Q2 2024 The Timken Co Earnings Call

Good morning, My name is M&A and I'll be your conference operator today.

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

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

Speaker Change: This time I would like to welcome everyone to Timken second quarter earnings release Conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will 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. If you would like to withdraw your question Press Star then the number two on your telephone keypad. Thank you Mr phone Apple.

Emily: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then number two on your telephone keypad. Thank you. Mr. Frohnapple, you may begin your conference. Thanks, Emily, and welcome everyone to our second quarter 2024 earnings conference call. This is Neil Frohnapple, Vice President of Investor Relations for the Timken Company. We appreciate you joining us today.

Speaker Change: You may begin your conference.

Speaker Change: Thanks, Emily and welcome everyone to our second quarter 2024 earnings Conference call. This is Neil thrown Apple Vice President of Investor Relations for the Timken Company. We appreciate you joining us today.

Speaker Change: 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 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.

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

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

Speaker Change: 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.

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

Neil Frohnapple: During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. However, 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 materials. 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: 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 expressed 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 solid second quarter with revenue and profits in line with expectations.

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: Our results continue to demonstrate the strength and diversity of our portfolio and the successful execution of our strategy to build Timken into a diversified industrial leader. However, revenue was down 7% from last year's record second quarter and roughly flat sequentially from the first quarter. Renewable energy drove the decline and was down over 40% from last year. China Wind, which is the driver of the renewable energy decline, did stabilize sequentially in the second quarter for both revenue and orders.

Rich: Timken delivered a solid second quarter with revenue and profits in line with expectations.

Richard G. Kyle: Our results continue to demonstrate the strength and diversity of our portfolio and the successful execution of our strategy to build timken into a diversified industrial later.

Speaker Change: Revenue was down 7% from last year's record second quarter, and roughly flat sequentially from the first quarter.

Speaker Change: Renewable energy drove the decline and was down over 40% from last year.

Speaker Change: China wind, which is the driver of the renewable decline did stabilized sequentially in the second quarter for both revenue and orders.

Richard G. Kyle: Rail, aerospace, and industrial distribution all climbed up organically over the prior year, which helps mitigate the impact of renewable energy. Diversity and the Strength of the Portfolio are helping us navigate through a weak market environment. Margins of 19.5% were strong. However, earnings per share of $1.63 were negatively impacted by revenue, as well as a modestly higher tax rate and higher interest costs. Price remained modestly positive, and costs continued to improve year over year. We have ramped down variable costs with the softening demand, and we continue to improve our cost structure through our footprint, integration, and productivity initiatives. The Mexico Bering plant is contributing favorably to our year-over-year results.

Speaker Change: Rail aerospace and industrial distribution pole up organically over prior year, which helped mitigate the impact from renewable energy.

Speaker Change: The diversity and the strength of the portfolio are helping us navigate through a weak market environment.

Speaker Change: Margins of 19, 5% with strong earnings per share of $1 63 were negatively impacted by the revenue.

Speaker Change: As well as a modestly higher tax rate and higher interest costs.

Speaker Change: Price remained modestly positive cost continued to improve year over year.

Speaker Change: We have ramped down variable cost with the softening demand and we continue to improve our cost structure through our footprint integration and productivity initiatives.

Speaker Change: The Mexico bearing plant is contributing favorably to a year over year results.

Richard G. Kyle: The plant also recently began production of belts and will be ramping up volume into next year. The belt expansion is currently a headwind in the results, but it will inflect to a positive in 2025 as we scale the operation and consolidate facilities. The Nadella integration and the roll-on continued in the quarter, and we continue to see good margin performance in the business despite a relatively soft market environment. We also took further steps to integrate American Roller Bearings and GGB into the Timken Bearing Organization, and both product lines are contributing favorably to results.

Speaker Change: The plan also recently began production of belts and will be ramping up volume into next year.

Speaker Change: The belt expansion is currently a headwind in the results, but will inflect to a positive 2025, as we scale the operation and consolidate facilities.

Speaker Change: The nadella integration into rollout continued in the quarter and we continue to see good margin performance in the business, despite a relatively soft market environment.

Speaker Change: We also took further steps to integrate American roller bearings in GGP into the timken bearing organization in both product lines are contributing favorably to results.

Richard G. Kyle: Our operations are running very well, and we have excellent focus on both delivering short-term results and our operating metrics, as well as investing in long-term improvement initiatives that will yield results in 2025. From a capital allocation standpoint, we purchased nearly 400,000 shares in the quarter and completed the final sell-down of our position in Timken India Limited.

Speaker Change: Our operations are running very well and we have excellent focus on both delivering short term results in our operating metrics as well as investing in long term improvement initiatives that will yield results in 2025.

Speaker Change: From a capital allocation standpoint, we purchased nearly 400000 shares in the quarter and completed the final sell down of our position in Timken, India Limited.

Richard G. Kyle: Our net depth position stands slightly below the midpoint of our targeted leverage range. Combined with strong second half cash flow, we would expect capital allocation to be a meaningful contributor to results over the next 18 months. After CapEx and the dividend, our bias remains weighted to bolt-on M&A to continue to strengthen the portfolio, advance the strategy to scale as an industrial leader, and achieve our long-term financial target. Turning to the forecast, we are continuing to plan for seasonal sequential revenue declines in the third and fourth quarters.

Speaker Change: Our net debt position stands slightly below the midpoint of our targeted leverage range.

Speaker Change: When combined with strong second half cash flow, we would expect capital allocation will be a meaningful contributor to the results over the next 18 months.

