TKR - Earnings call transcript Q2 2019

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Operator

Good morning. My name is Brian, 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 Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. will question-and-answer there [Operator remarks, speakers' be session a Instructions]. After you. Thank

my It's you over to to hand now pleasure Mr. Jason Hershiser.

begin. may You

Jason Hershiser

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

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

this webcast You access material can call the the link. download also feature earnings on through

and With Officer. Chief me today the Company's are Kyle Fracassa, Phil Financial Timken President Rich our CEO, and

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

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

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

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

written release express presentation of the Today's Without call portion materials. We have by or we included in Timken transmission reconciliations between use non-GAAP recording Company. financial and any equivalent the is information and prohibit call. its press of GAAP the any copyrighted consent

the I now Timken to to like thank and turn would Rich. for will over you interest I that in your With the call Company

Rich Kyle

joining you everyone. morning thank Thanks, Jason. for us today. Good And

the start and outlook. record was quarter some talk I the about of before quarter another Second revised I highlights Timken will for with

negative slightly organic industries revenue growth Mobile in growth X% up and industries. Wind, We'd of year the from prior industrial billion We per over negative distribution, year-on-year despite second of $X organic in heavy quarter EBIT solid the Process and basis We capital XX% solar, impact aerospace, on in our the currency. achieved We $X.XX, strong delivered in quarter earnings achieved record year. delivered up organic is quarter the last up all return from in And of XXX industries up margins growth. invested to XX.X%. trailing points XX% from XX.X% XXXX. marine share

expectations were margins Our four XX% contributed the growth the months year-on-year tariffs year led despite Drive. and most currency in of solar XX completed incremental acquisitions a and from for margins revenue of in and very by unfavorable last last organic. for In we've being Cone strong the ahead slightly total, markets growth

last Our from was last free from and comp of flow given year. is year-to-date the was year for $XXX a very particularly challenging flow QX excellent million good quarter record up All $XXX million all cash in Timken. our cash

did Quarter our are we and however, expected reducing coming full the outlook we year. lighter than for

from I'll the So comment the then and in quarter and earnings decline down the margins on outlook. sequential first break

factors short sequential would of came impacted margins revenue. time margins favorable comp when that we very year quarter. improve the we The the $X.XX that in first expected at first we And earnings. despite continue earnings share. But that would slightly the quarter higher and the At combined and seasonality, full from there the slightly XX.X% the updated a play normal per EBIT from with expectations challenging quarter we first up margins our several guidance, on and set and factors were

I in negative and quarter, sequential as margin the the on Inventory inventory issues was also due as a and but the said to including first million. of contributed $XX around lesser change transition factor market Diamond two sequential Chain a quarter expectations was below a impact performed ahead was the The This Diamond degree total of plan months. tariffs. of impact acquisitions for variety factors for was performance a to

not of for but was Some industries. this material negative it the Process on all expected of and a sequential margins was

in For segments. April acquisition primarily and us. of we as believe sequentially in we have the unfavorable Price mix had the much third had better than pricing May, better synergies. that change was noise some sequentially. do strong and distributor transition to we expect in not cost we mix and we negative ownership each see of much for and synergies was And we strong long-term very adjustments from the value quarter the creation quarter be Diamond unfavorable June repeating behind cost see within still the And the the channel

was And intake the of were primarily limited full and second the second on X.X% impact order then noticeable bigger quarter wasn't We half. for factors to relatively is our currency. more intake negative saw then us softening in of highway in the across year. our but are markets. but all which top outwork small and rate drastic, currency forecasted widespread to makes the it for sequential results, or the reduction. markets finally, but by through factors cautious quarter, And Both the order line not It

the for similar increased the for our On on heavy balance remain year for and of company markets, of while quarter. of distribution and we in The growth marine. organic And off second organic similar net the the growth our year. digit we of outlook general we second we low single two outlook to see outlook. year our industrial deck, decline six slide the second also Mobile industrial planning the in the quarter half for results comps. easier on segment truck, Process rail for in wind, full Staying in market to the slightly highway, the are organic to reduced revised remains the outlook We the

well years, in We to like through solar the the half opportunities three defense half half strength outlook mixed the we're of marine, and environment presents. demonstrated year revenue see aerospace our highlights and some the and mix does experiencing of the into It that continuing it decline advantage markets of the seasonality. second revenue the our our six regards that market and also Slide market first not the diversity in grow end the last in not XXXX. in organically from longer we to XXXX. the anticipated second imply is as Also have term will normal we wind,

year. year. that line, second price price confident we the the for basis in bottom will remain cost experienced margins full for that be will be We earnings points of above On And are as similar sequential planning quarter, last the we XXX off positive positive.

direct the continue tariffs. We to mitigate of impact

demand concern and markets remains end having uncertainty. big area of they're a impact indirect in the on our an Although

And of you have initiatives of out We see a reductions capital growth, and drive very self-help activities active those our working impact margins the and can to and revenue flow. pipeline cost cash improvements.

margins from EPS our implies The basis last approximately XX.X% and margins EBIT with full XX% up midpoint year XX% would for up points XXX be of record of another year guide at Mobile full XXXX, target the $X.XX year. from a midpoint of for Timken. new

shares. in completed through working dividend, good expect year. half of a quarter on the We Diamond and cash acquisition the have focus strong and continue quarterly in allocation the we balance From addition the the of Chain standpoint, performance capital flow capital purchased second our XXX,XXX in to to

opportunities M&A. with slow see value Diamond to creation we Despite start from the continue

cost were recent company we of capital year-to-date line EBITDA at opportunities. investment are and the return are to the building slightly on stronger and with technical on course average accretive, of Our more average line. and the hurdles company ahead package at the acquisitions They EBIT performing their are ahead achieve a commercial,

expect sheet. value maintain cash the creation CapEx to with We dividend flow of opportunities and cash balance for in XXXX the And and we payments. all well strong for for our that see a buyback continuing M&A, to year and while flow through to be continue excess balance excess needs

to balanced growth, out the flow approach current take driving continue Looking year, and cycles. to through cash a we returns industrial margins, beyond

mix, product provide continue to expanded grow approach the capital our properly the to diversity company's our and operating Our model market our power. earnings allocation portfolio, to opportunities of

to our structural that mix of profitability Process significant industries we've indicator in one expected than that revenues highlighting made shifting rates, to portfolio the the flow, company's portfolio, be execution the time worth of company's the is mark see This financial will we It's margins ample and and Process industries of growth and opportunities has and company. higher to advance XXXX changes improved the first the results. cash industries. Mobile continue to

