TKR - Earnings call transcript Q3 2018

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Operator

Good morning. My name is Matt, and I will be your conference operator today.

As a reminder, this call is being recorded. At this time, I'd like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers' the will question-and-answer be After Thank you. Mr. begin Hershiser, your may conference. you

Jason Hershiser

And our should me of Thanks, earnings everyone, after to appreciate welcome, Matt. to contact today. us questions, This the Company. If Jason please you for free joining conference call third XXX-XXX-XXXX. is Hershiser, further Relations directly Manager you at Investor our Timken We have call. XXXX quarter feel

on out our part begin I this company's that that we materials remarks posted of of the as point we Before quarterly want we have results. morning, the review reference presentation website to will today's

Kyle; You earnings Phil Financial Chief material call can are Fracassa, through the With Officer. link. feature Rich me today on President this and also webcast Company's the our the access Timken download CEO, and

up have Rich morning opening we this Phil before the comments for will from call and We both your questions. open

please question time During everyone that ask questions participate. you the a at your follow-up one I Q&A, to opportunity one to limit to an would allow and

may call, business and our to financial future today's statements related hear plans, During results, operations. forward-looking you

Our report a of release which which actual projected described from materially the today's we in greater are filed our timken.com variety with in on detail the and factors, available due implied in results press differ or may to those SEC, website.

Company, over turn your interest would Rich. the and With Timken copyrighted I equivalent We non-GAAP is information for to Timken any press like The thank of portion the in GAAP any and recording The now Without to have use, release we between you the I will materials. expressed of its prohibit reconciliations call call. by included or and written Company. transmission call in presentation that, Today's financial consent,

Richard G. Kyle

and adjusted per which year, up Thanks, free XXX Jason, seasonally We third pricing a XX% We with margins $XXX share, quarterly expanded $X.XX flow. initiatives, the of from the We our from Mobile. weaker Revenue and outgrowth prior morning, our cash another from is earnings a including strong was delivered execution, all consecutive is revenue everyone. Mobile result. for record acquisitions, contributing delivered in market quarter quarter. broad-based XX% demand to excellent sequential margins good generated XXXX, We typically what in million quarter. fifth in basis points up improvement

strengthen small Overall, the We be will continue year position for a divestiture. one closing to in continue Timken. acquisitions our invest making to excellent long-term continued strategy, our three it's And record what for and and we portfolio, business, advance success our quarter an on and company

were I'll aerospace expand continue Before In and I regions Process, we the strong. Mobile, to and to turn across growth nearly were heavy truck, revenue, to most end markets year. quarter broad-based from Geographically, results was all and the growth the In across geographies. outlook, see sectors. regards automotive In off-highway, on of the up. some the all all

XX% Rollon, strong Asia to continued acquisitions. Cone and XX% to modestly be helped ABC the and from North Revenue improved growth. was America Drive, growth also with

markets, And and other we're from a profile One limited organically and and In than solutions. the roller initiatives in more the faster automatic revenue Switching our to of a market delivering penetration touch the attacking well-positioned Drive. the we broad on decade, our company. X% technical XXXX a technical quarter deck company. the decade been increased of diversifying, our and to for particularly in Drive, in margins capital several with been excellent ago, are line are of profitably been high-growth product shape offering not XXXX the XXXX. strong combined virtually products the a and faced from we maintaining market, X% to wind capability outgrowth best solar in X that We player small And we Asia, from market we industry, just bearings. Cone automatic spherical having tariffs. taking around A is Groeneveld to But solutions how another to expanding, Today, systems the improve that the We've cost Slide confident our grow in profitably bring examples while growth. organically increasing India. to in have the the line of been market broadening expanded of the as Timken, a profitably globally wind quarter from and a our our growing marketplace, portfolio of have industry. revenue. of years. are our of a the the reliability wind company continuing for sales some investing of as on remain we many gain Asia, going of in focused are has China We the mix our in earnings, ability a costs average reduce excellent and are in the in XX% is growing global solutions. of to believe that areas in and penetration building example a business expensive There moment. win the a the were both relatively force highlights acquisition of we Drive entered bearings, in growth solar for part Groeneveld, products, in the Cone market. long-term third of year. Cone global have for organic continually I'll businesses in material, with and we lubrication combination customers. We're in We in grew grow changing labor, market the business and prospects improved the the with company lubrication systems and We acquisition equipment.

positive However, in year-to-date. and price-cost remained the quarter

the opportunities the we year, of exactly year that we have do input the was to more and at costs. to beginning have but continued throughout Our to calendar also opportunity than cover biggest price move move price to

and we year improvements years with On cost year. count consecutive additional this have excellence Additionally, our added from we've digits outside offsetting as we cost implemented productivity from operational the initiatives footprint grown well carryover very and cost SG&A, we've and as head double or the two structural partially last are increases business the acquisitions. of little SG&A

our margins acquisitions, purchased a net XXX,XXX last slightly million points lot there the pieces capital in X.X are year. shares. basis shares have directions to the addition from bringing for the In in year the the XXX regards allocation, or of cost, regards While we of that in both moving X% is expanded to we to to total under outstanding in quarter,