Speaker Change: After capex and the dividend our bias remains weighted to bolt on M&A to continue to strengthen the portfolio advanced our strategy to scale as an industrial leader and to achieve our long term financial targets.

Speaker Change: Turning to the forecast we are continuing to plan for seasonal sequential revenue declines in the third and fourth quarters.

Richard G. Kyle: We expect our year-over-year revenue results to improve significantly in the second half, but that is primarily due to easing comps, particularly in renewable energy. China Wind has been the primary drag on our revenue for the last four quarters.

Speaker Change: We expect our year over year revenue results to improve significantly in the second half, but that was primarily due to easing comps, particularly in renewable energy.

Speaker Change: China wind has been the primary drag on our revenue for the last 44 quarters.

Richard G. Kyle: As I said earlier, China wind orders and revenue have stabilized, and we have the backlog to support the second half guide. Nothing changed materially in the second quarter to alter our full year revenue outlook. Most customers and markets now share our view that a broad, second-half strengthening in industrial markets is unlikely.

Speaker Change: So as I said earlier, China wind orders and revenue has stabilized and we have the backlog to support the second half guide.

Speaker Change: Nothing changed materially in the second quarter to alter our full year revenue outlook most.

Speaker Change: Most customers in markets now share our view that a broad second half strengthening in industrial markets is unlikely.

Speaker Change: The July revenue results and trends support our guidance assumptions.

Richard G. Kyle: July Revenue Results and Trends support our guidance assumption. On the bottom line, the midpoint of our guide is for $6.10 and just under 19% EBITDA margin. We are guiding to a second half decline in EBITDA margins to account for normal seasonality. As we look to 2025 and beyond, we're confident that our markets will rebound, and that we will return to growth. We also remain committed to achieving our long-term financial targets. And finally, the CEO transition remains on track for early September, Tariq Mehta is looking forward to joining Timken soon, and we are committed to a smooth transition supported by 19,000 talented employees and a proven and tenured leadership team. Timken is well positioned for future growth and success under Tarek's leadership. I'm out; turn it over to Phil.

Speaker Change: On the bottom line the midpoint of our guide is for $6 10, and just under 19% EBITDA margins. We are guiding to a second half decline in EBIT margins to account for normal seasonality.

Speaker Change: But structurally we are in good position for margins to step up in the first quarter of 2025 as they typically do.

Speaker Change: As we look to 2025 and beyond we are confident that our markets will rebound and that we will return to growth.

Speaker Change: We also remain committed to achieving our long term financial targets.

torque meta: And finally, the CEO transition transition remains on track for early September torque meta is looking forward to joining timken soon and we are committed to a smooth transition supported by 19000 talented employees and a proven and tenured leadership team.

torque meta: Timken is well positioned for future growth and success under <unk> leadership.

torque meta: I'll now turn it over to Phil.

Phil: Okay. Thank you rich and good morning, everyone.

Philip D. Fracassa: Okay, thank you, Rich. And good morning, everyone. For the financial review, I'm going to start on slide 11 of the presentation materials with a summary of our solid second quarter. Revenue for the quarter came in at just under $1.2 billion, in line with our expectations and down about 7% from last year's all-time record revenue. We delivered adjusted EBITDA margins of 19.5%, with adjusted earnings per share coming in at $1.60. Turning to slide 12, let's take a closer look at our second quarter sales performance. Organically, sales were down 7.7% from last year, most of the decline driven by significantly lower wind energy demand in China, as we expected.

Phil: For the financial review I'm going to start on slide 11 of the presentation materials with a summary of our solid second quarter results.

Phil: Revenue for the quarter came in at just under $1 2 billion in line with our expectations and down about 7% from last year's all time record revenue.

Phil: We delivered adjusted EBITDA margins of 19, 5% with adjusted earnings per share coming in at $1 63.

Phil: Turning to slide 12, let's take a closer look at our second quarter sales performance.

Philip D. Fracassa: If we exclude wind energy... Our organic revenue would have been down less than 3% from last year. Looking at the rest of the revenue block, you can see that the acquisitions we closed last year, net of the one divestiture, contributed 1.7% of growth to the top line in the quarter, foreign currency translation with a headwind of roughly 1. On the right-hand side of the slide, you can see organic growth by region.

Phil: Organically sales were down seven 7% from last year.

Phil: With most of the decline driven by significantly lower wind energy demand in China as we expected.

Phil: If we exclude wind energy.

Phil: Our organic revenue would have been down less than 3% from last year.

Phil: Looking at the rest of the revenue walk you can see that the acquisitions, we closed last year net of the one divestiture.

Phil: Tribute at one 7% of growth to the topline in the quarter.

Phil: While foreign currency translation was a headwind of roughly 1%.

Phil: On the right hand side of this slide you can see organic growth by region, which excludes both currency and net acquisition impact.

Philip D. Fracassa: Let me comment briefly on each resu, In the Americas, our largest region, we were down about 1% against last year's strong second quarter. We saw solid growth across several sectors, including distribution, on-highway auto and truck, and aerospace, while the marine, off-highway, and heavy industry sectors were low. Marine was impacted by the timing of military-marine programs under a long-term contract.

Phil: Let me comment briefly on each region.

Phil: In the Americas, our largest region, we were down about 1% against last year's strong second quarter.

Speaker Change: We saw solid growth across several sectors, including distribution on highway auto and truck and aerospace.

Speaker Change: While the marine off highway and heavy industry sectors were lower.

Speaker Change: Marine was impacted by the timing of military marine programs under long term contracts.

