Company Press Release

Lufkin Industries Second-Quarter Earnings Per Diluted Share Increase 51.5% To $0.50 On 38.4% Growth In Sales

LUFKIN, Texas, July 21 -- Lufkin Industries, Inc. (Nasdaq: LUFK) today announced results for the second quarter and six months ended June 30, 2004. Sales increased 38.4% for the second quarter to $84.5 million from $61.1 million for the second quarter of 2003. Net earnings were $3.5 million for the latest quarter, up 57.5% from $2.2 million for the second quarter last year. Net earnings per diluted share increased 51.5% to $0.50 for the second quarter of 2004 from $0.33 for the second quarter of 2003. Results for the second quarter of 2003 include the proceeds of $0.09 per diluted share from an asset sale.

Sales for the first six months of 2004 rose 31.9% to $153.2 million from $116.1 million for the comparable period in 2003. Net earnings increased 74.7% to $5.2 million from $3.0 million. Net earnings per diluted share for the first half of 2004 increased 68.9% to $0.76 from $0.45 for the first six months of 2003.

Douglas V. Smith, president and chief executive officer of Lufkin, remarked, "Lufkin's results for the latest quarter represent the third consecutive quarter in which the strong performance of our oil field division has driven earnings growth in excess of 50%. Consistent with those earlier quarters, the division's 67.4% growth in sales for the second quarter resulted primarily from sales of new pumping units, with continuing strong demand in the U.S. and Canada and growing international demand. The U.S. and Canadian markets also contributed increased services and automation sales, and we continued to benefit from the three accretive strategic acquisitions completed in the third and fourth quarters of 2003. In addition, the growth in sales of new pumping units and accelerating domestic sales of commercial machine tool castings generated our highest foundry sales in over five years.

"Our trailer division also contributed to our growth in sales with a 30.8% increase in the division's sales for the second quarter, which reflected increased demand from the freight transportation industry as a result of the improving economic environment and the aging of the freight transportation fleet. The growth in trailer division's new unit sales was partially offset by a reduction in service sales for the second quarter due to the discontinuation of servicing at the division's branches during the second quarter last year. As expected, sales for the power transmission division decreased 3.4% for the second quarter, primarily because of the timing of major project completions and new-project contract delays in the latter part of 2003.

"In addition to the growth in sales and earnings for the second quarter, we are also encouraged by the substantial increase in our backlog to $109.2 million at the end of the quarter, an increase of 83.1% over $59.6 million at June 30, 2003, and 19.0% over $91.7 million at the end of the first quarter of 2004. All three divisions contributed to the expansion of the backlog to the highest level in over six years. Our oil field backlog increased 129.3% to $44.0 million from $19.2 million on June 30, 2003, while growing 16.8% from $37.7 million at March 31, 2004. The trailer backlog of $29.0 million more than tripled from $8.0 million at June 30, 2003, and increased 5.2% from $27.6 million at March 31, 2004. We were especially pleased with the growth in the power transmission backlog to $36.2 million, which increased 11.5% from $32.4 million at June 30, 2003, and 36.6% sequentially from the end of the first quarter of 2004."

Based on Lufkin's financial results for the second quarter and its backlog at June 30, 2004, the Company today established its guidance for earnings per diluted share for the third quarter of 2004 in a range of $0.55 to $0.65, compared with $0.51 for the third quarter of 2003. Lufkin also provided its guidance for earnings per diluted share for full-year 2004 in a range of $1.85 to $2.10.

Mr. Smith continued, "We attribute Lufkin's strong second-quarter performance to a number of factors, including its leadership position in its energy related markets and its reputation for high quality products and superior service. In addition, we recognize the outstanding teams at each of our divisions who are demonstrating our ability to ramp up our operations in response to our customers' needs. Because of increased prices for raw materials, such as steel, and the challenges of rapidly increasing capacity, we are redoubling our focus on improving the efficiencies of our expanded operations. We are confident of our ability to achieve this goal, as well as our other operating and financial targets."

Lufkin will discuss its results for the second quarter ended June 30, 2004, in a teleconference call today at 9:00 a.m. (central time). To listen to the call, participants should dial (913) 981-5508 approximately 10 minutes prior to the start of the call. A telephonic replay will be available from 12:00 a.m. (central time) July 21, through 7:00 p.m. (central time) July 28, 2004, by dialing (719) 457-0820 and entering reservation number 401818.

This release contains forward-looking statements and information that are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this release, the words "anticipate," "believe," "estimate," "expect" and similar expressions are intended to identify forward-looking statements. Such statements reflect the Company's current views with respect to certain events and are subject to certain assumptions, risks and uncertainties, many of which are outside the control of the Company. These risks and uncertainties include, but are not limited to, (i) oil prices, (ii) capital spending levels of oil producers, (iii) availability and prices for raw materials and (iv) general industry and economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements and information.

Lufkin Industries, Inc. sells and services oil field pumping units, foundry castings, power transmission products and highway trailers throughout the world. The Company has vertically integrated all vital technologies required to design, manufacture and market its products.

                           LUFKIN INDUSTRIES, INC.
                             Financial Highlights
                    (In thousands, except per share data)
                                 (unaudited)

                                 Three Months Ended         Six Months Ended
                                      June 30,                   June 30,
                                  2004        2003          2004          2003

    Sales                       $84,528     $61,077       $153,157    $116,137
    Cost of sales                69,472      50,077        126,071      95,805
    Gross profit                 15,056      11,000         27,086      20,332
    Selling, general and
     administrative expenses      9,256       8,640         18,589      16,883
    Operating income              5,800       2,360          8,497       3,449
    Interest and other
     income (expense), net         (320)      1,205           (220)      1,365
    Earnings before income
     taxes                        5,480       3,565          8,277       4,814
    Income tax provision          1,999       1,355          3,063       1,829
    Net earnings                 $3,481      $2,210         $5,214      $2,985

    Net earnings per share:
      Basic                       $0.52       $0.34          $0.78       $0.46
      Diluted                     $0.50       $0.33          $0.76       $0.45
    Weighted average shares
    outstanding
      Basic                       6,749       6,532          6,707       6,530
      Diluted                     6,928       6,617          6,883       6,615
    Cash dividends per share      $0.18       $0.18          $0.36       $0.36


                           LUFKIN INDUSTRIES, INC.
                           Balance Sheet Highlights
                            (Thousands of dollars)

                                                  June 30,      December 31,
                                                    2004            2003

    Current assets                                $117,463        $104,299
    Total assets                                   274,607         263,656
    Current liabilities                             38,816          33,468
    Shareholders' equity                           194,424         188,196
    Working capital                                 78,647          70,831


                           LUFKIN INDUSTRIES, INC.
                             Division Performance
                                (In thousands)

                                 Three Months Ended    Six Months Ended
                                      June 30,              June 30,
                                  2004       2003       2004       2003
    Sales:
      Oil field                  $51,619    $30,843    $93,993    $59,596
      Power transmission          18,733     19,399     35,871     34,694
      Trailer                     14,176     10,835     23,293     21,847
        Total                    $84,528    $61,077   $153,157   $116,137

                                         June 30,    March 31,     June 30,
                                           2004        2004          2003
    Backlog:
      Oil field                          $44,004      $37,686      $19,194
      Power transmission                  36,190       26,498       32,450
      Trailer                             29,003       27,564        7,998
        Total                           $109,197      $91,748      $59,642