PT Tech, were are in have stronger the in Torsion making we and part Groeneveld. teams Our balance advances a have brief today comment business. in of on strong, future sheet on acquisitions and profitably and as All balance Company detail the year, their I'll a remains confident let the in are place, cash their grown discuss first marketplace, Phil XXXX in a acquisitions, of three more generation than they own. our in of Control, sheet Timken the good moment. first, are management On the

businesses which quickly on have India business. Timken. India part our position. India in lead the surprises, closed a ABC well as Timken India to they acquisitions, export Rollon, will Relative has into the been a Timken we start. business, off and the put successfully lead to of were expand team and position prior are Drive a and just be integrated experienced well as so as them to acquisitions recently to no now continuing do Cone management management our Rollon, customers expand to larger are Bearings great for to and Bearings, committed with presence as strong leading both to Timken and While this us relatively teams ABC integration as Drive there the will our local Cone

in have portfolio, on strong have the leaders working all growth. in and businesses making three an and outlook support the already teams synergy plans, We are three we excited for to backlogs progress. and businesses integration We're have all that place

well expect we strong similar look to QX and for with QX flow. as very comps very cash revenue, the to share, to as Turning margins earnings per outlook, year-on-year good

and or the of visibility it with continue macroeconomic a of is the to on as normal trends. fourth decline that, markets. seasonality, QX fourth imply address We and visibility in next generally in in softness had using With all quarter and sequential in demand we was by evidenced it's XXXX. next customer months, is that QX, year backlog strong does for strength the negative typically that months first questions is support we around materially backlog quarter a To our sentiment out, than reasonable Customer quarter in the the QX two our have we start year, months XXXX. generally forecasts higher XXXX negative positive forecasting in left after year, from growth that net clearly three the growth XXXX. in the demand and X% same good organic to The own as demand end not year's six the see to as our see well ending the trend. then Our of margins, peak last X%

terms we realize of are we year we and carryover more did actions anticipate Additionally, will XXXX, we for with XXXX the of and percentage year, next we dollars. planning both in this those price than in the took that price

We market in seasonality. acquisitions slight the benefit are margins from a positive from and expect the on initiatives. QX in that we price-cost QX as revenue be forecasting outgrowth next primarily expect modestly In point in the outlook, for XXXX. our fourth quarter due profits, regards positive final to the again will degradation margins well to and And we as year both

impact actions. Speaking $X the specifically million approximately double expect mitigation us in cost about quarter impact tariffs, that of before we the of and the the third to to tariffs

well We mitigate primarily of our have suppliers' production as through of already shifting begun our or as tariffs, pricing. the the production, impact through to

We peak expect in the impact QX ramps net mitigation XXXX. as be to

situation rollback including fluid Process, good further other the impact increases, we fifth summary our year. acquisitions. of to XX% for quarter above tariff cost Mobile level, not assume quarter start again outlook consecutive full the and the for expect any a on staying input of Despite tariffs. focused margins and of we for very getting focused target In or while although remain QX we our to growing we're expanded to we above tariffs and strong does the the XX% year, remained XXXX. on XX% expecting and are a a remain each In We outlook, this tariffs

in specifics believe We price. from price-cost markets, we aren't grow While to on ready are be we and acquisitions, will give next planning from outgrowth, year, from XXXX you to from positive.

I'll XX%. to We also achieve turn Mobile margin further can XX% it for our next above over year we comments. while Process now target believe keeping Phil

Philip D. Fracassa

everyone. And Rich. good Thanks, morning,

from the impact of adjusted tariffs. adjusted sales, expanding For our third the a Timken XXX or we despite a from slide $XXX with second and EBIT share, up at on third margins the quarter, $XXX review, can with in up volume and please year quarter came in margins summary the record million, year. of quarter points And in last last last million finally, at Revenue for to EBIT from performance held results came year. the this around the of seasonally lower in earnings flat $X.XX Sequentially, slide. financial turn XX. delivered quarter. was per XX.X% XX% see XX% Adjusted strong basis you and

line. third which a take very to the lower just negative three dollar. currency over point XX%, around the second of I X% the quarter U.S. a of all Cone up plus pricing. Sequentially, around Acquisitions currency, down let's added closer offset strength look a and end positive benefit Bearings, XX, and in slide would of result sales partially sales X% Rollon experienced decline across markets seasonally our by most performance. This due quarter continued were third to around outgrowth Organically, quarter. at benefit the the initiatives to reflecting last by includes of that were top the volume seasonal And in and quarter out sales ABC Drive, the closed similar as Turning translation from we strengthening the acquisitions. X% was year. the acquisitions, negative

side On slide, the outline organic right-hand by region. we the of growth

So and acquisitions. excluding both currency

digits quarter were that up see organically. in can You the regions double all

driven in led the we by our rail Let were on sectors in in XX%, And as most XX%, and aerospace, Europe, were America, America, up we by and we with were In largest XX%, North region with across notable by and heavy In briefly. up energy end growth industrial up we and off-highway. region, wind sectors. in quarter services, me XX%, saw In Asia, touch rail, and wind up and sectors industrial most continued we markets were the led strength energy, gains each distribution, mainly up Latin finally, general distribution. automotive.

the is million higher before material in that's million the to-date, This $X and impact Turning the $X favorable basis $XX Based EBIT points negatively logistics Adjusted XX. XX.X% to quarter quarter tariffs. of was in on per new includes the up higher The any by volume, tariffs roughly EBIT year new everything from sales, to quarter of to slide been partially going million was million, benefit was Adjusted quarter tactics. of in million impact us up costs. from offset we an This in a year. about acquisitions, price-mix, mitigating enacted from $X $XXX by EBIT ago. XXX and the by driven last increase forward. expect

As Rich we with fully offset tactics, including impact pricing, mitigating to expect XXXX. in would indicated, this

some comment the Let me other further on of items.

a price in the mostly continued mentioned, with strong sales Pricing Process Mix than more despite I just was a inflation. in segments, distribution was to in continued Mobile. headwind, Industries past positive cost positive bit. As as quarter both in be Process, positive this quarter mix outpaced material but in OE Price-cost the was quarter.

positive again the full and be will positive year. price-cost for expect fourth We quarter in the

demand ex-tariff, roughly by we benefits freight we back as were and inventory saw impact were more neutral the as cost, higher last the moved other a has than of came we period. as as also roughly the normal structure grow. logistics were as in our offset volume-driven, roughly manufacturing higher SG&A operational in benefits of inflation Our impact smaller the mostly Manufacturing premium during costs performance our year. leverage well, finally, of quarter, the of offsetting Other levels. with was to build flat SG&A footprint the flat, initiatives excellence cost income And mostly continue cost and to

quarter, items, percentage that $X.XX improved you'll XX, share special $X.XX income we was $XX per earned GAAP our On adjusted year-on-year an a the we quarter million we On expense GAAP tax XX% a per SG&A $X.XX per Slide Excluding a quarter. earned third basis. up share basis, the last for basis or on share, diluted XXX as the points rate record XX.X%. and for the sales. of posted net year third from of see In

for and other reform. rate discrete tax quarter tax items, down our from and our year in the in Excluding XX%, line adjusted U.S. post was expectations roughly XX% last XXXX, with

