TKR - Earnings call transcript Q4 2019

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Operator

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

As a reminder, this call is being recorded. At this time, I would like to welcome everyone to Timken's Fourth Quarter Earnings Release Conference Call. [Operator Instructions]. Mr. begin. may you Frohnapple,

Neil Frohnapple

us welcome, This our of is Timken you for and earnings Investor quarter conference the joining appreciate We call. Neil Company. everyone Anita, fourth to XXXX Relations today. Thanks, Frohnapple, Director

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

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

that will be everyone EBITDA remind as our metric. about also operating today me Let we talking new

saw, week probably periods. for you we EBITDA prior As posted an last relevant with X-K detail

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

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

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

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

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

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

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

Richard Kyle

today. and joining everyone, morning, for Good us Neil. you Thanks, thank

in a and Timken. year Our fourth record were line our with expectations revenue concluded quarter cash and for flow

our quarter, below and for expectations. however, margins were fourth earnings Our our the

around of rail, revenue, to range more that of was across in and organic in quarter. offset but X.X%, currency energy, America. the First, particular, strength across a X%, aero was This while a produced produced equipment unfavorable, truck, to by X.X% renewable wide decline weakness markets, heavy highway North and then of broadly we than see which marine, acquisitions in our for an contributed continued decline net

to had expected mix double across compared of continue bottom down don't our costs not to several digits earnings we the into as the costs and quarter. as line lower attributable reduced the in was expect again also by margins regards being we favorable higher first company. impacted to largely North The year-on-year. to In quarter. areas The America expectations, higher levels and was these as as inventory production We was mix

the was the and As acquisition margins. quarter expected, want talk about BEKA very Timken improve for time more highlights. I the are of with that We anticipate spend But QX first also sequentially earnings. well not significantly will of Phil through and And some performed on to XXXX. in our I satisfied earnings will comments. both diluted we full-year and the the margins that of

of of basis by significant and We by revenue EBITDA a organic despite weakening year markets and that modest straight growth. including points grew industrial was total, currency positive year margins third almost We in on growth, organic XXX another a X% headwinds. expanded

we to through outside and and markets U.S., also product and range widened We our organically scale continue the acquisitions. build

will EPS. Drive increase as as were strategically. creative Cone from of year year slightly markets both well headwinds. solar growth and Synergies and acquisitions enhance businesses both ahead to contributed than more currency financially the and specifically, Strong of levels industrial X our More this modest and synergies and planned portfolio, and Rollon market in offset XXXX both margins

to Lubrication and Chain those of speak I'll Diamond acquisitions We also completed shortly. BEKA more the and

products. with outstanding We drove We reduction managed industry to with in our across provided company. excellence leading into very levels going lowered of our and initiatives we service full XXXX active As levels and effectively, our and company. a across pipeline the price cost working customers capital always, reliability operational we're initiatives quality the

remain that our always leadership platforms. with engineering as Social investing committed vitality, projects enhancing to operating advanced We customer and we in digital our our in product and experience focused report. and responsibly Responsibility demonstrated XXXX ethics Corporate integrity, We're on

also dividend per record. XXXX's full record performance $X.XX, payout safety consecutive We year. earnings for our of XX% We record the delivered increased year from in delivered the We sixth share up year.

a with company. obligations free Today In post-employment diverse a and stronger in change sheet. $XXX pension continue our we is positioned and Timken ended total, flow an the are and reduce flow to well perform balance in to XXXX delivered was year excellent strong to year cash in step and more continue million We we cash of the and XXXX. for

this situation lot now in to China, remains of year, is compounded Turning the coronavirus in end our there I'll by which uncertainty a being speak to markets, first. which

do virus. the have the in not of We Wuhan, situation coronavirus We closely. are operations epicenter monitoring the very

in of guidance We protect the our government the Organization. well the by Chinese are as by Health World and have abiding precautions employees as health place the to established

operations if If Over operations only we planned recommendations. another would the a which for now to plan per Lunar then government holidays, results. impact is week it shut the the we authorization. Holiday, even week, the were Chinese or extended next expect Right a on extends by disruption week restart government majority were nominal of our week one down for

longer disruption for have our to continue point currently greater not this the and we'll the outlook impact than the situation provide a anticipated. at an update if into monitor in factored And is year. We

by up revenue contribution the and from we're guidance, full X% driven December to a acquisitions. be our XXXX with year, for X% X% between down for planning Consistent

result from the from seasonality, then another year, first expect modest of start year year That organic sequential which much up digits flattening second slight last lower the half half. normal from to be the We're decline first quarter, out to then we increase growth the comps. the would quarter the in down and to would on half the For quarter. from in first planning for second the but quarter mid-single fourth a the second

be expected slightly. and in expect we're declines down truck, to mobile, to strong continued expected We be we for energy Process down growth distribution and services slightly. expect heavy highway mobile, continued is significant up weakness off Process, In while continued modestly. in renewable automotive with in is In while industrial planning

our We have have guidance. we'd into we that short-term road attractive markets. believe, slightly on in pursue be factored we approach outgrowth the to not on penetration continue excellent capitalize demand, our to Should by we strengthening focusing do global better in market middle than position conditions. second market to of regardless the happen, taken increasing a And half conditions. of market to And planned a cautious initiatives

$X.XX. share lower not per flattish offsetting The revenue compression the and in earnings margins is revenue weaker margins on as fully declines $X.XX a implied acquisition between as planned the is Our to in and in well revenue coming due organic at to EPS range of mix. revenue the slightly

interruption XXXX flow, from in magnitude modest is from a as similar the is over coronavirus guide, modest of year strong planning through mentioned, to that in contemplated $XXX levels million. capital year in cash contribution the for We're As another allocation.