I that over will to and the detailed turn outlook. the of now fill quarter additional it

Phil Fracassa

everyone. morning, Good Richard. Thanks,

on Financial Review And this quarter. to delivered results on I'm the our Timken of a you materials. the can start slide. slide nine see summary a going second strong For of

XXX expanding share EBIT Adjusted about per or the Revenue with came million quarter up record came a XX% margins second in sales, last for and adjusted year. at points $X from in from at earnings XX.X% up new billion, the XXX year-on-year. XX% year. And of about was last basis company for $X.XX

Turning line growth about quarter markets translation Process our stronger several most added X.X% segment, the to performance. a by ongoing revenue and in XX, and look in sectors, at of with headwind growth the strength benefits across currency US and initiatives XX% a about our delivered second industry the let's sales the We quarter closer X% slide of take reflecting notably our organic plus down. the affecting Acquisitions net due negatively to positive top pricing.

both we slide, currency growth by acquisitions. hand right so side the outline and On region, excluding the organic of

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

in largest by up in higher as Let shipments by shipments me In North touch automotive America, lower offset aerospace well in broad we mostly on X% were Process our region, and highway. industries, led each briefly. growth as our

contributor up and partially demand as were we X% In shipments shipments were heavy And as growth we energy, America, X% offset we partially by in offset by sectors, Asia, rail. up in saw wind being in Europe, in offset mostly In with we in several truck. heavy distribution saw modest the in were lower automotive distribution. we industries, by lower up X% lower across Latin continued growth biggest rail strength

million from from adjusted are XXX had the in last our higher slide with margins we XX.X% or margins quarter quarter recent year. EBITDA EBIT acquisitions. Adjusted last Note points year. points up sales from expense XXX to XX, Turning that of XXX in year-on-year XX.X% basis amortization was up basis the

drivers main on change the price EBIT, were the acquisitions. briefly. the me benefit let of But touch all and drivers at favorable the in Looking mix

was impact volume modest the in quarter. the growth volume organic modest The given

positive mainly XXX the and is of positive points we for issue. Year-to-date, expect guidance prior year. I basis pricing Mobile positive little the this industries in As was mix Process, more quarter. In price industries. Process we than but higher in with segments, in distributor mentioned, timing positive basis achieve our quarter in quarter, XXX the a of we've was with adjustments a pricing which line Pricing in points coming price both seen had to full

was pricing mix and core. was While hand Material headwind in the in the a other logistics the headwind positive, slight tariffs on quarter. includes and was a

While than again Overall lower quarter. positive planned, tariffs as tactics tariffs were are in On the in cost negative once by logistics impact second up, offsetting offset this was we pricing. through costs. more mitigating was the mostly price

was the production a more slight productivity than our by the and which operational controls, and inflation. performance of in lower excellence cost cost Manufacturing offset positive of benefit driven volumes quarter and strong improved initiatives impact the

You'll organically quarter in XX reduced note that we million. around inventory by the

acquisitions And of We and essentially well, our other as the finally, offset period, versus cost EBIT in spending flat impact contributing was million quarter net XX quarter. recent by was expense ago continue to expense. and SG&A a in adding of year excluding results, our acquisitions our manage basis positively a to inflation on lower the SG&A are compensation currency the

amortization. ABC acquisition and Drive, And of the net on a well Cone forecast XX% after adjusted and EBIT Bearings of represents accounting that's purchase our revenue. are original in performing aggregate. all Rollon That margin over ahead

remain mentioned, quarter, closed As the drag and Chain and business slight April the we with confident in in Rich a expected the synergies. Diamond in but

accrual $X.XX Special quarter XX, million you'll an $X.XX income see of per million per after roughly the largest XX% acquisition matter. slide X quarter basis. items totaled on share we XX GAAP and On we earned from the being share items legal posted tax to basis related the On a diluted of related up an net last in adjusted year. that a expense with or for charges

in GAAP rate approximately was tax quarter. Our XX% the

XXXX. maintain Excluding around to tax down a for the and just last of was we special XX.X% XX% items, XX.X% expect rate rate discreet our tax year, adjusted of from an other rest

Process wind year. X% a sectors were heavy and million take in energy, led with Organically we positive segments let's sales starting Process were with pricing Now the by look business from the benefited about growth last in second or across XX industries. quarter. our also several industry industries XXX XX up and marine from up at over sales for million, XX% quarter slide

added unfavorable top was the Acquisitions currency almost translation over line, X%. of XX% by while

energy more the Navy. had the and slightly bit growth with mostly from closely increases our in notable oil In on growth markets, by saw was an North distribution in we US our a with Europe, we industrial and weakness higher And the at revenue was up industries, Asia. Europe. Looking we additional in North in long-term marine, release America quarter, partially heavy in America seen in and saw wind In gas. and metals Asia, contracts offset finally, growth in as

pricing higher SG&A by dollars basis sales costs of points the partially Process or adjust EBIT year. industries X.X% acquisitions favorable our EBIT million, driven benefit of the XX down to volume, higher sales increase the recent accounting Process margins For offset quarter The of higher and XXX industries of million XXX were and mix was purchase in amortization. was EBIT year-on-year XX.X% acquisitions, million and expense. compared XX EBIT by was last tariff by or XX driven adjusted impact

planning industries sectors outlook X.X% current be total. led about the energy across in XXXX to we're XX% wind with up increase midpoint Our Process by to XX% growth most is distribution. sales and for at to sales industrial Organically, for for

to XXX and industries be EBIT from the cost Process for margins price points for expect We positive expand year by XXXX. to roughly basis adjusted

by second on just quarter, the growth well automotive sales to reflecting or sectors, shipments highway in Organically, translation from X and sales industries were let's the Now industries the year. XX. million pricing. the X.X% the of slide currency while added XXX was and X%, of in around impact In X% heavy were Mobile in as quarter, X%. line offset Mobile up million, last turn down our by over lower top unfavorable truck Acquisitions mostly aerospace positive as over