We expect adjusted year. for to full rate our tax XX% the remain

unfavorable million sectors, translation pricing. was broad of as or and currency to almost take Slide by up business reflecting our about for Process the from the Organically, across $XXX million, sales were positive top-line Process let's at sales all the last impact on XX%, strength year. Industries Acquisitions markets segments a just were over starting X% around as Industries up added quarter look while well XX. $XX Now, X%. with XX% third

grow from business in high-speed Europe, was finally, revenue improving we And environment. customers and an in repair win at Looking an we broad-based other America. the with gearbox cement, channel, our MRO saw flattish and sectors, regions, closely notable and up across regions mostly in aggregate the with markets the and was and projects. higher distribution and machinery. metals, in very general as and end growth continue with in In quarter, by energy services, bit Asia oil a the year-on-year industrial market we broad had market gas, markets, to industrial up In heavy more North the otherwise all for also gains led strength wind

was Industries expenses as to points price EBIT by sales. Adjusted mix, increase $XX favorable XXX was to of sales the higher The Process quarter, margins year-on-year. sales $XX XX.X% volume million or For adjusted and or higher logistics million XX.X% million. material of Industries was were SG&A EBIT up EBIT in compared and as by higher partially driven $XX well tariffs, including offset costs, earnings support year. last Process basis the higher

Industries all and for XX.X%, gains Organically, as XXXX outlook increase Our Process approximately to driven the sales broad be for growth markets impact sectors and of around sales up XX%. planning across well positive as we're to is by for share pricing.

to acquisitions to about translation the and flat the year. X.X% for expect add now top-line, We currency the expect be full roughly we to

growth from Now translation sales were let's last around turn were XX% automotive, million, to XX. or up Slide reflecting as Mobile Organically, aerospace, added was in the the the up XX%, Rail sales quarter Industries unfavorable top-line Industries while truck well. Acquisitions year. X%. by slightly currency In off-highway heavy X% around third quarter, the to Mobile up in was $XX about around million on and $XXX sectors.

up of markets, North as Looking automotive part the the America. at from year aerospace in remains participate some were a the third higher demand and the we more versus in customer in second automotive where to quarter. closely bit automotive were shipments result last push-out sector a to due quarter robust. The higher Overall shipments

partially in where in was EBIT sectors. aerospace was The regions driven was increase up Industries growth well. construction volume. in Mobile sequentially was Class truck points from year-on-year X.X% mainly costs. basis also million mix, the up mainly based EBIT the truck XX.X% all sales remained with in points and adjusted A including by despite last in seasonally the the higher second broad quarter. demand Mobile up of shipments by were price logistics reflects and mining year, growth up $XX XXX increase demand of volume commercial The basis last Adjusted and strong. EBIT heavy quarter North sales $XX the builds And as million in and versus increased lower million was America year. Industries impact earnings material higher $XX Our defense were or aerospace favorable XX offset driven of to improvement off-highway compared by although or margins

outlook XX.X%, off-highway, Organically, driven sales by for sales XX%. Industries for for growth all Our we're be Mobile and planning truck. sectors to approximately around is up rail heavy to increase by across XXXX led

expect top-line, flat currency about be full now translation the to for year. and X.X% to we the the roughly to acquisitions We add expect

our to CapEx last cash driven the Turning free third flow strong cash compared in higher operating the to working capital period. quarter. free million XX, million of see improved increase The we $X $XXX flow as in generated well spending, quarter million year. Slide the cash during year-ago you'll flow was $XXX earnings by After quarter versus as performance was

to You this allocation spent during of $XX or some of the can sales. CapEx see capital slide. over at in on the X.X% quarter regards highlights bottom We million just

In shares on to our X Rich under already just made $XX we and the including three payment the the XXXth we of our million XXX,XXX dividend early repurchase consecutive and covered. capital shares have addition, million and have our acquisitions, shareholders, authorization, we buyback that Note quarter. current the of in which returned I quarterly of remaining

with debt Finally, at the under we net just ended of quarter or $X.X capital. billion XX%

is to in our fourth you year generation. with of will to should forma generation, acquisitions, drive strong expected, When which full sheet opportunities EBITDA the to come up a balance the allocate down X.X As to with for further quarter as capital value. this times at coupled result pro our quarter adjusted second September the Timken's of the from and, our net shareholder from was acquisitions, cash strong continue debt remains XX. cash EBITDA us about provide

well outgrowth should translation increase XXXX. Slide our by growth top-line roughly versus should year. for markets XX. and end as sales be to around the flat review revenue me positive X.X% and full up broad We're to the most XX.X% let on across outlook impact for XXXX, in initiatives Acquisitions we at now pricing. of as XXXX currency XX%, be about the Next, Organically, expect driven to roughly total in planning

that per $X.XX $X.XX line, estimate we a basis. to will range share now the GAAP earnings On on be the bottom diluted in of

the some around $X.XX record put would the This earnings midpoint a in Excluding us margins around per we XXXX XXXX. And $X.XX in that to The the finally, still million adjusted to we we'll of accomplishment share, estimate full charges $XXX is over adjusted go the at last have our expect from per And believe company. up that from generate roughly year. margins anticipated share XX% guidance $X.XX, the outlook which cash of basis will points for income. XXX or at implies net we expand range net special midpoint XX% adjusted of by we great free XXXX EBIT room XX% of here. totaling of almost for year, flow our

excited our the remarks, our Operator? are and we So, performance the strong. opportunities to strategy. about that balance advancing forward to beyond. future and generating next financial importantly, the and formal in ahead sheet our This level look conclude, and lie open for company's remains And XXXX concludes now line questions. Most we're we'll

