The Timken Company Q2 FY2025 earnings call

• Overall second quarter results were in line with expectations; total sales down less than 1% y-o-y, organic sales down 2.5% due to lower demand but higher pricing. Backlog up mid-single digits from first quarter. Adjusted EBITDA margin 17.7%, adjusted EPS $1.42.
• Adjusted EBITDA was $208 million or 17.7% of sales in Q2 vs $230 million or 19.5% last year, driven by lower volume, incremental gross tariff costs, unfavorable manufacturing mix and currency, partially offset by higher pricing, lower material and logistics costs, and CGI acquisition.
• Focused on finishing 2025 strong, positioning for industrial expansion in 2026. Reducing high end of full year earnings outlook due to trade uncertainty. Mexico plant ramping up, 3 plant closures in second half to mitigate volume declines and impact margins in 2026. Actively passing tariff costs through via repricing, expecting further price realization in second half. Optimistic on 2026 outlook with backlog inflection, portfolio and operating capabilities better positioned, and benefits from portfolio moves like automotive OE business and investments in automation sector including robotics.

Engineered Bearings: Sales were $777 million in the quarter, down 0.8% from last year. Adjusted EBITDA was $153 million, or 19.7% of sales. Industrial Motion: Sales were $396 million in the quarter, down 0.7% from last year. Organically, sales declined 5.9%. Adjusted EBITDA was $73 million, or 18.3% of sales.

• Reduced the top end of full year earnings guidance, maintaining midpoint of revenue guide at down just over 1% with organic sales expected down around 2% midpoint, offset by 1 point improvement from currency. Adjusted EPS range $5.10 to $5.40. Affirmed free cash flow outlook of $375 million at midpoint. Full year consolidated adjusted EBITDA margin expected in mid-17% range.

• Tariff volatility impacting costs and demand. Volatile trade situation affecting market uncertainty. Inventory levels and belt plant ramp-up inefficiencies impacting margins. Discretionary spend in services and certain markets pushed out due to tariff uncertainty.

Q: Could you unpack the trim to the organic volume guide?

A: Phil Fracassa said it's about being cautious on second half demand given trade uncertainty while markets remain stable.

Q: Thoughts on Timken's applications for humanoid robots and robotics potential?

A: Rich Kyle said Timken is working on applications, has small revenue in humanoid market, well-positioned in automation with CGI acquisition, Cone, Spinea, Rollon, etc., focusing on factory, medical, warehouse automation.

Q: Month-by-month orders through Q2 and July outlook?

A: Phil Fracassa said sales rates in July are in line to slightly ahead of midpoint of guide, order intake rates improving, backlog up sequentially but being cautious on second half demand.

Q: Update on discussions with auto OEMs?

A: Rich Kyle said discussions ongoing, too early to quantify impact, expect some margin uplift in second half of 2026 with possible combination of exiting parts and repricing portfolio.

Q: Characterize inventory levels and services business?

A: Phil Fracassa said inventories at good levels, services business is industrial services like gearbox reconditioning, impacted by tariff uncertainty causing discretionary spend pushout.

Q: Back to organic volume guide and July outlook?

A: Phil Fracassa said guidance trimmed as didn't assume acceleration in second half demand, pegged guide around flat organic second half to get high end and lower for low end.

Q: M&A appetite during CEO transition and robotics portfolio bolt-ons?

A: Rich Kyle said continue to pursue M&A, not on pause during CEO transition. Phil Fracassa said approaching robotics like other high-growth markets, cross-functional team, good capabilities in portfolio, not needing immediate bolt-ons but considering organic and inorganic growth.

Q: Auto contract project differences from last time?

A: Rich Kyle said different in scale and complexity, no automotive plant in portfolio now, mixed industrial plants, too early to know mix.

Q: 2026 outlook tailwinds and self-help?

A: Rich Kyle said multiple factors pointing to upturn in 2026 including duration of downturn, trade agreements, tax certainty, self-help from auto OEM mix, pricing carryover, cost savings from plant closures and productivity measures.

Q: Automation sales teams integration and automation sector outlook?

A: Rich Kyle said use special product and market specialists, getting cross-selling benefits. Phil Fracassa said automation sector like Automatic Lubrication Systems exposed to off-highway market, order trend and backlog indicate better times ahead.

Q: China wind business pull forward and distribution segment impact?

A: Phil Fracassa said there's been pull forward in China wind business due to regulatory change, making second half growth more muted. Rich Kyle said distribution channel less cyclical, not reading too much into current distribution trends.

Q: Backlog drivers and policy initiative impact?

A: Phil Fracassa said backlog up sequentially across broad end markets. Richard G. Kyle said policy initiatives like trade agreements and tax certainty give confidence but impact not sudden. Phil Fracassa added tariff escalations could require relooking at guidance numbers.

Q: Pricing and belt plant loading?

A: Philip D. Fracassa said pricing positive in quarter, stepping up in back half. Richard G. Kyle said belt business down due to ag market decline, Mexico belt plant has ramp-up costs and inefficiencies, but 3 plant costs to come out soon.

Q: Margin guidance change and decremental factors?

A: Philip D. Fracassa said margin guidance reduced due to cautious organic growth view, including volume impact, inventory changes, belt plant inefficiencies, and higher incremental cost headwinds