- Earnings call transcript Q3 2022

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Operator

Good morning. My name is Emily, and I'll be your conference operator today. At this time, I would like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator Mr. begin may your you conference. Frohnapple,

Neil Frohnapple

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

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

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

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

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

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

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

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

Richard Kyle

Timken earnings expansion quarter year-on-year thank growth XX% per and revenue basis Good growth margin call. Neil. morning for excellent XX%, you with XXX and joining share of points. of of another Thanks, delivered our

grow strong to deliver We through of variety conditions. ability and results macroeconomic a demonstrate Timken's continue to

XX%. and approach execution and the to positive is regions mix Slide remains and is performance financial of by chain be forecast ease or year all as mid-single our disciplined portfolio outgrowth the issues revenue quarter. Supply our up across And dynamic. driven organic our up except Demand they initiatives a remain be most double combined and continued end-market in attractiveness under All of Europe to higher environment and strategy, on for and of with digits X, of strong growth and successful when to just for the capital markets. geographies, the to noted resulted our in the were operating continued our allocation. Our gradually, although digits diversity pricing markets challenge end nearly

XXXst consecutive realization price well Cash to position. up include year capabilities. pressures, pre-pandemic working at sequentially our and through We bearing consecutive up significantly continued our in quarter Mexico, facility a provides and state-of-the-art was of investing chain to We're has in outstanding including prior capital dividend up which quarter capacity the flow levels. sequentially course in paid for business the capital to Examples very growth modestly and the and for eight over face and shares. additional and allocation sequentially. year-to-date due persistent conversion and the improved but Price-cost investing challenges. Price into positive standpoint, quarters. support about are realization the increased in a our the above purchased organic footprint supply increased for has growth we ramped the year remains and the inflation margin, cost From of was cost prior required X% the year modest competitive CapEx

one consolidate productivity our and improve facility our cost chain operations which to close Illinois completing our will structure. also We in to into are plans further

continue capital also allocate M&A. to to We

about plain the about of a our GGB excited of quarter GGB Spinea global the space. full also across the business The acquire first growth gone Bearings. to automation excited we potential remain agreement has is and supplier years significant We're well and in global the and metal-polymer The bearing engineered as is we highly highly to ball coming complementary synergies of bearings. offering we the category and expect plain integrate businesses. Timken's roller bearing

We track on in the fourth to the acquisition are close quarter.

ownership. an divest our and reached critical other recently in portfolio applications. expect also financial term. fit We any represents and succeed revenue over strategic other will do we is Aero near for just agreement not always quarter. of be we of ADS market We that Drive Systems. the ADS supplier for reviewing better rotorcraft Timken close the sizable X% fourth They divestitures components and flight positioned to to expect a determine We're to under in

portfolio we're and important the point have to win diverse us. I'd to also in aerospace attractive will and that marketplace. it in continue an out end for to investing We an market be like

annual many also of our released our it to report Overall, in while the goals. company activities Corporate come. Social years results the continuing excellent environment, in in dynamic and accomplishments outlines the quarter also was greater forward-looking We to for performance our both in strong of quarter. highlights position both an a Responsibility delivering and report The levels

again offset to divestiture. the by strong record We've increased ADS organic quarter outlook. the to partially revenue fourth realization, October, Turning full-year to headwinds outlook outlook, late the increased revenue, achieve and price year-over-year Through and currency continued rate X% we planning acquisitions earnings fourth and run order reflect improvement are our support margins our our an growth, and in revenue in record to quarter.

only to supply the On line, for to expecting persist remain chain we input costs challenges bottom are the with improvements. gradual and elevated

quarter consecutive and realization to price-cost be quarter the for our We also be price ninth sequential positive. to of expect fourth

around our execution $X.XX. inventory improving very finally, fourth quarter over flow seasonality flow per share At standpoint, forecast $X.XX we from the be this And a cash management. increased cash to earnings expect midpoint, would full-year both a last have to in We performance. strong increase year's from XX% and the

markets signs of are for Turning monitoring global the demand to 'XX term, end softening or channels aware of strength very around global longer we are we in our and and concerns recession. always the closely

quarter, as remains expect as very XXXX. to positive outlook our over demand start results demonstrated the we this products carry for well as in momentum and strong to our our However, for recent

have fourth a CapEx backlog in the typically to quarter be We healthy pace. not to high first. come on delivering step-up support GGB continue fourth our line positioned forward. including performance as move improving from to price share have heading start inflation outgrowth, would orders and our backlog and at the expecting first. we acquisitions the as of a the from and We We're in any believe We of quarter also price demand additionally, we And chain to relief a initiatives, margins self-help in enhancement and a sequentially into keep and supply with to 'XX. impact strong seasonal see up margin the the costs operational near again term, orders well in but buyback. full we Spinea stabilize, And we our end lot from expect year the are 'XX, a

we back performance. for which term, a deck, We of the 'XX will provide I'd XXXX. as financial full-year to five-year finally, lot end momentum our take like positive longer early have you next summarizes our year, to XX And we Slide outlook in but

top As volatile particularly has Investor been results we recent and macroeconomic our discussed a quartile delivered financial what Day, through in period. Timken has consistent

to than as entering over shareholder stronger excellent we now and to it outlook. profitably enter business I'll turn and scale more on We results company will a were the strong we 'XX diversified industrial XXXX continue color position returns. Phil the leader in and to are our a deliver for

