TKR - Earnings call transcript Q2 2022

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Operator

Good morning. My name is Jennifer, 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 The Timken Second Quarter Earnings Release Conference Call. [Operator Instructions] Mr. your begin may you conference. Frohnapple,

Neil Frohnapple

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

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

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

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

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

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

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

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

to we XX planning that Finally, in you City. host Investor I York Day would to like Wednesday, New are an on September remind

will Company, turn like to to interest for in join the either Rich. or would call With that now in and person. over that, your will hope I you you I us we The Timken So thank virtually

Richard Kyle

per delivered and and joining Thanks, share revenue, thank another XX% earnings record you Timken for Neil. quarter margins. EBITDA with Good record excellent today. us morning,

across the at Demand to most level Our to be ability variety the a strong conditions. macroeconomic further more very disruptions supply That continues geographies. Russia. from quarter. our strong X% increased almost than continued COVID exit Organically, perform first strong by grew demonstrate we China, in despite continued and the over backlog of also orders business of the revenue and slightly significant a last markets a was quarter. at Incoming and year high pace results through XX% chain challenges from and in

year modestly the price and half of to mix the favorable of and it Our XXX internal were year. up from were We second as margin from over quarter first hit costs improve expect from points. the the primary sequentially peak as improvement year-on-year were external first significantly These inefficiencies. well prior the in the peaks in new Costs the Price quarter. others like realization and costs as we steel quarter energy pullback through some and costs basis improved of quarter. levels, the to continue drivers but saw up such slightly include

recede While be the did to total appears trend line the costs in off. quarter, not leveling in

get more in continued We realization. for second to world from more easier well including of year-on-year China expecting elevated absenteeism the shutdowns, Russia, challenges responded price to positive COVID impact around to the are as roughly the quarter in from at We the price stay as half variety from quarter, COVID and chain a the disruptions. supply second both comps and the levels cost costs

the which while capital financially. of in a about the navigate for our customers From allocation to approximately to outstanding well quarter, and total issues brought performing standpoint, the X% outstanding X% we purchased continue of year-to-date We shares these deliver shares.

profitably about we off a robotic owned X Engineers great grow playing We factory has and drives. key automation part opportunities product of in Spinea the months, it Timken's business Spinea portfolio. with And our is also presence precision expanding great we It to start. while space, technology, only the acquisition. a completed to the for have see Spinea significant

year-to-date cash and inventory the the with in we the flow Receivables stabilizes. are and impacted expect second meaningfully seasonality and strong we capital has to seasonality, the sheet half expect improving Our next year's challenges, contribute significant we cash management focused to balance decline as been combined on year. supply by flow modest will chain both remains with and of generate The chain cash to allocation supply results. but

them the through the full In half years, also to not meaningful of slightly for favorably. acquisitions. second margin that of impact around grow remains XXX and them and of we And customers margin early its 'XX. see In this guide of back of performance seasonality. over last uncertainty guide midpoint per preparing many earnings Orders significantly the summary, the macros about in and run behavior to right role cost levels the From say products up are mix for since look deliver dynamic won't XX% you currency the and strong, result you've the of greater margins on from winning financial Timken's environment. ahead bounce concerning. would implies that total, seen last would perspective, track XXX you sales demand record The when generally all costs innovating the remain and EBITDA longer organically step-down to record. in we second few term, And in and At and at can our both the a in have year midpoint trending earnings for will this or remain of but of and a X% play first as elevated. imply for the in an I Turning year out I in material, and in of from dynamic year. we year, about our marketplace. feel than price the it year's there does technology Despite summarized year the for concerns, netting moved we our basis four in inventory we've earnings performance sentiment Timken is estimates us, at where quarter X midpoint lot pace results. a the the and X% of that points. share all the change rest in of have Short-term are Revenue, to outlook, I'd A in good years, clearly for the growth, our off outlook. of to won't quarter. come our revenue are are next any plus customer not to the midpoint and strength in continue the we and seen point revenue Slide XXXX points are the last XXX the for like basis consistency half second at is over in and normal guidance. our EBITDA the last

years, higher excellent XX% inflation, five marketplace this capital with basis We've tax we with EBITDA the shareholders. all Five five market year our years, points chain only over and know, XX%, of was labor a last the bad directly XX.X% year bad performed and unfavorable. our extremely Timken the market level. or Many five market and years been faced period revenue record. has good won than into more. off breakout high four of technical the a shortages, over track changes, years challenges XX% and a we've a of that back had conditions policy conditions market have conditions business and we've conditions comp, those dynamic a model many earnings. consistently and at and of grow to period, wide in in we with revenue operate sales margin Through you margins. that the Europe, variation over products, earnings tariffs, supply macroeconomic last industrial were XXX our through prior grow and of As record And excellent, earnings service, on pandemic to are this have steadily and conditions. delivered globally, to from XXXX five challenging and between industrial In and strong variety XX.X% deployed were favorable Timken ranged and years our

