sector is up about 50% year-over-year.

Opportunity also comes in the form of new technology, which is unlocking natural gas from shale deposits. Horizontal drilling is growing rapidly around the world. For example, in Poland, it offers a potential solution to their energy dependence on local coal and the gas they import from Russia. New Timken capabilities acquired when we purchased Boring Specialties in 2007, gives us a unique position in the market and contributes to the unprecedented demand for Timken's specialty steel products. Clearly there are elements of the global economy that defied the prevailing tone of the popular press. Timken's transformation over the past few years enables us to participate in these markets and to benefit from them.

We also continue investing to expand our capabilities. Our most recent acquisition of Philadelphia Gear moves us solidly into these attractive markets. Their technically oriented aftermarket services are the perfect complement to our core capabilities with excellent margins on par with those of our existing Process Industries segment. We've set the new business to contribute more than $100 million in sales in its first full year with Timken. And because its end markets are so complementary to ours, we intend to expand this business around the world. Adding to our confidence is the fact that our traditional markets, heavy truck, rail, American light truck, commercial aerospace et cetera, are in the very early stages of their recovery. As they strengthen, they should contribute additional opportunities to improve our performance.

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