Operator

And to go we will Jefferies. first you. Steve Thank with Volkmann

Stephen Edward Volkmann

Hi. guys. Good morning,

Richard G. Kyle

Good Steve. morning,

Philip D. Fracassa

morning, Steve. Good

Stephen Edward Volkmann

getting is or that. So slightly your just organic first question I down just maybe I've just thinking the rounding that been it behind curious outlook guess revenue I'm seems that's you like something, tweaked just but and the

Richard G. Kyle

add he to. Let me and if start Phil there detail some can chooses

six there's And that have still in a bandwidth and middle months pretty range of ago couple said where comments, a coming. the obviously good around months to I a started visibility trying range give to three a that. revenue but a we revenue my just air saw forecast out, around of we As we to precise drive for to number versus the a really years of and

good Steve, is about look that our the across say, anything, the over all range history. a minus – if but And XXX markets, of at really too points I were I air. would pretty X% when you maybe a is optimistic XX would bandwidth look across would little normal basis little points, we we So a if you bit a say quarter quarter was third of basis sequential, darn rest. I second because to points of basis of currency, wide XXX And the say, spread within the

Philip D. Fracassa

would mean, market I what us Yeah. I a and I any remain I I move. The or for adjustment any call, of forecast markets mean, strong. Steve. clearly adjustment agree, mean, more just market would

As that Rich the or No quarter. decline of the some in some third it in the was Still market in X% as said. expecting Rich some fourth particular, quarter seasonality organic, in of quarter. a fourth said, which the tougher, be particularly to I implies again, considering up the But little XX% organically getting XX% guidance the really quarter, think bit our comps in fourth are is we'll strong in Mobile. in

Richard G. Kyle

I fourth what our would still the as is management with Obviously Steve, with know, to hardest add, we're because you it's quarter that often to guiding precisely XX% our forecast. – a to. generally we our forecast happens and XX% of customers inventory

as we above a obviously outlook (XX:XX). bit, lowered come that or always could below So, little in the we

Stephen Edward Volkmann

agree. I Great.

Sort the market of that's live a unfortunately in minimal we change, today. but

I you you going think you – could. we're it of as of you impacts think customers around the the of year-end you Do they that? change Rich, do your don't inventory Have prefaced pre-buy mentioned could ahead of sort think of or actually follow-on, sort you that and year-end? kind inventory in So about the and well? does sort my if just since a at this things, how to way year-end maybe factored into of couple which tariffs next see step-up And is just

Richard G. Kyle

in We planned known have all and planned factored tariffs no rollbacks.

that this temporary. be some hopeful were of maybe they would think when started, I we

around year for I our of think full expect now, we're the building XXXX. mindset this in to minds our

we're have actions to So nor stepped specific to regards the we, mitigate our and or up as ahead. to on buy-aheads meaningful think it. our will timing I do have their activity I a it buy believe don't think of any in revenue resourcing, customers well, I taking impact

I producer not think share in us large market in in the think we as don't big probably is looking that tariffs some U.S., impacted for general, produce where a by short-term, gradual will a numbers. revenue upside there's a region revenue even the on getting that. think in I be the and impact that mitigate of But on bearings somebody our and impact of I where to is organic

Stephen Edward Volkmann

you. good I'll it That's pass I Great. appreciate color. on. it. Thank

Richard G. Kyle

Thanks, Steve.

Philip D. Fracassa

Steve. Thanks,

Operator

come from Research. question And our next will with Vertical O'Dea Joe

Joseph John O'Dea

morning. Hi, good

Richard G. Kyle

morning, Joe. Good

Philip D. Fracassa

Joe. morning, Good

Joseph John O'Dea

just at on America into we how the the to counter is when looking question, trying from inflation carryover some calibrate from tariffs. going And you next as suppliers of in about year of that, and and much key year. then, well think pricing also required as First North expectation pricing some kind have steel pricing now benefit to this

So we like end around lot talking now. a bps. XXX getting pricing. a offset to trying benefit It required pricing when the to from you around carryover maybe XXXX, I'm something about to already that think really much started up closer were XXX you going somewhere bps being that's is seems costs of just to have don't how you're facing

Richard G. Kyle

has So quarter. each a couple comments. improved quarters three One, I'd say that through our sequentially pricing

will do this for year think tariffs where roughly material than I similar million year. sourcing then the unmitigated significant at through costs next been it around to full the a we year mitigate specifics, the XXX expect year to conservatively three to in million actions. planning quarters year calendar, and improved you be realize of got as above and looking we for would We you impact that we'll the part end we've of again, each but in and the bps, generally were that has the When throw quarter. $XX at sequentially higher the each a So, ex-tariffs. footprint came we've that of on the probably $XX biggest saying we're to said, And

a So that knocks amount. that down fair number

we think today can inflationary I other positive are as saying sitting think we is our next again we're year we inputs be fairly this why year. modestly again similar, here which price-cost were

Joseph John O'Dea

the tariffs? and And mechanism terms you think invoices a it. will a surcharge maybe item bundle-based how you customers separate of that that pricing as communicating just about to just Do kind on benefit that as keeping for a line in of Got of approach pricing? of versus kind

Richard G. Kyle

a XX% lead say think would say would into on to price But general, generally for most on XX% in passing no, activities. because look increase in some yes. customers to would type the resourcing I our passing cases, I I part,

looking be So, we've again, tariffs through. competitively China products options that can do can we in we're for we're just and that we're directions, passed impact. some because that at also first, On right, And both it dealing cases, have got we mitigate in got in China with. to tariffs bringing we've believe we again,

we're do share. price-cost it positive total, net even in say, we of more market price, some and I would will and but all and can And to I this do year, this mostly did we next we gain year pricing. that will net, what So year, have believe we surcharge looking think positive

Joseph John O'Dea

the end drivers into and can to some at for end backlog that think a you market key next level the about year? you when is is XXXX, then continued growth at And segment expectations think and growth you the talk comments about the about you Okay. where contributing markets of see

Richard G. Kyle

I'd we're exceptions in that. looking first broad-based the say be still the sentiment case the orders to to backlog. optimism, of positive probably pretty It'd at easier and through quarter hit

I don't year, counting it's two automotive outlook but exceptions that on automotive robust outlook flattening. it's probably China contraction, I a be don't and And we're not but think a think say that the where be little I may the think upward concern more seeing, not again, necessarily big going seeing for where more we're to market. falling, on a next I'd of we're

of off-highway be to numbers. a Heavy little industries. truck, around good. beyond part. the distribution for we're lot and strength in counting our So most areas in I improving a in general, Rail, industrial two the big off historical on Good world, not of relatively strength lot contributors say in still but to a And growth. mixed low are equipment that, strength heavy those of would that

broad-based of pretty I couple geographically and with a market So that end exceptions noted.