Philip Fracassa

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

For per third in and the going the strong $X.XX We financial results. year. start quarter, an last to of review, a the on quarter adjusted posted quarter revenue We EBITDA with achieved of up our X.X% billion we earnings delivered of $X.XX. adjusted presentation Slide XX margin share I'm of XX.X% materials of summary record from third

We deeper materials. items into these of through will we as the dive move each

third in XX% to our both sales performance. at as up closer sales of year, we take last were segments. generated look our Turning XX, Slide quarter growth double-digit let's Organically, a from nearly

pricing. strong XX% in growth rate growth first revenue organic demand year. from our the end-market year-on-year as that higher this of reflects out impact Our as would delivered point continued half most up stepped organic I sectors well we positive across the also

Our the environment. to marketplace in win this in team and continues dynamic serve customers well

is And the walk, currency as the topline the and key rest of revenue euro a which typical you modestly sales see on than currency. translation the quarter. down to foreign about quarter driven on other when in seasonality. the of the were Looking were our slide, see headwind sales the currencies. at by to in impact acquisitions, consider the Spinea, contributed net was strengthen it the continued our second from our against would Organically, we the flat sizable you U.S. the quarter X.X% roughly sequentially topline sequentially, including dollar mainly And while normally don't stronger

right digits with double growth. quarter Americas which the strongest see in of last this the and were by up both slide, side the the On region, organic excludes can growth Most you acquisitions. hand regions versus year, currency posting

distribution, well, as there by region in and by renewable sectors Let Latin notably, as Pacific, by rail. quarter. we lower led in single-digit off-highway up that we were America, sectors finally, flat were automotive. Asia And energy growth. up distribution, largest In America. with And gains were with in the most We industrial overall in In region, growth were posting distribution, me sectors general up were touch most we were rail in renewable offset All China XX% distribution North XX%, delivered up energy up in industrial as and briefly on strongest were Russian our the high up we modest region. revenue. and XX% off-highway each EMEA, led and

sales which higher delivered Adjusted XX.X% was from Turning EBITDA $XXX compared XX% or million the period, expand ago we million $XX or year. enabled year XX% on in third was us points. up XXX by or an margins million the quarter to to incremental XX.X% sales of last the of as adjusted sales, to Slide $XXX of basis XX, margin EBITDA

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

strong higher a also again industries, process revenue comment industrial months. reflecting quarterly our few on Let actions XX of driver these both Mix key results. contributor, was the was distribution. me was once to our and like Pricing in attractive over mobile little a items. significant and our meaningfully by sectors past further driven a Price/mix a growth

headwind Moving by increases price supplier material across cost compared period. The we and continue note logistics, and the driven year-ago would moderation and was impact logistics material and impact to compared increase that quarter. experience the expect I quarter further from we of the the fourth negative the globe. to material would the to second in moderated mainly to higher again reflects year-on-year

and by in On our the manufacturing are several labor well were chain underway supply line, inefficiencies. self-help Supply we impacted continued higher we issues chain as and as labor initiatives other costs and and slowly negatively plants. have labor-related easing energy,

to third we roughly up in planned $X.XX on adjusted business our pre-tax average. This per higher our million dollars, XXXX. of $XX from you XXXX improvement from With more increased of short. income So basis, million expectations. per Aerospace expense net basis. ADS net Drive the divestiture Slide impairment around see business respect revenue in costs driven quarter or charge year. the which EBITDA even can other special quarter support other quarter SG&A finally, levels, of $X.XX by third and the XX, with line, mainly diluted and we GAAP was posted or related $X.XX SG&A driven was up $XX the would our expected And line includes by fourth the $XX expense in to to and quarter, flat a expect below were sales for in the the we the with compensation second on spending On with post a an earned in margins that last of ADS, XX% in share but million to company the Systems for some in share items, is On quarter

XX.X% shares guidance. fewer year, outstanding quarter prior You'll Interest over past last was to XX our and was compared activity our with the adjusted months. year buyback significant tax last expense up we X% line third note of third slightly from had quarter expected, the in as in reflecting rate that our

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

across were while Organically, up from heavy while sectors and For the year-on-year. most modestly quarter, acquisitions renewable energy industrial Process by industrial was in headwind the modestly, million, contributed of and were industries sales million services year. the the year. in $XXX gains. quarter or positive, million quarter. $XXX Marine positive nearly Industries' sales driven or The also which adjusted and a sales strongest of was costs third up, up lower of posting was the growth XX.X% in Industries' XX% reflects net general with were Pricing XX.X% Process EBITDA last XX.X% more price distribution, third higher EBITDA increase was volume, translation benefits in operating Process to higher segment than last and the offset sales quarter. compared of mix the margin impact currency $XXX

labor EBITDA XX.X% was or posting heavy XX% of volume more Slide were more costs, degree in XX.X% largest challenges up to of of XX. Industries' would positive and than driven last than $XXX Industries from off-highway impact the $XX year. million, by and sales Mobile to the material continues than automotive be point compared Mobile last decrease increased higher Now segment by the sales turn on X.X% price let's Mobile that In higher of quarter, inefficiencies with Process margin benefits Industries gains. to We while which third out EBITDA quarter. inflation, was sectors, million offset Organically, sales mix currency year. operating greater in sales the the were the chain a and $XX million Pricing Industries' in impacted was while was or The was supply up a positive, quarter translation third quarter. rail in adjusted Industries. for the aerospace flat. and I the to truck also Mobile headwind relatively Mobile

operating compared was million earnings. cash year higher million. in higher Turning flow by cash $XX CapEx, driven to last Slide XX, of And you flow can flow quarter. $XXX after free The generated the see we was that to cash mainly free

reduce come working taking other expect targeted down We to capital we as are we approach steps seasonally to year-end and inventory.

