The Timken Company Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Results: Achieved adjusted earnings per share of $1.14, exceeding the high end of guidance. Total sales in Q4 were up 3.5% year-over-year. Organic revenue was up over 1% driven by higher pricing and volume growth in Industrial Motion. Free cash flow was $141 million, with $36 million returned to shareholders and debt reduced by over $100 million.
• 2026 Outlook: Expect organic revenue growth, strong free cash flow, and higher margins. Adjusted EPS expected to increase around 8% at the midpoint of the guidance range. Organic sales expected to be up 2% driven by higher pricing and modest volume growth.
• Strategic Initiatives: Progress on 80/20 portfolio work, extending the discipline across the entire enterprise to simplify the portfolio and optimize processes. New leadership appointments (Chief Technology Officer, Vice President of Marketing, Regional President) to align with growth drivers.
• Balance Sheet: Ended the year with a strong balance sheet with net leverage at 2 times, enabling balanced capital allocation.

Segment Performance

• Engineered Bearings: Q4 sales were $714 million, up 0.9% year-over-year. Organic sales decreased 1% due to lower volumes offset by higher pricing. Adjusted EBITDA was $115 million, or 16.1% of sales, down from 17.2% of sales in the prior year.
• Industrial Motion: Q4 sales were $397 million, up 8.4% year-over-year. Organically, sales increased 5.6% driven by higher demand across most sectors and higher pricing. The segment margins increased due to higher volumes and pricing.

Guidance

• 2026 Revenue: Planning for full-year revenue to increase 2% to 4% total, with currency contributing around 1%. Organically, revenue expected to be up 2% at the midpoint.
• Adjusted EPS: Expected in the range of $5.50 to $6, up 8% at the midpoint versus 2025.
• Free Cash Flow: Expect to generate around $350 million for the full year, approximately 105% conversion on GAAP net income at the midpoint.
• Q1 2026: Currency estimated to add around 3% to the top line, with organic sales and adjusted EBITDA margins relatively flat year-over-year.

Risks

• Trade Uncertainty: Ongoing trade situation, including tariffs, poses volatility and uncertainty that could impact pricing and margins.
• Macro Uncertainty: Global market conditions and geopolitical factors introduce uncertainty that can affect demand and revenue projections.

Question and Answer

Q: Demand trends and order progression A: Order book ended the year up high single digits, with off highway, general industrial, renewables, wind, and aerospace as big contributors. January is consistent with Q1 guidance despite ongoing uncertainty.

Q: Segment contribution and margins A: Industrial Motion was strong due to volume and mix, while Engineered Bearings were impacted by mix and tariffs. Margins expected to improve year-over-year due to pricing, cost savings, and mix.

Q: 80/20 across enterprise A: Expanding 80/20 to operations and supply chain is in early stages, focusing on simplification and resource allocation for growth, with timing typical for the company's size.

Q: Tariff impact on margins A: Tariff benefit of 10-15¢ per share is included, with pricing actions weighted to the second half, expecting margin recapture by the end of 2026.

Q: Manufacturing footprint and 80/20 A: Global manufacturing footprint is leveraged for regional exports and growth, with simplification aiming to improve margins and free resources for growth.