In bit more and truck Heavy in our a in higher America America. by in down markets, was North closely our the was North quarter growth growth declines automotive, at driven related. was defense the Looking in by in aerospace driven highway in Americas. the shipments was the declines our sub were Asia. in North we it and offset in we the by flat in In quarter in down construction with roughly and mostly And sectors. finally agriculture gains Asia rail, America in were mainly

Mobile industries XX in pricing, XX industries positive volume million EBIT and lower year-on-year. million up margins partially reflects logistics quarter. million Increase was the were offset or year. by in lower points EBIT Adjusted last of compared of mix. basis EBIT sales adjusted the or unfavorable XX.X% was acquisitions XX to XX.X% XX Mobile and of benefit EBIT costs, sales

offset the to X% lower our Our highway by roughly heavy outlook at compared midpoint we're for includes and rail, XXXX Mobile X% growth for XXXX. be sales in and in industries up Organically, to to for to flat in planning sales is truck. aerospace down total. This about be shipments

year. for Mobile expect basis positive over around EBIT be And price XXX adjusted margins up We we XX% cost industries to or from points the expect XXXX.

the reflects we XX, cash operating XX last higher slide see flow XXX After quarter increase which our cash around improved million, to year. free free the versus strong of and cash flow spending, Turning year million from capital up period. flow in was during quarter. XXX The was working you'll million second CapEx generated earnings ago

the XX. Diamond to EBITDA XXXX and the acquisition. forma June ended that's around Down We times after was of strong the balance adjusted a Chain Net sheet. with quarter two debt end from at pro

the of in items to these I on so slide. this move respect some interest time. Rich see can will at most capital highlights bottom of already, covered of You the allocation with

the now on with I'll summary review outlook a XX. slide

midpoint. in We expectations. for X.X% year. about Richard and versus and for As pricing And revenue markets earnings and to increase strong positive expect to current wind and in we including indicated, We're solar aerospace, momentum in our to we've to the sectors, expect both XXXX the up we sales positive be planning sales year. last at lowered outlook X% several see Organically, reflect for our X% total fundamentals energy.

cautious We're add other June line should year. including This truck. April year, our taking more on heavy translation about acquisitions for on the And on currency expect XX view the rates. some Diamond Acquisition last markets, be exchange we top X% X.X% to plus a and we the based highway includes Chain closed which closed X. negative to

diluted to GAAP our $X.XX be will range on bottom and performance outlook a estimate we of our earnings the that line, for the year, per $X.XX of based in On share the year-to-date now rest basis. the on

Excluding $X.XX, from per adjusted expect expansion we of to the points corporate in last $X.XX the record roughly up The be our year. XX% and at special $X, of which XXXX the totaling adjusted the after net amortization from charges would share that's incremental level of implies margin anticipated XXX midpoint around acquisitions. at earnings expense midpoint range basis outlook EBIT

very free XXX about And we'll we or GAAP net million finally, estimate strong of flow of XXXX income at that generate the around in XXX% cash midpoint.

flow cash expect improved unchanged, is performance the working impact essentially as Our lower capital to guidance offset of earnings. we

a was it summary, strong in quarter Timken. second for So

growth XXXX. record And strong As half. we delivered we the in flow modest earnings Rich expect expected said, in second free and organic cash

concludes remarks Operator? line now our This formal we'll open and questions. the for

Operator

first [Operator from Instructions] our from We'll Stephen you. Please now ahead. Jefferies. Thank Volkmann take question go

open. is Your line

Stephen Volkmann

Good Hi. morning, Great. everybody.

Rich Kyle

Steve. morning Good

Stephen Volkmann

little bit. we can Maybe just talking start a

here. out to that revenue is EPS. in maybe and parts down going less what the million that on look Timken of would look you're there negative of are leverage is terms people in I is lots numbers guidance. going But makes of giving of numbers figure and be sort appreciate lower $X.XX a your there's be reason there's regard forward? something of than it And like trying the in at I this XX lot less guess the given the great. new is worse of think at of moving here that Timken terms stock you're sort should I leverage that special in should it Any thoughts and And appears

Rich Kyle

that was over me. come first bad quarter our our guide quarter you margin leverage as guide points, and leverage – the our think start second a the in XXX And It at It a quarter. to first after second old the I the but quite the remains was guide, Phil I it's expansion expansion the quarter. I'd XXX. we prior good in year is the it indicative a first a the XXX the we ahead into think look poor, ourselves was on in year was was the was And basis And quarter said, after I'll half. the margin the we and look good heading if quarter got good. who more you probably of let a guide. we prior are is And as little it second – think Yeah, to think we of say outlook.

want you Phil to comment? So

Phil Fracassa

yeah, the there Yeah, only as of pieces think indicated. add, couple I there thing in I is a would Steve Rich are

sales around you're guide we took right, X%. So the down

it you or any reduction a said the EPS you really million-ish ago. decremental different down two of a mix. And look a guide of then in the there. we on at roughly of the if if mean, we So provided base quarter, of had for that the And as Probably just we business thirds it I that second adjusting quarter to quarter two probably revenue call the is as in Rich margins first amount, guide, pieces XX really bit would guide slightly that is the I as move same probably the down midpoint want way. third think the to will imply

that's left, As moved the to a on bit services our off other we bit moved a adjustment anticipated. a saw market inventory drag take that outlook, bit standpoint, business the highway negative to a from we we to no left, out. moved to a Obviously, we little from you little to And we a than bit little probably of the distribution continue was maybe more standpoint. little left, next the

they're and the the the a mix, Rich As off through guide you we from look normal of I second And quite second quarter the of I forward. more second pricing and indicated, a organically particularly strong if reflective quarter, off the run but the we're getting, rate think half year-on-year an and the our first that. quarter. at looked we margins mean, as little at incremental mean, first year-and-year, said, are exceptionally I going is And the we even are base with probably got sort good, actually

in baked had quarter too margin little a a we bit much think I ago.