times. pro capital and step to again to So flow improvement remain range. the GGB we closer of Bearings the forma from end well times, X.X further our sheet, around the to Taking a acquisition we quarter. we finish be the is to September continue divestiture the the cash our would ended With ADS debt balance in of structure, year and adjusted we would at a targeted leverage within the position in in in strategic After free drive to and up anticipate June net which expect planned in fourth net of to at quarter, closures with earnings X we great fourth with XXXX. EBITDA allocation our strong an look priorities expect capital accretive our

capital. outstanding company use of or of $XX During cash and buybacks repurchased an of the third of attractive shares through million quarter, to repurchase we've the returned shareholders million as total dividends XXX,XXX shares view X% shares of X continue stock. to as Timken Year-to-date, we about

to Slide let's on outlook, the Now XX. summary turn with a

new a The which also last in prior year adjusted improvement outlook outlook. outlook XXXX would The our our line quarter share about from for basis based $XXX. is new raising for that represent strong a from on of our expectations our our rest to earnings now outlook share, $XXX will We the results all-time and up per EBITDA an $XXX be $XXX and XXX adjusted range both versus of year. increase last bottom EPS of full-year midpoint guide earnings per our margin Timken. of third for consolidated the prior midpoint and up performance, are our to XX% year, be points from top the We will estimate of record implies in the our

in margin quarter, continued volume higher We year-on-year expect the performance. positive price strong operational improving cost fourth dynamics, by driven performance year-over-year and

XX.X% to the from in our quarter. up be revenue of outlook. around year, performance revenue quarter third revenue our the up This of total organic XX% for X%. growth versus sales around fourth We're the implies Organically, be to in is prior which Turning now expect we and strong about XXXX. the midpoint revenue outlook for reflects planning X% to up at now

in GGB basis full points sales to be which basis the Our for backlog divestiture both our Bearings the full transactions. than revenue ADS supports outlook. our increased to to the the for expect from to points including points that now X.X% a is worse year, expect year, currency roughly from for impact around assuming XX and outlook. M&A about prior. the mid-quarter finally, a Note And up are XXX contribute prior We net headwind we our basis outlook, topline the our XXX we acquisition close now

free now for sales our This million issues. $XXX generate and to XXXX. full by to supply increased ongoing driven year expect prior is Moving the outlook reflects and capital flow, higher cash we chain than working lower

we sales guide. our the from of finally, As net conversion and significantly XX.X% we spend interest CapEx to million roughly at year Investor expect $XX XXXX and under be anticipate recent unchanged for in initiatives. the both We of X% excellence estimate would our around year come growth will flow rate around any highlighted step our tax will we with full adjusted scenario. prior in long-term And almost Day, and up our expense we free cash fueling operational expect

and results outlook pace yet So, in to full the we're earnings financial again. well summarize, performance concludes our for the record our going team deliver a and scale remarks Operator? now the to and open position our This as continue formal we'll questions. line positioned top leader drive forward. to quartile all-time Timken industrial diversified XXXX and on third We're raised to strong delivered quarter year in

Operator

Thank you.

[Operator today Stephen, with from will ahead. Instructions] Stephen comes first please Jefferies. line the of question-and-answer Volkmann question We session. now Our go the begin

open. is line Your

Stephen Volkmann

to we to Nice Wall the talking about much. the is other a on one. you off it, but talk segments as so wanted start to Street if because everybody sort of margin at kind crushing the I could, look you obviously going differential between Process today. little of are to bit always two we know Thank

what seems to that's that there So these cost there I segments? inventory going guess between some Mobile of with would And different in bit don't low little think there there's below, expected of somewhat like long-term I sort something more end two we is just a perhaps Is I the just price is ranges. different? your have on reduction at happening much and Is Mobile? also that story. know,

Richard Kyle

definitely Thanks, steel, them to we'd slower. Yes. with are inflation Steve. price the them little get up. point We Yes lower so, does like with To bit gets disproportionally hit as to probably is recovery Mobile with And then get disproportionately hit currency margins and need than made, you Mobile just well. be. a

positive comments, it I which, So, side, prices on third as see will did also his the quarter and we that we start said Phil from more in think quarter. easing fourth in more the expect in the to benefit steel of

some natural there. help So we have

healthier to bigger finish year we'll in at see this Mexico, and the Xst and start of standpoint, be the I say pricing and that also we'll the next level, then both opportunity level, our we'll take chain closing a which advantage this would benefit plant. low -- the from agreements year reset much negative new another self-help projects there, I opportunity that at -- the the year And are a year, year the annual January and the were will started of next there. of have plant Mobile a referenced those to positive that We Both I two very in then two as many -- at of said year that.

Mobile. we of in think have amount disproportionate a I coming self-help probably So

with getting -- not It's probably but sequentially, with -- We margins Mobile up. the have on improving been caught been just the getting cost, focused Mobile will we pricing. up we're

to think, I good we do of have a sight line so.

