Q4 2023 The Timken Co Earnings Call

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Operator: Good morning, everyone. My name is Bruno, and I'll be your conference operator today. At this time, I would like to welcome everyone to Timken's fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise.

Buda: Good morning, everyone. My name is Buda and I'll be your conference operator today.

Buda: At this time I would like to welcome everyone to Timken fourth quarter earnings release Conference call.

Buda: All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press start and the number one on your telephone keypad. If you would like to withdraw your question, please press the star followed by two on your telephone keypad. Mr. Frohnapple, you may begin your conference. Thanks, Bruno. And welcome everyone to our fourth quarter 2023 earnings conference call. This is Neil Frohnapple, head of investor relations for the Timken company. We appreciate you joining us today.

Buda: After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Buda: If you would like to withdraw your question. Please press star followed by two on your telephone keypad.

Speaker Change: Thank you Mr Front Apple you may begin your conference.

Speaker Change: Thanks, Bruno and welcome everyone to our fourth quarter 2023 earnings Conference call. This is Neil thrown Apple head of Investor Relations for the Timken Company. We appreciate you joining us today.

Neil Andrew Frohnapple: Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are the Timken company's president and CEO, Rich Kyle, and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from both Rich and Phil before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate.

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

Neil Frontenapple: You can also access this material through the download feature on the earnings call webcast link.

Neil Frontenapple: With me today are the Timken company's president and CEO rich Kyle.

Neil Frontenapple: And Phil for Casa our Chief Financial Officer.

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

Speaker Change: During the Q&A I would ask that you. Please limit your questions to one question and one follow up at a time to allow everyone a chance to participate.

Neil Andrew Frohnapple: During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the Timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation material. Today's call is copyrighted by the Timken Company, and without express written consent, we prohibit any use, recording, or transmission of any portion of the call.

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

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

Speaker Change: We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials.

Speaker Change: Today's call is copyrighted by the Timken company and without express written consent, we prohibit any use recording or transmission of any portion of the call.

Richard G. Kyle: With that, I would like to thank you for your interest in the Timken Company, and I will now turn the call over to Rich. Thanks, Neil. Good morning, and thank you for joining our call. Timken delivered a record fourth quarter, which concluded an excellent year. Revenue was up 1% for the quarter, with the benefit of acquisitions and currency slightly more than offsetting a 5% organic decline in revenue. As expected, wind energy and China were the largest headwinds in organic revenue, with wind revenue down more than 30% from the prior year. Given the significant decline in wind and softening demand across many other industrial markets, we responded well to the situation and delivered a very solid quarter, expanding margins by 70 basis points versus last year despite the lower volume levels. Price costs remain positive, and sequential cost increases continue to moderate. We continue to adjust our inventory and production levels down to both normalized Supply Chain Performance as well as Software Demand. Earnings per share of $1.37 was a record for the fourth quarter and was up three cents over last year.

Speaker Change: With that I would like to thank you for your interest in the Timken company and I will now turn the call over to rich.

Richard G. Kyle: Thanks, Neil Good morning, and thank you for joining our call.

Richard G. Kyle: Timken delivered a record fourth quarter, which concluded an excellent year.

Richard G. Kyle: Revenue was up 1% for the quarter with the benefit of acquisitions and currency slightly more than offsetting a 5% organic decline in revenue.

Richard G. Kyle: As expected wind energy in China, where the largest headwinds in organic revenue with wind revenue down more than 30% from prior year.

Richard G. Kyle: Given the significant decline in wind and softening demand across many other industrial markets. We responded well to the situation and delivered a very solid quarter.

Richard G. Kyle: We expanded margins 70 basis points versus last year, despite the lower volume levels.

Richard G. Kyle: Price cost remain positive and sequential cost increases continued to moderate.

Richard G. Kyle: We continue to adjust our inventory and production levels down both normalized some.

Richard G. Kyle: Supply chain performance as well as softer demand.

Richard G. Kyle: Earnings per share of $1 37 was a record for the fourth quarter and was up <unk> <unk> over last year.

Richard G. Kyle: We closed on two acquisitions and one divestiture in the quarter, and we also purchased 450,000 shares. Despite a very active year for capital allocation, we ended the year near the middle of our targeted debt-to-EBITDA range. Before I turn to the full year, let me comment on the two acquisitions completed in the quarter. IMEC expands our industry-leading engineered bearing product portfolio with a niche product line of bearings that are focused on operating in extreme conditions and process industries.

Richard G. Kyle: We closed on two acquisitions and one divestiture in the quarter and we also purchased 450000 shares.

Richard G. Kyle: Despite a very active year for capital allocation, we ended the year near the middle of our targeted debt to EBITDA range.

Richard G. Kyle: Before I turn to the full year, let me comment on the two acquisitions completed in the quarter.

Richard G. Kyle: Imac expands our industry, leading engineered bearing product portfolio with a niche product line of bearings that are focused on operating in extreme conditions and process industries.

Richard G. Kyle: The business sells almost exclusively in the United States, and we will leverage Timken's global channels to expand their position beyond the U.S. We acquired Lagerschmidt near the end of the year. Lagerschmidt is a leader in sealing systems on the European marine market.

Richard G. Kyle: The business sells almost exclusively in the United States, and we will leverage timken global channels to expand their position beyond the U S.

Richard G. Kyle: We acquired Lager Schmidt near the end of the year.

Richard G. Kyle: Chris Schmidt as a leader in sealing systems in the European Marine market.

Richard G. Kyle: Synergies here are in cross-selling our other Baron and industrial motion products into loggersmith channels and expanding their global position outside of Europe. Both IMEC and Lagerschmidt will be accretive to earnings and margins in 2024. For the full year, we delivered record revenue, record earnings per share, and our highest operating margins in recent times. Revenue was up 6% for the year.

Richard G. Kyle: Synergies here in cross selling our other bearing an industrial motion products and a lager Smith channels and expanding their global position outside of Europe.

Richard G. Kyle: Both IMAX and lager Schmidt will be accretive to earnings and margins in 'twenty four.

Richard G. Kyle: For the full year, we delivered record revenue record earnings per share and our highest operating margins in recent times.

Richard G. Kyle: Revenue was up 6% for the year earnings per share were up 9% and margins were up 70 basis points.

Richard G. Kyle: Earnings per share were up 9%, and margins were up 70 basis points. This was achieved despite a sudden and deep decline in demand in our largest market, renewable energy, continued inflationary pressures, any general softening of industrial demand through the year as supply chains returned to normal. Timken continues to demonstrate the strength and diversity of its portfolio and our ability to profitably grow and perform through a wide variety of market conditions. We achieved positive price costs for the full year and have demonstrated over the last several years that we can perform through declining, flat, or inflationary cost environments. We have advanced our strategic initiatives both organically and inorganically. Organically, we continue to drive outgrowth through our focus on innovative product solutions. Leadership in Customer Engineering, Channel Excellence, and Outstanding Service

Richard G. Kyle: This was achieved despite a sudden and deep decline in demand in our largest market renewable energy continued inflationary pressures any general softening industrial demand through the year to supply chains returned to normal.

Richard G. Kyle: Tim can continue to demonstrate the strength and diversity of its portfolio and our ability to profitably grow and perform through a wide variety of market conditions.

Richard G. Kyle: We achieved positive price cost for the full year.

Richard G. Kyle: Demonstrated over the last several years that we can perform through declining flat or inflationary cost environments.

Richard G. Kyle: We advanced our strategic initiatives, both organically and Inorganically.

Organically, we continue to drive outgrowth through our focus on innovative product solutions leadership and customer Engineering channel Excellence and outstanding service.

Richard G. Kyle: Inorganically, we completed six acquisitions during the year. Our inorganic growth continues to both scale us and existing products and markets, like the acquisitions of American Rollerbearing and Rosa Systemi, and expand us into new products and markets, like the acquisitions of Descase and Lager. Our focus on operational excellence and the subsequent results have returned to pre-COVID levels as we drive safety, quality, productivity, and capital efficiency across our operations and supply chain. We ramped down our production costs through the course of the year, and by the end of 23, we had lowered the staffing levels in our plants by over 8% from the start of the year, with most of that taking place in the second half. We continue to advance our manufacturing footprint with the investment of over $180 million in capital projects and the consolidation of three manufacturing facilities into existing plants.

Richard G. Kyle: Inorganically, we completed six acquisitions during the year.

Richard G. Kyle: Our inorganic growth continue to both scale and existing products in markets like the acquisitions of American roller bearing and Rosa systemic <unk> and.

Richard G. Kyle: And expand us into new products and markets like the acquisitions of desk case and Lager Schmidt.

Richard G. Kyle: Our focus on operational excellence and the subsequent results have returned to pre COVID-19 levels, as we drive safety quality productivity and capital efficiency across our operations and supply chains.

Richard G. Kyle: We ramped down our production costs through the course of the year and by the end of 'twenty three we have lowered the staffing levels in our plants by over 8% from the start of the year with most of that taking place in the second half.

Richard G. Kyle: We continued to advance our manufacturing footprint with the investment of over $180 million into capital projects and the consolidation of three manufacturing facilities into existing plants.

Richard G. Kyle: Additionally, we purchased over 4% of the outstanding shares during the year, and we increased the annual dividend payout for the 10th consecutive year. The full year once again demonstrated our ability to respond to and perform at a high level through a variety of macroeconomic conditions. And in addition to our strong financial performance, our Timken team was recognized by several third parties for our leadership as a responsible corporate citizen, as an employer of choice, and as an innovator.

Richard G. Kyle: Additionally, we purchased over 4% of the outstanding shares during the year and we increased the annual dividend payout for the 10th consecutive year.

Richard G. Kyle: The full year once again demonstrated our ability to respond to and perform at a high level through a variety of macroeconomic conditions.

Richard G. Kyle: And in addition to our strong financial performance. Our Timken team was recognized by several third parties for our leadership as a responsible corporate citizen as an employer of choice and as an innovator.

Richard G. Kyle: Turning to 2024, we're planning for revenue to be down over 3% for the full year and over 6% organically at the midpoint. Let me separate our wind energy outlook from the rest of the market. We had a very strong first half of 23 and win and then faced a steep decline for the rest of the year.

Richard G. Kyle: Turning to 2024, we're planning for revenue to be down over 3% for the full year and over 6% organically at the midpoint.

Richard G. Kyle: Let me separate our wind energy outlook from the rest of the markets.

Richard G. Kyle: We had a very strong first half of 'twenty three in wind and then faced a steep decline for the rest of the year.

Richard G. Kyle: We expect the first half of 24 to be down slightly sequentially from the fourth quarter and then to level off in the second half. We do not have firm visibility of demand in the second half, but at this point, we are not seeing any imminent catalyst for a rebound in demand in China. If it plays out as we're planning, wind demand would be down year over year by over 40% in the first half, and then it would be flattish in the second half on the much lower comp. So we expect to start 24 with a sizable renewable energy headwind, but we also expect that headwind to moderate significantly in the second half of the year. Longer term, we believe this is just a cyclical decline, and we remain bullish on the long-term outlook for growth in wind energy.

Richard G. Kyle: We expect the first half of 'twenty four to be down slightly more sequentially from the fourth quarter and then to level off in the second half.

Richard G. Kyle: We do not have firm visibility to demand in the second half, but at this point, we are not seeing any eminent catalysts for a rebound in demand in China.

Richard G. Kyle: If it plays out as we're planning when demand will be down year over year over 40% in the first half and then be flattish in the second half on the much lower comps.

Richard G. Kyle: So we expect to start 24 with a sizable renewable energy headwind, but we also expect that headwind to moderate significantly in the second half of the year.

Richard G. Kyle: Longer term. We believe this is just a cyclical decline and we remain bullish on the long term outlook for growth in wind energy.

Richard G. Kyle: Beyond wind, we are currently experiencing a relatively normal softening of demand across a broad range of industrial markets. The outlook for the rest of our markets ranges from up slightly to down roughly 10%. This includes the expectation that inventory will continue to be reduced across many of our channels. In most of our markets, we only have a few months of firm visibility into demand. While we are not forecasting a strengthening in the second half of the year, it is certainly possible, and if so, we will be ready to capitalize on it.