Philip D. Fracassa: We expect to grow in the marine sector for the full year, but military programs can be lumpy at times, and the second quarter of last year was a difficult time. Excluding Marine, the Americas region would have been up slightly year over year in the course. In Asia Pacific, we were down 18%, driven by lower wind energy demand in China.

Speaker Change: We expect to grow in the marine sector for the full year, but military programs can be lumpy at times in the second quarter of last year was a difficult comp.

Speaker Change: Excluding marine the Americas region would have been up slightly year over year in the quarter.

Speaker Change: In Asia Pacific were down 18% drill.

Speaker Change: Driven by the lower wind energy demand in China.

Philip D. Fracassa: This is partially offset by double-digit growth in India on higher rail and industrial. Note that China was roughly flat in the quarter, excluding wind energy. And finally, we were down 12% in EMEA, as we saw continued industrial weakness in the region, mainly in Western Europe. Most sectors are lower, with general industrial, off-highway, and distribution posting the largest. Turning to slide 13, adjusted EBITDA in the second quarter was $230 million, or 19.5% of sales, compared to $263 million.

Speaker Change: This was partially offset by double digit growth in India on higher rail and industrial revenue.

Speaker Change: Note that China was roughly flat in the quarter, excluding wind energy.

Speaker Change: And finally, we were down 12% in EMEA.

Speaker Change: As we saw continued industrial weakness in the region, mainly in Western Europe.

Speaker Change: Most sectors were lower with general industrial.

Speaker Change: Highway and distribution posting the largest declines.

Speaker Change: Turning to slide 13, adjusted EBITDA in the second quarter was $230 million or 19, 5% of sales compared to $263 million or 27% of sales last year.

Philip D. Fracassa: 20.7% of sales last year, solid margins in the quarter reflect the impact of positive price costs, strong Operational Execution, and Net Acquisition Accretion, which helped offset the impact of lower organic sales volume, an unfavorable current. Looking at the decrease in adjusted dollars, you can see that it was driven mainly by lower volume, along with unfavorable currency.

Speaker Change: Our solid margins in the quarter reflect the impact of positive price cost strong operational execution, and net acquisition accretion, which helped to offset the impact of lower organic sales volume and unfavorable currency.

Speaker Change: Okay.

Speaker Change: Looking at the decrease in adjusted EBITDA dollars, you can see that it was driven mainly by lower volume along with unfavorable currency impact.

Speaker Change: This was partially offset by favorable price mix.

Philip D. Fracassa: This was partially offset by favorable price mix, improved operating cost performance, and the benefit of equity. Let me comment a little further. Some of the drivers in the, With respect to price mix, net pricing was positive once again this quarter, with relatively more pricing in industrial motion. Mix was also positive, driven largely by industrial distribution, which generally outperformed OE sectors in the. On the manufacturing line, you can see that we delivered modest year-over-year improvement in the course, driven by better productivity.

Speaker Change: Improved operating cost performance and the benefit of acquisitions.

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

Speaker Change: With respect to price mix net pricing was positive once again this quarter with relatively more pricing and industrial motion.

Speaker Change: Mix was also positive driven largely by industrial distribution, which generally outperformed OE sectors in the quarter.

Speaker Change: On the manufacturing line you can see that we delivered modest year over year improvement in the quarter driven by better productivity.

Philip D. Fracassa: Targeted Cost Actions and a Favorable Inventory Change Impact. These more than offset the impact of continued inflation and expenses related to ongoing footprint initiatives, including our plant expansion for belts in Mexico. Looking at the SG&A Other line, costs were down from last year, as targeted initiatives and lower discretionary spending more than offset the impact of higher compensation.

Speaker Change: Target of cost actions, and a favorable inventory change impact, which more than offset the impact of continued inflation and expenses related to ongoing footprint initiatives, including our plant expansion for built in Mexico.

Speaker Change: Looking at the SG&A other line costs were down from last year as targeted initiatives and lower discretionary spending more than offset the impact of higher compensation expense.

Speaker Change: And finally acquisitions net of divestitures contributed $8 million of adjusted EBITDA in the quarter, which was accretive to overall company margins as our recent acquisitions are integrating and performing very well.

Philip D. Fracassa: And finally, Acquisitions Meta-Divestment contributed $8 million of adjusted EBITDA in the quarter, which was accretive to overall company margins, as our recent acquisitions are integrating and performing very well. On slide 14, you can see that we posted net income of $96 million, or $1.36 per diluted share for the second quarter on a gap basis, compared to $1.73 last year. The current period includes $0.27 of net expense from special items, mainly Acquisition Emeritus.

Speaker Change: On Slide 14, you can see that we posted net income of $96 million or $1 36 per diluted share for the second quarter on a GAAP basis compared to $1 73 last year.

Speaker Change: The current period includes 27 of net expense from special items.

Speaker Change: <unk> acquisition amortization.

Speaker Change: On an adjusted basis, we earned $1 63 per share.

Philip D. Fracassa: On an adjusted basis, we earned $1.63 per share, compared to $2.01 per share last year, with respect to some of the below-the-line items. Interest expense in the second quarter was about $3 million higher year over year, while diluted shares were more than 2% lower, reflecting our Net Buyback activity over the past year. Our adjusted tax rate in the quarter came in at 27%, in line with our expectations but up from last year, driven mostly by the net unfavorable impact of our geographic mix.

Speaker Change: Compared to $2 <unk> per share last year.

Speaker Change: With respect to some of the below the line items.

Speaker Change: Interest expense in the second quarter was about 3 million higher year over year.