Joseph John O'Dea

moving And of deployment influencing capital when one any the the debt-to-cap you. what not you do on leverage you really do are of high you Phil, you Thank where front standpoint, just there, an just on risks kind but that about of deployment, on the and being think are forward? limited on in you because where think at buyback are EBITDA leverage might end of debt-to-cap or how on about from what flashing you you terms range, the

Richard G. Kyle

a debt be Joe, and the what about. the Phil We have active the we expect XXXX. capacity. we focused we last quarter have XXXX. fourth like fourth buyback authorization. quarter before some in do balance our to quarter amount. do sizable capacity quarter rearview do we've buyback years the in the – bought with M&A flow, and a shape that. would We take cash good for sheet, continue talk that. back to share for through generally talked buyer of the intend in The to capacity about would with we would We again, the to the cash we forward combined and specifics in and on flow, off sheet third the is balance particularly any mirror more either that Hey, And with been and stock the But We have don't versus dropped I'll acquisitions We've outstanding an got have as good or five expect buyback. consistent a in third pipeline M&A to M&A the do of do

you update on quarter. we we'll first the get to So specifics when

Joseph John O'Dea

lot. a Thanks Okay.

Philip D. Fracassa

Joe. Thanks,

Richard G. Kyle

Thanks, Joe.

Operator

David will come from Raso our with question And Evercore ISI. next

David Raso

good Hi, morning.

Richard G. Kyle

David. morning, Good

Philip D. Fracassa

Good morning, David.

David Raso

does for framework plus it to at what in noticed EPS, you're minimum. for next margin sit sound here Mobile clearly maybe is I given about notably. a markets, commentary mean, seeing your your if correctly, $X But for Process, XX% the end could year, you're a change and I I we things today, providing like as guidance $X.XX heard right, XX%

Your understand eight what own that is seven you stock XXXX? trading outlook believe into you're if stock us you be XXXX your attractive at Can than would looking help Your more $XX. now. at times, times the in acquisitions is right of at stock sort framework

just to there I'm than trying how So better your alternative own a is stock? understand

Richard G. Kyle

– that think I yeah. Well,

think that. I the month – that's a started pretty bar. I agree about high think with we When would $XX. I

there. changed So a lot has obviously

I that making we will don't in said, any expect XXXX. be I As acquisitions

agree see for acquisition. to I the bar stock that's we'd but a and high cover So forward acquisitions where would there, an go

Philip D. Fracassa

Yeah. And could David, if I add... just

David Raso

regarding – ahead, Phil. then sorry, And go

Sorry.

Philip D. Fracassa

last to thoughtful about We'll to as inorganic, continue balanced most continue been would it. the We be with try capital years ... it the of the think about and has And shareholder across very will the capital it be our creating allocation said, be of Rich five very say for I return. thoughtful organic, hallmark but balanced. I philosophy, to goal value.

David Raso

Yeah months. – visibility six no, and mean, view in I the appreciate I obviously, your dramatically a on XXXX change Look, it. world a dicier feels could fairly little

be sit Mobile would more in an here Obviously, to you framework XXXX. be bit you for the framework highest just guidance. not a And a give of tough you again, can have find I just to encouraging that volume, you help as think would mix, But know And it margin appears sales margin of thought flesh I'm Can a the organic bogey that. XX%, XX% out, XX% don't a today, of kind if must attractive bit? obviously help because a guidance. your a when us you want pretty little naive that to that since out about you But little we XXXX? that's XXXX, obviously for price-cost. just acquisition that regarding So that margins, sense believe flesh

Richard G. Kyle

than more say, Mobile, I – OEM mix in Process significantly mix contractual Yeah. have OEM we again, business Process in more Industries, more in than Industries. would

longer takes us it So price. realize to

XXXX Going market. relatively end back end-of-year a XXXX at still the of in to weak we to were the Mobile calendar, XXXX

year stand Got again where get – to end realization in what would the because regardless XXXX. our not that to carryover XXXX Mobile. first in the of what contracts the of we price magnitude XXXX, I by of expect what not have did we the XXXX have market we it almost look really in at of would it year. it have expect happens did standpoint positive you would in get of from when So a in mix, and with And the

and small. all after of being I relatively there a that, So then say price-cost would volume, contributor it and

David Raso

ahead, – Phil. sorry, go Very Yeah.