Richard G. Kyle: Beyond when we are currently experiencing a relatively normal softening demand across a broad range of industrial markets.

Richard G. Kyle: The outlook for the rest of our markets range from up slightly to down roughly 10%. This.

Richard G. Kyle: This includes the expectation that inventory will continue to be reduced across many of our channels.

Richard G. Kyle: And most of our markets, we only have a few months of firm visibility to demand.

Richard G. Kyle: While we are not forecasting a strengthening in the second half of the year. It is certainly possible and if so we will be ready to capitalize on it.

Richard G. Kyle: We're guiding for margins of over 18% for the full year and a decline in earnings per share in the mid-teens with lower volumes being the primary driver. We're planning for modest inflationary pressures through the course of the year and prices to be modestly positive, less than 1%. We expect to generate a step-up in free cash flow from 23 with conversion of over 100%. We have a good pipeline of self-help initiatives intended to mitigate the revenue and margin impact.

Richard G. Kyle: We're guiding to margins of over 18% for the full year and a decline in earnings per share in the mid teens with lower volumes being the primary driver.

Richard G. Kyle: We are planning for modest inflationary pressures through the course of the year and price to be modestly positive less than 1%.

Richard G. Kyle: We expect to generate a step up in free cash flow from 'twenty three with conversion of over 100%.

We have a good pipeline of self help initiatives intended to mitigate the revenue and margin impact.

Richard G. Kyle: Six acquisitions and one divestiture we completed in 23 are expected to add over 2% to the top line and be accretive to both margins and earnings. We also have a good pipeline of new business activities and cross-selling opportunities that will support our long-term outgrowth objectives. From a cost perspective, we have excellent focus and good momentum on our operational excellence initiatives, which will benefit from the CAPEX and plant closures completed last year and the additional plant actions for this year. We have four more plant consolidations currently underway for 24.

Richard G. Kyle: Six acquisitions and one divestiture, we completed in 2003 are expected to add over 2% to the top line and be accretive to both margins and earnings.

We also have a good pipeline of new business activities and cross selling opportunities that will support our long term our growth objectives.

Richard G. Kyle: From a cost perspective, we have excellent focus and good momentum on our operational excellence initiatives.

Richard G. Kyle: We will benefit from the Capex in plant closures completed last year and the additional planned actions for this year. We have four more plant consolidations currently underway for 24 and our productivity is the best it has been in several years we.

Richard G. Kyle: And our productivity is the best it has been in several years. We will also benefit from the integration center. As an example of this, we took further steps in the second half of 23 to integrate both TGB and American Roller Bearing further into our global bearing organization. These actions will deliver improved business results and do so at lower cost levels. We expect the first quarter to be the toughest revenue comp. In the last few years, our first quarter was up sequentially over 10% on the top line. We are expecting that to be in the mid to high single digits this year, primarily due to wind and the Chinese headwind.

Richard G. Kyle: We will also benefit from integration synergies as an example of this we took further steps in the second half of 'twenty three to integrate both GCB and American roller bearing further into our global bearing organization.

Richard G. Kyle: These actions will deliver improved business results and do so at lower cost levels.

Richard G. Kyle: We expect the first quarter to be the toughest revenue comp.

Richard G. Kyle: The last few years, our first quarter was up sequentially over 10% on the top line.

We are expecting that to be in the mid to high single digits. This year, primarily due to wind in China headwinds.

Richard G. Kyle: We still expect a sequential step up in margins and earnings per share in the first quarter, but not enough to get us back to 23 levels. Before I turn it over to Phil, I want to reference slide 11, which highlights our financial results for revenue, margins, and earnings per share for the last five years. We've set new revenue and earnings per share records in five of the last six years and new margin highs in two of the last five. Since 2016, we've been demonstrating our ability to perform and profitably grow the business through a wide variety of market conditions. And while we're starting 24 in a challenging demand environment, the Timken portfolio is strong, resilient, and diverse. We're confident that our strategy and our execution have put us in a position to quickly return to setting new levels of performance.

Richard G. Kyle: We still expect a sequential step up in margins and earnings per share in the first quarter, but not enough to get us back to 23 levels.

Speaker Change: Before I turn it over to Phil I want to reference slide 11, which highlights our financial results for revenue margins and earnings per share for the last five years.

Speaker Change: We set new revenue and earnings per share records in five over the last six years and new margin is in two of the last five years.

Since 2016, we've been demonstrating our ability to perform and profitably grow the business through a wide variety of market conditions.

Phil: And while we're starting 'twenty four and a challenging demand environment. The timken portfolio is strong resilient and diverse.

Phil: We're confident that our strategy and our execution put us in position to quickly returned to setting new levels of performance.

Richard G. Kyle: The cash flow of the business is solid, and we have proven to be excellent allocators of that capital. Our acquisitions have made the portfolio more diverse, less cyclical, higher margin, and higher growth. We are well positioned to continue to grow the earnings power of the company and to advance and scale Timken as a diversified industrial leader. Phil

Phil: The cash flow of the business is solid and we have proven to be excellent allocators of that capital.

Phil: Our acquisitions have made the portfolio more diverse less cyclical higher margin and higher growth.

Phil: We are well positioned to continue to grow the earnings power of the company and to advance and scale Timken has a diversified industrial leader Phil.

Phil: Phil.

Philip D. Fracassa: Okay, thanks, Rich. And good morning, everyone. For the financial review, I'm going to start on slide 13 of the presentation materials with a summary of our strong fourth quarter results, which capped off another record year for Timken. We posted revenue of just under $1.1 billion in the quarter, up about 1% from last year. Our fourth quarter adjusted EBITDA margin came in at 17.9%, up 70 basis points, and we delivered adjusted earnings per share of $1.37, up about 2% from last year. Turning to slide 14, let's take a closer look at our fourth quarter sales per. Organically, sales were down around 5% from last year, as continued positive pricing was more than offset by lower volumes across several industrial sectors, as expected. We saw the largest declines in wind energy and off-highway during the quarter.

Phil: Okay. Thanks, Rich and good morning, everyone for the financial review I'm going to start on slide 13 of the presentation materials with a summary of our strong fourth quarter results, which capped off another record year for timken.

Phil: We posted revenue of just under $1 1 billion in the quarter up about 1% from last year.

Speaker Change: Our fourth quarter adjusted EBITDA margin came in at 17, 9% up 70 basis points.

Speaker Change: And we delivered adjusted earnings per share of $1 37 up about 2% from last year.

Speaker Change: Turning to slide 14, let's take a closer look at our fourth quarter sales performance.

Speaker Change: Organically sales were down around 5% from last year.

Speaker Change: As continued positive pricing was more than offset by lower volumes across several industrial sectors.

As expected.

We saw the largest declines in wind energy and off highway during the quarter.

Philip D. Fracassa: Looking at the rest of the revenue block, the impact from acquisitions net of divestitures added five percentage points of growth to the top, and Foreign Currency Translation contributed roughly another point to revenue in the quarter. On the right-hand side of the slide, you can see organic growth by region, which excludes both currency and the net impact of acquisitions and divestments. Let me comment briefly on each region.

Speaker Change: Looking at the rest of the revenue walk the impact the impact from acquisitions net of divestitures added five percentage points of growth to the topline.

Speaker Change: And foreign currency translation contributed roughly another point to revenue in the quarter.

Speaker Change: On the right hand side of the slide you can see organic growth by region, which excludes both currency and the net impact of acquisitions and divestitures.

Speaker Change: Let me comment briefly on each region.

Philip D. Fracassa: In the Americas, we were down modestly against last year's very strong fourth quarter. The Off-Highway and General Industrials were partially offset by growth in rail and industrial services. In Asia Pacific, we were down double digits, driven almost entirely by China, including a sizable decline in wind energy shipments. On the positive side, we continue to see strong growth in India. And finally, we were close to flat in EMEA, as lower renewable energy and industrial demand was almost fully offset by growth in other sectors, including heavy industry. Turning to slide 15, adjusted EBITDA in the fourth quarter was $195 million, or 17.9% of sales, compared to 186 million, or 17.2% of sales last year. Our margin improvement was driven by positive price costs, which more than offset the impact from lower volume and unfavorable currency in the quarter. Adjusted EBITDA was up 9 million, or about 5% in the quarter. And that's on a sales increase of only around 1%.

Speaker Change: In the Americas, we were down modestly against last year's very strong fourth quarter.

Speaker Change: Driven mainly by lower shipments in the off highway and general industrial sectors.

Partially offset by growth in rail and industrial services.

Speaker Change: In Asia Pacific, we were down double digits, driven almost entirely by China include.

Speaker Change: Including the sizable decline in wind energy shipments.

Speaker Change: On the positive side, we continue to see strong growth in India.

Speaker Change: And finally, we were close to flat in EMEA as lower renewable energy and industrial demand was almost fully offset by growth in other sectors, including heavy industries.

Speaker Change: Turning to slide 15, adjusted EBITDA in the fourth quarter was $195 million or 17, 9% of sales.

Compared to $186 million were 17, 2% of sales last year.

Speaker Change: Our margin improvement was driven by positive price cost, which more than offset the impact from lower volume and unfavorable currency in the quarter.

Speaker Change: Adjusted EBITDA was up $9 million or about 5% in the quarter and that's on a sales increase of only around 1% so strong operating leverage.

Philip D. Fracassa: So strong operating, Looking at the increase in dollars, you can see that we continue to benefit from favorable price mix, lower material and logistics costs, and recent acquisitions. Manufacturing performance was also slightly favorable in the quarter for the first time in quite a while.

Speaker Change: Looking at the increase in dollars.

Speaker Change: You can see that we continue to benefit from favorable price mix.

Speaker Change: Lower material and logistics costs and recent acquisitions.

Speaker Change: Manufacturing performance was also slightly favorable in the quarter for the first time in quite a while.

Philip D. Fracassa: These positives more than offset the impact of lower volume, unfavorable currency, and higher SG&A other costs. Let me comment a little further on some of the key profitability drivers in the quarter. With respect to price mix, price realization was higher again in both segments compared to last year, as we continue to secure additional pricing with our customers. Mix was also a slight positive in the quarter.

Speaker Change: These positives more than offset the impact of lower volume unfavorable currency and higher SG&A other costs.

Speaker Change: Let me comment a little further on some of the key profitability drivers in the quarter.

Speaker Change: With respect to price mix price realization was higher again in both segments compared to last year.

Speaker Change: As we continued to secure additional pricing with our customers.

Mix was also a slight positive in the quarter.

Philip D. Fracassa: Moving to material and logistics costs, Volk for lower off last year's levels and is largely in line with our expectations, as costs continue to moderate globally. On the manufacturing line, the modest year over year benefit was driven by improved operational execution by our team. Targeted cost reduction actions and supplier recoveries, which more than offset the impact of lower production volume and ongoing costs in place. Looking at the SG&A Other line, costs were up versus last year, but lower than we expected, driven by our efforts to reduce discretionary spending to better align with demand. And finally, with respect to currency, we saw a sizable year-on-year headwind in the quarter, driven mainly by the unfavorable impact of transaction gains and losses in the respective period.

Speaker Change: Moving to material and logistics costs, both for lower off last year's levels and largely in line with our expectations as.

Speaker Change: As costs continue to moderate globally.

On the manufacturing line the modest year over year benefit was driven by improved operational execution by our team.

Speaker Change: Targeted cost reduction actions and supplier recoveries, which more than offset the impact of lower production volume and ongoing cost inflation.

Speaker Change: Looking at the SG&A other line costs were up versus last year, but lower than we expected driven by our efforts to reduce discretionary spending to better align with demand levels.

Speaker Change: And finally with respect to currency, we saw sizable year on year headwind in the quarter.

Speaker Change: Driven mainly by the unfavorable impact of transaction gains and losses in the respective periods.

Philip D. Fracassa: On slide 16, you can see that we posted net income of $59 million, or $0.83 per diluted share for the fourth quarter on a gap basis. The current period includes $0.54 of net expense from Specialized, including pension mark-to-market charges, acquisition-related charges, and deal amortization, offset partially by some net discrete tax benefit. On an adjusted basis, we earned $1.37 per share, up from $1.34 per share last year. Our adjusted tax rate for the year came in at 25.5%, or the low end of our prior guidance, which resulted in a fourth quarter tax rate of 24.4%. Depreciation and interest expense were both higher versus last year, as we expected.

