The improvement in first-quarter earnings primarily reflects increased demand, improved manufacturing performance, cost reduction initiatives, and the timing effect of the company's material surcharge-recovery mechanism. Partially offsetting these benefits were lower aerospace and industrial demand, LIFO expense (last-in, first-out inventory accounting) and higher selling, general and administrative costs related to incentive compensation plans.
"We have increased our profitability with structural improvements and operating efficiencies throughout the company," said James W. Griffith, Timken president and chief executive officer. "In addition to our improved performance this quarter, we are positioned for greater value creation as we leverage the recovery expected in our industrial markets."
The Bearings and Power Transmission Group had first-quarter sales of $666.1 million, up 5 percent from $635.0 million for the same period last year.
In the first quarter, Mobile Industries' sales were $367.5 million, a 22-percent increase from last year's first-quarter sales of $300.6 million. The significant increase was driven by stronger demand and currency. Sales increases in light vehicle and heavy truck market sectors yielded the largest increases, while sales in off-highway and rail market sectors were lower than the prior year.
Process Industries had first-quarter sales of $206.6 million, down 8 percent from $225.1 million for the same period a year ago. Sales declined in most market sectors, including aggregate, gear drives, oil and gas, and industrial distribution, while sales in wind energy and power generation were up compared with last year. The net decline in demand was partially offset by a favorable currency effect.
Aerospace and Defense had first-quarter sales of $92.1 million, down 16 percent from $109.3 million for the same period last year. The decline primarily reflects further reductions in demand from commercial and general aviation market sectors.
Sales for the Steel Group, including inter-group sales, were $270.3 million, an increase of 9 percent from $248.6 million for the same period last year. The increase was driven by stronger light vehicle demand and higher raw-material surcharges, partially offset by lower energy and industrial volume.
The company's outlook for 2010 reflects a general improvement in the global economy that varies by end-market and geographic region. Timken anticipates an increase in sales of approximately 20 to 25 percent over 2009, driven primarily by stronger demand in the Steel and Mobile Industries segments. Steel Group sales are expected to increase 65 to 75 percent from 2009, due to improved demand across all market sectors, as well as surcharges. Mobile Industries segment sales are expected to be up approximately 15 to 20 percent, as increased demand across most market sectors is expected to be partially offset by lost business resulting from the company's initiatives to re-price low-margin business. Sales in the Process Industries segment are expected to be up slightly, as growth initiatives in energy and Asia and new product introductions offset declines in other industrial market sectors. Aerospace and Defense segment sales are expected to decline slightly due to decreases in commercial and general aviation, but are expected to improve in the second half.
The company is raising its 2010 full-year earnings estimate, excluding special items, to a range from $1.60 to $1.80 per diluted share, compared with its prior estimate of $0.85 to $1.15 per diluted share. The company expects to deliver strong free cash flow in 2010, driven by improved earnings and effective working capital management and cost controls.