that. and to price positive, XX price modestly than call We slightly points higher be cost basis roughly to be expect it

existing and reduction footprint have continue an Chain across We cost standpoint, consolidation footprint. operation a our into and bearing initiatives. our cost to productivity operations Diamond of active the reduction of recently drive global pipeline From we we relocation projects and announced

these second this of From anticipate M&A. allocation flow up cash the any first possibly expected a provide And the not buyback, do to M&A reduction getting we in pipeline, half debt while the we're year actively and integrating always businesses year. opportunity capital or full the acquisitions for activity focused our in for will margins half Diamond standpoint, strong BEKA company on working We the average. are and

both acquisitions sales. Before more I more and provide the the of industrial wrap, impacted American businesses heavier the due Diamond the Diamond XXXX by two will market a have North slowdown. on been I so to concentration of color BEKA, little

implemented to continue million since annualized over bringing reductions savings implement cost an in $X Diamond, fourth the on in synergy to quarter, the months On acquisition the we nine our basis. cost

quarter we to long-term announced facilities. consolidate the This plan manufacturing

that beginning net to We activity expect this see incur year year. benefits some costs for to next and then

slowdown market BEKA, we in they anticipated. a two with anticipated weak months On than first performing Diamond is expectations. slow and the line a for Adjusted start, we were after even weaker

in step from the year synergies grown fourth a and the and expect then improvements performance we've up business to quarter improvements about. the sequential We in drive the first as quarter through continued we

be be what through provide margin to We'll appears expected product to the regards position, business we potential for the technology to but updates continue to and growth. expansion market in and early, year. still It's

advanced our In our full-year summary, financial record XXXX we delivering with pleased results. while strategy, results. We are

operational value the financial all pursuing growth, to focused take We capital cash and excellence balanced We allocation, in disciplined driving long-term that returns continue approach out outgrowth remain of pursuit on flow. to rolled December. a margins, we and through targets in

I'll now you it over detail. Phil turn take through more to to

Philip Fracassa

and Okay. good Rich, morning, everyone. Thanks,

the and down in results was For can soft a the slide. market in capped Revenue record a year $XXX line the fourth total summary Slide The Despite of quarter last this financial going quarter industrial for about from I'm you for start our review, fourth and on quarter XX. million to for on relatively with our Timken. see environment expectations year. a X.X%

million which compares and the an quarter, some free delivered for which strong finally, Rich of last above to earnings year's the due factors a flow $XXX moment. to record in a fourth quarter We further drove of XX.X% adjusted generated full-year. adjusted we mentioned, of share. below EBITDA mark the in $X earnings million share, of in $XXX I'll quarter per discuss in came our And And the as $X.XX per free flow our margin cash cash expectations

XX. Slide to Turning

look BEKA. down of to in benefited declines acquisitions most coming two from Let's fourth Recent with closer add X.X% at Diamond mobile months the a sales quarter top line of Organically, we've take sales the as performance. about a and industries. the were quarter, in Chain our X%

to negatively be X%. by While impacting headwind, revenue a around currency translation continue

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

regional As growth through in were we see, the while modest color segments. go we Europe, I the on can in Asia growth down strong as performance and I'll saw some you Americas. additional provide in

to last $XXX higher fourth of the quarter of was Currency compared or slightly seen in buckets. of adjusted negative. to lower Turning mainly in or impact manufacturing The was million estimate XX.X% in Slide EBITDA and adjusted sales EBITDA was by the costs the headwind both decline year. these $XXX XX, volume in driven the XX.X% quarter and XWITH million sales operating also

both and logistics material pricing lower benefit side, once the On from saw segments positive costs. again we and in favorable continuing to we're

little Let me SG&A. comment a further manufacturing and on

volume as inventory production the work Our lower in quarter to down. manufacturing mainly performance bring we year was last impacted versus by levels

was incentive energy, increases growth by initiatives targeted by support spending impacted like compensation in SG&A year-over-year, as offset expense. areas other to well lower renewable as partially

million amounted see $X.XX posted of million share quarter the gap you'll to income after XX, on or net that slide On of diluted or $XX for basis. we per the share. tax Special in items $XXX a roughly diluted quarter $XXper income

and With deferred items being the remeasurement a pension tax OPEB of the largest in valuation and reversal allowance income Germany.

$X.XX due we acquisition diluted On from actually to share quarter. Note reversal an is year X% ongoing earned last synergy. is in allowance per buybacks. an share count the our The that valuation down adjusted about share basis,

As historical recent tax NOLs offset we use from are future in acquisitions Rollon. income now Germany Timken to BEKA by able and to

the our items, to quarter discrete year other adjusted tax and reversal was in XX.X%, full rate rate bringing allowance XX.X%. evaluation our Excluding

For tax rate and geographic adjusted of planning around expected XX%, for XXXX of mix slightly up an our from earnings. we're XXXX, reflecting

in a things. the what further versus touch on provided It me in the driven we fourth little previously. earnings caused three this main let was implied Now, quarter by guidance shortfall

expenses First, expenses These what than the true versus expected. in all quarter variance and went but the we individually just the in medical over had and they half including accrual pretty late employee of were the to way small, other claims some collectively added long higher we normal quarter, ups. up

to relative were prior and our other unfavorable items mix, also The two guidance. were BEKA which headwinds performance

improve the expenses and higher fourth improve. to we moving We planning see we're from as performance don't expect quarter profitability to forward, levels for persisting BEKA

industries Process let's look starting Slide take Now at business XX. with a our segment results, on