Speaker Change: While diluted shares where more than 2% lower.

Speaker Change: Collecting our net buyback activity over the past 12 months.

Speaker Change: Our adjusted tax rate in the quarter came in at 27% in line with our expectations, but up from last year.

Speaker Change: Driven mostly by the net unfavorable impact of our geographic mix of earnings.

Speaker Change: And finally depreciation expense was up slightly in the quarter as well as Noncontrolling interest.

Philip D. Fracassa: And finally, depreciation expense was up slightly in the quarter, as was non-controlling income. Note that we are expecting a slightly higher NCI deduction this year due to the Timken India cell. Now let's move to our business segment results, starting with engineered bearings on slide 15. In the second quarter, engineered bearing sales were $783 million, down 8.6% from last year. Additionally, organically, sales were down 7%, driven by a significant decline in China wind energy.

Speaker Change: Not that we are expecting a slightly higher NCI deduct this year due to the timken, India sell them.

Speaker Change: Now, let's move to our business segment results, starting with engineered bearings on slide 15.

Speaker Change: In the second quarter engineered bearings sales were $783 million down eight 6% from last year.

Speaker Change: <unk> sales were down 7% driven.

Speaker Change: Driven by a significant decline in China wind energy.

Speaker Change: Excluding wind organic revenue would have been roughly flat compared to last year.

Philip D. Fracassa: Excluding wind, organic revenue would have been roughly flat compared to last year, as the rest of this segment showed resilient performance in court. Specifically, revenue in the distribution, aerospace, and rail sectors was all up versus last year; on the off-highway, and General and Heavy Industrial sectors were lower, as we anticipated. With a headwind of revenue of just over 1%, the TWB divestiture netted the IMEC acquisition was slightly unfavorable. Engineering Bearings' adjusted EBITDA in the quarter was $166 million, or 21.2% of sales.

Speaker Change: As the rest of this segment showed resilient performance in the quarter.

Speaker Change: Specifically revenue in the distribution aerospace and rail sectors were all up versus last year.

Speaker Change: While the off highway and.

Speaker Change: In general and heavy industrial sectors were lower as we anticipated.

Speaker Change: Currency was a headwind to revenue of just over 1%, while the <unk> divestiture net of the <unk> acquisition was slightly unfavorable.

Speaker Change: Engineered bearings adjusted EBITDA in the quarter was $166 million or 21, 2% of sales compared to $190 million or 22, 1% of sales last year.

Philip D. Fracassa: 22.1% of sales last year; solid margins in the quarter reflect the impact of favorable price mix and Improved Operating Cost Performance, which helps mitigate the impact of lower volume, higher logistics costs, and unfavorable current. Now let's turn to industrial motion on slide 16. In the second quarter, industrial motion sales were $399 million, down 3.9% from last year. However, organically, sales declined 9.2%; lower demand was partially offset by higher prices.

Speaker Change: Our solid margins in the quarter reflect the impact of favorable price mix and improved operating cost performance, which helped to mitigate the impact of lower volume higher logistics costs and unfavorable currency.

Speaker Change: Now, let's turn to industrial motion on slide 16.

Speaker Change: In the second quarter industrial motion sales were $399 million down three 9% from last year.

Speaker Change: Organically sales declined nine 2% as lower demand was partially offset by higher pricing.

Speaker Change: Most of our platform saw lower revenue year over year with drive systems and linear motion posting the largest declines.

Philip D. Fracassa: Most of our platforms saw lower revenue year over year, drive systems, and linear motion posting the largest. Drive systems was impacted by timing on military and marine programs, which I noted earlier, while Linear Motion was in practice. Lubrication was also done modestly, modestly. While our services, couplings, and belts and chain platforms were relatively flat, acquisition contributed 6% of the top line, while currency with a headwind of just under 1%. Industrial Motion adjusted EBITDA for the quarter was $80 million, or 20% of sales.

Speaker Change: Drive systems was impacted by timing on military marine programs, which I noted earlier.

Speaker Change: Our linear motion was impacted by.

Speaker Change: By broad weakness in Western Europe.

Speaker Change: Lubrication was also down modestly modestly.

Speaker Change: Our services couplings and Delta chain platforms were relatively flat.

Speaker Change: Acquisitions contributed 6% to the top line, while currency was a headwind of just under 1%.

Speaker Change: Industrial motion adjusted EBITDA for the quarter was $80 million or 20% of sales compared to $86 million or 27% of sales last year.

Philip D. Fracassa: 20.7% of sales last year. The solid margins in the quarter reflect net acquisition accretion and favorable SG&A performance, which largely offset the impact of lower organic volume. Manufacturing performance was relatively flat in the quarter, as increased productivity and Favorable Cosper were offset by ramp costs related to our plant expansion for belts in Mexico. Turning to slide 17.

Speaker Change: Our solid margins in the quarter reflect net acquisition accretion and favorable SG&A performance, which largely offset the impact of lower organic volume.

Speaker Change: Manufacturing performance was relatively flat in the quarter and increased productivity and favorable cost performance was offset by ramp costs related to our plant expansion for belts in Mexico.

Speaker Change: Turning to slide 17.

Philip D. Fracassa: You can see that we generated operating cash flow of $125 million in the second quarter, and after CapEx, pre-cash flow was $87 million, slightly below last year's. We expect cash flow to step up in the second half of the year, driven by seasonality and improved working capital. From a capital allocation standpoint, we returned $54 million of cash to shareholders through dividends and share repurchases during the year.

Speaker Change: You can see that we generated operating cash flow of $125 million in the second quarter.