Speaker Change: On Slide 16, you can see that we posted net income of $59 million or <unk> 83 per diluted share for the fourth quarter on a GAAP basis.

The current period includes 54 <unk> of net expense from special items.

Speaker Change: Including pension Mark to market charges acquisition related charges and deal amortization expense offset partially by some net discrete tax benefits.

On an adjusted basis, we earned $1 37 per share up from $1 34 per share last year.

Speaker Change: Our adjusted tax rate for the year came in at 25, 5% or the low end of our prior guidance, which resulted in a fourth quarter tax rate of 24, 4%.

Speaker Change: Depreciation and interest expense were both higher versus last year as we expected.

Philip D. Fracassa: And finally, we benefited from a lower share count in the quarter, reflecting buybacks completed during 2023. Now, let's move to our business segment results, starting with engineered bearings on slide 17. For the fourth quarter, engineered bearing sales were $724 million, down 2.4% from last year. Acquisitions, net of divestitures, and currency were both positive in the quarter. Organically, sales were down 6.4%, driven by lower volumes across several sectors, partially offset by higher prices, with respect to organic revenue performance by sector. The renewable energy and off-highway sectors saw the largest declines in the course.

Speaker Change: And finally, we benefited from a lower share count in the quarter, reflecting buybacks completed during 2023.

Speaker Change: Now, let's move to our business segment results, starting with engineered bearings on slide 17.

Speaker Change: For the fourth quarter engineered bearings sales were $724 million down.

Speaker Change: Down two 4% from last year.

Speaker Change: Acquisitions net of divestitures and currency were both positive in the quarter.

Speaker Change: Organically sales were down six 4% driven.

Speaker Change: Driven by lower volumes across several sectors.

Speaker Change: We offset by higher pricing.

Speaker Change: With respect to organic revenue performance by sector.

Speaker Change: Our renewable energy and off highway sectors saw the largest declines in the quarter.

Philip D. Fracassa: In addition, distribution and general industrial were down slightly, while the on-highway and heavy industry sectors were relatively flat. On the positive side, we saw growth in aerospace during the quarter, and rail was up as well, driven by higher shipments in the Americas. Engineered Bearings Adjusted EBITDA in the fourth quarter was $133 million, down slightly from last year, with margins coming in at 18.3%, up 20 basis points.

Speaker Change: In addition distribution and general industrial were down slightly.

Speaker Change: While the on highway and heavy industry sectors were relatively flat.

Speaker Change: On the positive side, we saw growth in aerospace during the quarter and rail was up as well driven by higher shipments in the Americas.

Speaker Change: Engineered bearings adjusted EBITDA in the fourth quarter was 133 million down slightly from last year with margins coming in at 18, 3% up 20 basis points.

Philip D. Fracassa: The improvement in segment margin reflects the favorable impact of price mix and lower material and logistics costs, which more than offset the impact of lower organic volume, higher operating costs, and unfavorable current. Now, let's turn to industrial motion on slide 18. In the fourth quarter, industrial motion segment sales were $367 million, up 8% from last year. Acquisitions net of divestitures contributed just under 10% to the top line, and Currency Translation added over one. However, organically, sales declined about 3% as lower volumes were partially offset by higher prices. With respect to Organic Revenue Performance by Platform, belt and chain, drive systems, and linear motion were lower in the quarter for my Softer General Industrial and Off-Highway business. On the positive side, we saw significant growth from our service business driven by strong MRO activity, while automatic lubrication systems and couplings were relatively flat.

Speaker Change: The improvement in segment margin reflects the favorable impact of price mix and lower material and logistics costs.

Speaker Change: Which more than offset the impact of lower organic volume higher operating costs and unfavorable currency.

Speaker Change: Okay.

Speaker Change: Now, let's turn to industrial motion on slide 18.

Speaker Change: In the fourth quarter industrial motion segment sales were $367 million up 8% from last year.

Speaker Change: Acquisitions net of divestitures contributed just under 10% of the top line and.

Speaker Change: Currency translation added over 1%.

Speaker Change: Organically sales declined about 3% as lower volumes were partially offset by higher pricing.

Speaker Change: With respect to organic revenue performance by platform Belton chain drive systems, and linear motion were lower in the quarter driven.

Speaker Change: Driven by softer general industrial and off highway demand.

Speaker Change: On the positive side, we saw significant growth from our service business driven by strong MRO activity.

Speaker Change: While automatic lubrication systems and couplings were relatively flat.

Philip D. Fracassa: Industrial Motion's adjusted EBITDA for the fourth quarter was $82 million, or 22.2% of sales, compared to $65 million, or 19.1% of sales last year. Expanded margins, margins 310 basis points in the quarter, driven by positive price cost, the Benefit of the Ongoing Cost Improvement Initiative, and Higher Capitalized Variants, which more than offset the impact of lower organic bonds. Turning to slide 19, you can see that we generated operating cash flow of $128 million in the quarter, and after CapEx, free cash flow was $75 million. Looking at the full year, free cash flow was $357 million, up from $285 million last year.

Speaker Change: Industrial.

Speaker Change: Real motion adjusted EBITDA for the fourth quarter was $82 million or 22, 2% of sales compared to $65 million or 19, 1% of sales last year.

We expanded margins margins 310 basis points in the quarter.

Speaker Change: Driven by positive price cost the <unk>.

Speaker Change: Benefit of ongoing cost improvement initiatives and <unk>.

Speaker Change: Higher capitalized variances, which more than offset the impact of lower organic volume.

Speaker Change: Turning to slide 19, you can see that we generated operating cash flow of $128 million in the quarter and after capex free cash flow was $75 million.

Speaker Change: Looking at the full year free cash flow was $357 million up from $285 million last year the.

Philip D. Fracassa: The increase in free cash flow was driven mainly by improved working capital and higher adjusted earnings, which more than offset the impact of higher cash taxes, including $55 million of tax paid related to the sell-down of Timken Indy. Looking at the balance sheet, we ended the year with net debt to adjusted EBITDA at 2.1 times. This includes the impact of the recent acquisitions completed during the fourth quarter. Turning to slide 20, you can see a summary of our capital deployment in 2020. In total, we allocated more than $1.1 billion of capital during the year, with over 70% directed towards CapEx and acquisitions to advance our profitable growth strategy. We also completed six acquisitions that collectively add more than $250 million of pro forma annual revenue at attractive margins. And we will return $345 million of cash to shareholders during the year, including $56 million in the fourth quarter.

Speaker Change: The increase in free cash flow was driven mainly by improved working capital and higher adjusted earnings which more than offset the impact of higher cash taxes, including $55 million of tax paid related to the sell down of Timken, India.

Speaker Change: Looking at the balance sheet, we ended the year with net debt to adjusted EBITDA at two one times.

Speaker Change: This includes the impact of the recent acquisitions completed during the fourth quarter.

Speaker Change: Turning to slide 20, you can see a summary of our capital deployment in 2023.

Speaker Change: In total we allocated more than $1 1 billion of capital during the year with over 70% directed towards Capex and acquisitions to advance our profitable growth strategy.

Speaker Change: We also completed six acquisitions that collectively add more than $250 million of pro forma annual revenue at attractive margins.

Speaker Change: And we returned $345 million of cash to shareholders during the year.

Speaker Change: Including $56 million in the fourth quarter.

Philip D. Fracassa: In total, we bought back more than 3.1 million shares, or over or over 4% of total outstanding, and raised our quarterly dividend by 6%. We achieved 10 Straight Years of Higher Annual Dividends, and we deployed this record amount of capital while maintaining a strong balance sheet and leverage near the middle of our targeted range. This sets Timken up well for 2024 and keeps us in a great position to continue to execute our strategy through capital allocation. Now, let's turn to our initial outlook for 2024, with a summary on slide 21. We're taking a cautious view on the outside, given the current demand environment, limited visibility, and overall level of uncertainty, especially in sectors like wind and geographies like China.

Speaker Change: In total we bought back more than $3 1 million shares.

Speaker Change: We're over or over 4% of total outstanding.

Speaker Change: And raised our quarterly dividend by 6%, achieving 10 straight years of higher annual dividends.

Speaker Change: And we deployed this record amount of capital, while maintaining a strong balance sheet and leverage near the middle of our targeted range.

Speaker Change: This sets timken up well for 2024 and keeps us in a great position to continue to execute our strategy through capital allocation.

Speaker Change: Now, let's turn to our initial outlook for 2024 with a summary on slide 21.

Speaker Change: We're taking a cautious view on the outlook given the current demand environment limited visibility.

Speaker Change: And overall level of uncertainty, especially in sectors like wind in geographies like China.

Philip D. Fracassa: Starting on the sales outlook, we're planning for full-year revenue to be down in the range of two and a half to four and a half percent in total versus 2023. Additionally, organically, we're planning for revenue to be down six and a half percent at the midpoint, reflecting lower volumes, partially offset by slightly higher pricing versus last year. We expect net acquisitions to contribute around two and a half percent to our revenue for the year, which includes the net impact of 2023 acquisitions and divestments, and we're planning for currency to be a tailwind of around 50 basis points for the full year based on the current spot rate. Now, let me comment a little more on the organic field.

Speaker Change: Starting on the sales outlook, we're planning for full year revenue to be down in the range of two five to four 5% in total versus 2023.

Speaker Change: Organically, we're planning for revenue to be down six 5% at the midpoint.

Speaker Change: Reflecting lower volumes, partially offset by slightly higher pricing versus last year.

Speaker Change: We expect net acquisitions to contribute around two 5% to our revenue for the year.

Speaker Change: Which includes the net impact of 2023 acquisitions and divestitures.

Speaker Change: And we're planning for currency to be a tailwind of around 50 basis points for the full year based on current spot rates.

Speaker Change: Now, let me comment a little more on the organic sales guidance.

Philip D. Fracassa: The midpoint of our range essentially implies that we see no acceleration or recovery from current demand levels through the year, other than some seasonality. Note that we would expect the first half of your organic sales declines to be more pronounced and then flatten out in the second half as counts get easier, especially in wind energy. On the bottom line, we expect adjusted earnings per share in the range of $5.80 to $6.20.

The midpoint of our range essentially implies that we see no acceleration or recovery off current demand levels through the year other than some seasonality.

Speaker Change: So with that we would expect the first half year on year organic sales declines to be more pronounced and then flatten out in the second half as comps get easier, especially in wind energy.

Speaker Change: On the bottom line, we expect adjusted earnings per share in the range of $5 80 to $6 20.

Philip D. Fracassa: This earnings outlook implies that our 2024 consolidated adjusted EBITDA margin will be in the low to mid-18%. Our merge and outlook reflects the unfavorable impact from lower volumes and continued inflation in labor and other input costs. On the positive side, net impact from acquisition should be accretive to margins, and we expect price costs to be largely neutral for the year. We've stepped up our efforts around operational excellence and cost reduction initiatives, which should mitigate the headwinds and help us deliver resilient margin performance in 2024. Moving to free cash flow, we expect to generate approximately 425 million for the full year, or over 110% conversion on gap net income.

Speaker Change: This earnings outlook implies that our 2020 for consolidated adjusted EBITDA margin will be in the low to mid 18% range.

Speaker Change: Our margin outlook reflects the unfavorable impact from lower volumes and continued inflation in labor and other input costs.

Speaker Change: On the positive side net impact from acquisitions should be accretive to margins and we would expect price cost to be largely neutral for the year.

Speaker Change: Yeah.

Speaker Change: We've stepped up our efforts around operational excellence and cost reduction initiatives, which should mitigate the headwinds and help us deliver resilient margin performance in 2024.

Speaker Change: Moving to free cash flow, we expect to generate approximately $425 million for the full year, we're over 110% conversion on GAAP net income.