we XXXX entered company As forward the stronger to we in a when XXXX. five look years, is Timken next than

a generating market and are ample financially, broader to diverse mix opportunities larger a to product And opportunities. to positioned better with continue more we EBITDA end we more capital company that have more flow, and value-creating are We and a attractive portfolio. and deploy win cash into

we we look the just As in virtually that next that mentioned, for event to recently you more Investor like look and forward Neil five what with and and an sharing years be New holding could Timken. in Day on September, announced York we'll

great a capitalize and we're to the That to a our on ability remarks, position I'll cycles, to performance through it front now industrial that and put consistently proven accelerate macroeconomic in in create confident ourselves Phil. have value my excited conditions. of of abilities in and concludes our We've variety turn technologies We us over to about opportunities them. and through evolving

Philip Fracassa

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

quarter an the was For year XX% during results. the adjusted quarterly Revenue a summary considering row, quarter We X.X% choppy a time XX for materials EBITDA I'm all of to strong share especially and quarter. record presentation on start the of second quarter our earnings we delivered Slide last we review, record the second company. faced around, for way all an per the achieved of with financial up the of outstanding from going all-time an $X.X margin the adjusted in environment and quarter in the billion, $X.XX,

Turning to Slide XX.

solid headwind acquisition, line both a at end segments Currency over net contributed sales including as closer well Let's look closed sales sectors the was reflecting performance. of second all pricing. top and year, impact positive up were across in May, the end quarter as modestly. on the at our growth the most acquisitions, Spinea quarter, Organically, notable XX% last market from the take a which of

up so the right-hand acquisitions. growth way. organic the excluding and in by you year, with leading both On Americas All can last side were currency quarter region, the the see regions versus of the slide,

growth energy rail across due each notably impact renewable XX% sectors, Asia as EMEA, North distribution, Let In industrial rail with and up the in standpoint, of were renewable distribution. up by the and lower led while and significantly a little down of in by We lower. energy we up XX%, and as were sectors region. sectors In partially offset revenue. sales color automotive. we Latin by strong industrial, me across industrial From off-highway the were we but COVID up Pacific, X% were we was rest our distribution, most off-highway market a finally, were in lockdowns, driven largest America, And were America, in led provide saw up the on general up to and China region. region, by strong growth up, X%, broadly most

$XXX was million last sales in quarter. were higher EBITDA Adjusted compared XXX on or EBITDA of quarter XX. XX.X% second million or to incremental of the Slide delivered $XXX points and $XX margins Adjusted XX% was to up Turning sales in the basis an as of we the sales up XX% million margin year.

in at favorable and higher EBITDA, and volume SG&A logistics higher material than other adjusted impact manufacturing which mix net Looking the we the benefited from performance unfavorable from change and more offset costs, price expense.

a little items. Let on me further a comment few

As reflecting past driven positive I over also by process was our mobile quarter. a the the the industries, and Mix strong price/mix strong meaningfully mainly results driver distribution higher key months. was actions sales. positive, in Pricing was to both for pricing XX mentioned, and

Material to Moving Logistics. &

quarter significantly a and compared inflationary second higher chain we the As to challenges. saw last supply by pressures year. cost expected, ongoing Driven in

a production line, than On more and as impacted manufacturing the other energy, offset the well in in higher slightly other down by quarter. driven labor last pension driven On SG&A which for earned GAAP higher that of Russia sales were can $X.XX to or year And share to we and volume as support and $XXX mainly as percentage continue $X.XX for Timken per per by negatively benefit remeasurement leverage But new operating up quarter finally, charges. special in income adjusted On see XX, a you from quarter. share basis. posted continued increased the on the from were inefficiencies, other million from the This line, Slide the and $X.XX record expense SG&A sales net higher includes we structure. costs of basis, a net items second any an dollars expense on in as of quarter the we levels. XX% compensation spending cost by quarter, our we was diluted related up costs

of was expense over X% months. buyback that activity in note shares the acquisition. the recent quarter to expectations. You'll fund slightly last Interest reflecting in portion Spinea adjusted due which And our our compared year, mainly had we issuance used year second was fewer a was up outstanding XX past last tax quarter the bond to rate to our finally, from and with second of line XX.X%

move results, Process with segment let's Now Slide our Industries XX. Business starting to on