Speaker Change: And after Capex free cash flow was $87 million, which was slightly below last year's level.

Speaker Change: We expect cash flow to step up in the second half of the year driven by seasonality and improved working capital performance.

Speaker Change: From a capital allocation standpoint, we returned $54 million of cash to shareholders through dividends and share repurchases during the quarter.

Speaker Change: We've raised our quarterly dividend by 3% in May setting 2024 to be the 11th straight year of annual dividend increases.

Philip D. Fracassa: We raised our quarterly dividend by 3% in May, setting 2024 up to be the 11th straight year of annual dividend income. We bought back 360,000 shares of our company. Looking at the balance sheet, we ended the second quarter with net debt to adjusted EBITDA at 1.9 times, well within our targeted, Our reduced net debt level of around $1.7 billion reflects the pre-tax proceeds from the sell-down of Timken India completed during the course. Looking at our debt, we issued 600 million euro denominated 10 year bonds in May at an attractive, and Proceeds were used to repay near-term maturities and other debts. Timken now has no significant debt maturities until 2027.

Speaker Change: And we bought back 360000 shares of company stock.

Speaker Change: Looking at the balance sheet, we ended the second quarter with net debt to adjusted EBITDA at one nine times well within our targeted range.

Speaker Change: Our reduced net debt level of around $1 7 billion reflects the pre tax proceeds from the sell down of Timken, India completed during the quarter.

Speaker Change: Looking at our debt, we issued 600 million Euro denominated 10 year bonds in may at an attractive interest rate.

Speaker Change: The proceeds were used to repay near term maturities and other debt.

Speaker Change: Timken now has no significant debt maturities until 2027.

Speaker Change: With our strong balance sheet and cash flow outlook, we have the ability to continue to grow the earnings power of the company moving forward, both organically and through M&A.

Philip D. Fracassa: With our strong balance sheet and cash flow outlook, we have the ability to continue to grow the earnings power of the company moving forward, both organically and through MNA, all while continuing to return cash to shareholders. Now, let's turn to our updated outlook for full year 2024 with a summary on slide 8. Overall, Our Outlook for Organic Sales and Adjust-It-E-Button Margin is both relatively unchanged versus the prior guy, but we have slightly reduced our top line outlook to reflect updated foreign currency and M&A revenue projections. So let's go through it, starting with the cell.

Speaker Change: All while continuing to return cash to shareholders.

Speaker Change: Now, let's turn to our updated outlook for full year 2024, with a summary on slide 18.

Speaker Change: Overall.

Speaker Change: Our outlook for organic sales and adjusted EBITDA margins are both relatively unchanged versus the prior guide.

Speaker Change: But we have slightly reduced our top line outlook to reflect updated foreign currency and M&A revenue projections.

Speaker Change: So let's go through it starting with the sales outlook.

Philip D. Fracassa: We're now planning for full-year revenue to be down in the range of 3-4% in total versus 2023. This is a net change of 50 basis points at the midpoint and a tighter range versus our prior estimates. Organically, there are a few pluses and minuses among the sectors, but we are maintaining our outlook for organic sales to be down around 5% at mid-year, with Renewable Energy still driving most of the decline, and the Outlook continues to assume no recovery or inflection in this.

Speaker Change: We're now planning for full year revenue to be down in the range of 3% to 4% in total versus 2023.

Speaker Change: This is a net change of 50 basis points at the midpoint and a tighter range versus our prior outlook.

Speaker Change: Organically there are a few pluses and minuses among the sectors, but we are maintaining our outlook for organic sales to be down around 5% at the midpoint with.

Speaker Change: With renewable energy is still driving most of the decline.

Speaker Change: And the outlook continues to assume no recovery or inflection in the second half.

Speaker Change: With respect to currency, we're now planning on a headwind of around 75 basis points for the full year based on current exchange rates, which is about 25 basis points more than our prior estimate.

Philip D. Fracassa: With respect to currency, we're now planning on a headwind of around 75 basis points for the full year based on current exchange, which is about 25 basis points more than our prior estimate. And finally, we lowered our outlook for M&A slightly by 25 basis points compared to our prior guidance to reflect our current forecast for our 2023 academic year. On the bottom line, we've narrowed our outlook and now expect adjusted earnings per share in the range of $6 to $6.20, which is down 5 cents at the midpoint from our prior guidance.

Speaker Change: And.

Speaker Change: We lowered our outlook for M&A slightly by 25 basis points compared to our prior guidance to reflect our current forecast for 2023 acquisitions.

Speaker Change: On the bottom line, we've narrowed our outlook and now expect adjusted earnings per share in the range of $6 to $6 20.

Speaker Change: Which is down <unk> at the midpoint from our prior guidance.

Philip D. Fracassa: This reflects our updated revenue estimate, offset partially by modest net accretion from the TIL. Our outlook implies that our full-year 2024 consolidated adjusted EBITDA margin will be in the high 18% range at the midpoint, essentially unchanged from our prior year. For the third quarter, we expect organic sales to decline in the low single-digit range compared to last year.

Speaker Change: This reflects our updated revenue estimate offset partially by modest net accretion from the <unk> transaction.

Speaker Change: Our outlook implies that our full year 2020 for consolidated adjusted EBITDA margin will be in the high teens percent range at the midpoint essentially unchanged from our prior outlook.

Speaker Change: For the third quarter, we expect organic sales to decline in the low single digit range compared to last year.