Stephen Volkmann

I other distribution we've then, past maybe Okay, what distributors just And appreciate in pushing at back that. Because seen and terms start they seeing you all up start are quick industries your right, least in of in on can business? weaker, Thanks. the some the destocking, pricing. get follow things

that I prepared term But or part kind us hitting near of issue? think mentioned is things what's you really that remarks. is not of here might an have of in those both your

Rich Kyle

reduction would what significant And seen. visibility Western I No, factor North outlook significant highway the we year. some second Europe, saw be a factored for obviously, we be there the QX a in the second us where expecting a for you in most. activity Through the have we in the been taken destocking from half, to have say hit also that second weaker business part has off into outlook half know we that deleverage destocking, for are in which down revenue second America to of say the destocking the sequential where it's have that the have factor more it in not quarter half. and do a than basis from on as the of Certainly would channel of liked to QX mixes margin. up. to have the the global definitely the I is And in we would And distribution we

Stephen Volkmann

sure Phil, of normal decremental, Okay, make get assume you XX% said XX%, want I a should of right. but think great. I then it to sort kind this, a just decremental? I we The And base as

Phil Fracassa

I a down I guide was the in I probably third the and that. of revenue was was business. Implied you quite incrementals I on implying year-on-year, No, of think down, what had But pushed we the when other what the look was guide two looking at I mean, sort think – EBIT thirds good. base the are about

out, their the not anything come to implied if So look all like as year, incrementals I that, much guide are we Not just indicated only also the in, guiding normal what, decrementals take that acquisitions good. just think strong. in incrementals lower organic, for the quite or full the really in but exceptionally guide year, the trying you and at to the out Rich then point implied down are which the and

Stephen Volkmann

Appreciate Okay. Alright, thanks. I'll pass it it. on.

Phil Fracassa

Thank you.

Rich Kyle

Thank you, Steve.

Operator

ahead. We question will Research Partners. Vertical our from Please go Joe now next from O'Dea take

open. is line Your

Joe O'Dea

quarter, I got you Hi, the industrial good full distribution, think mid-single year it was digits. Sticking slightly on said morning. the up you've in up

so any that what bit or perhaps And view context is any around what contained the we other whether second that than of just there. in color half a little back destocking saw a better you and was quarter,

Rich Kyle

Europe, And we the up by in expect for distribution a half. half down versus the second the you sequentially, second a off half digits Europe up do the to industrial second single it But but this year-on-year do up, first right about last was Yeah, again of quarter. distribution We to Asia second be we half, slightly America, first half mid-single and year. up I still think have digits. weakness have North comps that in in were be little was had low offset bit again, by we

Joe O'Dea

Okay. to comment growth into down year And bit little the backlog don't of attached the visibility a about then a and much the and we from with could organic the the into half you about of end of when level of back sort the XXXX, see talk still you of made that just in year. step in XQ a through and strong then comfort the solar Process to – marine aerospace that,

near like a growth what so the just And over looks term. setup for decent pretty

Rich Kyle

of and those definitely larger that most rattled backlog. are Yeah, longer are markets have off markets I

backlog quarter is rain. would certainly first of I year, this when for same from the and through say the next So the point, the strong aerospace same at

visibility, not market are As the the the working scale. some time shorter, similar good. and then I'd case. lead lines some solar, we've much to a there. confidence dynamics you say smaller you but trend other, that's It's There's our get look of been good, at that is into And parts as in

certainly position As in to beverage and the you industry again robotics an help market that But truck. tailwinds and those And would look at will and we we're the seeing the off. backlog small have off offset trying rattled I nice on some what we've been some of build in the trend lines food ones have are that in and don't good. order that we think heavy got highway we've

Joe O'Dea

you. Got it, thank

Rich Kyle

Thanks, Joe.

Phil Fracassa

Joe Thanks,

Operator

go next David question from Raso now will Please our We ahead. take Evercore. from

Your line is open.

David Raso

the One The of update I Hi, Process gardens? good margin clarification for missed what's guidance quick morning. it. margin if

Phil Fracassa

to XXXX. about for I up expect we full points from be budget would think basis year, the Process Yeah, XXX

David Raso

you. Thank great. Okay,

in to trying leverage things the that where said Just roughly more, description? understand – came fair revenues bit a a is the question thought revenues the seemed revenues. second you Not the much decelerate, as but that it the you like as orders, little quarter

Rich Kyle

the the we guide to up there the we strip give lighter. wasn't think Diamond say a lot of first little QX to I second a would would quarter from quarterly quarter guidance. you don't first quarter. But whole – we to movement Again, typically a step if from I the little No, see And revenue QX. don't a out, from more of

slightly I'd with So than our would you what say normal see seasonality. less

David Raso

maybe it to quarter some to million, figure of quarter, seems was second quarter XQ, full of only number. – were margins XX if half know million, the it in XX a was kind But was think I we taken XX to I'm the to at supposed this That it year on second that used what baseline. means to guide, million, the the be revenue guide another and XX cut like plus the XX hit year. is, least half. XX two EBIT think million EBIT similar of million trying Okay, of was was only the so million revenue like the of And took, to call first the XX like I million think out the seems year of I don't of of it second full out when second there's you

So the enough. incrementals still out on EBIT again, do here. I'm is I out second a to half the but half on look for what the just on take the decremental And leverage took severe appreciate understand seems margin – revenue of I reasonable, the revenue you second inherent year-over-year trying the degradation. apologize. significant

Rich Kyle

the that the say Yeah, the second to would I but case, absolutely is year. or prior from quarter guide, the

second Phil So sequential again, performance good year. year. it second the of the said, was to if pretty And last year's you look up up prior it pretty similar looks quarter. off off from as looks quarter, Last the incrementals

quarter. but not So the or prior correct the guide, necessarily off second that is history of off