X.X% positive Organically, fourth $XXX marine mostly up by the renewable heavy and growth offset lower sales year. quarter, Process industries distribution, with were slightly last industry in For revenue down and were in energy strong industrial from sales million, pricing.

translation had by top X%. X.X% unfavorable Well, a Currency the of in the was acquisitions quarter. they

in North closely organically quarter, demand Asia. a was in offset at Looking bit Industrial the distribution more markets. than revenue in lower growth more America as the down

sales long-term the our declined releases and to Marine due the timing Navy. with production of on U.S. contract

a demand power heavy business. generation, down have in the backlog other lower metals to markets. And strong to revenue industries and this also continue was We and

growth mainly On share the revenue side, continued strong and positive momentum reflecting energy, renewable we market in experienced in positive gains. Asia,

process quarter, million. higher to compared Adjusted was of favorably impact lower sales volume, EBITDA year EBITDA in of the and the The offset the For industry $XX last XX.X% of XX.X% unfavorable was EBITDA sales partially last $XX of impact year. was $XXX or million by versus mix, the decrease margin driven expenses by million, pricing. operating adjusted BEKA,

services, the offset Process for for X% flat distribution. a sales growth increase to be to reflecting is in energy X% industries by X.X sales Industrial Our we're current midpoint, planning to XXXX renewable decline outlook Organically, in partially up in of about industrial at for and total.

costs the impact be XXXX margin by mix Process below levels mainly and We driven to for BEKA. year, industries adjusted and the positive slightly EBITDA for price expect be to of

industry shipments highway Now in quarter, sales our growth XX. the sales rail to partially mobile and aerospace, truck, as down were down X.X% year. impact the heavy are million, turn well positive Organically, reflecting let's in industry mobile of In by offset lower pricing. Slide on from last as percent, X.X% $XXX fourth

line X.X% a the had the in Acquisitions top of quarter.

by currency translation unfavorable X%. was almost While

Asia. more down, largest major highway, closely and agriculture, sectors, was our bit across the a declines Heavy the construction. Looking and all markets. EBITDA also including in regions with at is In mining truck probably in sub the

only Europe the EBITDA $XX up or and Adjusted compared volume, in expenses quarter. decrease million reflects flat lower The to in of industry in or related and points year-on-year defense EBITDA sales the was $XX $XX impact of Asia EBITDA was of $XX million shipments. driven higher margin And aerospace primarily adjusted basis last XX.X% million BEKA. sales in up quarter, finally, Americas. roughly and year. solidly the impact by XX.X% were in of was the manufacturing the Rail Mobile of

and represents by favorable less lower material offset a logistics on Personally costs. organic basis price $XX an than year-over-year. of and mix detrimental margin This

performance the operating from mobile good quarter. So in industries

heavy be Organically, shipments XXXX compared includes to and flat automotive. X.X outlook total. in is our for industries mobile be down for sales for the Our to midpoint down at sales lower to planning X% to This in highway, truck XXXX.

levels the we and costs adjusted and price to be positive the mainly expect to year We for utilization. due the from EBITDA margins expect organic mobile impact XXXX below industry, lower revenue related manufacturing

We ongoing also in for some cost to incur increase expect initiatives. footprint costs manufacturing the

see XX, $XXX was CapEx million. quarter. cash slide to fourth-quarter Turning spending generated strong cash you'll operating After we $XXX flow during million the flow free of

cash $XXX of higher free of million for Our improved and was improvement income XXX% full almost year, about capital primarily represents earnings year $XXX year was year and by working flow XXXX. up net last adjusted over The from performance. driven million

EBITDA was debt strong the to adjusted a around Net December XX. balance ended X.Xx quarter sheet. We with at

us middle well So X.Xx. XXXX. X.X to sets for the of This up our near

capital dividend some to see of our fourth year shares X.X the total the shares. with the bottom purchased can highlights December, quarter, we full for the to but at $XXX allocation You in including in bringing XXXXXX also consecutive over the of payment slide, million the quarterly respect

a summary turn Let's with outlook on Slide the XX. to

changed December. in for to We're year X% net has last we total at previously the midpoint, XXXX to in flat XXXX be sales down or but provided still As preliminary for slightly. roughly the back know, versus guidance you planning composition up

be than down expect currency slightly a slightly X.X% is sales the roughly which basis which now midpoint, better now XX to organically, expect the be And before. at only to we worse. midpoint, at is Specifically, translation headwind we point

Chain. X% line Acquisitions of should for is of and Diamond one This quarter add and about the data top XX months year. unchanged includes of

the organic guidance On BEKA, unfavorable roughly our from midpoint and outlook adjusted the costs. year earnings volume our down $X.XX range per share corporate to which points by implies XXXX, the pricing material preliminary will last both including margins now EBITDA for and mix, The of by be We $X.XX, XXXX positive driven bottom the line, XX lower year. is versus in adjusted midpoint lower of at from that slightly personally offset and basis down expect

are BEKA reiterate to we with and improve want integration XXXX, to expect track in that as synergies. on we I the profitability realize

However, it will to the dilutive be EBITDA year. margins for

summarize before. to our versus had So current we what guidance there out

unfavorable million or reflecting improvement impact XXXX. free cash organic lower with slightly adjusted Revenue will revenue along XXXX the is a flow in and generate mix but $XXX unchanged of lower, represent the at slightly would mate, versus higher over midpoint. a net income rate. That earnings slightly in of tax strong around are Yes, total, that XXX% of X%

to flow end and outlook just remind to cash at finally, the in everyone year. significant We sales drive that net of five believe shareholder turning CapEx target provided confident Our Also, the the and middle I our will recent X.Xx to range. the remain X% beyond. EBITDA debt for long-term with over we’re our value And these guidance assumes targets of of around XXX next want Day. assumes million, achieve of X.Xx the adjusted we slideXX. to spending financial to Investor which ability will over we targets, years year our we

commend to to XXXX in In than Associates in We closing, XX,XX again I'd more solid performance for Timken forward look delivering like delivering dedicated performance record XXXX.

will the remarks our line for conclude and formal And open questions. now that, Operator we will with

Operator

Joe question go - Instructions] Vertical Please [Operator And you. Thank Research. we first our ahead. O'Dea take from

Your line open. is

Joseph O'Dea

Hi. morning. Good

Richard Kyle

Good morning.