industries or EBITDA million in while XX% than due translation sales although For positive, second was was from and in up. first were compared quarter, quarter. up was Process sales more adjusted to was sectors, gains. $XXX renewable Process to sales the last were of quarter headwind growth a driven X% about distribution Pricing sequentially $XXX with industrial Industries the general million modestly the also quarter. sales currency mainly revenue by across up also and the the higher services Heavy constraints which And industrial, timing was of second XX%, year-on-year, sales more quarter. EBITDA strongest price lower and supply Marine in operating year. up higher XX% $XXX from costs impact of million, in year. increase most were driven recognition. mix, chain of or the Industries margins Organically, posting by than The down the positive energy the affecting last was were segment volume, offset

to the Slide down sales sales year. also off-highway We up million, aerospace revenue. of strongest Industries operating more sales was year. XX. quarter, digits positive defense which Industries Now quarter by from increase due of to compared Organically, The was while benefit the $XXX double XX.X% in modestly currency volume, rail, posting EBITDA price/mix the of and for margins while mainly sectors, higher XX.X% increased with the million adjusted let's positive, was the $XX a driven translation Mobile headwind XX% turn XX% Pricing lower was of the on segment than last and to truck impact Mobile the in heavy up Industries quarter. In gains. second were were in second costs. automotive last or or million offset sales Mobile $XX higher was

negatively quarter cost XXXX. mobile first was be since that continues would cost more this out headwinds point positive for mobile impacted to process, the in While by time I and price past

XX. Slide to Turning

see expected support to million sales from working million. can operating quarter. was cash You $XX reflects we flow decline cash higher after flow generated last the of year $XX free in cash free The flow growth. was and CapEx, strong And capital in the

net flow a We capital rest reflects over of closer significant at step June structure. acquisition. the end We of the adjusted Xx, of EBITDA up free Taking the course up March the the from cash expect in to a which with slightly year. our look debt and Spinea at ended is

repurchased share, per to Year-to-date, X% going range, quarterly of within we've or of quarterly Capital X.X position Our our total in shares we almost quarter, paid great consecutive XXX,XXX X% to our stock. our leverage repurchased well targeted our is company second to dividend shares and priorities a outstanding. during strategic about we Allocation shares and dividend drive continue From the $X.XX standpoint, by forward. raised remain XXXth million

buyback in confidence the business accretive share commitment of capital allocation. and long-term our earnings demonstrates consistent Our to activity the our power and

year. let's turn full earnings Now We're rest and strong for performance based the on a our outlook of the summary Slide raising half with on first to the estimate outlook our our XX. year

range prior adjusted outlook midpoint last the implies on the guide. last which earnings from The and of $X.XX at basis full points see the expecting just in an will XXX can XX% which from improvement $X.XX, for you now be up year margins As per of over midpoint a our is EBITDA Timken. slide, adjusted share year, be up year that earnings the we're record new would to from

continued performance We expect our strong year by year-on-year in mid back execution. margin year, full the XXs. margins positive in driven and incremental price the half of And outlook dynamics cost implies the strong

contributing headwind the dollar now reflects June acquisitions XX outlook, based and remain spot X% to has Organically, up points last in And a up and for midpoint is sectors be line beginning our months U.S. which top prior in compared we added sales be to X% our of around to sales for since expect versus year, to strong X.X% outlook. We're Turning on most key now XX Customer the full our year. to to We backlog now growth. robust revenue supports be the around the at line to basis and the demand Spinea rates the expect the the planning strengthening finally, sentiment now total our we X%. year across to top revenue. currencies of guide. which of seven currency versus

Moving cash to flow. free

of dollars For modestly year the percentage XX% cash the estimate higher with for conversion full but prior free imply is income. This around the year, outlook, increased would consistent it we of our net flow on earnings.

of the excellence expect in to of continue long-term operational CapEx initiatives. and to We X% sales the spend our range growth fueling with X.X%

interest full anticipate variable our prior we which expectation $XX expense And our tax Finally, year, for XX.X%, reflects net be the roughly to will that the adjusted rate from estimate we higher interest guide. rates. be short-term unchanged around for million,

dynamic to questions. and the formal beyond. open line for earnings over we second We new EBITDA truly the achieved team continue summarize, margins half continue growth to we'll great the raised in and outstanding drive remain our our full the now year. concludes of advance rest This first XX% initiatives, to XXXX So to results strategic market the and quarter delivered and year Operator? of position environment. profitable business outlook, and in Timken in and We this our win remarks,