Phil Fracassa

on try maybe I help little Yeah, and that a as David if well. bit could maybe

that, some a I than we quarter, to adjustments, line second what got remarks, had had more his little a quarter of to So margins from we still second Rich pricing, they're than up flat if first was probably the then bps as expect upper we anticipated. normally it less indicated to we higher what did first while out we and quarter you XXX right, quarter. first vary revenue And look you're And the think which of in quarter up expect or distributor a do factors amount price on can to of have the little at a adjustments but again, to couple EBIT play, normal. the

a think change I run the Chain it of ago margins, sequentially, then had from of the you we second In the was the the well. Rich we as base rates in as two at really we we a guided was I in felt an And side the bit guide, that's the XX well a rest And carry on to of the again, et if quarter that a the did margin that out second looked was Process the Again, of a sequentially, lot on into was then impact from a of inventory second components, And lot which mix in then little as was cetera, year. took quarter negative quarter little will, it quarter, and bit a the thirds adjusting slow what mentioned, good a split and be EBIT year all in with revenue in the look company on the the on full house. if first that hit two split to third coming impact guy will decremental as and particularly Process, he it. to obviously a that layering as said, on Process, you normal down, to one it Diamond probably midpoint. total at then sequentially, factor, on second, million at the had if which would you

David Raso

Did Mobile your guide a though? was than the most margin, higher change I XX, Process. was did it the essentially guidance before vague Did of kind Mobile, mean, at first on of change? cut like And up margin margin

Rich Kyle

that hitting It XX coming again, Mobile the on quarter of now again prices be more we're in came above about Process side. with well. to then lot we more with in and it XX did, talked that very volume than we around as price It's coming and I as the the right all the in adjustments Diamond into and We probably guiding very, see you're to But well some – anticipated as were And stronger distributor to a I little slightly. changes, it. are to a probably of thought and think helping thing. Process of relative down holding pretty we whatnot, in acquisitions margins expect did played sort ago, things a the down strong, Chain margin above up bit particular, we well we

David Raso

seem no color – doesn't would revenue customers just your of million, tweak. modest your again, sorry, that such cut. at telling into big you just small I a are just for degradation it's the most And trying customers walk customers it's mean, any kind I just think don't reduction, your there just It XX them revenue a inventory inventory I there's if in related what adjustment that understand a inventory, number. Any when you relatively degradation all I'm great. modest on to business? the to million in inventory from retail that's or inventory cut. I'm that's like of a And it's reduction, describe cuts. sure only the accurate, reduction, revenue making mean, revenue we revenue that XX

Rich Kyle

and tweak see of that we would market. pluses in I normal minuses that estimate best say true our is of the our our up

there's ups there. So in some

outlook we rail down rail all million. I'm win look the in But XX higher started sorry, a was lower a within to for off from the million seismically. up IRL year up XX much than of to highway quarter. for second we for that where have moved off or highway we outlook So from certainly down

we've highway off variety off is be the destocking little within the bit more downs including think off So we that been of mild the destocking exception but some where a highway on and highway. to going ups a there's with most, of

David Raso

that of add bigger or looking aerospace outlook. company three to Not for months had the a and Okay, ago decline, businesses in it XX% would than like a outlook better be almost maybe a wind day but better even revenue the of offset the sounds other dashes avoid almost little end plus that? actually quite, your at you million business that you're up of XXX if business, the least rail, at

Okay. I you. appreciate it. Thank

Rich Kyle

Thanks, David.

Phil Fracassa

Thanks, David.

Operator

Please Morgan question take our now Yakavonis Stanley. We'll Courtney - go next ahead. from

open. Your line is

Courtney Yakavonis

thanks Hi, question. the for

guidance margins of to Just were a bps an up Process year. the at on about cadence for the year, the are going that basis be sales XXX lower given for organic this back margin to remainder expected and quarter to in down

puts to year. bps to the Just back that to XXX work wanted get to what you takes and understand the

implying still And out it's I Process. think had I some margin quarter also last SG&A call expansion in some half. in back increased it the think

to just comp. with talk some incentive I you offset business did about overall think lower So being – wanted flat, SG&A understand, the

margin wanted in So that's Process how [ph]. to between understand just the differences

Phil Fracassa

Courtney, Yeah. question. thanks. great No,

will expansion we we of half. into year. year expect And in based based year, to the yeah, year. put XXX from of were Process, slightly in rate roughly the of points half through year-on-year and will from us the some stay – that sort do margins full be growth that quarter, move the move up So hit run obviously, on and Process, really we points said, range of margins the year. items generate we half as on of for the the below again of adjustments, to the recur, don't believe And that digits second here, through we in quarter it's mix basis in of standpoint, distributor which all I what that expect maybe on that price position have kind XXX incremental us helps help does the particular, we that obviously half an organically of And the a good margin range. obviously would in the be to then up in should the second timing, we move will back that's the for to which We us but – of rest second the comparable as we imply expect do that basis back expect did to second in the mid-single

Courtney Yakavonis

of you'll the some Or quarter, that quarters, anything cadence? it you can from fairly seen given how in the the headwinds there is two help is to us Diamond equal But respond? second between margins you'd see the sequential understand

Rich Kyle

which and Phil but than to we things and half help flat had from other some better we're help as it's, in would expecting Process the obviously, I performance second us then roughly will we think think Diamond, certainly said, I also Well, second like us, quarter half. it's first for

So the to you in points but again, there's for half. XXX there, need some puts to year second basis from flattish first get to half takes and full

Courtney Yakavonis

think in still to the just higher have you. being that got were down And then, Mobile SG&A, comments make just SG&A quarter on the you about Process, I expectation. last to in on so continuing still Okay, and wanted talking was sure

Phil Fracassa

Yeah, the seeing very so that where we're several initiatives of still growth we business trying to– solid SG&A, hard we're of growth our to but are in obviously targeted are Process sectors, the of business. part working organic is part still at the control most

higher hard there, just given on kind we're Mobile some working side, we're that control segment. the have did spend to in of at, it we where So

just currency some but up was and acquisitions combination a in corporate sectors to out distribution were two flat, Mobile. down given a bit globally. bit, offset obviously, of bit was growing So Process of little a the the we of up wind that a mix – the attractive and Mobile on like little bit. little in that us roughly is Process, you got a take the emphasis unusual, being sort and not those if little down

Rich Kyle

and And largely Mobile, Process leveraging splits Phil both average. up as levels with company the largely SG&A question are is very if around than largely we in driving remains we're I little the and that Process back good. with holding while line reductions bit Companywide, and a acquisitions bringing come higher come the reducing in the well. And was company and SG&A synergies your down, Mobile been – are coming indicated, across mean, that we into revenue. basically is the Process, so the have pretty The leverage

Courtney Yakavonis

Okay, I finance. thanks. industry of just then lastly the places that's raised And think you on rail, one where

softness to was some you've second quarter, just in So the about quarter the flat. probably at least talked – understand second want

half related are expectations flooded for last and was your balk all whether to the what the that facility it's So quarter.

