TIMKEN CO Q3 FY2024 earnings call

• Industrial markets were soft during the third quarter with organic revenue down 3% year-over-year. Geographically, Europe had soft demand, China revenue down due to wind, while Americas were slightly up and India showed strength. - Adjusted EBITDA margin was 16.9%, down 200 basis points, with EPS at $1.23 vs $1.55 last year. Lower volumes, higher logistics costs, and other headwinds contributed to the shortfall. - Recent acquisitions (Des-Case, Lagersmit, CGI) are performing well, with CGI adding presence in high-growth medical robotics and automation. - Aligning capacity and cost to market demand, reviewing the portfolio for capital allocation, maintaining disciplined capital allocation with bias towards M&A, and working to reduce net working capital.

Engineered Bearings: Sales were $741 million, down 4.5% from last year. Organically, sales were down 3.6% due to lower end market demand in Europe and China. Adjusted EBITDA was $138 million, or 18.7% of sales, down from $157 million or 20.2% last year. Industrial Motion: Sales were $386 million, up 5.2% from last year. Acquisitions contributed just over 6% to the top line, while organically sales declined 1.4%. Adjusted EBITDA was $74 million, or 19.2% of sales, down from $75 million or 20.5% last year.

• Full-year 2024 revenue expected down ~4% vs 2023, with organic sales expected down ~6% midpoint (1pp lower than prior guidance). - Adjusted EPS range $5.55-$5.65. - Adjusted EBITDA margin low 18% range midpoint. - Fourth quarter expected to have lower production volume and higher costs due to lower demand and expected cost increases.

• Soft industrial markets and geographies posing challenges to revenue and margins. - Volatility in logistics costs, including international freight, impacting margins. - Competitive pressures in certain markets, such as China wind business where some competitors are willing to take business at margins considered unacceptable. - Collectibility risks for specific customers, as seen with a discrete customer accrual in the quarter.

Q: Stephen Volkmann asked about renewables, share shifts, and capital allocation.

A: Tarak Mehta and Phil Fracassa discussed renewables market stabilization, early stages of portfolio review, and bias towards M&A with disciplined capital allocation.

Q: Bryan Blair inquired about Industrial Motion's EBITDA compression and 2025 outlook.

A: Philip Fracassa and Tarak Mehta talked about Industrial Motion's margin impact from lower volume, plant overheads, and Mexico facility ramp issues.

Q: David Raso questioned about customer softness, 2025 outlook, and margin delta.

A: Tarak Mehta and Philip Fracassa addressed customer inventory destocking, 2025 uncertainty, and margin components including one-off costs.

Q: Mike Shlisky asked about cost reductions and 2025 cost structure.

A: Philip Fracassa and Tarak Mehta discussed ongoing cost reduction efforts, targeting demand-aligned costs, and investment balance.

Q: Steve Barger asked about competitive pressures in wind and other markets.

A: Tarak Mehta and Philip Fracassa addressed competitive pressures in China wind and isolation to specific segments.

Q: Joe Ritchie inquired about discrete customer accrual and logistics costs.

A: Philip Fracassa explained the discrete customer accrual as a collectibility reserve and logistics cost volatility.

Q: Michael Feniger asked about inventory, pricing, and 2025 outlook.

A: Tarak Mehta and Philip Fracassa discussed net working capital improvement, pricing expectations, and flat pricing outlook.

Q: Tim Thein asked about supply/demand balance in Europe.

A: Tarak Mehta and Philip Fracassa talked about capacity adjustments, targeted product line actions, and ongoing mid to long-term capacity management