Joseph O'Dea

out where or regional market you from you and on called first think that you of Could and items end we we you fourth things expense to sort higher more are than behind other in and And an to little cost now saw perspective? you? a related the through the into stand get the the on as comment BEKA that areas things? largely that And on side quarter, that's then are which the the expand degree of the you mix question. normal margin comments First track the three that should quarter on

Richard Kyle

quite That in few a questions Okay. mixed there. was

backwards. me Let go

I BEKA question, hit margin that on first. and think the

Timken. frankly would so December issue months biggest November year weakest had the really of BEKA the two worst the we November most with businesses of as the on was business as our X, couple months. BEKA within well and for So, on be a closing

taking would and better I'd activities normal be, full quarter. So closing some of two then you're and quarter a of that, and/or cost what top over amortizing months say, and the versus on weakest a the year integration transaction them now

that So issue. big was

would So month activities integration to But fourth having we the position we bumpier us, is being making and don’t structural those building a expectation, this over saw the be full then in probably transaction say for just in year. the last good up a and a that results are in significant really we that on reductions we get I progress of quarter good this in going then months. and a there automatically market. versus already business. feel in great I that we cost though seasonality And was and quarter market think XXXX. kind expect step from definitely are margins behind it's -- I two

other to synergies. addition In

profile we other from we've of the profit things geography, margins recently, information and on bought have -- acquired when owned year. the line done year, but acquisition in be through difference good similar on -- the different by other businesses to could businesses. focus year. this on very this And the the this of that improving different management we end to of time before. what be And in systems, those -- and the it's all this it and out very we Then come sequentially Lovejoy by think the comes sight little been of I etcetera. think a I team's was and in it. think, And after of we management but get bit course of cost productivity good we've and business the financial again, a management with family really be it's the and that going bumpy going a systems regards I to -- it, got clear think, to I

be that America. a the part digits first I'd North will think well to of little within things down have also quarter jump North America fourth hit North mix a was the this an And little that both bit then again, little I'll that in mix, then but distribution, both the say as of impact of So the in and two say I on that And I'd a America was quarter. to globally, fourth mix bit bit. North also your which year America. of those our double outlook

North think, America assume, of some outlook. the I for best the the months been The On part numbers in is they've being recent, encouraging. I it, encouraging

I But see let for the distribution into cost weak that a got we've Phil guide plays our year having side. then -- effects the year this then within on is weakening probably effects out other how industries we'll well. had look comment think America as I -- ripple and of some even industry the have the I'll ripple and MAX last conservative XXX North our automotive some for probably some space and think on some and

Philip Fracassa

Yes. Sure.

the So appreciate I on the question. follow-up Joe, cost

as as accruals at all well thing. other go They time the typically we I a accrual. went I through, you're first Individually, the So these as way combination I expect medical in some claims, us. The end really, mean, on combination direction. into At wrong as it of very I looking of of always the This expenses of said, as quarter. small. either move subside year, kind a went they And we mentioned, as the and things. to can that would was

to a the more us would a we expect would forward. normal and actually so affected runway as fourth we rate normal to margins a bump those the and saw on back subside going earnings and items of run I get in we our move quarter, to more forward affected So expect up which

Joseph O'Dea

consider included. And details. I first as question those appreciate a I will that follow-up

Thanks So I very stop much. will there.

Richard Kyle

Thanks, Joe.

Philip Fracassa

Joe. Thanks,

Operator

now And Capital from Barger you. with will Steve KeyBanc take we Thank Please ahead. Markets. go our question next

Your open. line is

Kenneth Newman

Hey, guys. Ken for is good on Steve. morning, This

Richard Kyle

Good morning, Steve.

Kenneth Newman

Thanks the question. for taking

is just question for First Process, guys.

are way in us about just wrong versus quarter, could went just you the tell you are probably sales for thinking If you the Understood industrial how distribution. you you’re of state And follow-up that XXXX at the as kind looking seeing a that, that to your color inventory the industry today. within distribution any on channel but of that how outlook. in OE distribution

Richard Kyle

Process by I heavily to being which revenues industries wind OEM and an would us say for largely predominantly us driven is the renewable for solar, weighted market energy market today. today, OEM

For base. be mix services, end-user then would we be a heavier in distribution the so side outlook, anything shifting which would have the significant -- growth sales on move aftermarket 'XX were the -- more little the to sales, in well if industrial And versus not within but much. proportional came I as to didn't inventory And as on process 'XX. down the side, that OEM say distribution do channel would

I it's some there guide. the in our in impact think if see think bit I in there's inventory that second a out a little in baked compounding with a strengthening the for actually reduction the So market correction degree. half, We’ve of we'd to got sales. going And of to play

subjects truck last but definitely year, channel highway out a would in customers was movement We second on view also think and heavy was -- and as OEM be rate there the took channel revenue destocking movement half is side there below switching top significant in roughly line. there to we a significantly inventory the little inventory the where side, production line our distribution our I the in in in of they the their the year our was not of the the in the definitely bit, off but big the big So channel. OEM experienced