Philip D. Fracassa: This is around 70 million, or 25% better than 2023, and reflects favorable working capital performance and lower cash tax, which are expected to more than offset the impact from lower earnings. We're planning for CapEx of around 4% of sales, with the spend continuing to optimize our manufacturing footprint and support our growth and margin objectives. Our CapEx spend for 2024 includes some big projects, including the completion of our plant expansions in India for bearings and in Mexico for belts. And finally, we anticipate full-year net interest expense to be roughly flat with 2023 and for the adjusted tax rate to be approximately 26 percent.

Speaker Change: This is around $70 million or 25% better than 2023 and reflects favorable working capital performance and lower cash taxes, which are expected to more than offset the impact from lower earnings.

Speaker Change: We are planning for capex of around 4% of sales with the spend continuing to optimize our manufacturing footprint and support our growth and margin objectives are.

Speaker Change: Our capex spend for 2024 includes some big projects, including the completion of our plant expansions in India for bearings and in Mexico for belt.

Speaker Change: And finally, we anticipate full year net interest expense to be roughly flat with 2023.

Speaker Change: And for the adjusted tax rate to be approximately 26%.

Operator: So to summarize, Timken delivered strong results in the fourth quarter to cap off a third straight year of record sales and adjusted EPS. Our team is executing well in this environment, and we're focused on delivering resilient performance and advancing our strategy in 2024. This concludes our formal remarks, and we'll now open the line for questions. Operator.

Speaker Change: So to summarize timken delivered strong results in the fourth quarter to cap off a third straight year of record sales and adjusted EPS.

Our team is executing well in this environment and we're focused on delivering resilient performance and advancing our strategy in 2024.

Speaker Change: This concludes our formal remarks, and we'll now open the line for questions.

Speaker Change: Operator.

Speaker Change: Yeah.

Operator: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star one on your telephone keypad. To withdraw your question, press star followed by two.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.

Operator: Thats Star one on your telephone keypad.

Operator: To withdraw your question Star followed by <unk>.

Stephen Edward Volkmann: And please do also remember to unmute your microphone when it returns. You have our first question from Steve Volkmann from Chester. Steve, your lunch is all. Great. Good morning, guys. Thank you so much for taking the time to answer the question. I guess the key sort of feedback I'm getting here is that people are trying to figure out sort of how conservative this guide is. And I recognize you don't have a ton of visibility into the second half, but you have changed your outlook for a number of these end markets pretty significantly on slide 8. And I think I understand what's happening in wind, but things like heavy industries and industrial services and rail sort of went from positive high single digits to negative high single digits. So, I guess I'm just trying to sort of tease out how much visibility you have there and how much this is maybe the stocking and, you know, what sort of the underlying drivers of those things might be. Thanks.

Operator: I'm pleased to also remember too and mutual microphone when it's your turn to speak.

Operator: We do have our first question comes from Steve Volkmann from Jefferies.

Stephen Edward Volkmann: Your line is now open.

Stephen Edward Volkmann: Great. Good morning, guys. Thank you so much for taking the question.

Stephen Edward Volkmann: I guess the.

Stephen Edward Volkmann: Peak sort of feedback I'm getting here is that people are trying to figure out how conservative. This guide is and I recognize you don't have a ton of visibility into the second half but.

Stephen Edward Volkmann: You have on.

Stephen Edward Volkmann: On slide eight changed your outlook for a number of these end market pretty significantly and.

Stephen Edward Volkmann: And I think I understand what's happening in wind, but things like heavy industries and industrial services and rail sort of went from positive high single digits to negative high single digits. So I guess I'm, just trying to sort of tease out how much visibility you have there and how much. This is maybe destocking and.

Stephen Edward Volkmann: What sort of the underlying drivers of those things might be.

Richard G. Kyle: Thanks for the question, Steve. Certainly, as you look at the chart from 2023 compared to 2024, most of these did move, and quite a few of them would have had a stronger first half than the second half. So I think as we, as you look at the end of the year, this is more reflective of where we finished with our fourth quarter five-ish percent decline in organic revenue and what made that up. And then some extrapolation of that, and again, no assumption of any strengthening.

Thanks for the question, Steve certainly as you look at the chart from 2023 compared to 2020 for most of these did move in quite a few of them would have had stronger first half than second half. So I think as we as you look at the end of the year. This is more reflective.

Stephen Edward Volkmann: <unk> of where we finished with our fourth quarter, 5% decline in organic revenue and what made that up and then some.

Stephen Edward Volkmann: Extrapolation of that.

Stephen Edward Volkmann: Again, no assumption of any strengthening so as an example, we have heavy industries here down high single digits.

Richard G. Kyle: So, as an example, we have heavy industries here down in the high single digits. But we actually grew heavy industries in the fourth quarter last year. We grew it every quarter last year, but we have been consuming backlog for the last..., three quarters, and we're assuming that trend will continue and, and the second half of the year would be negative. And then also, as we've seen from really since late the second quarter of last year, we went from inverting from probably overshipping our customers' demand and stocking inventory to a de-stocking situation. So we're in at least quarter three, maybe quarter four or five of that phenomenon. So we are, and have been underselling most of these markets to what our customers are selling. And it's they're not huge numbers.

Stephen Edward Volkmann: We actually grew heavy industries on the fourth quarter of last year. We grew at every quarter last year, but we have been consuming backlog for the last three quarters and we're assuming that trend will continue in <unk> and in the second half of the year would be it would be negative.

Stephen Edward Volkmann: And then also as we've seen from really since.

Stephen Edward Volkmann: Late second quarter of last year, we went from <unk>.

Stephen Edward Volkmann: Inverted from probably over shipping our customers' demand and stocking inventory to a destocking situations or.

Stephen Edward Volkmann: And at least quarter three maybe core four five of that.

Stephen Edward Volkmann: Phenomenon. So we are and have been.

Stephen Edward Volkmann: Under selling most of these markets to what our customers are selling and it's they're not huge numbers, but if you see our off highway customer was down three or four 4% organically, maybe our sales to them are down five or 6% organically. So.

Richard G. Kyle: But if you see an off-highway customer, they were down three or 4% organically, maybe our sales to them are down five or 6% organically. So it's, it's, I'd say a reflection of the fourth quarter, with really no improvement on it, and then seasonality laid on top of it. Phil, anything you would want to add to that? No, I think I think you captured it, Rick.

Stephen Edward Volkmann: It's I'd say, a reflection of the fourth quarter with really no improvement on it and then seasonality laid on top of it Phil anything you would want to add to that.

Phil: I think I think you captured it rich.

Richard G. Kyle: Okay, and then just for the follow-up, Rich, this probably isn't quite fair, but do you still think the ISM index is a reasonable way to forecast your business? And if so, you know, if it were to turn positive here at some point, what type of lag might you expect relative to your business? I think it's a reasonable one; I wouldn't say it's the timing is exactly right.

Speaker Change: Okay, and then just for the follow up rich.

Speaker Change: Isn't quite fair, but do you still think the ASM index is a reasonable way to forecast your business and if so.

If it were to.

Speaker Change: Turned positive here at some point what type of lag might you would expect relative to your business.

Speaker Change: I think its a reasonable one I wouldn't say, it's the timing is exactly right and accurate act and accuracy is not real high but certainly directionally when it's moving favorably.

Richard G. Kyle: And accuracy is not real high, but certainly directionally when it's moving favorably, which is a positive for us. But again, the timing of that predicting the lag, I wouldn't want to put too much into that. Great, thank you guys. Thanks Steve. Our next question comes from Stanley Elliott from Stifle. Stanley, your lines now. Good morning, everyone.

Speaker Change: As a positive for us but.

Speaker Change: Again, the timing of that predicting the lag I wouldn't want to put too much into that.

Speaker Change: Great. Thank you guys.

Speaker Change: Thanks Stacy.

Speaker Change: Okay.

Speaker Change: Our next question comes from Stanley Elliott from Stifel Stanley. Your line is now.

Speaker Change: Okay.

Stanley Elliott: Good morning, everyone. Thanks for the question just to clarify.

Stanley Stoker Elliott: Thanks for the question. Just to clarify, on the last question in terms of de-stocking versus in-market, you mentioned kind of de-stocking being, you know, like three, four or five quarters out. So you, so this move and a lot of this in-markets are really kind of, you're saying that's in-market demand as opposed to de-stocking? Just, just to clarify. Thanks.

Stanley Elliott: The last question in terms of Destocking versus end markets, you mentioned kind of Destocking being.

Stanley Elliott: 345 quarters out so you.

Speaker Change: So this move it a lot of its end markets really kind of.

Youre, saying Thats end market demand as opposed to Destocking, just just to clarify thanks.

Philip D. Fracassa: Oh, I certainly would say yes, we've seen some of our customers go down, especially if you take price out negative, negative organic revenue in the third and fourth quarters of last year. Now, again, they're they may be saying that's their destocking and their distributor inventories other things, but we've seen our customer revenue price flatten out to go slightly negative and then throw us a little more negative due to the inventory D stock. Yeah, I think, I think, Stanley, if I could just add, I think it really is a combination of both from our perspective. I mean, we did, we do feel like customers started destocking last year, and obviously, different quarter by quarter; some would be flat, some would be down.

Speaker Change: Well I certainly I would say, yes, we've seen some of our customers go to especially to take price out negative negative organic revenue in the third and fourth quarters of last year now, but again, they may be saying that they're destocking and their distributor inventories and other things, but we've seen our customer.

Speaker Change: Revenue probably flatten out.

Speaker Change: Two to go slightly negative and then throw us a little more negative due to the inventory destock.

Speaker Change: Yes, I think I think if I could just add I think it really is a combination of both from our perspective I mean, we did we do feel like cut.

Speaker Change: Customers started destocking last year, and obviously different quarter by quarter, some would be flat and would be down but net net we did see we did sense that inventories were coming down a little bit and we would expect that to continue.

Philip D. Fracassa: But, but net, net, we did see, we did sense that inventories were coming down a little bit. And we would expect that to continue into 2024, at least through the first half, I would say. And as Rich commented on the last question, I really think the outlook really is more a function of, you know, look, the industrial markets and the demand environment was pretty, it's pretty soft right now, it was soft in the fourth quarter with our organic sales performance. As we sit here today, we don't really see a catalyst for acceleration, certainly in the first half, with limited visibility in the second half.

Speaker Change: Into 2020 for at least through at least through the first half I would say and as rich commented on the last question I really think the the outlook really is more a function of look the industrial markets and the demand environment was pretty is pretty soft right. Now it was soft in the fourth quarter with our organic sales performance as we sit here today, we don't really see a catalyst for.

Speaker Change: An acceleration certainly in the first half limited visibility in the second half so in setting the outlook, we thought it was prudent.

Philip D. Fracassa: So instead, in the outlook, we thought it was prudent to kind of assume the current demand environment, you know, with pluses and minuses, as Rich said, when maybe demand gets a little bit weaker, maybe some markets get a little bit better, but net, net, no, no recovery from the current demand environment. Other than maybe some seasonality and, and if markets were to accelerate in the second half or at some other point, we'll certainly be ready to jump on it. And then, I guess, the second question, you know, on the industrial motion margins, you called out MRO activity. I mean, is that just a function of NICS? You know, are you all able to offer more services now that you have a much broader portfolio and that part of the market? Any color there would be helpful.

Kind of assumed the current demand environment with pluses and minuses as rich said, when maybe again, a little bit weaker maybe some markets getting a little bit better, but net net no no recovery off the current demand environment other than maybe some seasonality in <unk> and if markets were to accelerate in the second half or at some other point, we'll certainly be ready to to jump on.

Speaker Change: It.

Speaker Change: And then I guess second question on the industrial motion margin you called out MRO activity is that just strictly a function of mix.

Speaker Change: Are you all able to offer more services now that you have a much broader portfolio in that part of the market any color there would be helpful. Thanks.

Speaker Change: Yes, I would say a couple of things certainly the services business its aftermarket business that tends to be.

Speaker Change: Relatively speaking better better from a mixed standpoint, I would say that's one we would say the margins last year, we're reflecting some activities that were going on the consolidation of our chain facilities and.