Stephen Volkmann

actually EBITDA, related. helpful. as of bridge better, the get of your and Okay, material Phil, That's continued the but for see kind is I know, and SG&A to here. it's to if don't But price/mix based to manufacturing follow-up, get continues gave worse we maybe on logistics that kind through And great. us you go year nice this

what's as that So year-end outlook through for and kind into the we get 'XX? of

Richard Kyle

our Phil in would of to what and to is is as also then there piece, chain we've quarters, that the manufacturing is supply that. the element do and I still self-help you, an said, Well, need there that some some inefficiencies improve seen and last we're On tell we two things inflation up that inflation space or where input gone steel and other and broad-based everything logistics, that including that We're a our pretty wheel we labor. across seeing seeing the a costs has down it's beyond number or across of material manufacturing else broad-based logistics grinding pretty over lubricant gone of pallet.

side, the I'm some other some topped expect side I out. sure So on self-help one and the improvement has but not

we we as looking, look a that offset largely that at are as next need we look pricing. at think we with that So and to year cost structural

Philip Fracassa

Yes, Steve go -- and on head. SG&A, the

Stephen Volkmann

Phil, sorry please. No,

Philip Fracassa

from out just dollars being was compensation, were to we I XX% that year. in exclude, of we that a as revenue. compensation, given were I was dollar with items running sales were up on year-on-year. the we basis, the of Yes, the close higher last you well sequentially But as what as look the second much to roughly pointed ran That's incentive of you know, going higher quarter spending, on so some flat when mean we SG&A, say higher in kind special

in with year, that the for think line which this increase of the I people and but of in expectations. sort out with run getting our it traveling in and coming of we'll line, more revenue, did full in COVID back year was more more or kind SG&A line activities, normal to less range says,

Stephen Volkmann

any future? there some unwind be kind may point has way all to been this, what productivity through of the the in ballpark at Is headwind which Super.

Philip Fracassa

half cost we the would well capture I'll the I of there and of need certainly think bar is expense. on to I think and I said better our say, something inflation the get and sequentially, getting, manufacturing walk, it's I EBITDA been certainly but structure, bigger say than of get right. less slightly is the after of Well, as issue, out there mean, it's I that,

Stephen Volkmann

guys. on. Thank Super. I'll you, pass it

Philip Fracassa

Steve. Thanks,

Richard Kyle

Thanks, Steve.

Operator

Our next David. comes Evercore Please go David question with ISI. from Raso ahead,

David Raso

Hi, you. thank

the pretty guidance healthy organic fourth down the Your quarter growth still third XX%, but in level. quarter, implies at it's a sales at from

guess, calibrate just how versus to old know trying working of kind just growth heavily business, I I in And but a I'm is new organic much you're follow-up. quarter that working So, resiliency often seeing? off indicative of I or backlog I'm not interesting. is that you're in the much old the backlog-oriented And orders fourth order just that a of have strength the trying continued backlog? to how somewhat calibrate, then of that

Philip Fracassa

May, I'd quarter. and the say, June backlog down in our of start to second the by come David, the timeframe end did peaked

today, still October, coming high, we in sit clip. here However, quite orders very are healthy in at it's as a and

up So over in I'll shipments. day orders looked other they're give are you through one but than year, example, our up when at October October, I last data just distribution less the the

little at in taking a with a than still year last into are faster we're clip the in there, So we chewing orders price backlog. we bit but were

-- is still it So but some it's positive. above,

David Raso

of also healthy 'XX it's and obviously with chewing not pretty cancellations, of starts first quarter, the mind part XX% is essentially the I mean fourth right a now, how least get And you here, would as backlog now, the really suggests you in of through unless like sense I do at mean large backlog, it the us can questions if the organic. you genesis just giving

the you question. you essentially, So, want to however address that, know, that's

Some quarter, next is pace sense how backlog or a whatever help sense of on overall you. maybe to as the large year? of book-to-bill the us you organic to the an start to can Thank get

Richard Kyle

a on other we've give got details that because a run backlog, businesses oranges some backlog don't apples that lot we got that in some the product and of and backlog. a things think, up and run of where there, we've of and over of lines a it's added run weak year I Yes, lot things

a -- percent market, quarter is grow generally QX would in organically whenever up sequential organically. we we tell QX first grow a but we in So I good fourth X-plus to and -- the the you, quarter organically, normal

the up than going we we coming And you it pace. higher a as here backlog it and started So that the quite chew to still -- the enough today, sit said, are again, orders year. end it's a is think the high still we bit in of could as year at

setting means think I we it's more the year we about always year the the strong February to strong we'll that almost that finish to up So January, as which start call. after talk and get

Philip Fracassa

and I Rich's it's versus it up as to do the backlog well. last is, as But publish does the annually expectation is, you point, K, some we down is the the up pretty normal, as Rich the might is from year know, quarter last digit which healthy end we'll David, it, the the of year on of range, from too with fourth end significantly And Yes, a we comment call other well. -- in the make, revenue, guidance mid-single to which did year. normal imply the kind obviously our pretty sequential step sort had said, of comp growth last says of that in year

David Raso

I'll in one acceleration a your you off. had And we if could, say, hop last this little an Between obviously bit, quarter. little two guidance Mobile right, Process you incremental, quarter. The organic, segments, hit the XX% the and for slowed

sense the I'm quarter, know, holding? Process. For from a 'XX and notably just and XX.X% starting Process and slowing this a the kind down in as getting we have higher that of all step for to lot momentum just Mobile XX%, of you do were down margins

to trying into... is So of sense get a growth I'm just heading where the

Richard Kyle

in third, and as the bit more inventory the the a holidays OEMs shutdowns sort thing the bit year. managing little of end as little bit more at larger affected slows typically then Mobile Process OEM quarter the a little more and of that fourth well a from

So is QX more referenced. sequentially from QX to that just Phil the number

obviously on So our I side. would bit which -- little probably is to a Mobile for heavier the mix good it in do, expect flip

Philip Fracassa

Thanks, David.

