TIMKEN CO Q1 FY2025 earnings call

First Quarter Results

• Sales in the quarter were over $1.1 billion, with organic revenue down around 3% from last year. Lower demand in Europe and the Americas, but up in Asia driven by wind energy growth. Total backlog up low single digits compared to Q4.
• Adjusted EBITDA margins came in at 18.2%, and adjusted earnings per share was $1.40, both below prior year due to lower volumes, higher manufacturing costs, and unfavorable mix.

Outlook for 2025

• Industrial market conditions expected to remain challenging. Tariffs expected to have a net direct impact of around $25 million this year. Reaffirm $75 million cost savings target for 2025.
• CGI acquisition continues to perform well, accretive to company margins. Expect net interest expense in the range of $95 million to $100 million for the year.

Strategic Priorities

• Focus on product vitality and customer centricity to drive organic growth. Operational excellence as a core competency to navigate unpredictable environment. Disciplined capital allocation to enhance shareholder value.
• Initial output of portfolio review focuses on significant portion of automotive OE business, expecting margin impact on 2026 and beyond.

Engineered Bearings: Sales were $761 million in Q1, down 5.2% year-over-year. Organically, sales were down 2.8% due to lower end market demand in Europe and the Americas, partially offset by higher sales in Asia. Adjusted EBITDA was $159 million, or 20.9% of sales. Industrial Motion: Sales were $380 million in Q1, down around 2% year-over-year. Organically, sales declined 3.8% with lower demand partially offset by higher pricing. The CGI acquisition contributed over 3% to the top line. Adjusted EBITDA was $67 million, or 17.7% of sales.

Revenue

• Midpoint outlook for 2025 revenue down just over 1% year-over-year, improved from prior guidance due to currency headwind of 1% based on March 31 exchange rates. Organic revenue expected to be down 1% year-over-year, with pricing offsetting volume decline.

Earnings

• Adjusted EPS range $5.10 to $5.60 per share, down $0.20 at midpoint from prior guide due to $0.25 per share unfavorable direct impact from tariffs. Adjusted EBITDA margin mid-to-high 17% range, including $25 million tariff impact.

Cash Flow

• Midpoint free cash flow around $375 million, benefiting from improved working capital performance, reduced CapEx spending, and lower taxes.

• Tariffs: Uncertainty around tariff impacts, with an estimated $150 million gross annualized cost impact. Need to pass costs through pricing and other actions to offset.
• Industrial Market Conditions: Continued softness in industrial markets, affecting demand and sales volumes.

Q: Details on renewable energy trends in China, order rates, and full-year outlook.

A: Q1 renewable energy demand in China was strong, with order intake rates picking up. Expect mid-single digit growth in full year, with momentum from Q1 continuing.

Q: Pricing relative to competitors and U.S. supply chain positioning.

A: Competitors raising prices, Timken raising prices through distribution and OEM channels. U.S. footprint is neutral to advantaged, aiming to hold share and reposition long term.

Q: Auto OE portfolio review impact.

A: Targeting more than half of auto OE business, with no 2025 impact but expected margin accretion in 2026+ Q: CEO transition and strategy continuity.

A: Team continuity, no major strategy change during transition. Focus on maintaining margins, cash flow, and advancing strategy.

Q: Fort Scott facility and manufacturing footprint.

A: Fort Scott facility not fully closed, expecting improvement in margins with step change in Q3. Belt production from Mexico is USMCA compliant.

Q: Raw materials pricing and tariffs beyond 2025.

A: Higher raw material prices expected to stay, with Timken aiming to offset tariff impacts and maintain pricing power.