Philip D. Fracassa

to David, line things I'd on with add, new couple maybe a and Yeah, improve plant plants is the the the closures. continues – prior coming manufacturing footprint

certainly seeing point, favorability business. margins in help but structure part Mobile particularly continue extremely Also, we're the that cost we're We'd to and of think some well. So our the expect there. SG&A Mobile leveraging good can a that last lot we're well. bringing help acquisitions don't the into they fold early the They as on, And nicely contribute a the bit. I

David Raso

gets I'm markets, your little but to going X% or help The X% guide much in be That's you comp Part And Mobile, to little that from XX%. the Process the Process your XX% comp? comp is Process, to in in, part fourth Mobile know how a I in sure just below is and again, little a change interesting fourth just but last XX% price quarter. the to kicking sales seems harder of a XX%. – growth third Mobile just helpful. gets you Process One Can there you just quarter the to one. of for be organic near still quarter, that bit view little the make easier could and below trying to understand that that's us the of implied, that to see it's quick organic accelerating accelerates is said wasn't a

Philip D. Fracassa

a it, are I part David. of think the comps big

for the I the guys as mean, other of us, thing, I think when first. mobile you a moved ago, you recover when markets markets year think recall,

So off-highway, and move the truck whether bit little then in little the it's get or or certainly to bit a given a services general to industrial more business then quickly, And later. tougher tend distribution first tend obviously heavy and move process heavy the markets, that. comps

of Mobile. we're So that on in continued it's I comps kind bit little I expect. really where growth And think really and seasonality part Process, in of of tougher the at the anticipating cycle normal is we business. the with acceleration the we're a getting that the It's then, think indicative

David Raso

appreciate I you. time. the Thank

Philip D. Fracassa

Thanks, David.

Operator

next, go to Goldman will And with Sachs. we Ritchie Joe

Joe Ritchie

Good morning, guys. Thanks.

Richard G. Kyle

morning, Good Joe.

Philip D. Fracassa

morning. Good

Joe Ritchie

I particularly So talked big can on dealer or my is quarter. inventories they about where a of Mobile. shed light curious customer obviously any you like just in commentary network levels first question, on just their this that I'm are, guess color inventory and building Cat yours and

Richard G. Kyle

that OEM others or for again, in largely more services Mobile, the and Yeah. of OEM would case be regard. even in

think So don't I I good say where think for we gotten demand there's they're that's of itself. would is ahead today. in lot shape a the

just we one saw the question the year truck asked couple bit being why And think a a the I David of reasons that's one, in heavy this other. of I of probably also in markets; off-highway out correction quarter. expect the little a are still the think numbers who strong that quarter those the lighter in But seeing fourth same just fourth into little taking say inventory XXXX. customers but numbers answered bit some they're we're the Phil that Mobile in that

the you Process. pullback but say bit in So little of of said inventory, in Same markets same – for in Mobile would a be I good on couple about overall well, shape. I'd didn't a ask And think little we of low little they've and little XXXX, low. numbers remain bit higher with the a Process, all been said what Process, in a into bit seeing again if we're a heading anything, probably bit low. And year

Joe Ritchie

a I think Europe saw regionally, to quarter. That's bit getting APAC. of decel There's in But of a I EMEA a still and kind a about it. concern growth think around good obviously, were of experiencing market pretty just lot been getting slower. the slower, Got And China helpful. you're if we both this in auto little

you're Europe color And so, again, what more maybe maybe specifically specifically in seeing around China and auto. some on

Richard G. Kyle

for we say, we light Yeah. and more premium would the SUV truck customers a tend know, you not exposure on our Joe, I car. there auto would is participate But China kind over participate as – We with of to have big Timken. modestly.

broadly, we But not probably both segments. close or up minus I really mean, the were to solid up would Asia Asia XX% that to we're automotive. plus saw to I were both mean, more in we speak say growth across best So I segments. speaking number and we China person in to

flattish So, us contributor, a big was off-highway was in And was aerospace on as rail Mobile, contributor, side, sector's as it heavy up, light a was driver for a vehicles well. win kind big Asia. truck, then distribution the the Process OE looking in big I and was of said, –

through. coming business services some had also We

using rail, light kind And a automotive we've to I long – say, think was relative broad. key modest has the in the true. really mean, vehicles be I would the was I over of up. – in the flipping was would year nice all truck while particularly So, Europe, same Europe word quarter, U.S., a outside growth, automotive to been was in in the saw aerospace I growth growth flat, heavy off-highway, flat up, mean, we been

saw and growth. very The we On sectors industrial wind heavy the some then OE, were Europe, general was side, OE in and up. distribution strong also

So and we seen you're still where as a broadly good year-on-year although, tell seeing growth Europe, where last would on serve. of again we've seeing we the sectors across I while coming of pointed were out, participate, we from down you Europe out Asia, you, quarter most both some nice data mix but gains some year-on-year basis

Joe Ritchie

Thank helpful, Very you. guys.

Operator

question from next Lynch. Gilardi of And will our Merrill come America Bank with Ross

Ross Gilardi

Hey, good morning, guys.

Richard G. Kyle

Good morning, Ross.

Philip D. Fracassa

Hi, Ross.

Ross Gilardi

but on or sort China a specifically these Just basis an I days mean, with overall would the versus be Asia, for I'm of Asia? there? have the corporate looking size you overweight whatever end to help relative market us for we little further you should mix that average maybe? bit underweight where LTM your not handy about percentage on specifics, you business think can terms in And of of how

Richard G. Kyle

heavily nichey. tends we be a automotive, would mixed call what Again industries, we said, heavy very participate be also equipment, High-single digits percentage metals. in Phil and heavy that but equipment, as construction it's in – of We to mining as nichey. company revenue, I towards and participate truck

so more side. on equipment – So the heavy

Ross Gilardi

if QX? And quarter in from where organic, perspective you start on an growth you in XXXX do into normal XXXX, outlook think based just on your Got year you would it. implied Thanks. the had then organic early seasonality fourth

Richard G. Kyle

probably Ross, end until to get I more this than be the more point, specific in expect say want to the be Probably to that in to Mobile would specific up at Process. to and But don't we we get of than except want year. we up, and

Ross Gilardi

Okay.

Philip D. Fracassa

Yeah. business. I Ross, book building generally speaking, seeing continued across the say, order would we're

least some said, out the bit quarter, of we're little XXXX seasonality at the Rich be we'll to as fourth for – have in So, expecting while of well-positioned gate.