Philip D. Fracassa: We also expect adjusted EBITDA margins and earnings per share to be down sequentially and year-on-year on the lower volume and moderating price costs, moving to free cash flow. We've updated our full year outlook to greater than 350 million. Our update reflects $45 million of taxes to be paid in the second half of 2020 related to Timken India training. This accounts for most of the change from our prior office. Note that the pre-tax proceeds we received in the second quarter are reflected in net cash from financing activities, in other words, outside of free cash.

Speaker Change: We also expect adjusted EBITDA margins and earnings per share to be down sequentially and year on year on the lower volume and moderating price cost environment.

Speaker Change: Moving to free cash flow, we've updated our full year outlook to greater than $350 million.

Speaker Change: Our update reflects $45 million of taxes to be paid in the second half related to the Timken, India transaction.

Speaker Change: This accounts for most of the change from our prior outlook.

Speaker Change: Note that the pre tax proceeds we received in the second quarter are reflected in net cash from financing activities in other words outside of free cash flow excluding the.

Philip D. Fracassa: Excluding the incremental tax, our free cash flow outlook for 24, reflects over 100% conversion on estimated total GAP net income. We're still planning for CapEx of around 4% of sales, with most of the spend targeted at manufacturing footprint expansions in Mexico and India, as well as other growth and operational excellence. And finally, we expect an adjusted tax rate of 27% for the full year and net interest expense in the range of $105 million, both unchanged from her prayer with respect to interest.

Speaker Change: The incremental taxes, our free cash flow outlook for 'twenty four reflects over 100% conversion on estimated total GAAP net income at the midpoint.

Speaker Change: We're still planning for Capex of around 4% of sales with most of the spend targeted at manufacturing footprint expansions in Mexico, and India as well as other growth and operational excellence initiatives and.

Speaker Change: And finally, we expect an adjusted tax rate of 27% for the full year and net interest expense in the range of $105 million.

Speaker Change: Both unchanged from our prior guide.

Speaker Change: With respect to interest expense the unchanged outlook reflects a benefit from the <unk> sell down along with other forecast adjustments for cash and debt, which essentially offset one another for the year.

Philip D. Fracassa: The Unchanged Outlook reflects a benefit from the TIL selldown, along with other forecast adjustments for cash and debt, which essentially offset one another for the year. To summarize, Timken delivered solid results in the second quarter with strong margin performance in both segments and revenues that were in line with our expectations, further demonstrating the resiliency of our differentiated portfolio. We remain focused on delivering solid performance over the remainder of the year while advancing our strategic initiatives to strengthen the company for the future. This concludes our formal remarks. And we'll now open the line for questions. Operator?

Speaker Change: To summarize timken delivered solid results in the second quarter with strong margin performance in both segments and revenues that were in line with our expectations, which.

Speaker Change: Which further demonstrates the resiliency of our differentiated portfolio.

Speaker Change: We remain focused on delivering solid performance over the remainder of the year, while advancing our strategic initiatives to strengthen the company for the future.

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

Speaker Change: Thank you.

Operator: Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. If you would like to withdraw your question, please press start followed by two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally.

Speaker Change: If you would like to ask a question today. Please do so now pressing star followed by the number one on your telephone keypad.

Speaker Change: To withdraw your question. Please press star followed by K wants to ask a question pays me show that your device Andrew microphone on mute it lately.

Speaker Change: Our first question comes from the line of Stephen Volkmann with Jefferies. Please go ahead.

Stephen Edward Volkmann: Our first question comes from the line of Stephen Volkmann with Jeffreys. Please go ahead. Great. Good morning, guys. Can you just remind me what you do?

Stephen Edward Volkmann: Great Good morning, guys.

Stephen Edward Volkmann: My head's kind of spinning today, so I got to make sure I got the right company. I'm kidding.

Stephen Edward Volkmann: Can you just remind me what you do my head is kind of spending today, so they've got to make sure I got the right company.

Richard G. Kyle: So I have one question for each of you. Rich, you said in your prepared comments that it feels like China's wind is sort of flattening out. I don't want to put words in your mouth, but I'm going to ask you to pull on that a little bit. Do you think we've sort of reached the bottom for renewables? Can that business be up next year? Yeah, it could definitely be up.

Speaker Change: Kidding.

Richard G. Kyle: So I have one question for each of you rich.

Richard G. Kyle: You said in your prepared comments that it feels like China wind sort of flattening out at I don't want to put words in your mouth, but I'm going to ask you to to pull on that a little bit do you think we sort of reached the bottom for renewables can can that business be up next year.

Richard G. Kyle: Yes, it could definitely be up we were we.

Richard G. Kyle: We were flattish, slightly up, and went from Q1 to Q2, so we think we've certainly bottomed. There's usually a little seasonality from first half to second half, but we have the backlog to stay flattish for the rest of this year. I'd say it's too early to call next year, as it tends to be a longer lead time item, so as we get to next quarter's call, I think we should have a good feel for how we're going to at least start the year, but definitely could be up.

Speaker Change: We were flattish slightly up and win from Q1 to Q2. So we think we've certainly bottomed there is usually a little seasonality from first half the second half, but we have the backlog to stay flattish for the rest of this year.

Speaker Change: It's too early to call next year tends to be a longer lead time items. So as we get to next quarter's call. I think we should have a good feel out we're going to at least start the year.

Speaker Change: But definitely it could be up.

Speaker Change: It probably impossible to be up back to.

Richard G. Kyle: Probably impossible to be up to peak levels again, just because of the level we're operating at. It would take us a while to ramp back up to those levels, so probably the fastest for that would be 26 or 27, but yes, we could be up next year. Okay, good color.