Philip D. Fracassa: Yeah, I would say a couple things. Certainly, the services business is its aftermarket business. So it tends to be, relatively speaking, better from a mixed standpoint. I would say that's one, you know, we would say the margins last year were reflecting some activities that were going on in the consolidation of our chain facilities and, and some structural improvement work we were doing that we're starting to kind of see the benefits of as we move forward to this year. And then probably the last point would be, you know, industrial motion did perform a little bit better from an organic volume standpoint. So obviously, they had a little bit more volume to work with or less of a decline to deal with, if you will.

Speaker Change: Some structural improvement work, we were doing that were we're starting to see the benefits of as we move forward to this year and then the and then probably the last point would be industrial motion did perform a little bit better from an organic volume volume standpoint, So obviously that a little bit more volume to work with are less of a decline to deal with if you will and as we as we move forward.

Speaker Change: Next year, we'll probably see relatively more resiliency and industrial motion margins versus bearings is because we do expect billings to be down a little bit more organically because of the wind situation year on year and then obviously, we do have a bit of a fixed a higher fixed cost base in the bearing business. So a little more a little more sensitive to volume there than than in the.

Philip D. Fracassa: And as we move forward to next year, we'll probably see relatively more resiliency and industrial motion margins versus bearings because we do expect bearings to be down a little bit more organically because of the wind situation, you know, year on year. And then obviously, we do have a bit of a higher fixed cost base in the bearing business. So a little more, a little more sensitive to volume there than the industrial motion business, but there are a lot of initiatives we've been working on to get those margins up. You know, we do view both segments as north of 20% EBITDA margin businesses, and we were just happy to see the nice step up in Q4. Perfect, guys. Thanks so much.

Speaker Change: Industrial motion business, but it's been a lot of initiatives, we've been working on to get those margins up we do view both segments as north of 20% EBITDA margin businesses.

Speaker Change: And we were just happy to see the nice step up in Q4.

Perfect guys. Thanks, so much.

Speaker Change: Our next question comes from David Raso from Evercore, David Your line is now open.

Thank you for taking the question.

David Raso: When I look at the margins that are being given if you had told me organic down six and a half obviously a drag.

David Raso: But price cost neutral wall, while it's happening and that acquisitions come in relatively favorable on margins.

Philip D. Fracassa: Our next question comes from David Raso from Epicor. David, your line is now open. Thank you for taking the question. When I look at the margins, I see that I have been given it.

David Raso: I, probably would have thought maybe decremental margins, 40% or so but I see the implied guidance is nearly 60% decrementals.

David Michael Raso: If you had told me organic down six and a half, obviously a drag, but price cost neutral while it's happening, and then acquisitions come in, you know, relatively favorable on margin, I probably would have thought maybe decremental margin. Unknown Executive, Angel Castillo, Timken Co.

And if you told me six day I would've figured there must be some negative price cost, but youre, saying there isn't can you help us understand why the decremental would be that large if price cost is neutral.

David Raso: It's something with mix may renewables little more profitable than we think.

Philip D. Fracassa: If you told me six days, I would have figured there must be some negative price cost, but you're saying there is. Can you help us understand why the decremental would be that large if the price cost is new to us? And I assume it's something with mixed, maybe renewables, a little more profitable than we are, and then the follow-up, the cadence. For the whole year, like if I think about how low the margins are in the first half of the year Versus the second half. I'm thinking more your, What do I think about that? So I'm just trying to get a sense of how much the front half is loaded, Weakness Year-over-Year on the Decrementals, and again, why would the Decrementals... Unknown Speaker. Yeah, sure, David, this is Phil.

David Raso: And then the follow up.

Speaker Change: <unk>, okay, the cadence on that.

Speaker Change: For the year like if I, if I think about how low the margins are in the first half of the year versus second half I am thinking more year over year.

Speaker Change: When I think about Decrementals.

Speaker Change: So I'm just trying to get a sense, how much as a front half loaded.

Speaker Change: The weakness year over year on the Decrementals and again why would the decrementals be be that week with price cost neutral. Thank you.

Speaker Change: Yes sure David This is Phil I'll take I'll take at least the first part there. So on the on the Decrementals I mean first of all great observation in terms of what the guidance implies but now we've got.

Phil: Acquisitions and currency contributing positively and then obviously the volume declines of negative. So if you if you sort of a sign.

Margins to each of the components actually the organic decrementals are closer to 40% so kind of closer to what you would expect in call. It a year or two of of a slowdown if you will but it was just sort of the acquisitions will come in positively speaking.

Philip D. Fracassa: I'll take, I'll take at least the first part there. So on the decrementals, I mean, first of all, a great observation in terms of what the guidance implies. But, you know, we've got acquisitions and currency contributing positively, and then, obviously, the volume declines are negative. So if you sort of assign margins to each of the components, actually, the organic decrements are closer to 40%. So, kind of closer to what you'd expect in, call it a year or two of a slowdown, if you will, but it was just sort of, you know, the acquisitions will come in, positively speaking, net higher than our, than our adjusted EBITDA margins, currency will be probably a little bit And it's really a combination of low organic volumes; you've got to overcome that.

Phil: <unk> higher than our than our adjusted EBITDA margins currency will be probably a little bit more a little bit more modest, but the net organic incremental or decremental should be should be right around closer to 40% as you as you pointed out and that sort of what's embedded in it and it's really a combination of.

Phil: Lower organic volumes, you've got to overcome that we talked about slightly positive pricing for the year cost moderating, but still seem labor inflation is still seeing some inflation in other input costs that will have to have to overcome as well, but but net net with the volume and the kind of neutral neutral price cost outlook.

Phil: We will see organic decrementals kind of around that.

And that 40% range kind of plus or minus and then as far as sort of progression for the year as we talked about low to mid 18% margins for the year, which would be sort of a 100 120 or 130, 140, <unk> lower than 2023, and I think we probably see.

Philip D. Fracassa: We talked about slightly positive pricing for the year, cost moderating, but still seeing labor inflation, still seeing some inflation and other input costs that we'll have to overcome as well. But, you know, net-net, with the volume and the kind of neutral price cost outlook, we'll see organic decrements kind of around that 40% range, kind of plus or minus. And then as far as sort of, you know, progression for the year, as we talked about low to mid 18% margins for the year, which would be sort of a hundred and, you know, 120 or, you know, 130, 140 lower than 2023. And I think we'll probably see. [inaudible] You would think as the renewables in the guide flatten out, and revenues in the back half of the year take a little pressure off the margin decline. But you're saying that's not the case.

Speaker Change: I would say some similar margin performance as we move through the year I mean, I would say we wouldn't expect.

Speaker Change: Any of the quarters certainly in the first quarter I think we'll be down on an order of magnitude of what we'd expect the full year to be down by and probably do a little bit better in the fourth quarter.

Speaker Change: But but be pretty close across the board.

Speaker Change: That's interesting is that you would think as the renewables and the guide flattened out and the revenues in the back half of the year that would take a little pressure.

Speaker Change: Off the margin decline, but you're saying that's not the case, it's a common similar year over year margin drag throughout the year.

Speaker Change: Well I think it will be when I think of the fourth quarter, Yes, I think it should get better as we move into the back half and certainly the fourth quarter and so as you look at that full year implied guide.

Speaker Change: Probably in line with it kind of acute maybe a little more in the first half than that and then a little less in the second half is probably a good way to look at.

Speaker Change: Okay helpful. I appreciate the time thank you.

Speaker Change: Thanks, David.

Speaker Change: Our next question comes from Steve Butler from Keybanc capital markets. Your line is now open.

Philip D. Fracassa: It's a common, similar year-over-year margin drag throughout. Well, I think it'll be when I think of the fourth quarter. Yeah, I think it should get a little bit better moving to the back half and certainly the fourth quarter. And so as you look at that full-year implied guide, probably in line with it kind of cute, maybe a little more in the first half than that, and then a little less in the second half is probably a good way to look at it. Okay, helpful. I appreciate your time.

Speaker Change: Thanks.

<unk> are down.

Speaker Change: Thanks.

Steve Barger: The EPS guide of down 15% is worse in the pandemic and kind of in line with the industrial recession. In 2015. So my question is how confident are you in modeling the first half 40% decline in wind relative to profitability and understanding that you don't have great back half visibility, what's your confidence level that this guidance.

Philip D. Fracassa: Thank you. Thanks, Kevin. Our next question comes from Steve Berger from KeyBank Capital Markets. Peace. Your line is now open.

Operator: Thanks. Good morning. The EPS Guide to Down Syndrome.

Steve Barger: Covers worst case scenarios.

Okay.

Steve Barger: I think on wind we were down in the same ballpark in the fourth quarter.

Operator: Thanks. Yep. The EPS Guide of Down 15%, worse than the pandemic and kind of in line with the industrial recession in 2015. So my question is, how confident are you in modeling the first half 40% decline in wind relative to profitability? And understanding that you don't have great back half visibility, what's your confidence level that this guidance covers the worst case scenario? I think on wind. We were down in the same ballpark in the fourth quarter.

Steve Barger: And our margin results.

Steve Barger: And then obviously get the seasonal impact of the rest of the company being somewhat depressed in the fourth quarter, which we would expect a step up there in the first quarter. So I think.

Steve Barger: For where revenue.

Steve Barger: It was in the fourth quarter and a slight decline in the first half of this year, which we feel pretty good about it and again we have it's.

Richard G. Kyle: It's in our margin results. And then obviously, you get the seasonal impact of the rest of the company being somewhat depressed in the fourth quarter, which we would expect to step up there in the first quarter. So I think, for where revenue wasn't in the fourth quarter and a slight decline in the first half of this year, which we feel pretty good about. And again, we have, it's one of the markets where we have more backlog visibility than average. I think we have that modeled pretty accurately.

Steve Barger: It's one of the markets, where we have more backlog visibility than average.

Steve Barger: I think we have that modeled pretty accurately and.

Steve Barger: Maybe we have some upside if we can it's more cost outperformed better but.

Steve Barger: But not a not an enormous amount of upside there.

And just in the second half I would say the second half.

Steve Barger: The second half and that would largely depend on where the volume lands out again since we've got it modeled flattish, we don't really have any improvement or deterioration in.

Richard G. Kyle: And maybe we have some upside if we can get some more cost outperform better, but not an enormous amount of upside there, and just in the second half, I would say the second half. The second half on that would largely depend on where the volume lands out. And again, since we've got a modeled flattish, we don't really have any improvement or deterioration in margins and EPS contribution from that in the first half to the second half. And I'm sorry; I cut you off on your follow-up. Oh, that one I was just going to go to. What I'm trying to get to, I guess, is, you know, what surprised you as 4Q or the early part of this year progressed? How are you handicapping a more broad-based slowdown?

Steve Barger: And margins and EPS contribution from that in the first half to the second half.

Speaker Change: And I'm, sorry, I cut you off on your follow up.

Speaker Change: Oh I was just going to what I am trying to get to I guess is what surprised you as for Q or early part of this year progressed, how are you handicapping a more broad based slowdown or do you really view this as the concentration in both wind and China as being the primary driver of how Youre guiding.

Speaker Change: No I think to the earlier.

Speaker Change: The first question from Steve we were down 5% organically in the fourth quarter.

Speaker Change: That had a pretty negative wind sentiment.

Richard G. Kyle: Or do you really view this as the concentration in both wind and China as being the primary driver of how you're guiding? I think to the earlier question from Steve, we were down 5% organically in the fourth quarter. [inaudible] It's slightly worse all in versus where we were in the last quarter and the trend line we've been on. Probably even a little worse than that outlook when you factor in that win comps get a lot easier in the second half.

Speaker Change: Actual in it.

Speaker Change: We've got that same negative wind actual in the first half and we've got a six five and for the full year organically. So.

Speaker Change: Slightly worse all in for the <unk>.

Speaker Change: This is where we've been the last quarter and the trend line we've been on.

Speaker Change: Probably even a little more worse than that outlook when you factor in when comps get a lot easier in the second half so.

Richard G. Kyle: So that's what the that's what it's based on is really the fourth quarter. Okay, just a quick one part of the mitigation strategy is outgrowth. What specific end markets are you targeting?

Speaker Change: That's what the that's what it's based on is really the fourth quarter actual.

Speaker Change: Okay.