David Raso

you. thank right, All

Operator

Citigroup. with Thein Please go Tim line Tim, open. from is comes your question next Our ahead.

Tim Thein

-- may in bit think, Yes, anyway distribution. Thanks. we it's you public that certainly strength, outlook, maybe one helping against larger just but element noted year? the to how consistent quarter And restocking kind of in of the one Good reported about little and every Rich, I performance that, that think of trends in a knows Timken goes is growth morning. geography Great. know sell-through generically you much at But basically by just this versus any or think that, sell-in pretty first to relative earlier, 'XX, mean, relative I just next who in i.e., America. on question? and how your is about have, as where does this of a covered least you the there on don't the with Or but customers some you perform your year it for North growth do just I means

Richard Kyle

Yes, good world. it's very slowed. say, question. I the strong would around And certainly, has Europe

have distributors So us inventory say, a of maybe more I inventory And Europe levels would we everywhere be would for and say The to in except which strong. world that where clearly is of visibility than though, and rest would the the very sales Europe couple still build looking is a States distributors. and United are tailwind still the large I and to headwind inventory. global more for of a exception.

both October prior year. but a higher quoted I the again than just rate at shipping are orders from the October, As growing data, we

the particularly there to through as I then, say, would heading is be on low growth year on headwind depends probably really channel And year. magnitude certainly I that or/and tailwind it it But back don't from for still the of see plays turns given levels, and fourth any So the into next would out. I how a quarter, today. the so certainly think, experienced, side, inventory you know, 'XX the we've are even you higher XXXX probably look think,

Tim Thein

on maybe for there Okay, And judged end being the least that the market know surprise it. some markets got of regarding subsidies, think know, do of got maybe of prospect red one longer bit and in at just presumably just maybe is cetera. growing players and some a you that by time I huge 'XX the year. you renewables, the a side. think political, recently, the one that waiting a then longer the more of is for clarity in kind the there that obviously don't that you've customers et cycles. of wind you certainly a it's account But And sales lead little about for bit environment How on larger in notion for the and -- little

of know, how about 'XX? you portfolio don't I the that specific So, thinking just piece in are

Philip Fracassa

underweighted very and have over is and growth in backlog, for market where would long-term the than the our this it then visibility the and up. rate reminder, -- backlog Yes, heavily a with, going of business. longer to to on growth mean, visibility Asia earlier Americas. a parts the it space question and to certainly weighted an to believe remain about And be the other and start area Europe to I longer bullish invest mix long-term higher is continue growth it the we high higher for to we're us other to tend we I of the over

end the the So 'XX. at business for slowed of us,

So there than been in down -- we the really COVID various been business probably and even issues more later Still it digits I a of mid-single at have year would strong to of year. -- exception market. China it issues the by has certainly a But in looking a started would 'XX. was back we're lockdowns with down think 'XX. probably the little that and in in government the impacted start has Thought bit come

around good cetera, it's still So terms up next five back would situation comes in to is be some 'XX doubt that for renewable the a the for think year it no good growth are of that. order I issues the of the for and for economic U.S., going comment, pick of and for investment momentum is continuing mean, years. to my et place to a et be really there the stability plus to is China much mentioned building you strong that you for -- -- year. back there, I flow Europe, the be getting optimism the the and it's and But that Asia, we cetera. a opening will tell to energies world momentum coming just and uncertain probably there is I more is still Europe,

Tim Thein

it. Understood. your Thanks time. for Got

Philip Fracassa

Tim. Thanks,

Richard Kyle

Tim. Thanks,

Operator

go Steve today Steve. Capital question next from Please comes Barger with KeyBanc Our Markets. ahead,

Steve Barger

Hi, thanks.

expecting on an up. priced Just you're are and trying still unit or in Is in coming items down their came that comments, a to Just orders want reduction? is solid the sequentially inventory through while. that said time increase to balance to sheet the actual you but just frame clarify that first quite the growth, distributors still higher own for inventory, yours working

Richard Kyle

sell It's we less we planning are in as than produce and a fourth well. the quarter unit reduction, to

in have of a not eliminated. smooth and a well the to We quite are of as half -- last normally issues has due aren't bit years, been it inventory chain efficient as be And what two year as it far again built and a from and those issues. effective supply bit the quite would

maybe seen have We reliable, up twice become at versus things one say, more and doubled point, what and improve were consistent. like longer they they now more they times, are XX% transit

So would our on our the more of focus, of bringing we're more say, the on I productivity inventory. -- line inventory

quarter, are but now aren't will in flow the at our there we correction fourth reduction at as in we quarter help a So some big that looking looking the and cash fourth well.