Speaker Change: Peak levels, just because of the level, we're operating that it would take us a while to ramp back up to those levels. So probably the fastest for that would be.

Richard G. Kyle: 26, or 27, but yes, we could be up next year.

Speaker Change: Okay. Good color.

Philip D. Fracassa: And then Phil, I'm trying to think about it. There's a bunch of stuff going on here. You're doing some things on the cost side, you have the new facility in Mexico, you have SG&A kind of coming out, there are some synergies, I think on some of the M&A, just irrespective of volume, which will be whatever it is next year, but what are the sort of buckets of potential EBITDA goodness in 2025 that are not related to volume? Yeah, it's a good question, Steve.

Richard G. Kyle: And then Phil I'm trying to think about it there's a bunch of stuff going on there you're doing some things on the cost side you have the new facility in Mexico, you have SG&A kind of coming out there's some synergies I think on some of the M&A.

Speaker Change: Irrespective of volume, which will be whatever it is next year, but what are the sort of buckets of.

Speaker Change: You know potential EBIT.

Richard G. Kyle: Goodness in 2025 that are not correlated to volume.

Speaker Change: Yes.

Philip D. Fracassa: So I think, obviously, the footprint actions would be one I point to in terms of the new plants in Mexico. Mexico will probably continue to ramp up belts in the early part of the year. India will be ramping up during the year, but footprint actions should continue to be a benefit as we look ahead. Obviously, just continuing to execute our strategy around capital allocation, whether that's M&A or buyback, ought to create accretion for us.

Phil: Good question, Steve So I think obviously the footprint actions would be one I point to in terms of the new plants in Mexico, Mexico, probably continue to ramp for belts at the early part of the year, India will be ramping during the year, but those will be for <unk> and should continue to be.

Phil: A benefit as we look ahead, obviously, just continuing to execute our strategy around capital allocation, whether that's M&A or buyback ought to create.

Speaker Change: Accretion for us and we will continue to focus on targeted cost initiatives through operational excellence.

Philip D. Fracassa: And we'll continue to focus on targeted cost initiatives through operational excellence, targeted cost actions, keeping controls on cost while still looking to serve our customers in this environment. And obviously, pricing will be kind of highly dependent on where we are from a market standpoint. But we're generating positive prices this year, really no change to the pricing outlook from what we talked about last quarter, still expected to be north of 50 pips for the year, again, probably not 100, somewhere in between and with positive pricing in both segments.

Speaker Change: Targeted cost actions keeping controls on costs, while still looking to serve our customers in this environment and obviously pricing will be a kind of highly dependent on where we are from a market standpoint, but we're generating positive price. This year really no change to the pricing outlook from what we talked about last quarter is still expected to be north of 50 bps for the year.

Speaker Change: Again, probably not a 100.

Speaker Change: Somewhere in between with positive pricing in both segments. As we move ahead to next year. It's always are always a predisposition to keep book to move prices in line with with cost inflation, so that would be some.

Philip D. Fracassa: And as we move ahead to next year, it's always our predisposition to move prices in line with cost inflation. So that would be something else I'd point out. And then obviously, our strategy on the organic side with the product vitality initiative we've been focused on, as well as the M&A, as I mentioned earlier. Thank you, guys. I'll pass it on. Our next question comes from David Raso with Everport ISI. David, please go ahead.

Speaker Change: I would point to and then obviously our strategy around both on the organic side with the product vitality initiatives, we've been focused on as well as as well as the M&A as I mentioned earlier.

Speaker Change: Great. Thank you guys I'll pass it on.

Steve: Thanks, Steve.

David Michael Raso: Our next question comes from David <unk> with Evercore ISI.

Speaker Change: David Please go ahead.

David: Hi, Thank you just sort of a broad question you seem to really emphasize the point, we expect capital allocation will be a meaningful contributor to results over the next 18 months I mean is that a function of the core business is obviously, a little sluggish right now given the end markets or were you trying to signal something more significant.

David Michael Raso: Hi, thank you. Just sort of a broad question. You seem to really emphasize the point that we expect capital allocation to be a meaningful contributory result over the next 18 months. I mean, is that a function of the core business being obviously a little sluggish right now, given the end markets? Or were you trying to signal something more significant?

Richard G. Kyle: about utilizing your cash flow and balance. No, I'd say not signaling anything significant. I would say reinforcing that we've been a strong generator of cash for multiple years, and we've moved from the low end of our leverage range to the high end. After a very active year last year, we've already moved back to below the midpoint with quite a bit of cash coming in the next 18 months.

Speaker Change: About utilizing your cash flow and balance sheet.

Speaker Change: No I'd say not signaling anything significant I would say reinforcing that our we've been a strong generator of cash for multiple years and we've moved from the low end of our leverage range to the high end and.

Richard G. Kyle: So not signaling anything except probably more of the same. And that is, either accretive M&A, and if that M&A isn't there or doesn't meet our financial hurdles, then share buyback, and in either case, I think it will continue to be a meaningful contributor. Thank you.

Speaker Change: After a very active year last year, we have already moved back to below the midpoint with quite a bit of cash coming in the next 18 months. So.

Speaker Change: Not signaling anything except probably more of the same and that is.

Speaker Change: Either.

Speaker Change: Accretive M&A.

Speaker Change: And if that M&A isn't there or it doesn't meet our financial hurdles then than share buyback and in either case I think we continue to be a meaningful contributor.

Speaker Change: Alright, Thank you and a follow up on the comment about we expect the first quarter of 'twenty five to provide the normal sequential seasonal benefit you get from <unk>, if I heard that correctly.