Kenneth Newman

Any switching of more a you’re about But expect. then than if the just more kind road say, of work if taking look high in way decline to If And mid-single-digit. mean, demand could you conservatism. revenue middle at and, the let's single-digit operating both I understand terms to you can for decrementals guidance approach for help profile think segments. like falls really a -- leverage or what to the revenue topics those Okay. taking versus us that against phase here. maybe towards starts accelerated believe of both of segments, what starts you you’re you I

Philip Fracassa

This Yes, I will Ken. take Phil. thanks, that. is

standpoint, to that down, at have that and obviously BEKA an of decline we X.X% have the move is thing are or earnings. would looking XXXX, the the can From -- like acquisitions incentive -- midpoint pretty midpoint, decremental the have costs here there it, the kind good which if on of end the uncertainty implied wanted the direction And and revenue to bit. do are a of clouding and guide, -- lower I look a to decremental today. manufacturing and really was gets it's as another felt out to And with us volume we the an end a like the us, of the out, wide take that the obviously we have the it's we organic and a turn low of prudent on mid-XXs. in And one a would I through guide. move I utilization. what in on good the because the material bit Again, difficult obviously to markets low heart guidance question an with on organically of to So we'd about the $X.XX us cloud impact the cushioned likely if slightly the year. think that. of there, be I and negative I by in of think in total leverage but keep step think around the your obviously in guidance is have bit things to what move would question guide point organic the operating we’ve before on it so pretty start either we we X% we mean, a range the out decremental. were Obviously, year we it it to or a we at talked would organic the environment compensation wider

incrementals So than the we in little to mid-XX that to the still a run to probably XX on would incrementals expect the we run done here to in what expect attractive have X.X% we’ve attractive midpoint, we past. but worse relative

Kenneth Newman

correct? And on our midpoint that today, your is comment that just given metric to clarify operating EBITDA

Philip Fracassa

On EBITDA decline, midpoint and at the organic correct. on revenue the

Kenneth Newman

color. the for Thanks it. Got

Philip Fracassa

Thanks.

Operator

question our Thank Ross take go ahead. next you. of Gilardi America. from we Please And Bank

Your line is open.

Ross Gilardi

good guys. Hey, morning,

Richard Kyle

Rose. morning, Good

Philip Fracassa

Hey, Rose.

Ross Gilardi

Just cost in and versus on SG&A, talk fourth quarter in $XXX the prior in running -- think the of organically least kind revenue a so it not to XXXX. the and just is repeating million $XXX first a to that in right to was a I well, quarter And million at on the SG&A first $XXX million QX going in We the range, absolute bit of million of bit XXXX. little be QX. $XXX down the the quarter

dollars a rather can help $XXX to in on of do back rate a run million us $XXX you to than the just So just a qualitative bit view? raw we kind little million QX, or

Richard Kyle

high level. start just will I

at from year. if at are looking looking acquisition for of 'XX four pretty are the are what we think you of at full-year we flattish I we look SG&A, the full-year side, SG&A XXXX,

Philip Fracassa

confidence in income traffic SG&A more deal at in margins, SG&A the I maybe when -- gross they Yes, the included I the with you done, look will but of at keep think total, come we’ve lot lines. When with line statement, in when SG&A. mind the acquisition the the look impact you find we will in on higher that think acquisitions SG&A,

So that way. bit you to want look up that if it that mix a at does little

relative normal are would renewable industries, obviously, that like areas offset -- had Process increases and we incentive million Now the we there up is BEKA as opportunity look said and But in integrate there as look the about the investing for quarter, been we in still year-over-year to to synergies. core we X SG&A we have comps. are have in at we'd -- drive growing year-on-year And by the inflation energy. where

So, continue 'XX but parts to we in expect years, the last the up as said, we’ve M&A in, will pretty other SG&A to SG&A M&A for will and 'XX. couple of push and looking be manage that in Rich move like well, to tightly as of but SG&A the structural very post continue would dollars we invest and flattish -- in growth, uplift. business All done SG&A continue do ahead, the margin cases, manage to to we many

Justin Bergner

But a for get SG&A a sense whole tell we from for just up trying you’re you SG&A. how your the acquisition of EPS is sit, in core guide, where I’m Well, how you SG&A digits can't start the much far in told to number that better quarter. versus first year QX. this the us to swing where we related mid determining in single is up you end going in that sequentially be factor huge just

Is probably $XX what SG&A you swing understand -- million give know you you’re can $XX QX XXXX? QX from million of kind whether in I saying. I I a mean, So moving but factor to to these don’t be all pieces,

Philip Fracassa

high to more the to quarter, but was half about or be talk be bit mix in to we relative QX, I fourth little sequentially No, QX when our the it a expectation. about items than that it half said wouldn’t that is

would to I would call full-year for coming. more with items than of look I I the more you special more -- would the full-year, But taking $X.XX, So in was of say would more $X.XX out, to accounted -- forward. it, it mean a color the SG&A we at give if I I be say by coming acquisitions -- it subside as look expect the even at to just moving possible, clear have at SG&A, and the than little been, bit as that

excluding So SG&A was 'XX, structurally the acquisition, to the 'XX. down

Ross Gilardi

towards might Okay. whatnot about general engineering commercial. the I But distribution my exposure, more your MAX perhaps your defense -- exposed. The indirectly briefly what have your business, really sort and of help I I and/or exposure buried industrial can that segment -- in and versus more aerospace is? you on you your us And is what as think towards. understanding you towards touched is SG&A will defenses your mean the sorry, follow-up mean, MAX aerospace rotorcraft