Steve Barger

but news lot but how one how tough a restrictions. can to us remind you there Understood. they you retaliate, or much strategy will say is your China predict, China? it of to product does or and relates manufacturing there export all and be this from make rethink actually was if And this impossible do manufacturing footprint -- to next -- Obviously tension at obviously going semiconductor you to as

Richard Kyle

Yes.

balanced We footprint. a have pretty

of We of although would China, U.S., small -- it into net other of exporter are out a more Australia, go Europe, to not comes back other lot it geographies. a the

diversity in Europe been think have pretty Europe, I I mentioned, we balanced some there, that, China to us investment And five-year -- dealt that again and period years we China you India -- that, say, steel our took whatever Eastern but really take one chart, there providers had on our with we recently a I you'll deal And in then the with. We comes the ago. able a see we're from customers economic if back a have basket. many in investment over-weighted to balanced or that as next. we're and India, And -- of know probably and would approach, pain short-term four things to with between tariffs of to think a I largely to some will good eggs And with more lot approach don't those would that. you too footprint, was So and have deal industry, not navigate highlight of we're the and bulk three, steel big were I Mexico. continue our of a handle position volatility

Steve Barger

you. Got it. Thank

Richard Kyle

Thanks, Steve.

Philip Fracassa

Steve. Thanks,

Operator

Our next Blair Bryan. Oppenheimer. Please question from with comes ahead, Bryan go

is line Your open.

Bryan Blair

Thank guys. you. Good morning,

Richard Kyle

morning. Good

Philip Fracassa

Good morning, Bryan.

Bryan Blair

I noted your of order October. backlog through implied trends and that supportive guide are solid QX

way and any major your there order out in seasonality? are patterns across if markets, from you'd end call diverging curious any Just normal

Richard Kyle

the is distribution little third said, more strength strong with what Yes, the still quarter the I fourth cetera. where is on, mean, Phil as I commented think Mobile. the and quarter, of et it's probably bit I strength probably looking consistent than Process of

as you in than anything next did get we third will in I 'XX in I there's but fourth different just year, a what significant wouldn't renewables off say look happening think start to outlined some quarter the you'd Again, I happened to see think quarter. in than 'XX, the change they better there.

Bryan Blair

answer, the offer And years the I'm understood. and decision ADS? to runway asking because Okay, on that further simply I any the that cycle you there's attractive assume over can coming color divest would with growth And of would divestiture are we carryover benefit. question, also you your for and if should to that looking net acquisitions, willing what accretion another profile XXXX? at about think XXXX margin kind then

Richard Kyle

Systems, little Aero if Drive average the probably On in the margins, for is business a look you say, year-over-year margins would I lumpy than below year, this total. company Yes. it slightly more

else it to that a it's changed still drones a helicopters from do generator. that. it's and good divestiture, So that needed equipment, to et over of the regard. we in probably business good reposition business, acquired ago one our growth that chose somebody to a investment we to bit cyclicality generation decade help The itself And market, lot a predictability, next little the a more has on from But and warfare really and make -- cetera. it the that good still some needs to be market, of cash consolidation not allow

I will a divestiture. on have that impact flow, company it led little So an But to X% what as cash immaterial was said, think of I company and over really it's revenue. margins,

Philip Fracassa

areas. EPS year, the this synergies, say net with Yes. the we And of I of as I GGB. accretion, end XXXX positive would offset will from accretion we at driving a It be by Spinea, flowing as the accretion, Spinea carryover into into capturing the well obviously got in a got GGB Bryan. mean, year, middle flowing still the net year of the growth

Bryan Blair

Thanks, guys. Understood.

Richard Kyle

Thanks, Bryan.

Philip Fracassa

Bryan. Thanks,

Operator

Please Rob. comes Rob from ahead, go Our with Melius Research. next question Wertheimer

Rob Wertheimer

good Hi, thanks, morning. and

Richard Kyle

Good morning, Rob.

Philip Fracassa

Good morning.

Rob Wertheimer

Yes. on My question basically Europe. is

and slower, just growing wonder you cross where surprise, there no still of no surprise there? clarity if end being there's is what's So some what's some and provide industrial that it's weak if but currents flat you sell I is Europe strong there is market some theme what and any any into, not.

Philip Fracassa

of lower our big which spend the that being renewable operations about flat then Yes, at I the Rob, markets, as would the revenue project say, because And with beginning in mean, rail year. distribution Russia idled we over loss it in talked then we and was the offset in combination a was was rail in really obviously of I industrial general of really quarter, most is particular also up. Europe. industrial by modestly revenue it And the energy, lower

the And to quarter, you renewable lower know, we of offset talked by look it's and still being short fourth Industrial then revenue. the rail ahead then up the kind story. and as So, organically. for we about expectations up modestly

third. We are the slightly expecting continue to soften quarter, to the Europe in fourth off

which one So could positive be in Europe would to but of world, QX. spot, the slightly we growth the most tip should negative post across

Rob Wertheimer

Thank you.

Sorry, then And missed one one. other earlier. I something if just

the just general is easing they things You've are a gosh, but back few up, big a different forth? better XQ picture are still chain are sense, getting or supply better, touched on, getting it they in in ways, and

Philip Fracassa

think incrementally. I of buy directly more impacted by that, better impacted by indirectly we a and chips they're they're don't mean, I that. getting are gradually getting aren't we better, lot but

The issues and in that on our situation a there. third significantly amount that of customers For an is cases, fair impacted some things better it end coronavirus absenteeism most labor from China lockdowns quarter, regional better. to of with that et have the gotten Still seems in world their was. cetera,

challenging pre-pandemic. longer of mentioned significantly earlier, are than more then were -- and world I in transit Ann longer they still to times still than As add much -- remain tight people. challenging labor markets the normal obviously

slightly better it's think again it's -- you fourth still surprises getting more and bumpier, but it's quarter. what I in would think than choppier, we're expecting do So I still expect, better the

Rob Wertheimer

you. Thank it. Got

Richard Kyle

Thanks.