Operator

We'll first with to [Jefferies]. go Instructions] [Operator Volkmann Stephen

Stephen Volkmann

guys. morning good Hi,

growth kind kind obviously, market right of Everything the And the word. R up? splitting sort lead needles that I and and just I'll the any moving of anything starting about maybe guess was hairs I direction, -- I'm destruction on just pop other the that's in I'll seems demand of guess, of way a down went outlook thing, is to off. for organic there to pins there. the slightly, bit, Is sort but see be your maybe is one to So big little but

Richard Kyle

adjustment. a and number. a have significantly the the we the that hoped, say all at role of what not able would you one, make say was year. be expecting China than I was Currency lower to in as quarter small I'd up look pretty total in rest second we're it Well, would the played to

forecasting So certainly that's I Europe, factor. we're in not to say we use we're cautious a Europe. cautious your little on then on be word adjustment are more the Europe think it's little outlook. I R I But And a year but getting to continues your a the say business to in more the a would And our in pretty quite good. goes term, total. small would point, as in

Stephen Volkmann

if of to want should I normalization to price cost nine think so out to can guess take guessing and just forth. can minimal maybe the I'll But your you take about how I'm where slowdown? mouth. And sort And say on I'm with don't a Okay. if trying might I decremental we I some anything, but a there. through pretty be put given Fair margins words enough. have we want see think in of scenario you then But modest to what's back going much have pointed sort just you 'XX to -- don't were I since it your potential yet, Slide you about it.

of loud? sort that look what word think not some kind we R it Let's should how modest of might Just like? of the risk about say

Richard Kyle

we've buyback after ready to economic here happens or that customer directionally offset in not months. year, scenario for that back, scenario So other fully engaging for I in I it's a reasonably comments, hoping do which for grow year the whether be depending the or out trough up would of revenue. three Investor peak, 'XX be obviously of sentiment -- and that obviously, And hoping fine over up. an recession the And decrementals we've think been well. to to next of in and adder planning, said And that reasons two to et I think couple an or cetera, Day probably think happens, industrial in I and of obviously, ready And period, think a And still be off trough lot bounce active the in the organic other modest grow on been the -- really to we're But pulling also scenario other for beyond an not one as as think to an look my certainly certainly the the I about one, contributor in. of and will I not and the earnings teasing it as will a putting you we're well, M&A. and we'll cycle, say and able planning we'll do obviously, we talk that. but year-to-date be but share whether not growth that, XX% number. ready coming for at

Stephen Volkmann

September, Okay. I'll wait you enough. we'll see there. Fair for

Richard Kyle

Thanks Steve.

Operator

with go to Bryan next Oppenheimer. We'll Blair

Bryan Blair

Thank morning you. guys. Good

Richard Kyle

Good morning.

Philip Fracassa

Good morning.

Bryan Blair

around in some in the acceleration back sounds and transition you have obviously will price and all favorable cost, quarter especially like contribution half. Mobile. to see to It encouraging the Solid

quite Just costs, the of impact, the on magnitude, cadence and think favorable? wondering, we certainly in on QX visibility how QX current optics traction given your should of of should year-on-year be price order terms basis, and a

Richard Kyle

QX easier a it was is 'XX, year-on-year pretty quarters of then last price/cost the and fourth in reasonably are year of We went Certainly, Yes. modest then the it QX little bigger couple negative first a and significant. quarter in much bit comp. QX in and but of

lot. half. look projected they that they overestimated of the time, -- cost a that transitory a time and Not as ease, the went pretty cost you ease cost price only ago QX we not that at this significant would of up part was amount second year at back in did So thought

So went negative. cost price our pretty

said, in definitely positive mentioned, as you both as Also, went we costs leveling think off. I we in and quarter the segments I see this total. just

projecting projections second I going takes within to there's ease think largely some they're but half, and going will general, be probably puts certainly they're that. we're in the hold in to the and

We've from QX some other we've sequentially up. QX As price QX. that isn't to realization third showing the the seen said, will than more quarter go up QX we some certainly I QX and but seen be modest and then the will easing. in in And some to QX we It pricing really things results realization, to quarter, step in in have price implemented that we the second we'll had quarter the in second implement start yet. more quarter. It up will more third

with expect So favorable price there bigger the in or very variable receive the Do feel quite to they good level costs about cost. probably is off. I the cost -- do another price and tick is up would look

Bryan Blair

Okay. Understandable. could on color Appreciate the early-stage detail there. integration. I offer was Spinea hoping little you more a

of and as is whether meaningful near or On understandably potential major deal, strategic opportunity contribution? the And catalysts can You in headwind for Asia out geographic terms curious term macro quickly last called quarter. how your the European the headwind drive team a then side, expansion? risk of upside