Richard Kyle

XXX asked the that it's because glad are MAX. direct I’m yes, to exposure So, like creating confusion. you There

on million are We -- have of about immaterial, do revenue. we content it, $X its but

on more somewhat same automotive. the comment was So my

held winning and the automotive some we're in we year platform America. on But up had Our the on last impact it are North business well platforms both from had. we pretty and mix could the rate that of that

industrial situation you that that one numbers, production, effect the that between year. I having through -- on has think indirectly upside I element is XXX our this as what just think some is automotive impact ripple a the that would So be other ISM-type obviously referenced I and U.S that MAX could whatever --

Ross Gilardi

move ag, lastly above. in on the down and mining of buckets and in then And didn’t high the heavy just but slide, it your Okay. and you your single-digit bucket on industry is terms construction

from you expectation So for last you end in there companies, back market in the you we your at do plugged had an big -- bellwether six Have mid-December what that it have or it's range. one obviously that weeks number still Day? over dial actually learn open-ended Analyst given have has the your same of the

Richard Kyle

would last off-highway weeks. to negatively materially similar positively are with and the X moved and heavy negatively or say X not the truck or I have

Ross Gilardi

last cuts weeks might've you the early thing are you visibility in actually initial the few what on Do Good guide? everything that the you based XXXX. you you in learned that -- production like of gave on have part that when happening feel

Richard Kyle

would year, normal that -- inventory that those say because on to the with we seen would chain I cut be felt outlook. have our paying And production not last more stocking again Yes, of get the we the cycle. changes cuts any ahead we of for of supply

of markets we So are we're pain. a starting And really felt -- lower I those much obviously, both year think lot rate. run a at that the starting

really at continued negative category they’re So single-digit we that high in where versus decline the what's today. driving are a from that's

Ross Gilardi

Okay. guys. Got Thanks it.

Richard Kyle

Ross. Thanks,

Operator

take Longbow. next And question from from Dankert Chris our now we

go open. is line ahead. Please Your

Christopher Dankert

taking Thanks Good morning, for guys. my question.

Richard Kyle

Good morning, Chris.

Christopher Dankert

I result. But some the you significantly to your guidance in of guess, XXXX context lot first off, guide. uncertainty. way Asian give moving weaker for Asia up XX of in about think a the into Can there year? of assume here kind us the just Nice in growth is that's I the quarter.

Richard Kyle

early comments, situation we're well of there'll course say it's I'd more for but at an week issue, as the that of the the being No, customers year. make be production as up us coronavirus immediate strong. still of lost through looking efforts to to And my the assuming it our deescalate

it's that wind say by mostly we would again, local do I business So there. energy the driven

what in Some global well. solar solar China much a than play. America. than just for general North The But the as us is is of stronger more we see even play a industrial

good year get leading to to in China and the very the Holiday, start to renewable backlog up in strong very So off will China Lunar a in energies.

Christopher Dankert

be But for positive of Okay. in growth level the expectation XXXX? some would still

Richard Kyle

biggest in half Yes. pretty as hits second And with Tough some inventory our market I India, and I of last I'll general, globally. on year the comment in well, last year in significant market said second destocking. to say, comment year consumer Asia that truck heavy took India. that would We industrial.

backlog again, lower appear, well, some the a rate this year So as out demand although with again, and the year the those bottomed. full But for case, as that the looks for truck than to a lower start significantly has markets situation in year. last start run better heavy of year us

Christopher Dankert

about for would consolidation of detail with out And discretionary some any this of then if the I how Diamond, great. you much versus be it. of guess tightening belt thinking Thanks of Got is the there. some actions, there kind the but changes, the Got mentioned cost color it. were footprint there just actual and

Richard Kyle

footprint. and We been some through small closed tightening, larger them say think always cost so but amount tightening, which across It's say. lean some general facilities happening I'd manufacturing We've structurally as some belt consolidated fair then the facility that's much as got another reduction year course been well to the things I it's and as small small diamond I our closed would improve I'd more -- productivity operation, mentioned. last four into of that efforts both, operations. of a year, say I our this level of existing communicated. belt

of say our we that, acquisition some lot to activity at amount that our for U.S., So activity we've increase improve of provide some then that lot consolidation manufacturing that come that the looking that. we and got than there's low global to normal cost bigger structure this ago markets we're with for a footprint. in of year, we're utilization within for made also a actually costs the months also costs which for India say I the aggregate incurring obviously higher activity that would cost in XXXX. some beyond capability this happening a that year, would We happening have benefit payday the now, other amount, going there's fair that. ABC that within XX this of offset Bearings some And of but get a will I that there

Christopher Dankert

Got it.

the guys you of can for Just at a or bit 'XX out savings kind additional same guess that stake lot or this on a early? a comment. quick investment, be follow-up I could internal too of offset by point

Richard Kyle

a I at savings we think No, for would next be net looking year.

of there points. a acquisitions, and by there year. price of some that in or 'XX, at and moving a growth. modest positive EBITDA XXX with giving -- a very for to this back But We was lot flat We're but margins we in time look you expect we in organic expanded obviously market, that pieces the expanding If basis inflation a looking XXXX. on net of get would certainly

Christopher Dankert

after hear all forward questions for did Thanks new much IR the that call. the help. DNA your looking from I to it. everybody is Director And the Got very

So just a there. reminder

Philip Fracassa

Chris. Thanks,

Operator

our from David And Raso you. we now ahead. take from Please Evercore question Thank next ISI. go

open. is line Your

David Raso

Hi. Good morning.