Ross Gilardi

QX, down But could the what this revenue normal QX with year to X% step-down seasonality would you to be good QX I normal QX? you from the help for which Like, me was though QX? mentioned just outcome. the to a mean, QX

Richard G. Kyle

single where call to say number. step on Maybe be from digits up, would us type very I'd it, QX low-to-high typically And to we're QX depending QX, would mid-single-digit QX. shrink to a for typically I would at. rare we

Ross Gilardi

you're Got color give your doing? seeing you mentioned on to efforts it. Thank – you. and can some what reorganize you exactly And your some us are just customers same on to some supply efforts things. you chain – of do the What guys

Richard G. Kyle

produce also where produce to would and we two one we product there's buy regions in offset tariffs. And we short-term, the from of cases the we'd places U.S. in in those are location ability product that some the or other where some or say I and to China. – in magnitude and or customers be have product There's the India thing with of in a our are customers. And locations. focused from with exact bearings that I than range the on seeing tariff because buy and probably would have issues. the pretty more paying steel other general, tariff think our faced wide same are I product ability say, we're of to a Europe

the to with that that priorities other degree price So, to increases, the the as that's – modest customers I have faced tariff, take to lot seeing think well. the where a on entire degree passing we're actions through of you're taking of burden cases work they're

Ross Gilardi

years for then I give a I like think higher remember us that now? And – X% was what's a mean, the or there? correctly, flavor wind little X% can I Is if was more on couple of it bit of lastly, substantially only actually only than it happening just ago sales. wind, you

Philip D. Fracassa

the Ross, we've range, wind our with customers, company – now talking in I both in quarters And X% a it's think new those turbine with as X% it's what as that for in product winning gearbox. across ultra-large of about bearing it's getting to really inside on business And shaft both that level. Well, is that at customers on that where product Yeah. just that you of growth seeing would been main the the in we're winning several – nice platforms. as obviously, of new lines. new and know, the goes the the sit we well And make revenue

nicely. little one that's where So drive But – the up. quarter play, Asia world, customers kind slightly we was it again, side around because customers our I in share Europe with but wind in gains the than mean, gear it shift where of mostly quarter the of of side the kind of it's the more and of north XX% at a the main on with was bit key probably up up was them year-on-year, both are.

Richard G. Kyle

and Yeah. end Europe not I the North participate Ross, that would same degree markets, on Asia add we're the to other. America as that, as but in to focused

but that what – QX typically up. was this to start the would low-doubles last a end, dynamics that coming there this been would little stop-and-start to have organically guiding over the seen what you similar the and a So And we've XX have very we we in similar would up get to again were year. bit year, that's and years maybe a And we're to back the but – of on saying obviously QX we we this what that but your question QX this the on sequential expect different a year, to high be not I but that strong off seen that's years, QX than QX to. U.S. Again, be five QX, – necessarily off and should market. then to would

Ross Gilardi

it. Got

much, Okay. guys. very Thanks

Richard G. Kyle

Thanks, Ross.

Philip D. Fracassa

Ross. Thanks,

Operator

question KeyBanc our will And Markets. with next come Capital Steve Barger from

Steve Barger

guys. morning, good Hi,

Richard G. Kyle

morning, Good Steve.

Philip D. Fracassa

Hey, Steve.

Steve Barger

through the for is Railcar orders room that in production share And three coming should increases industry for on up quarters. top the gains that a of lot come there Isn't mix? really quarters? first the positive for year-over-year in are

Richard G. Kyle

mind business rail. in quite is Keep positive for is It that mix. our global in

is but So of American tend the and for it rail it, – North part be market is America but only North positive to mix.

room that'd where be have area to we certainly go. an believe I think we

rail. room be numbers are up, it's sentiment. I'd that on other don't So on we and want industries on commodity when they're been specific Probably globally, look to share at passenger another we're where have think build, prices to that there you too still some positive focused gaining been rail Certainly as that railcar on should say American have commenting – there get – area as freight share. North in I they're seeing and while well where run

Philip D. Fracassa

color. – bit Yeah. Steve, me of just Right. let little add maybe a I'll

said So rail in up we the quarter, was slightly.

North As America really Rich was little the saw hurricane regions, said, had year really and shipments season. higher actually we even nice last outside some Latin following comp. a gains U.S.; Europe difficult we America, a all Asia, bit.

North little the traffic on down I is in bit. think nail very America head. hit So North good. probably America the you a But was The

mentioned the You builds improving. are railcar

can about our where do we And moving rail think do marketplace moving is good obviously really the growth. but to gain some the a to declining we ability last was to share So where feel timing continue we it as from be in to years the few seen, and into period we magnitude, and the position our yet grow go. in see and

Richard G. Kyle

out involved but affect normally And some replenishment add I last rail customer wiped the hurricanes we that it inventory bearing our year would don't of. were sales, that in

Steve Barger

it. specific are how transmission? strategy own have goals And the Slide at obviously more objectives vertical has its acquisitions around coordinated thinking your built you've there. group. curious Does then setting evolved or each on for the nice looking to you portfolio I'm market or moving Got X, company a a for power

Richard G. Kyle

varies consider it bit products the across through the a lubrication generally, and the a would here are say systems, and distribution acquisitions. would wherever bearings would I power going say we channel. I what transmission would is say you little going different channel. look through I

we cases globalizing Europe ordering We commerce and have North a electronic and all through that. highly coordinated often in usually go-to-market capabilities – are start on combining where but orders that, shipments strategy we of are where in warehouses, providing America

strategy. And Timken channels sizable we of where channel very the lead channels a and on the so, other pull up generally, that coordinated say would those channels I those into then businesses Rollon to in picked but the core those new being the have we're bearing systems, fairly sales OEMs lubrication bearing and case much versus looking business So lead. mixed,

Steve Barger

changes you do group. the obviously, the cycles? end this you're But you think exposure serving how reduces how volatility, And through do still how the Right. cyclical diversification think markets you with manage or business

Richard G. Kyle

– done a think it. been have I certainly we've acquisitions the of part

a only period, through and markets I level if particularly look long and was cost managing better a XX think We not went fairly out that We've of last by acquisitions consistently the roughly where that on in industrial painful we XX-year – this at structure, XX% one. variablizing over through, bottomed a done cycles, margin. we've our EBIT we have or gotten the manufacturing. one vertical our in integration but you

plan compensation much expect today say in would setting to designs as how we're be but Our – certainly and well. will And not will higher significantly cycles floors new would cyclicality well. our for up that that probably ceilings I set better, incentive than as too expect they past were ready we are

Steve Barger

Thanks. the Appreciate time.