Phil Fracassa

our in more as new enter products. tale more America mean, And Asia think very North particularly it's okay, to Pacific the way to I markets growth but continued at rail if in region. efforts in of North in seeing sort push doing in flattish. growth a with past – the We're continues two I'm the this cities, flattish, India American obviously was of look the kind seeing also I Eastern business quarter. it will. Yeah, we our of there be Europe we're to is is strong you

the move better. think we got So I a little as quarter, bit everything think through I

kind flattish And I and advance. Asia of soft being think it then to now. were quarter it's ago, looking North America, at we Europe a continue

So of at the point sort globally, mid-single now year, full as the digit a we look we're business at for

Rich Kyle

working I year-on-year would of penetration that those very again all for year. Russian by and driven really net several really on this to, is which Eastern and the is European we've our nicely, market, of driven, been and the positive of self-help performing it's say the our Phil about just years,

Courtney Yakavonis

Thanks.

Rich Kyle

Thanks, Courtney.

Operator

from ahead. Joe now Sachs. go Goldman take question next Ritchie Please from our We'll

Your open. is line

Joe Ritchie

Thank morning, you. guys. Good

Phil Fracassa

Hey, morning. Good Joe.

Joe Ritchie

you few for headwinds just quarter touching margins you've quantify for a the if quarter. maybe were on reasons and given again things. Process was of So some could just wondering some why there this those I

drive expansion. that distributor So XXX bit then the in price in about again then change confidence XQ in margin Diamond and basis you will a just talked things adjustments, Chain how to little XQ, those points

Rich Kyle

to and XX. closer be Well, would Diamond probably I'll then in comment as them like. Process as is of on came won't I But that at specific zero you'd tell you one what

of education, happened wants step we Phil the it look lower expect anticipated, And months been we we planned, to knocking healthcare of at expect months, and pulling you and of of the the that in we see sorts it's some it's things qualify any better quarter K the to mean, than was first from in a so we're come XXX in really the saw park, I improvement I third would and mean, sequential that, switchover would it significant. a the first to up have off people of XX. but was two significant lot floor and at that be June as things year I'll what came have doing the and out it that expected again, of of in didn't certainly So for in few all we others.

Phil Fracassa

I I all and XX% No, of detail, the points basis and down year-on-year we but don't think of we implied incremental ton stuff, so would – say margin, which Process into a an of kind typically in what were go that don't we on Process. some year-on-year call XX a

that excluded normal, And been modest typically have good XX%. acquisitions, we so be the in we million, was typically various frankly, been in it's smooth XX Processes can the currency say, coming in these would But we've growth, did than quarter. to were the of tend in which kind got half the pricing do. but reason higher the around the been the vary. we XXX two incrementals of normalize second if north more a Process them throughout back a were organically, of pricing not was kind are, The that and volume And distributor to positive – then it's of a a the into And company. quite maybe across margins Process but organic been adjustment, I would the have and up running. we've where coming base Mobile then up. no components, we of is and price And we year. bit organic and into In adjustment margins would little quarter year, have solid, the they bps what in size rebates expect other year, the quarter they mechanisms, but got Looking

time different we – in, than we the just adjustments a still came anticipated. coming anticipated those believe So through, they frankly, quite in we

expect in year-on-year and delta a was was quite meaningful to that inventory we the was sizable well. So the quarter. as then which Diamond, Again, improve headwind as

Rich Kyle

Process industries that Again, organic, in, with did points the margin, did I good. XX% to degree pretty with did it's of we basis reduction grew that did we're about we that in that margin. XX acquisitions, we don't that talking outlook, the we with so we make the but And the with we excuses capital with going did tariffs, stocking and with investment for

Phil Fracassa

in definite were year-on-year of we on the more Process house We're impacted than tariffs significantly mean I are side the question, tariffs no with headwind. Mobile. Yeah,

Joe Ritchie

things thoughts so is going the just maybe I'd kind negative how perhaps in guess, the growth the cut feel on reduction the of love to what investors the And just what enough? outlook about this Got it, about thought helpful. back enough you inventory saying? do the wasn't how that again, year get of – on today some on the one side, the that your organic is the from I channel, are half follow customers to some think you to that's of just guys into it now, like you feel Mobile, heard Mobile back if I particularly we've on on based

Rich Kyle

of looked at we kind think market. by I outlook, market as Yeah, go we Mobile

is market If a you truck on light global look premium more the bit cars. focused there you and North at know we're automotive little American

we that be there. a about terms – it's little the I like little The didn't are builds Timken highway. being that's flattish off tends we think And business So But wild market for the order But we North book we more feel that into difficult is rail, be predict most card talked of on the we cycle, being about of more because very again, the where bit anything demand did down would move visibility aerospace market and And the at across and ours from is their got global American talked move a think there about is fragmented question I there. to the they back and digits. one to that if have rail, though, the earlier driven to Timken. to may that feel good standpoint. of quite very in good for situation to with the a construction they've world, made agriculture a to move date year. single more half down one out be in what about high the I end it come at customers given high and And we bit it to the mainly single our it need the be as sense, we mid-single digits, to least, that's exposure from upside solid move than the but X it outlook digits. that's where longer And really did flat it mean, anymore. tends then moving felt bit we down of feel truck, Heavy Class

So sales what look certainty, you our we it, like predict do our got We know, And like, at we feel our us what with triangulate we've telling that's point, and reasonably well. inventory order book, It's at telling always at this guys look adjustments at but some to saying difficult feel realistic guide. we as built what us, customers are feel least publicly. are we they're in.