Philip Fracassa

Rob. Thanks,

Operator

with Please next Goldman Our question go Ritchie Joe from Sachs. ahead. comes

Joe Ritchie

Thanks. morning, Good everyone.

Richard Kyle

Good morning, Joe.

Philip Fracassa

Hi, Joe.

Joe Ritchie

that inventory, just XXXX. how obviously as understand cash curious, the really manufacturing the I'm to under-absorption in facility you I want curious of P&L, just given recognize you Hi, guys have. to that positive margin effect particularly, impact. selling to the out to sell your like out? start to flow that's impact there on does going might It's the also like that inventory -- I'm you, commentary try that specific the are some be your at

Richard Kyle

one It's reasons third of the quarter of second usually We margins a reasons it's little first we year quarter, in it's fourth. inventory a and and the some normally one in the lowered slight build quarter why the fourth the our the of bit year. the in headwind usually are lower rest the than why -- and of

quarter, in we'd anything be But year a say basis, bit it's when fourth look to looking a I at and last So abnormal. little we inventory out. year-over-year the wouldn't take built you

certainly be guiding, we're factor. up impact other and from factors. fourth as that with absorption we're So the from to But offset year-over-year in more the obviously, guiding in quarter would there than an lower margins production price/mix

Joe Ritchie

like next like cost real think, that I question in, a inventories first sell of say, let's is, guess, is to I proactive to like the sure like that? continue tougher offset to half lot are of lead to or does a some year, you of Yes. if you I then I the be want help going it that actions taking make get to guys just comp,

Philip Fracassa

we Yes. inventory certainly standpoint. I helped year, at look Rich Joe, mean, that I think, said, this the as you have, as which build, from

cost expectation would our ramp higher a a the We less I that also cetera. lot next year Rich inventory were -- production, the inefficiencies because build ramp we in down inefficiencies the saw of be but as et the sort come and think of persist if this and significant by would lot to of we're costs as had significant higher year said, into with will be we the year. expecting inefficiencies and next a that up But it, -- negative, inefficiencies slight caused the

we're production around think that we So speak. I if on there, about continuing a we'll talked of a you some as to the self-help working of plants we as little consolidating ramp, of coupled will, bit that as new -- offset lot with get facilities moderate, the

And puts ahead I be and we as takes so there'll think look year. into next

Joe Ritchie

a environment quantification again last price-cost, makes difficult of talk And Got come anything enough in you from on can of That head think I do be reprice 'XX? sense. little we 'XX, into kind through more about you see as might it. lot we're bit commodities where a one some one components as know Or you maybe down just but of and my contracts, going thinking started a we're to an have like you not conversation pricing? it a to get where still perspective,

Richard Kyle

logistics moved do, And in need to 'XX. and We point, and like have I there will this conversation. start again would drivers of energy, and tough and from improve get pricing need. quarter. to other your sequentially The labor enough the quarter expect the enough we price to the but there's to We first steel momentum price for factors there's think positive

Joe Ritchie

guys. Thanks, Okay.

Richard Kyle

Thanks, Joe.

Operator

go Please question comes with next Stanley. ahead. from Dillon Our Morgan Cumming

Dillon Cumming

Great. question. Good morning, guys. Thanks for the

Richard Kyle

Good morning.

Dillon Cumming

Joe's there, question can quarter. on kind I on if of wondering the pricing build just Just in last

what distribution clear contribution contribution the from in parse pricing actual you put kind out annual kind much kind increases out be about You actions if you went any of was just of of obviously price But with kind on quarter? kind mix hoc start through ad can side. the were quarter of during how more the of indexing from price the wondering year the you the to or the that of considered normal versus of automatic

Richard Kyle

we as Yes. so an certainly that Within is favorable that said, of mix. mix year-on-year, element is price/mix,

another I price. there we're all that. is well on cost percentage is guess, of of some and then not indexed, in selling -- indexed, material it's cases, a on the So outside if a that raw things currency And price It's the and does. under that. And generally, couple of pricing, of unless retreat there's But lag the half currency. it things won't a

it. a recovering start up a actually year, prices is was to at a steel with any there last of into that like play and pricing with what negative positive us lag. indexed net to 'XX -- But So lag us. be was which seen for that in expect we've factors would still would there's There

Dillon Cumming

are in obviously you relative raise XQ the Thank midpoint. not pretty consensus at number consensus clear. kind question had into any And it I but an the unfair That's XQ, didn't necessarily a you. guidance the the quarter realized number Okay. yours, then was to of upside good since imply but

of kind to would kind you right of full of for imply of of if implied your bit kind for curious end in number order assumptions XQ kind through top of that quarter? of upside you to can fourth might terms hit in what go guide have the talk Just your year the a

Richard Kyle

X% it with through would drop being volume think pretty start I and over obviously the would well. number revenue X%, Well,

is just the I then anything as the there's help. but on would contraction think during to we certainly the that And higher sales slightly sequentially less said even And begin earlier, side. then situation on sell can the we well. that obviously quarter, material also, further planning to produce than the as helps we we second manufacturing are stop see that logistics increase side, if we on

are I think the price the set. is on mix, And indications say all with I counting again, largely two be. it last will we're positive which, that again to then, left, months guess, I'd largely be the one is and

Dillon Cumming

Thanks Great. time. for the

Richard Kyle

Thanks.

