CHICAGO Timken Co. expects sales by its steel business to jump between 12 and 17 percent this year from 2013, driven by greater demand in the oil and gas and industrial end-market sectors.
This will occur at the same time that the steel business is spun off as Timken Steel Corp., president and chief executive officer James W. Griffith said during a conference call Jan. 30 to discuss its earnings report.
"We are expecting improved profitability based on volume and mix, and (steel selling prices)," chairman Ward J. "Tim" Timken Jr. told analysts during the call. "(Steel sales increases) will be solidly in the double digits. If you look at (a rise of) 14 percent, half would come from volume and product mix and the other half from improved surcharges," he said, predicting that scrap surcharges will continue to run higher "throughout the year."
The chairman cited a number of demand bright spots. "The mobile (equipment) business is doing pretty well; on-highway is up. Oil and gas are seeing solid growth, and that will build throughout the year. Within the industrial sector, some sectors will do better than others. Some will be very solid," he said.
The company has spent about $110 million to expand special bar quality (SBQ) steelmaking capacity, improve throughput, and expand the product range and differentiate it from those of competitors, Griffith said. A big piece of the capital investment, the jumbo bloom caster at the Faircrest Steel Plant in Canton, Ohio, will start up during the second half of the year.
"Well turn it on during the late second or early third quarter and ramp up in the late third or early fourth quarter," Timken said, although revenue improvements as a result of the capital project probably wont show up in financial results until 2015.
Asked by an analyst about domestic SBQ supply, Timken said that "the industry is relatively balanced based on strength in specific markets. It was balanced in 2013 and we are keeping a close eye on (the supply-demand balance) in 2014."
The company is "making solid progress in separation," Griffith said. It began working to spin off the steel business, at the board of directors request and based on activist shareholders agitating for it, last September.
Canton, Ohio-based Timken has worked to right-size certain operations, lower costs, pay down pension benefits and other debts, and free up cash so that the chief executive officer of each company can develop a capital allocation strategy.
The separation should occur in mid-2014. Executives will conduct investor presentations in advance of the spin-off. The company estimates the spin-off will cost $105 million but it will realize savings elsewhere, Griffith said.