Speaker Change: Just a quick one part of the mitigation strategy is outgrowth what specific end markets are you targeting or where do you see opportunity to help mitigate this.

Richard G. Kyle: Or where do you see opportunity to help mitigate it? Yeah, certainly, I think the same ones you've heard us talking about general industrial, a lot of smaller things in their food and beverage automation, etc. The marine business, we had a good fourth quarter in aerospace. As you know, historically, we're heavily weighted to defense, which tends to mute our swings, but we've been moving for some time more into the commercial side and looking to outgrow that passenger rail. Off-highway markets, we do well, and we like off-highway markets, but obviously, cyclical on that side. So, and again, I repeat, we're still believers in the long term and renewable energy, and actually, renewable energy, including solar, grew slightly in twenty-three, all that growth was in the first half, and the second half was down significantly.

Speaker Change: Yeah.

Speaker Change: Yes, certainly I think the same ones you've heard us talking about general industrial a lot of smaller things in their food and beverage automation et cetera.

Speaker Change: The marine business.

Speaker Change: We had a good fourth quarter in aerospace as you know historically were heavily weighted to defense, which tends to mute our.

Speaker Change: Our swings, but where we are.

Speaker Change: We have been moving for some time more into the commercial side and looking to outgrow that passenger rail.

Speaker Change: Off highway markets, we do well and we like off highway markets, but obviously the cyclical on that side. So.

Speaker Change: And again to repeat or.

Speaker Change: We're still believers long term in renewable energy and actually renewable energy, including solar grew in.

Speaker Change: In 2003 slightly.

Speaker Change: And all of that growth was in the first half in the second half was was down significantly.

Richard G. Kyle: But you'll continue to see us be ready for the bottoming and return of that market as well. Yeah, maybe the other point I'd make, Steve, would be about the segment too. You know, we've been building the industrial motion business for some time. And as we look ahead to 2024, as we talked about the organic guy being down six and a half percent at the midpoint, we would expect industrial motion to do better than that, bearings to do a little bit worse, bearings being impacted by wind, in China in particular, but industrial motion will do a little bit better. It was really a reflection of the diversity of that business, the portfolio, the automation, the automation business we have in there, linear motion business we have in there, the services business.

Speaker Change: But youll continue to see us be ready for a bottoming in return of that market as well.

Speaker Change: Yes, maybe the other point I'd make Steve would be around the segments too.

Speaker Change: Been building industrial motion business for some time and as we look ahead to 2024 as we talked about the organic guide being down six 5% at the midpoint would expect industrial motion that do better than that barings to do a little bit we're experienced being impacted by wind and China in particular, but the industrial motion do a little bit better it was real.

Speaker Change: A reflection of the diversity of that business the portfolio of the automation that the automation business. We have in their linear motion business, we have been near the services business. So I think.

Philip D. Fracassa: So I think the evolution of the portfolio, if you will, has, should, should be beneficial to us as we move forward. As you look across our market chart there, I think, you know, with the exception of on highway, which is, you know, we've been looking more to hold our position in highway markets and outgrow the others organically and inorganically, so shrinking it as a part of the portfolio. There are elements of the other ones that have been a part of our targeted growth and outgrowth. And two of the ones that have contributed significantly for the last 10 years, renewable energy and China, both hit a significant pause in the middle of last year, but we've got good momentum in quite a few of the other markets.

Speaker Change: The evolution of the portfolio if you will.

Speaker Change: It should be beneficial to us as well as we move forward and as you look across our market chart. There I think with the exception of on highway, which as you know we.

Speaker Change: We've we've been looking more to hold our position.

Speaker Change: On highway markets and outgrow the others organically and Inorganically, so shrinking it as part of the portfolio. There's elements of the other ones that have been a part of our targeted growth and outgrowth.

Speaker Change: <unk>.

Speaker Change: Two of our two of the ones that have contributed significantly for the last 10 years renewable energy in China, both had a.

Speaker Change: Significant pause in.

Speaker Change: The middle of last year, but we've got good momentum and quite a few of the other markets don't see any market share issues as you look across our.

Philip D. Fracassa: I don't see any market share issues as you look across our portfolio, and it's pretty normal for these markets to grow when you look over three, four-year timeframes, but they usually don't grow linearly, and there are usually some ups and downs. Right now, we're in this mid single-digit down, all in with China and renewables leading the way on it. Appreciate all the detail.

Our portfolio and it's pretty normal for these markets to two.

Speaker Change: To grow when you look over three four year timeframe, but they usually don't grow linearly and there's usually some ups and downs.

Speaker Change: Right now we are in this mid single digit.

Speaker Change: All in with with China, and renewable are leading the way on it.

Speaker Change: I appreciate all the detail thanks.

Bryan Francis Blair: Thanks. Thanks, Steve. Our next question comes from Bryan Blair from Oppenheim. Thank you. Good morning, everyone. Hey Bryan.

Speaker Change: Thanks, Steve.

Speaker Change: Our next question comes from Bryan Blair from Oppenheimer.

Bryan Blair: Brian Your line is now open.

Bryan Blair: Thank you Mariano.

Bryan Blair: Hey, Brian.

Operator: I appreciate all the color on and market dynamics and some of the volatility there, and you noted consistently there's underlying demand pressure and destocking that, I guess, continues to linger. And I'm sorry to belabor the point on destocking, but can you remind us how long, on average, how many quarters you typically have to navigate destocking in your major markets and where we are right now relative to that number? You know, I think I put it in both the demand and the destocking typically six to eight quarters, and if you take price out, this we're, fourth quarter, probably would have been three quarters in. So you know, probably, and again, we're not seeing anything imminent in the first half, but most likely, you'd be forecasting something either in the second half or the start of 2025 to invert and go back to the Okay, that's fair. I appreciate that, and obviously very active in 2023 in terms of your M&A strategy. And we're particularly intrigued by DeskCase and Logger Spitman. I apologize if I'm mispronouncing either of those.

I appreciate all the color on end market dynamics.

Bryan Blair: Some of the volatility there.

Bryan Blair: Notice.

Bryan Blair: Consistently that underlying demand pressure.

Bryan Blair: And destocking that.

Bryan Blair: I guess continues to linger and I'm, sorry to belabor the point on.

Bryan Blair: On destock, but can you remind us how long on average.

Bryan Blair: Many quarters, you typically have to navigate destocking in your major markets.

Bryan Blair: Where we are right now relative to that.

Speaker Change: I think.

Speaker Change: I'd put it in both the demand and the Destocking typically.

Speaker Change: Six to eight quarters and.

Speaker Change: If you take price out as well.

Speaker Change: Quarter, probably would have been three quarters in.

Speaker Change: So.

Speaker Change: Probably and again were not <unk> not seen anything imminent in the first half, but most likely or you would be forecasting something either in the second half of the start of 2025.

Speaker Change: To invert and go back to the positive versus the negative on the.

Speaker Change: Restocking.

Speaker Change: Okay. That's fair I appreciate that.

Speaker Change: Obviously very active.

Speaker Change: 2023 in terms of your M&A strategy.

We're particularly intrigued by this case.

Speaker Change: Laura Smith.

Speaker Change: I apologize if I'm mispronouncing either of those.

Richard G. Kyle: But maybe you could touch on, you know, the synergies that those new solutions or platforms offer with your portfolio and, you know, how they influence organic and inorganic growth potential going forward. Your pronunciation was fine. It's probably at least as good as mine.

Speaker Change: And maybe touch on.

Speaker Change: The synergies that those new solutions or platforms offer with your portfolio.

Speaker Change: And.

Speaker Change: We have a influence organic and inorganic growth potential going forward.

Speaker Change: Your pronunciation was fine.

Speaker Change: It's probably at least as good as mine. So you did well there.

Richard G. Kyle: So you did well there. On the desk case, U.S.-centric business goes through primarily in the U.S. bearing distributors, so share in the U.S. is much of the same. Customer base. I think there's certainly some things that we can do there to increase the pull through from distributors, but not really a channel play so much as it would be. It's an upsell, and we have people in all of their markets, and we have hundreds of them, and they had more like 20. Yes, and so the ability to cross-sell in the US, pull that through our distribution, I think is significant. And then the bigger play is taking them into our global distribution channels, and I think there is a lot of early enthusiasm for that from our global distributor partners.

Speaker Change: <unk>.

Speaker Change: And best case.

Speaker Change: U S centric business.

Speaker Change: Goes through primarily in the U S bearing distributors. So this share in the U S. Much of the same cusp.

Speaker Change: Customer base I think there is certainly some things that we can do there.

Speaker Change: To increase the pull through from distributors, but not really a channel play so much as it would be it as it.

Speaker Change: It is an up sell and we have people in all of their end markets and we have hundreds of them and they add more like 'twenty and so the ability to cross sell in the U S pull that through our distribution I think is significant and then the bigger play is taking them into our global distribution channels.

Speaker Change: And I think a lot of early enthusiasm from that from our global distributor partners Lager Schmidt.

Richard G. Kyle: Wager Schmidt is very focused on the European Nordic marine industry and very focused on the OEM side of that, but he has not put as much energy and emphasis historically on capturing the aftermarket around the world. So, the two opportunities are very much for us to sell more bearings into that Nordic marine market and other industrial motion products, but then also to do a better job of capturing their aftermarket around the world as well as penetrate some of the OEM base around the world as well. So, different, different.

Speaker Change: Very focused on European and Nordic.

Speaker Change: Marine industry and very focused on the OEM side of that have not put as much.

Speaker Change: Energy and emphasis historically in capturing the aftermarket around the world.

Speaker Change: So the two opportunities there very much for us to sell more bearings into that Nordic marine market and other industrial motion products, but then also to do a better job of capturing their aftermarket around the world as well as penetrating some of the OEM base.

Speaker Change: Around the world as well so different different.

Philip D. Fracassa: Synergy cases in both, but both very revenue-based, pretty light on the operational side in the case of those two. Understood. Appreciate the detail. I'd add before we go to the next question that both really fit our portfolio well in terms of product, product innovation, product leadership position, strong brand names within their niche markets and a really good technical fit with the Timken portfolio. Our next question comes from Mike Shilsky from

Speaker Change: Synergy cases in both but both very revenue based pretty light on the on the operational side in the case of those two.

Speaker Change: Understood I appreciate the detail.

Speaker Change: I would add before I go to the next question to both both really fit our portfolio well product product innovation and product leadership position strong brand names within within their niche markets and a really good technical fit with the timken portfolio.

Speaker Change: Our next question comes from Mike <unk> from D. A Davidson.

Michael Shlisky: [inaudible] Yes, hi, good morning. Thanks for taking my question. Hey, Michael.

Speaker Change: Mike Your line is now open.

Mike: Yes, hi, good morning, Thanks for taking my questions.

Hey, Mike what I had mentioned in your program.

Operator: Thank you. It's good to be here. I think you mentioned in your remarks some headcount reductions that have already taken place or are about to take place. Can you give a bit more detail there? Are those permanent or just trying to flex with the current environment? And are they hourly or salaried people?

Mike: Thank you.

Mike: He'll be here.

Mike: I think you had mentioned in your remarks, some head count reductions that have already taken place or are about to take place.

Mike: Just give us a little bit more detail there are those permanent or just I was just trying to flex with it with the current environment.

Mike: And where they are they hourly or salary people.

Richard G. Kyle: I'm just kind of curious if you could give us some more kind of color around that. It would be so, you know, our demand started leveling off in the first quarter last year after two and a half, three years of hiring, and markets were difficult to hire, etc. So while turnover had been running higher turnover had been a challenge for us for those couple of years, it was, it enabled us to attrit our workforce and reduce our workforce without forced reductions quicker than last year. So largely, in a lot of cases, we stopped hiring in the second quarter of last year and started capturing attrition. The answer to your question is what I quoted: operative factory hourly workers are down 8%. We have captured some attrition in the salaried ranks as well. And we've done some restructuring on the salaried side as well as, as I mentioned, the integration of some of the businesses. But the 8% is factory workers.

Mike: Can you just give us some more color around that thank you.

Mike: It would be so our demand started leveling off.

Mike: Into the first quarter last year.

Mike: After two and a half three years of hiring and in markets difficult to hire et cetera.