Richard Kyle

morning, David. Good

David Raso

assume Can a I high worse X.X down you worse have We negative year. any in fourth much the you you gets of a give than to little back the of do a the second. saw in then quarter the I'm a just also sense trying is gets cadence. mobile organic beginning first And pain X.X do year? flatten mobile the And get it for bit, the to just flat? negative quarter single-digit quarter. for of year On take came us out. the in where starts it to how the sense

Richard Kyle

more that the quarter half would than say be guidance but would that David, every it be first loaded, mobile for I would would thanks down assume It I year-on-year say, year. loaded certainly half back in would the organically question. I the through

David Raso

But have would the the quarter of compare quarter will certainly of 'XX? comps first in we against lot see higher a that for pain much first

Richard Kyle

first half. in higher still Yes, and the first negative quarter assume the second half but I in then moderating,

David Raso

Okay.

second all. the fourth quarter quarter, getting not in or down the for but flat at pretty third significantly, both So to

Okay.

account to difference. of you XX That's you margins thought. the higher some must …? bps it looks than Just like little that guidance it BEKA, you maybe is clear. a worth a view sanity maybe check Is for $X.XX reduction the of tax lowered the bps with XX, organic $X.XX. just numbers, about people for that $X.XX. by And be XX lowered you of And took structural fair also out, to The like your The year, higher the a also rate, have the to looks XX the that numbers. the assessment for

Richard Kyle

No.

Philip Fracassa

No.

Richard Kyle

not we full-year lower [indiscernible] for outlook for did XX. the No, our

think David, there, be. would other the item I

right I you So got think in your gain. it

us. distribution from You've the the December I got big down mix And And we in a And column organic was we that was as big, right the on actually note negative on need in little market chart the big mid-single that middle tax, but frankly would well. digits column. say back of you was a it a part downwards that. a the the to reason took that good for got

David Raso

a a a $X.XX decremental give hit it's it hard decremental, I $X.XX like was trying it whole mean, more drawdown. XX% the the wax organic sounds sounds you to it with to like like will pretty to ball but I currency a but pennies, Okay. couple of get

handle hints? very a disappointing that's drag. Industrial market big lot. I'm to have taking end? it's a down know them visibility telling on. been geographies, the has a or a further? this they is that strictly this you it inventories this does a are it's on what other hurt going when it's retail? hard, you what I was better than and little bit. mix their Is on And but again, telling distribution get trying Any or that you destock weakness And they then is are America So distributors in are North In better obviously for profitable. even regard

Richard Kyle

associated the their a to fourth by reduction I year with would then say a it's in it. proportionate inventory led their down little and softer and revenue and quarter revenue the that start and

David Raso

Okay.

Richard Kyle

And I North think The back it's good. really American quite the globally. comes business, distribution to numbers

David Raso

us it's give But to quarter. channel how you little argue for do a distribution in it. especially positive costs full-year, a viewing your get dollars, Can Price XXXX that weaker. a to in however than view of EPS OEMs. cost pretty price a I regard, want And obviously, price to the would easier perspective is maybe little are you fourth the you an bit from

Richard Kyle

factored we price a we're I cost looking at price little comments and above the the points my weaker roughly in XX in that distribution that. being basis think

as well. being cost favorable net So slightly

Philip Fracassa

would the to pricing because normal, be you of right, that little going would process and Yes, give more I'm toward maybe be bit directional tilted more distribution. obviously obviously, you're a on than

positive more is Processor. more the So in significantly it both segments, positive but positive or on

David Raso

it. appreciate All I right. Thank you. helpful. That's

Richard Kyle

David. Thanks,

Operator

ahead. And our now Stanley. we go Courtney Yakavonis from take next Morgan question from Please

open. is line Your

Courtney Yakavonis

question. the for Thanks Hi.

or that you your was on just on Just if the raised pickup But one of outlook. comment in industrial commented think can the end you you services, that what's markets driving few there? that I

Richard Kyle

Timken XXXX predominantly that market. through flattish wins some the self-help and of course expecting that we are a probably what’s and say and platforms, would I is

Courtney Yakavonis

higher And of great. the David's half in of Okay, higher but some on said you Thanks. that, half question, other I than this half just And costs. expected you than was quarter, was think or the actual of then, answered mix normal mix. just sounds them? the out we and equal next BEKA two the And that like it's should year. expecting of carry combination forward between the a to of be through three those that it then really Was of was them

that's to I think a at good Courtney, way it. look think, I

from in us. than would and BEKA half on with more David split the said added [indiscernible] more hurt the as talked we So, and with of mix XXXX. $X.XX It between we persisting, which is mix were factoring the expenses mixed EPS organic prior with we the factor, as and we for kind [indiscernible] is -- down of which the coming about have remainder, the before, also $X.XX. down guide probably Then kind be

Courtney Yakavonis

then And it. lastly, would the is weaker BEKA you obviously got expected. performance just than Okay,

the you this expected, addressing maybe just being months forward? some early earlier how challenges integrations some had weaker these Diamond. talk with and than with Can that learnings from you're of about any going and You year

Richard Kyle

Yes.

the these well, I be got normal one, have eyes I integration we activities think wide little what some in of open just and -- closing of probably we've two issues a bit to we go with to and lose year. that on some do think, productivity on in

And in American issue Courtney. to six last at saw always the the in we if as the in broader if the first again, are our I first so think the four half both the these look North across quarter, sequential these you And hit being there affected industry, all. that pretty in that them, when in numbers after particularly Diamond by You're revenue months going being numbers, done have making that the M&A in would vary think years, versus both And is the you were represented what American that you off underperform. significant and diligence we've It's I same and would and buying specifically, I business. And looked start there's deals aggregate on is say, bought the happened centric over businesses probably three, decline. just decline answer say, two a hard weighted it of outperformed we cases, the been to slower. then North North we is biggest America which that much. and I our think your risk we've that's I properly profile of case. sure was confirmed And bought that

a two good. these and is I And as of both quarters. than track Diamond think these I term. And we of going longer quarter a well. timing longer cyclical been for But or our make So to record BEKA acquisitions think track record are to [indiscernible] nature continue to that has the contribute there would the that

Courtney Yakavonis

you. Thank Okay.