Joe Ritchie

Great, you. thank

Rich Kyle

Thanks.

Operator

We will Gilardi now Bank from take go question ahead. our Ross America. next from Please of

open. line Your is

Ross Gilardi

Yeah, thanks, guys.

Rich Kyle

Good morning Ross.

Ross Gilardi

just auto, been comments the adjustments. and I you and of drivers a on but on so mean applied mean, margins I Phil, forth, morning, but made there's of ton Good question. questions heard obvious the and some Process that's your kind I outlook,

just auto production that of year about low is you really quarter? how North that's America on relative represents that is to You market going at you least truck different think and a inevitable So little us date. global to to that performing kind you're just and it there. more I cars. global didn't light can is have appreciate that roll auto I I mix. to customer kind trying And eventually mid-single cut digits next of understand give you addressable thinking on mean, downside But And bit color you're you? to down your just of over how if premium think market

Rich Kyle

take that one. me let So,

you very to schedules the those we in. trucks, a we've do those And will long are quickly. significantly. mean, certainly But it been been the than it that we it and better in is have the it's our not maybe got be baked And the hasn't of absolutely market right, can half degree global those slightly have results we fairly solid negative You're visibility, got do And decline we've to global numbers. from see trucks, market there our in commitments second us – competitors' all Ross, engine, automotive half weak. first the is for a numbers much a sequential more alter growth middle the I where build but they on

for Our our Phil the see much numbers And that Could we're of that. always as and of I so? numbers we're applications markets – right we than little out there's on we've specifically market. into But in little we peers the baked are top where at negativity it our on of of are more into said, second bit would say Yeah, these industry got risk mean, baked negativity bit serve that trickle a what mix, they're it. half. a that in better I our coming with the threw

Ross Gilardi

for why not of content vehicle half I in you're some year, in or just or know have is just mean, on. platform to better, of you're has got the nobody inevitably do growing why platforms that be other that want that that – visibility but second on you are are assume performing I Or the niches new that market? you with just you get because the the you else rest some weaker that

Rich Kyle

are have come on that – new. year have we do this some We some platforms had

more a we the for it not in self-help But was year-on-year is to growth despite would half, there mix a is was element also point, headwind of the going say some an it for engine So self-help. in. the market big back that are in like Again, I of us better. – it there. wasn't sales first again

there. conservatism So I again, of appropriate an got we've in level think,

Ross Gilardi

referenced weeks guard off it last also more mean you is are I Diamond bought a – I better. here, of that. initially mean, that give bought were little helpful. Okay, you bit thought it you comfortable out like That'd caught little some gate like be Chain, you the can issues, on transitional you But and sounds sounds of what you were a detail you how and bit couple if

Rich Kyle

what agricultural market this not think last bought we years, like acquisitions we've growth a a with of we bought over we margin take in market North again the that the American to some good position, was thought after. of And exposure high channel of operations we also of bought Ross, that I bit machine, we brand get the a couple think reduction done to in time addition their other a really we position where tariffs. a and some did bought cost between the most good as a distribution not opportunities has little business to operations exposure our lot with market, to are we bought and and going

going headwinds. and to about continue we no, now, regards So year expectations a were be to have two knew teams. certainly and from we've the again, by integrated those I But good fairly in there, the time it think I on mean, where will low management deal, this we acquisition the they're we things, close was. feel And already to

cost quarter. sales also in third forces. obviously, to other that. there's So going we've cost savings And some some that. they And you reduction quarter. team, that there's churn one and We've opportunities. integrated through churn at we're had from going that management a some obviously, And there's be integrated, now And in go coming there's as be we cost products and that had that the the looking do from in reduction

Ross Gilardi

Got it, Rich. thanks

Rich Kyle

Ross. you, Thank

Operator

KeyBanc now Steve We Please ahead. from Markets. our from take will next go question Barger Capital

Your line is open.

Steve Barger

Good Thanks. morning.

Rich Kyle

Good morning, Steve.

Steve Barger

about comments normal Rich, since you this I guide won't to some said in how the you've are that of know on early what seasonality you next you open next doesn't door, sort and imply said half year XXXX. that thinking degree grow down year. to today? about based reflects that it's But your talk second you about

Rich Kyle

at I have you reform. and pretty are this open this would 'XX in I least would tax really then I say, at saw least another one, we on think Steve, markets and year. that with some run market think tough Well, door wasn't that that I I thought comment through 'XX toss plus with the but year typically that intending to we – have that would

I situation think with the dealt to tariff is me has it's dealing a Everybody's it. That with now. everybody getting risk. old been year the

term, don't there's think with year. plans of some if people firm of get so we I on risk easing, get that next longer the sort calming that

months, if we with forward I could the next think that. in few move

for year. pretty next a make case optimistic can a You

ready not I'm to there. So go

Steve Barger

or next if to deals base maintain ex acquisitions out enough future revenue completed margins sight think? there that is you you flattish grow cost you, year, any of were Go the from business could still line take and

Rich Kyle

a from got have spend Bearing ABC CapEx our we We and Romania, done have optimized. these of low We with we Europe, the that China, a some had cost with productivity capacity as in would of for of all facility well. we've in lot our in is the hoped last day got us than and less a of is we of well but a Poland well. self-help day acquisition in footprint, India, much them mentioned cost year, a operation fair and on got to than Diamond to integration year this rail all cost far we've lot. activities, have and to got doing serve amount digital, automation, got We've pause of lot is brought Drive, the the The happening elements we've world. got expansions lot Romanian And very doing better Russian happening operation I and what things a is little

Steve Barger

production levels that mean to major Understood destock conservatism? six say the the across on said does forecast. the mix a Or in But you you no slide platform? change factored in in some to reflect you're facilities did you step reducing significant down

Rich Kyle

distribution, And those cases of structure sizing plants lot some are same are of same those that much of ranges, better have have size right in made But cost for comment in variablizing variable are completely structure I'd for with little the at most for numbers gotten an those the there, we'll we've really we're where our highway responding of highway that definitely in off whereas We lot are our with certainly numbers believe some of significant in have step And operations. And destocking a said Phil do off shifting second plants market. and a and rate end what and generally destocking got we're and our us don't lot It doing well costs. seeing a which think aligned the heavy plants sales heavy destocking. bit destocking, downs. cases we content, cost playing not it we a customers we truck and say it's with to your to that their half. are on more below of just the we a that our I