So while the turnover had been running a higher turnover had been a challenge for us for those couple of years. It was.

Mike: It enabled us to attrit.

Our workforce and reduce our workforce without forced reductions quicker last year, so largely in a lot of cases, we stopped hiring.

In the second quarter of last year and started capturing attrition.

Mike: The answer your question is what I quoted was.

Mike: <unk> factory hourly workers down 8%, we have captured some attrition of salaried ranks as well and we've done some restructuring on the salary side as well as I mentioned the integration of some of the businesses, but the 8% is factory workers. The predominance of that would be flex that we brought the head count.

Richard G. Kyle: The predominance of that would be flex, meaning we brought the headcount down as wind demand and other things have softened. And then there is a piece of it that is structural. I talked about the plant consolidations that we had happening last year as well as those that we have planned for this year. But the predominance of it would be flexing our workforce and headcount through the demand. And most of that would have been second half weighted.

Mike: Down.

Mike: As when demand and other things have softened and then there is a piece of it that is that is structural I talked about.

Mike: The plant consolidations that we had happening last year as well as those that we have planned for this year, but the predominance of it would be flexing, our workforce and head count through through the demand in.

Mike: And most of that would've been second half weighted so.

Philip D. Fracassa: So a little bit in the second, not really none in the first quarter, probably flat and maybe up head count in the first quarter, down a little in the second and down pretty significantly in the third and fourth and, I expect, would be down a little bit more at the end of the first quarter. Great. And then for my follow-up, you just touched on the four plant consultations you've got in the pipeline, I think, for this year. Can you kind of bucket for us the, maybe once it's all said and done, the annualized EBITDA potential impact? Was that in regards to the plant consolidations?

Mike: A little bit in the second really none in the first quarter, probably flat maybe up head count in the first quarter down a little in the second and then down pretty significantly in the third and fourth and I expect we'll be down a little bit more at the end of the first quarter.

Mike: Yeah.

Mike: Great.

Speaker Change: And then for my follow up and you just touched on the floor plan with all the ends of the.

Speaker Change: Pipeline.

Speaker Change: This year.

Speaker Change: Can you kind of bucket for us.

Speaker Change: Maybe once it's all said and done the annualized EBITDA potential impact.

Speaker Change: Right.

Speaker Change: Perhaps for the full year 'twenty and beyond and also are there any.

Speaker Change: One time cash needs on either in 2014.

Speaker Change: Thanks.

Speaker Change: Yeah.

Speaker Change: Was that in regards to the plant consolidations.

Speaker Change: Correct.

Speaker Change: Okay.

Philip D. Fracassa: Okay, nothing significant on the cash or restructuring side, you know, we generally do a little bit of this every, every year. We had some last year, a little bit more this year. So there, there is some, but nothing, nothing out of line with what we've done the last few years. And I would say we don't generally talk about exact cost out targets with those we have them, but we bet on it more in our margin target, and it's all part of our objective to get margins up to 20% through the cycle, and certainly, what we did the last few years was a contributor to our margins last year of 19.7, and it would contribute to margins in 2025, but I wouldn't give us an exact number on it

Speaker Change: Nothing significant on the cash or restructuring side.

Speaker Change: Generally are doing a little bit of this every every year, we had some in last year a little bit more this year. So there is some but nothing.

Speaker Change: Nothing out of line of what we've done the last few years.

Speaker Change: And I would say, we don't generally talk about exact.

Speaker Change: Cost out targets with those we have them, but we've said it more than our margin target and it's all part of our.

Speaker Change: Objective to get margins up to 20% through cycle and certainly what we did the last few years was a contributor to our.

Speaker Change: Margins last year of $19, seven and it would contribute to margins.

Speaker Change: In 2025, but wouldn't give us exact number on it and the other thing I would add Mike is on the on our guide the Delta between GAAP and adjusted for the year is around 90.

Philip D. Fracassa: Yeah, the only thing I would add, Mike, is on our guide, the delta between gap and adjusted for the years is around 90 cents; 75 cents of that is roughly the deal amortization, and the other 15 cents would be kind of normal restructuring type expenses we would need to incur to do the point rationalizations that Rich talked about, and that's right in. Great, fair enough. Thanks very much.

Speaker Change: 75 of that is roughly the deal amortization and the other 15 would be kind of normal restructuring type expenses, we would need to incur to do the plant rationalizations that rich talked about and Thats right in line with what we would typically do in a given year.

Speaker Change: Great Fair enough, thanks, very much guys.

Philip D. Fracassa: Thanks. Thanks, Mike. [inaudible] Joe Yerlein Snow, Thanks.

Speaker Change: Thanks, Mike.

Speaker Change: Our next question comes from Joe Ritchie from Goldman Sachs.

Operator: Good morning, guys. Good morning. Hi Joe.

Joseph Alfred Ritchie: Joe Your line is now open.

Joseph Alfred Ritchie: Thanks, Good morning, guys.

Joseph Alfred Ritchie: Hey, I just want to make sure I heard the organic growth cadence for the year. So I think you guys said flattish in the second half. But maybe I misheard that.

Joseph Alfred Ritchie: Good morning, Joe.

Joseph Alfred Ritchie: Hey.

Joseph Alfred Ritchie: I just want to make sure I heard the organic growth cadence in the year. So I think you guys said flattish in the second half.

Joseph Alfred Ritchie: But maybe I misheard that and I'm just curious.

Richard G. Kyle: And I'm just curious, as it relates to renewables, I think of that business as being a little bit longer cycle for you. Like when do you think you have visibility on that business as the year progresses? Yeah, I'll take the second part first.

Joseph Alfred Ritchie: As it relates to renewables I think of that business as being a little bit longer cycle for you.

Joseph Alfred Ritchie: When do you think you have visibility on that business as the year progresses.

Speaker Change: Yeah I'll take the second part first we would usually have.

Richard G. Kyle: We would usually have close to six months of order visibility within within wind and to our outlook for the first half of the year. Certainly, you can do a little bit better, but it's not gonna be double digits better. But the second half remains.

Speaker Change: Close to six months of.

Speaker Change: Order visibility within within wind in and.

Speaker Change: Two our outlook for the for the first half of the year certainly you can do a little bit better, but it's not going to be double digits better.

Speaker Change: But the second half remains.

Richard G. Kyle: Pretty open, and that could go favorably, certainly. Yeah, I would say on the organic progression, Joe, quarterly, so the midpoint of the guide is down six and a half percent for the year. Think of the first half as being down double digits, both in both the first quarter and the second quarter, probably a little worse in the first quarter just with the comps. And then we would flatten out as we move into the back half of the year. Okay, got it. That's, that's, that's clear.

Speaker Change: Pretty open and that could go could go favorably certainly.

Speaker Change: Yes, I would say on the on the organic progression Joe quarterly so midpoint of the guide is down six 5% for the year I think in the first half as being down double digits. Both in both in the first quarter in the second quarter, probably a little worse in the first quarter just with the comps and then we would we would flatten out as we move into the back half of the year.

Speaker Change: Okay got it.

Philip D. Fracassa: And then maybe just to follow up on just the price cost commentary. Is there anything we need to be aware of from a cadence standpoint as the year progresses? Like, you know, we have started to see some commodities come into play, but that usually takes a little bit of time before you see it in your P&L. So any commentary on this price cost, you know, as the year progresses? No, I would say, you know, we finished a really strong pricing year in 23, north of 3% for the year, we were north of 2% in the fourth quarter, and we do have slight positive pricing in for 2024. And that would be net of any anticipated index or pass-through givebacks when we have to give. We still think we'll net slightly positive pricing.

And then Phil maybe maybe just a follow up on Bob's.

Bob commentary.

Phil: Is there anything we need to be aware of from a cadence standpoint as of yet the breadth.

Phil: <unk>.

Phil: We have started to see some commodity play that usually takes a little bit of time before you see it in here in your P&L, So any commentary on the price.

Phil: Yes.

Phil:

Speaker Change: No I would say we finished a really strong pricing year in 'twenty three north of 3% for the year, we were north of 2% in the fourth quarter. We do have slight positive pricing in for 2024 and that would be net of any anticipated.

Speaker Change: Index or pass through give backs when would you have to get we still think we'll net.

Speaker Change: Slightly positive pricing so that would be slightly positive think north of north of 50 bps, probably more in industrial motion.

Philip D. Fracassa: So that would be slightly positive think north of north of 50 bps, probably more in industrial motion, a little bit more industrial motion and bearings because of the way that the pricing dynamics are working in the two segments, but I feel pretty good about some of the pricing already in place, for example, in the first quarter, that we've put in through some of our markets and channels. And, you know, obviously, if commodity prices were to, you know, decline significantly, there'd be a little bit of risk there, but the benefit on the cost side would typically outweigh that to us and probably be a net positive to assist the way our pricing mechanisms work now. So it's a good story.

Speaker Change: More industrial motion and bearings is because of the way the pricing dynamics are working in the two segments, but but feel pretty good about some of the pricing is already in for example in the first quarter that.

Speaker Change: That we've put in through some of our markets and channels.

Speaker Change: Obviously if.

Commodity prices were to decline significantly.

Speaker Change: Significantly there'll be a little bit of risk there, but the benefit on the cost side would typically outweigh that to us and probably be a net positive to assisted by our pricing mechanisms work now so it's a good story, it's a more to flatter price cost environment 'twenty four 'twenty three we did see significant positivity in 'twenty three.

Joseph Alfred Ritchie: It's, it's, it's a more flat price cost environment in 24 than 23. You know, we did see significant positivity in 23 with material logistics, favorable pricing up cost moderating. I think we'll see a flatter price cost curve in 24, but not negative. I mean, we do, we would expect it to be, you know, flat to slightly positive, helping us to offset some of the volume declines we're anticipating. Very helpful. Thank you both. The next question comes from Angel Castillo from Morgan Stanley. Angel, your line is now open. Hi, good morning. Thanks for taking my question. I just wanted to go back to that commentary.

Speaker Change: With material and logistics favorable pricing up cost moderating I think we'll see a flatter price cost curve in 'twenty, four but not negative I mean, we do we would expect it to be flat to slightly positive, helping us to offset some of the volume declines were anticipated.

Speaker Change: Very helpful. Thank you Bob.

Speaker Change: Okay.

Speaker Change: Our next question comes from Andrew <unk> from Morgan Stanley. Your line is now open.

Andrew: Hi, Good morning, Thanks for taking my question I just wanted to go back to the commentary hi, How's it going.

Angel Castillo: Hi, how's it going? Just maybe on the on the first half, just wanted to unpack that a little bit more. I think earlier you talked about, you know, not seeing any catalyst to suggest kind of an improvement here in your in your guidance. I totally understand that maybe the limited visibility, but as you think about some of your customers, maybe focusing on heavy industries and off-highway, given, I think you've unpacked, went pretty well, just in those segments, to the extent that your customers have been doing some of their own destocking here in the 3Q, 4Q timeframe, what are you not hearing, I guess, what are you hearing from your customers, and why is there not kind of a step up maybe in the first half?

Andrew: Just maybe on the first half just wanted to unpack that a little bit more I think earlier, you talked about not seeing any catalyst.

Speaker Change: Suggests kind of an improvement here in your in your guidance in.

Speaker Change: Totally understand that maybe the limited visibility, but as you think about some of your customers maybe focusing on heavy industries in off highway given I think you've unpacked went pretty well just in those segments to the extent that your customers have been doing some of their own destocking here and let's say Q4 timeframe.

Speaker Change: What are you not I guess what are you hearing from your customers and why is there not kind of a step up maybe in the first half versus second half dynamic as they are kind of done destocking and maybe moving to just underlying demand thats, maybe a little bit weak, but not to the same degree.

Angel Castillo: Kind of the second half dynamic as they're kind of done destocking and maybe moving to just underlying demand that's maybe a little bit weaker but not to the same degree. Yeah, I would, I think it's a good question that I would say our customer sentiment is probably, in total, a little more bullish than what our six and a half percent would be. And again, put wind aside as you did, I would say there's probably a little heavier optimism there. But, we were just down 5% in the fourth quarter, got a tougher comp in the first quarter, and, you know, looking at order flow, we're not seeing where that is reversed in the next couple of months.