Richard Kyle

Thanks, Courtney.

Operator

from next question will go with We Stanley take our Please Stifel. ahead. Elliott

Your line open. is

Stanley Elliott

Good for morning, everybody. me taking you Thank in.

On the Just the was asset more half weighing for try you more Diamond, towards year. time BEKA? feel that was -- get give a to specific or to M&A was Is to comment just a general piece, Is of yourself a it little commentary? integrate more in just about the that. a that it have mind

Richard Kyle

presented our sold, say probably on an not We was to we half. to are the first pipeline would our because it at something way. at we element would is buying then to anything that with if of preferences. presenting in it whether that with is that I want two, in in don't certainly would looking today, focus going obviously or be would itself to I opportunistic do those say we we look But The left aren't participate this what the there not, -- it. next not we months anything anything few we are be going

them. your all I would was say on all those. questions, I So answered rather to would of think yes We focus

BEKA. short-term. put we which do have looking do then to you currently the on where here So the cash pipeline, we're We're would get we the a be heavier there reduce as of when M&A top the general. line to platform through we mean we're of capital. that, half of cash I capital our and a allocation now And little improvement of want the presents a year. in the at it deploying guidance, working and the We in will the We midpoint half today We'll progresses see the to, of Diamond course weighted latter to flow want be the jump sort on the burning the also on if on capital year leverage And think delivering in certainly do loose that we flow unless our start year. we're sight to good the about to on guiding isn't leverage. of course of which any pry in EBITDA latter while as amount steadily anything sit to you'll not M&A have -- part that that of not the us still itself tends I'll through of margin. fair

Stanley Elliott

Thank much. Perfect. very you

Richard Kyle

Stanley. Thanks,

Operator

take from go to from Justin Please And our Bergner Research. question G. last ahead.

open. line Your is

Justin Bergner

Phil. morning, Good Rich. morning, Good

Richard Kyle

Good morning, Justin.

Philip Fracassa

Hi, Justin.

Justin Bergner

they've to had I through, a covered. think I been few questions get don’t

year. I buybacks. in? give keep mentioned assume capital something this or into sense assuming your that flat to to enough buybacks to allocation You was Can a you net that's built just EBITDA us built more your relatively You’re modest? what's guide as actually debt

Philip Fracassa

Yes, at are I of our look assuming it think the middle around range. year the way Justin one we be, would best to target yes,

can't guidance do middle all towards to that. kind -- all downside. we we a few would did be you a the if we so to it. not road midpoint, midpoint buyback, the a we around tilt the did take probably will. be might pennies, range few be approach you If probably pennies I buyback in the if debt few of pennies in, nickel there. call If few pennies we probably M&A, we -- of reduction, So, few, at all the we clear a know, below And debt would it's it's as have middle, it a of if it we a upside a within reduction, of But on have look more do, a we above we would we our did If that. would to

Justin Bergner

was And The earlier event? gave at in nickel? guidance your you back Okay. that your that investor

Philip Fracassa

We degree. to we sort it, talked not about would said but that have of probably

Justin Bergner

Okay, understood.

absorption your further? earnings under any take as free cash sort your above Secondly, earlier into built maybe XXXX vis-à-vis, is of and guide, flow generate inventories some there down adjusted you guide

Philip Fracassa

that’s a think great I Yes, question.

answer So the yes. think I would be

from organic free at would look modest. inventory inventory. XXXX a have a we and lower we be planning lower that XXXX, due is flow that's would CapEx flow on see will And despite higher to we'll organic expect when embedded, to we cash to so reduce and the again, XXXX, higher I the I in forward are taking walking earnings cash lower been part volume. say, So outlook during that modest impact

some in take the change outlook. inventory to expect any We barring down,

Justin Bergner

that in it earlier not or view? guide, Okay. some the Was that of guide of earlier showing was today, the in it's new your in sort all guide, just up

Philip Fracassa

took was it only say organic I'd the we because, down slight slightly. yes,

have would it been a So would I included to slight degree, say.

Justin Bergner

take And Okay, to I'm fourth have how in the XXXX, what a great. last view quarter whole, those question, off corporate as together in if if piecing one not, handy not might as may. in corporate change that I it if line? expenses adjusted trouble of sort just having I'm you I the a EBITDA. numbers just can sure XXXX

Philip Fracassa

it. of Yes, and line, Maybe can we through us if take we front but we might. you we'll of -- it we numbers can off walk just have kind the in

Justin Bergner

much. so Thanks Okay.

Richard Kyle

Justin. Thanks,

Philip Fracassa

Thanks, Justin.

Operator

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

Neil Frohnapple

everyone Thanks, Anita, us for and today. joining thank you,

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

Operator

concludes today's This participation. for call. you Thank your

You may now disconnect.

The Timken Company (TKR) 5 Feb 202019 Q4 Earnings call transcript