Philip D. Fracassa

Steve. Thanks,

Richard G. Kyle

Steve. Thanks,

Operator

Company. Bergner & And our come next Justin will question with Gabelli from

Justin Laurence Bergner

Good Phil. Richard. morning, morning, Good

Richard G. Kyle

Good Justin. morning,

Philip D. Fracassa

Justin. Hey,

Justin Laurence Bergner

A questions. quick couple

XXX of guide markets reduction? are asked that On is basis the in really stand I or the side, second are the for as mean, half. markets reduction, there larger that of out Mobile year, way, the it components part that that points organic maybe Are being another there basis in reduction not point XXX

Richard G. Kyle

not think I would fairly reduction I production, – year, Mobile on I would customers markets, this three quarters built look mobile pullback inventory necessarily No, we demand. seeing hard growing it's And I think stepped last we the I again, some come gas them with year same. inventory, said some what but into say we're again, back of in And the you earlier, widespread. some of in as and did did pretty

across So I'd various little a bit – a across true-up Mobile. It's the say across markets it's wide.

Justin Laurence Bergner

noted comment distribution. in Okay. And that on of behind trend? industrial guess, a pre-bought of that I slight indicated Process, sort your tariffs. had some, in maybe more some they then some of flattening they of Process de-stocking Is you TimkenSteel Can in Great. doing outlook? had reduction ahead They the seen because customers

Richard G. Kyle

serving or industrial So of it But our channels isn't much different serve there distribution Yeah. they markets a bar and are the distribution aftermarket lot MRO, mean, steel. a tube industrial I ours. are we're of – say channel demand about small aftermarket necessarily their won't for with and Right? that too versus serves But – I than TimkenSteel. also OEMs. and totally

very dynamic. So it's different a

So comparing two I don't think is those meaningful.

Justin Laurence Bergner

the in Okay. in appreciate then That's given lastly, to helpful. maybe I mean, linkage the tariff impressive is through if it's tariffs? a XXXX than but there'd on the And slight price-cost question, still lastly sell just maybe you thought you're that outlook, they sales be this think second at weren't clarifying. of I the half that expect you, And I mean, pressure you there's can a stepping gives math, you going confidence step-down And improvement of XXXX? the qualitatively, what the of can the that improvement time impact. guess, that I part offset see that guys I'm is in full of assuming up, offsetting more you the expect you in I same beyond as offset tariffs guess full incremental you won't just would but more XXXX. or tariffs then there then the sort it and you be impact

Richard G. Kyle

questions in lot of there. So a mixed

think we why mitigate with start it me Let all. can we

and origin have will early. produce take I change we material country is of going we actions that specific we buy that of think to – our line and are that to that again, we sight that of to

time. some that have done some take – we Some but of some that, frankly, will of of that

some while are And that So lot our the again, the part fourth down trend positive with year. negotiation, to mixed we'd XXXX. and there cost it from covered next we to price-cost. have through would we will have expect in the net by And positive in be quarter total of in because course net negative that XXXX XXXX. get that expect then of isn't of the still confidence then making we to very carryover that, peak we have assumptions to good pricing the we're And in a things visibility pricing and

a is back, that, rolled be I'd much to If we're relieve would that we're specific say, tariff. back. of are. And clearly would where And us planning that some certainly of why point. driver for case, be there they a looking for some to Some were this to been that roll would one, less. the be to pressure rolled not of pricing that's or we tariffs as targeted would that again, back I were as if price price-cost the for in general, expect expect more positive because at

So not sure that. to ready answer I'm I'm

Justin Laurence Bergner

very that's taking helpful. all my for questions. No, Thanks

Philip D. Fracassa

Thanks, Justin.

Operator

King. now hear from Godfrey George will we with C.L. And

George J. Godfrey

question. Good you Phil. for Thank and my you. Thank Rich morning, taking

Philip D. Fracassa

George. Hey,

Richard G. Kyle

Good morning, George.

George J. Godfrey

Rollon, to just Good the for compare your they Cone the and approximately – and just the are of what margin an Bearings, acquisitions ABC give I morning. wanted EBITDA how margins? quarter; can ask you to EBITDA Drive three they us estimate this completed

Richard G. Kyle

XX-ish% for Rollon, XX-ish% Bearings. and but Cone XX-ish% for for Drive, round, ABC I'll

George J. Godfrey

it. Got

Richard G. Kyle

And...

George J. Godfrey

Thank you.

Richard G. Kyle

math the are. I mean, we do what you on

Philip D. Fracassa

And true. would that's George. Yeah, trailing, that be

a be mean, a any post-acquisition, that synergies good So, positive but would basis. I number or before impact obviously trailing on any

George J. Godfrey

that would or for would they – would of the company? And the inclusive segment-level that margins common or – be charges would be Okay. be expenses any those corporate

Philip D. Fracassa

to would margins segments. the Those be would be that through flowing the

the... include So it all would

George J. Godfrey

Got it.

Philip D. Fracassa

the that to business. specific be the ... SG&A would

George J. Godfrey

my have Got other All been answered. it. questions you. Great. Thank Thank you very much.

Richard G. Kyle

Thank you.

Philip D. Fracassa

George. Thanks,

Operator

Hershiser And to I'd with questions, no for to further like back call Mr. turn closing the over remarks.

Jason Hershiser

Matt. Thanks, for you, today. everyone, joining thank us And

Thank after is concludes further please me. this contact Again, have my you XXX-XXX-XXXX. is If Jason and our call. you, call, name today's and questions number Hershiser, my

Operator

your participation. that again, for Thank once conclude does you And call for the today.

You disconnect. now may

The Timken Company (TKR) 30 Oct 182018 Q3 Earnings call transcript