Speaker Change: Yes.

Speaker Change: So good question that I would say our customers sentiment is probably.

Speaker Change: In total a little more bullish than what our six 5% would be and again put window side as you did.

Speaker Change: I would say, there's probably a little heavier optimism there, but we were just down 5% in the fourth quarter.

Speaker Change: We had a tougher comp in the first quarter end.

Speaker Change: And looking at order flow or we're not seeing where that is reversed in the next couple of months. So.

Angel Castillo: So we aren't baking that optimism in until we start to see it. I'd say historically, and off highway in particular, I would say it's historically unusual and off highway, particular, as you know, the second half, it's not typically, it'd be, it'd be a little unusual to see a big acceleration in the second half, that it would normally be kind of early in the year as opposed to in the third or fourth quarter, but that would have entered into it as well.

Speaker Change: We arent baking that.

Speaker Change: Optimism in and until we start to see it.

Speaker Change: Right.

And I'd say historically in off highway in particular I would say is historically unusual in off highway, particularly as you know the second half it's not typically.

Speaker Change: It would be it would be a little unusual to see a big acceleration in the second half.

Speaker Change: Would normally be kind of early in the year as opposed to in the third or fourth quarter, but and that would have entered into it as well.

Richard G. Kyle: And then maybe switching to capital allocation. Can you just talk a little bit about your M&A pipeline and maybe how that's shaping up for 2024? And how you maybe kind of see that impacting your ability to do more repurchases with your higher free cash flow? A few comments there.

Speaker Change: Got it that's very helpful. Thank you and then maybe switching to capital allocation can you just talk a little bit about your M&A pipeline and maybe how that's shaping up for 2024, and how you maybe see that impacting your ability to do more repurchases with your with your higher free cash flow.

Speaker Change: Now a few comments there I'd say first our focus is really on executing and delivering on what we've done the last couple of years.

Richard G. Kyle: I'd say first, you know, our focus is really on executing and delivering on what we did the last couple of years. That being said, we still have the balance sheet, the cash flow, and the management bandwidth to continue for another 24. And our bias still remains for M&A over buybacks. We're looking at a better cash flow year this year as a step up there. You know, the M&A market has been relatively slow the last year and a half to two years. We have managed probably a little longer than that, going back to COVID. We've managed to do well through that time. I would say there's a level of optimism that it's going to pick up as a market, not just Timken. But I would still say we have not seen an increase in inbound activity. It's been more of us on the outbound side.

Speaker Change: That being said, we still have the balance sheet and the cash flow and the management bandwidth to to continue in 'twenty four and our our bias still remains to M&A over over buyback, we're looking at a better cash flow year. This year as I said.

Speaker Change: Step up there.

Speaker Change: The M&A market has been.

Speaker Change: Relatively slow the last year and a half to two years, we have managed.

Speaker Change: Probably even a little longer than that going back to Covid, we've managed to do well through that time.

Speaker Change: I would say there is a level of optimism that it's going to pick up.

As a market not not timken, so, but I would still say we have not seen an increase in inbound activity.

Speaker Change: It's been more us on the on the outbound side.

Richard G. Kyle: So we've done at least one acquisition every year for 14 years, and while we're here in February, I would say there's no reason to believe we would not be able to continue that even if the market remains relatively slow, and that we should be able to get something both strategic and financially attractive done this year. Yeah, and on the buyback, and we have about 2.7 million shares remaining on our authorization. So we have the ability to continue to buy back shares if the M&A is not there. Obviously, we have a bias for the M&A, just with what it can do for us, from a portfolio standpoint, from a diversification standpoint, but the buyback remains an option. And we, you know, we've bought back over 4% of our outstanding debt each of the last two years. And, you know, we'll see how the year plays out. But it certainly continues to be an option for many, very helpful.

Speaker Change: So we've done at least one acquisition every year for 14 years and while we are here in February I would say, there's no reason to believe we would not be able to continue that even if the market remains relatively slow and that we should be able to get something.

Speaker Change: Strategic and financially attractive done this year.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: On the buyback and we have about $2 7 million shares remaining on our authorization. So we have the ability to continue to buy back shares if the M&A is not there obviously, we have a bias for the M&A just with what it can do for us.

Speaker Change: From a portfolio standpoint from a diversification standpoint, but the buyback remains an option.

Speaker Change: Bought back over 4% of our outstanding each of the last two years.

Speaker Change: We'll see how the year plays out but it certainly continues to be an option for us.

Speaker Change: Very helpful. Thank you.

Philip D. Fracassa: Thanks, Angel. The question comes from Chris Dankert from Loop Capital. Hey, morning, guys.

Speaker Change: Thanks Angela.

Speaker Change: The next question comes from Chris Dankert from Loop capital Chris Your line is now open.

Chris Dankert: Hey, good morning, guys. Thanks for taking the question.

Christopher M. Dankert: Thanks for taking the question. I guess a quick one, just a quick clarification, I suppose, the impact of facility consolidations that is assuming kind of a base 40% organic decline, correct? Yes, correct. Okay, perfect, perfect.

Chris Dankert: Thanks, Chris Good morning.

Chris Dankert: Good morning, just a quick clarification I suppose.

Chris Dankert: The impact of the facility consolidations that is assuming kind of the base, 40% organic decremental correct.

Yes, correct.

Speaker Change: Okay perfect perfect.

Philip D. Fracassa: Just real quick, Chris, that would be a combination of the savings that we would achieve from the consolidation. And then, you know, with some of the new facilities that we talked about in the expansions, there is some ramp associated with those, and it can be a bit of a bit of a headwind as well. So you'll have them going a little bit both ways, probably through a good part of 2024, but probably with full run rate benefit as we get into 25.

Speaker Change: Yes.

Just real quick Chris that would be a combination of the savings that we would achieve from the consolidation and then with some of the new facilities that we've talked about the expansion. There is some ramp associated with those it can be a bit of a bit of a headwind as well so you'll have them going little bit both ways.

Through a good part of 'twenty 'twenty, four but probably full run rate benefit as we as we get into 'twenty five.

Philip D. Fracassa: Got it. That makes sense. Thank you for the clarity there. And then, I guess just quickly on SG&A. I know there's, you know, efforts to kind of tamp some of that down, but it's fair to kind of assume, you know, the starting point for the year in one cue is, you know, over 200 million or maybe just any comments on how to think about SG&A through the year here. Yeah, I mean, I would say, generally speaking, for SG&A, it's probably a good way to look at it.

Chris: Got it that makes sense. Thank you for the clarity there.

Speaker Change: And then I guess just quickly on SG&A I know, there's no efforts to kind of tap some of that down, but it's fair to kind of assume the starting point for the year in <unk> with over $200 billion, but just any comments on how to think about SG&A through the year here.

Speaker Change: Yes, I mean I would say.

Speaker Change: Generally speaking for SG&A, it's probably a good way to look at it I mean, we've been impacted by the by.

Philip D. Fracassa: I mean, we've been impacted by the acquisition. So you've seen SG&A absolute dollars go up just as we've brought more businesses into the portfolio. But as we move into 24, I mean, I think we'll be jumping off from the 23 level. The second quarter is typically when our annual pay increases kick in, so you'll probably have a little bit of a little bit of a headwind there. But, but, but staying pretty, pretty constant. And off that level.

Speaker Change: By the acquisitions that you've seen SG&A absolute dollars go up just because we brought more businesses into the portfolio, but as we move into 'twenty four I mean, I think we'll be jumping off from the 23 level get to the second quarter is typically one of our annual.

Speaker Change: Pay increases kick in so you probably have a little bit of a little bit of a headwind near but but but staying pretty pretty constant at that level.

Speaker Change: Got it got a super helpful. Thanks, So much guys really appreciate it.

Christopher M. Dankert: Thanks so much you guys, I really appreciate it. Thanks, Chris. Our next question comes from Michael Feminger from Bank of America.

Speaker Change: Thanks, Chris.

Speaker Change: Sure.

Speaker Change: Our next question comes from Michael Feniger from Bank of America, Michael Your line is now open.

Michael J. Feniger: Yeah, thanks for squeezing in. Appreciate it. Hey, guys, I know this was covered a lot with inventories. I'm just curious on your own inventories filled up 2% quarter of a quarter, revenues down a little bit sequentially. I know there's a lot of folks on the inventories channel.

Michael Feniger: Yes, Thanks for squeezing me in I appreciate it Hey, guys. I know this was covered a lot with the inventories I'm just curious on your on your own inventories build up 2% quarter over quarter revenue was down a little bit sequentially.

Michael Feniger: There's a lot of focus on the inventories in the channel just curious how you're feeling about your own inventories in 2024, and I know you have a big free cash flow year, maybe that's tied to it.

Michael J. Feniger: Just curious how you're feeling about your own inventories in 2024. And I know you have a big free cash flow year; maybe that's tied to it. Just here's how we should think about that as you kind of work through that through 2024. Yeah, first I would say, a couple of quarters now, our supply chains are pretty close to normal. We have problems here and there, but nothing beyond the normal. So delivery, delivery times, response time, etc.

Michael Feniger: Think about that as you kind of work through that through 2024.

Speaker Change: Yes, first I would say.

Speaker Change: A couple of quarters now a few quarters, our supply chains are pretty close to normal we have problems here and there, but nothing beyond the normal delivery deliveries response time.

Richard G. Kyle: is all good. So, we've got, and as I said in my comments, we've got a really good focus on this and have for a couple quarters that we are planning to underproduce through the course of the year. And that is factored into our decremental outlook that we would have a little lower production levels than revenue and continue to see some positive cash generation from inventory.

Et cetera is all good so we've got and as I said in my comments, we've got a really good focus on this and have for a couple of quarters. So we are planning to underproduce to revenue through the course of the year and that is factored into our decremental outlook that we would have a little lower production levels.

Speaker Change: Then the revenue and continue to see some positive cash generation.

Richard G. Kyle: Great. Sorry if this was covered, but you know, EMEA, Europe is only down 1% organically. It is the second quarter where you guys kind of report on a year-over-year basis just down 1%. Just curious if Europe feels more stable when we look at this organic growth that you're reporting relative to some of the economic data there, kind of what you're seeing over there with the end markets in Europe. Thank you. Yeah, I would say stable is a good word for it went down a little faster, or softened a little faster than our other markets, but it bounced back a little faster as well. And has been, it's been more stable, to your point, probably than the headlines. And certainly, Germany's probably a little softer for us than some other countries, but still pretty good.

Speaker Change: From inventory.

Speaker Change: Great.

This was covered but.

Speaker Change: EMEA Europe was down 1% organically in the second quarter. What are you guys kind of report on a year over year basis, just down 1% just curious if Europe feels more stable when we look at this organic growth that you're reporting relative to some of the economic data there.

Speaker Change: What youre seeing over there with the end markets in Europe. Thank you.

Speaker Change: Yes, I would say stable is.

Speaker Change: A good word for it went down a little faster or software faster than our other markets, but bounce back a little faster as well.

Speaker Change: As Ben.

It's been more stable to your point probably than the headlines and certainly Germany is probably a little softer for us than some other countries, but still pretty good now again, a little lower comp than what some of our other geographies, particularly Asia.

Richard G. Kyle: Now, again, a little, a little lower comp than what some of our other drivers, particularly Asia, are dealing with, with some, some very sizable growth comps over the last couple of years. Thanks, everyone. Thanks, Mike. We currently have no further questions, so I'd like to hand the call back.

Speaker Change: Is dealing with some some very sizable growth comps last couple of years.

Speaker Change: Sure.

Thanks, Ron.

Ron: Thanks, Mike.

Ron: We currently have no further questions. So I'd like to hand, the call back to Mr. Neil front natural for closing remarks over to you.

Neil Andrew Frohnapple: Thanks, Bruno. Thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call. [inaudible] Please call, joining. You may now disconnect. Thank you.

Neil: Thanks, Bruno Thank you everyone for joining us today, if you have any further questions. After today's call. Please contact me. Thank you and this concludes our call.

Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Thank you.

Speaker Change: [music].

Speaker Change: I'll disconnect your lines.

Speaker Change: Thank you.