Steve Barger

distribution last can how big the and And doesn't adjustment was? say repeat? that Okay just us one. why you pricing one again, tell you Did

Phil Fracassa

give would pricing which we it did We we detail. would year, of really in we But of put are some as we we as we amount the specifically. adjustments disproportionate anticipated we get on said, give then anticipated be in that kind were to in quarter. give, is, there just rebates level We And a that you their we own there there processed that Steve, like. schedule, as Yeah, normally did. the not if distribution, anticipated don't And came in typically into the second it those that will.

vis-a-vis adjustments, around them the outlook feel had for we forecasted year, them we So you been as we will. had looked quarter, the full if still at like those properly just

quarter, came get we'll XXX believe we'll in these And still more had we'll second the rest And the adjusted so Mobile. bps, less third the fourth thinking we in Process in through and the have relatively since we more and we price the year. get as in of distributor move then that

Steve Barger

you for Got thank it, the time.

Phil Fracassa

Steve. Thanks,

Operator

question ahead. Research. take We Chris will Dankert next from go from our Please Longbow

line Your open. is

Chris Dankert

here. guys. sneaking morning, me in us Hey, Thanks for

Phil Fracassa

Hi, Chris.

Chris Dankert

stuff I want are a we the quick quite then specifically? cycle quarter double China longer just longer mean, last kind has growth still the China on what I China. in I touch half overall, the for know on organically you're there stuff. industrial trended how rate obviously, the in looking of color in or cycle was and on any Is of back comments still growth digit good. some Asia But on seeing

Rich Kyle

And from the installed. that you up some very of ends get full little truck we continuing where ish wind, would for backlog our where some industries, which is it markets I'd are good business and good or say seen wind easing heavy I of year. And say over do like that. at year for a we organic bit bullish where customers about the least about majority number on we've heavy feel automotive. of the there, extremely getting very China would We the were, of X% next that other is

that about the in discussions of US. obviously there the So same level total we've impact about China trade talked economy some the seen we think earlier some some in and the concern on offsets I there's to in

with the like causing heavy wind industries, there's of risk markets through the there But certainly around will industry there. forge some think some that that. on I other turmoil

Chris Dankert

just it the last past. and talked in about Got much for tariffs me, you one hadn't really

this customer on the the guess comments it's any price just pushback just would more out quarter. passed that it from or I perspective? You helpful on be tariff through called tariffs

Phil Fracassa

Chris question. Sure a and great No.

of So with in, coming obviously tariffs we did think into the there tariffs of an and on the rate China goods we US see the coming China. I then into expect in are was kind as actually coming from increase

expected, it think a we million We XX a I XX the the we at be as so million for about we as what bit taken that's a full expected. looked a tariffs of about headwind the year-on-year. tactics bit In number beginning, kind that was down And got the So expecting now of of we're little $XX in kind mitigating in a bit as year. about talked little Right the quarter, we more. total. maybe in it'll the for past planned, little we full XX million year, million

we there's was it million and speaking. pricing, year-on-year but feel like in quarter And – than pricing was about then it, higher last doubt it was more we incurred QX are we what in it there as year, So XX still we and the step said, Mobile. of terms would felt have the it's roughly obviously no offsetting for a in Process up we're and so

Chris Dankert

Got much, it, helpful. that's really so Thanks guys.

Phil Fracassa

Chris. Thanks,

Operator

our from take We'll Justin ahead. next G. from Bergner question go Please Research. now

open. is line Your

Justin Bergner

morning, Good Phil. Rich. morning, Good

Phil Fracassa

Hi, Justin.

Justin Bergner

for again in. me be I'll thanks fitting And quick.

source thinking the know out a the are year, first of category But weakness. a there I the too costs first extend off, guide? – guy of your First against came of a in of maybe expected looking talked But into certain of quarter small that refer to margin sort you other perhaps would that Diamond categories that basis on quarter. higher coming that the outside quarter at you in aggressive about than there quarter margin and as of ago? coming you expansion rest and areas maybe of higher Chain go were first

Rich Kyle

mix. you for the is and Again, No, down the Process our mix items mix the moment. better moved generally are rail are market at if company some fastest at left elements wind chart it and and I in through right. the rattled good is moved But would look slide say six that growing though margins on its mixes there – industries exceptions,

inventory mix say inventory of a rest for year. the conservative getting would more I little impact the So the and of on

And what as Some we of second should second quarter quarter just we second more of basing that, we that be and half. indicative about. again, the the stuff distribution that is talked at the Phil think say I would quarter, the look first

Justin Bergner

where then Great versus doing process doing the amount do capital further modest the beyond details versus lastly, more? quarter considering was doing or And really stand and what in thought repurchases a you allocation, on acquisitions? very none helpful of

Rich Kyle

although, up fourth quarter in good comments in little as the I and that Well, in lot I'd acquisition generally say, generate obviously year. with Generated first last don't the quarter, first script, my cash half, the We mentioned third, well. for we a more in half my first Diamonds we did the of flow a completely year paid levered this of cash. cash the reasonably

flow it's to I we half, our next good. going as with very that's look As If M&A it, think be and our be going either very and good. leverage, look cash share deploy it comfortable that look through And to at think year we cash the buyback. very at I we to at also, of combination in going we're second our flow a

rearview it of capital several return active in mirror in the as But shareholders. forward. generally to we've certainly for more going been and about very see that talked than we So back good years a shares buying

Justin Bergner

Okay, thank you.

Rich Kyle

Justin. Thanks,

Phil Fracassa

Justin. Thanks,

Operator

like conference appears the turn any additional no to at back you time to It or further Hershiser. questions Mr. for remarks. this I'd closing

Jason Hershiser

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

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

Operator

your for you participation. Thank

disconnect. now may You

The Timken Company (TKR) 1 Aug 192019 Q2 Earnings call transcript