Richard Kyle

marketplace. OEMs hood. All in. say, reputation of product The this reality we've obviously, somewhat we're though seen is Well, again, with under now what very all the you're getting sold months already pleased and to is over and would look designed you with the the couple is in team in the a in, a that diligence the can it's the it. -- I -- familiar

sales technology sold we're time, synergies working the a who to sold who and platform. on So together as but to, already introductions and take bringing we making the they

challenges think the the into on-shoring, markets automation, those. we're favorably all we're itself, very then the certainly, the fit And these degree and and investments long-term there's market factory there. trends to all things So in making supply I seeing chain on automation, warehouse

Our in own in factories, customers mean. making those our I are investments and capabilities

is that's a So I question, think And the -- think short-term depending business the Europe on to to Europe, in certainly off again, customer base. that. back and growth also months. capital capital risk the to in X just financially but got it -- it's a -- of about I there's months. tightening a term and long great then first definitely, the goes -- markets it's outlook cost overweighted also so of credit XX Coming the the as to very very term good, start good an but Europe And couple next feel going it's it's some the your prospects in not of OEM up how confident business there long

Philip Fracassa

very Yes. to that add, owned only month. one, was But to Bryan, we've I month of The typically, expectations. disruption cost was thing mean, financial one always and I ahead point, a fingers And that going because your is month of one from it you're strong keeping a nature. things standpoint of our

quite results there well integrating our nicely. and very continues into team to so the operate And

Bryan Blair

guys. color. Helpful Thanks

Operator

go Dankert Loop Instructions] We'll with to Chris next [Operator Capital.

Chris Dankert

taking guys. questions. the morning Thanks good Hey, for

Richard Kyle

Good morning Chris.

Chris Dankert

Europe, to a guess, a on thread here. pull bit just I little

things As energy control yourself in for with and -- the winter we there's planning how here? Timken's Romania in team are and just versus no terms really insulating bottlenecks you're control in what's of talking from elsewhere, of kind

Richard Kyle

its electric cetera, of around could world. gas, plant that plant Romanian the I world better that everybody Well, cetera. risk et on planned other We on parts contingent think some things get profiles, capacities is capabilities we're have see our redundant as and working supply, probably do do the have in et to limited that than or some should we we some some Poland

don't but Europe And don't working risk to demand going certainly months type it -- supply concerned a demand am It's actively it facing -- from customers we're our near I think a term, probably think the there profile. those is I now, becomes see going our I to than I'm case months because And six nine more plans, from what ability uncertainty out the now. to contingency the issues. it's of be but some would we're today. about it if of lot in in to worst think profile I the if reduction scenario, in a it's same dampening demand

Chris Dankert

switching Got makes And gears. then That you. sense.

On off-highway than of F-XXX side, of expected, be I than a that market what just seeing strength. of I great? given stronger of would [indiscernible] auto any kind was that you're less automotive, I production headwind and kind the kind Any just think in guess, comment on Mobile comments on specifically specifically

Richard Kyle

Yes.

seeing chip still market. some both we're there think truck problems, the and I

they smooth ability seeing COVID planning think we're get better. wait buy light problems of China as into generally supply still and some they much to product cars as and -- in as think customers' our we situation their and premium are produce want push as -- that little are But therefore, I the want. chain a are capacity China, where much still it's trucks. chip places between customers issues the chip think I around our and our to trying the I constraining again, With the mix,

comp So roughly we've second we're in it's line chip got of -- line for in at the a looking a our we've half. in number because for is say with got say second I'd -- -- year significant. what that easier [X%] next half, little kind I'd it's were the the pretty problems

Philip Fracassa

relative choppiness you're is what would on in I thing is the the the automotive seeing side add to really chip really there, customer situation. only The the Yes. Chris,

double yes, we digits remember, we quarter. the were But you off year-on-year. up up first were -- QX we So in in if were

still the growth of our it, mid-single market. year-to-date, up in that to full more, year good we're call but about then kind And digits. digit mid low feel So of, single we outlook

choppiness easier little that's that do But in bit we'll just quarter-to-quarter. half on better it's a the lot than really of comps. a sort the So of second

Chris Dankert

back both Got you. much some to in so half And here. Got color. the you optimism some put [indiscernible] Thank you.

Richard Kyle

Chris. Thanks

Philip Fracassa

Chris. Thanks

Operator

And are further time, this at questions. there no

Neil Frohnapple

Okay. us everyone Jennifer, you, today. and for thank Thanks, joining

and contact further have call. questions today's any me. call, please concludes you after our If Thank you, this

Operator

This conclude We you does participation. thank conference. today's your for

The Timken Company (TKR) 28 Jul 222022 Q2 Earnings call transcript