Philip Fracassa

Thanks, Dillon.

Operator

comes from Please ahead, with Capital. question next go Chris Our Dankert Loop Chris.

Chris Dankert

Hi, guys. good for question. taking Thanks morning, the

Richard Kyle

Good morning.

Chris Dankert

thinking like off, how utilization -- general on you of today? kind ballpark starting update of that's I looks and just kind would factory loading guess of just Mexico can mean, there kind about the XX%, is we us I facility, great? be Just XX%? what are progressing it a of

Richard Kyle

I at machine capacity, ago went a it's in for capacity, it and the you there's be a floor And and ramping as zero cetera. well ago, do vibrant because and people from probably plan what's you close a running Yes, would But to well. up et working couple of a it machines factory on facility year space, have -- feel percent gone man went we a facility year in a fairly with XXX if wouldn't and/or to today, a lot to like being to over of would idle equipment samples, saw construction installed automated in years.

a in long way side. the it's us So cost will on a year, last the pickup it year-on-year be come and nice for

Chris Dankert

zoom into guess, here I footprint be facilities product there. much are value Are you. -- Mexico, the cost, on to Timken of has great Yes, the would excellent guess, supply I about job labor Got to mean, getting beyond are just evaluation from opportunities like out the shortening color the so to I shifting more market done a talking about more a kind mean, really matching holistic of Any about chain? I talking and similar comments well. perspective, how for there, are there as maybe thanks -- chains? we Rich. we holistically other today? thinking we of

Richard Kyle

specific don't and facilities part any into better You regions in into higher working specific facilities. over We time take and some major demand invest a our other overweight facilities shift -- flex we've on then strategy and know, cost/smaller think of decade. out capital with that our there's been for footprint I

Indianapolis have plant Some some prior the to acquisitions of in et done few one Those this cetera. I up last out earlier closures the more issues, two the that us the but is chain Italy, other mentioned, our wrapping do in kind some drag years. them given completed coming got end year. supply years of And We a we one, to probably of had bit, opportunity this the at year. in little over announced of of

-- a anything we big So underway else our the say, based anything it. balanced have But we do we you'll us and I our have, got but a footprint. dynamics good plan timing -- speed five-year moves that to have now, imminent to footprint. don't plan in so and of think on right see march of we've do march the alter plan that continue pretty market no down, at And for I'd other we

Chris Dankert

the nice quarter. so color really the much and Thanks you. Got there. entire team And for congrats to

Richard Kyle

Thanks.

Philip Fracassa

Thank you.

Neil Frohnapple

Thanks, Chris.

Operator

Please of from Feniger Bank ahead. Our Michael with next go question America. comes

Michael Feniger

your we below this pre-COVID. in yet me squeezing at is Hi, above everyone it's your above pre-COVID, 'XX, nicely margin, thanks look everyone. year, EPS sales pre-COVID which still the level are for Hi, If in. up EBITDA

So just exceeding to margins and from broadly, 'XX, at we it that returning anything as pre-COVID 'XX? structural peak preventing back your look

Richard Kyle

No.

And cycle, that. timing industrial we targeting and to play the Investor various cycle XX%, we're committed outlaid things and the towards But that. -- as into obviously, do the we're itself think Day, trying we're the the to and of marching acquisitions at play into XX%. I just

can we there. think, get I

Michael Feniger

your on, Perfect. you the mean M&A, of as leverage I reasonable. is timing And said, just

times. I think X around you the said year you're going end to

free bigger cash year. year expect You next a flow

about XXXX, integration more Spinea XXXX integrating GGB and about just close see is and of So M&A supposed to is more it's QX, could to buybacks in more maybe know, and the acquisitions thinking year about outside shifting XXXX? more or in you we acquisition

Richard Kyle

year side opportunistic. be of a M&A Well, and one -- more think, that we a cash The of those allocate will of to flow remains I two. will good year it capital

I is degree think overlapping. acquisition -- been are to complementary they're Spinea integrated more the Cone, certainly some to with be than going they but

it's And I couple business is business. $X say a billion GGB integrated being fairly So bearing of hundred a then into light dollar a integration. million would

we have we there's And the bearing, management present that's were of to within then more did And think less likely that few less handle there's we opportunities. again, have bandwidth the management handle with the before organizational itself, we're So targets the making to we I talked because think have should continue intention and ago working that bandwidth we line, space. product -- the as we motion on industrial that. the although that of I could -- bandwidth done in probably announced ample in sure changes specifically a months the that

So be believe we'll good in and redeploying that generating cash active biased next and to cash. as had year M&A we've

Michael Feniger

Perfect. Thanks, everyone.

Richard Kyle

Thanks, Michael.

Philip Fracassa

Thanks, Michael.

Operator

this time. at comments do Sir, any have are There no or you remaining questions final remarks?

Neil Frohnapple

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

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

Operator

call. release quarter conference participating Timken's for you third in Thank today's earnings

now disconnect. may You

The Timken Company (TKR) 26 Oct 222022 Q3 Earnings call transcript