David Michael Raso: And a follow-up on the comment about we expect the first quarter of 2025 to provide the normal sequential, http://TheBusinessProfessor.com. Obviously, right now, the earnings year over year have been down. When you think of that sequential down, to the first quarter. I mean, could we get closer to, I do visualize it as getting closer to flattening out earnings, I'm just trying to get a sense of the balance we are referencing. Obviously, I can look at historical data, but I just want to make sure I understood what you were saying about what the first quarter feels like after the work is done. Yeah, I would say first that it's certainly too early for us to call 2025.

Speaker Change: Obviously right now the earnings year over year up and down when.

Speaker Change: When you think of that sequential bounce into the first quarter.

Speaker Change: Okay.

Speaker Change: Could we get them.

Speaker Change: Do you envision it is getting close to being back to flattening out earnings I'm, just trying to get a sense of the bounce.

Speaker Change: You're referencing <unk> can look at historical so just want to make sure I understood. What you were signaling about what the first quarter feels like after the work done in the back half of the year.

Speaker Change: Yeah, I would say first it's certainly too early for us to call 2025, I think there's reasons to be optimistic about it but.

Richard G. Kyle: I think there's reasons to be optimistic about it. But what I was really saying there is, you know, even in a weak year, we typically have a nice bump from Q4 to Q1 on both revenue and margins and earnings per share. To your specific question about getting earnings back to flat, I believe with our guide, assuming we hit the guide, we'd have to be around 8% up from Q4 to Q1, and that's not a precise number, plus or minus there, but high single digits up from Q4 to Q1 organically to get back to... I've got it right here in front of me.

Speaker Change: It was really saying there is even in a weak year, we have a.

Speaker Change: A nice bump typically from Q4 to Q1 on both revenue and margins and earnings per share to your specific question about.

Speaker Change: Getting earnings back to flat.

Speaker Change: I believe with our guide assuming we hit the guide we'd have to be around 8% up from Q4 to Q1, and that's not a precise number plus or minus there, but but high single digits up from Q4 to Q1.

Speaker Change: Organically to get back to.

Speaker Change: Flat and if you look at the last four years, our Q4 Q1 sequential I've got it here in front of me this year, which was obviously very weak was nine.

Richard G. Kyle: This year, which was obviously weak, was nine. The prior three years were plus 17, plus 12, and plus 15. So certainly, as we see it here today, getting back to top-line growth in the first quarter of next year is attainable, and so also would be earnings per share. That's helpful. Thank you. The next question comes from Rob Wertheimer with Melius Research. Please go ahead.

Speaker Change: The prior three years were plus 17, plus 12 plus 15.

Speaker Change: So certainly as we sit here today getting back to.

Speaker Change: Top line growth in the first quarter of next year is attainable and and so well. So also would be earnings per share.

Speaker Change: That's helpful. Thank you.

David: Thanks, David.

Robert Stephen Barger: The next question comes from Rob <unk> with Melius Research. Please go ahead.

Rob: Hi, Thanks, and good morning, everybody just to kind of continue on that theme I think you said.

Robert Cameron Wertheimer: Hi, thanks, and good morning, everybody. Just to kind of continue on that theme, I think you said morning, X, when you were kind of just down three cores, which is fairly muted. If you look at those businesses and leave out distribution for the moment, are orders and indications from customers, you know, flattish or, Following a Rising. Any sense of orders there? And then I think you moved rail up a little bit in the mix there. I wonder if you could give some context around that. Is that railcars local? What went on there?

X: X when you were kind of just down three core which is fairly muted. If you look at those businesses and leave out distribution for a moment, our orders and indications from customers flattish or.

Speaker Change: Following a rising at any sense of orders there and then I think you moved rail up a little bit in the mixed areas I Wonder if you could give context around that is that railcar local what went on there. Thank you.

Phil: Yeah sure Rob. Thanks. This is Phil so on the on the orders I would say that the way we're seeing the orders right now if we pulled our wind energy I mean orders certainly down year on year, but sort of flattish sequentially Q1 to Q2. So as we said nothing that would indicate we're going to inflect in the second half, but but certainly supportive.

Robert Cameron Wertheimer: Yeah, sure, Rob. Thanks. This is Phil.

Rob: The overall outlook and you got it right I mean in the quarter if.

Speaker Change: If we pulled renewable out we would have been down less than three if you look at the full year guide of our a minus five organic if you take the renewable out of there, it's actually down a little bit less than two so it is driving the bulk of.

Rob: The bulk of our guide not just in the quarter, but for the full year and then in terms of in terms of the buckets you got it right. We did move rail and marine over to the right Marine was really just current expectations for military Marine program activity over the course of the rest of the year and then rail the rail business is doing very well, it's a global business.

Philip D. Fracassa: So on the orders, I would say that, you know, the way we're seeing the orders right now, if I pull the wind energy, orders, certainly down year on year, but sort of flattish sequentially q1 to q2. So, as we said, nothing that would indicate we're going to inflect in the second half, but certainly supportive of the overall outlook. And you got it right.

Philip D. Fracassa: I mean, in the quarter, If we pulled renewable out, we would have been down less than three. If you look at the full year guide for our minus five organic, if you take the renewable out of there, it's actually down a little bit less than two. So it is driving the bulk of our guide, not just in the quarter but for the full year. And then, in terms of the buckets, you got it right.

Philip D. Fracassa: We did move rail and marine over to the right, but Marine was really just current expectations for military marine program activity over the course of the rest of the year. And then rail, you know; the rail business is doing very well. It's a global business. We're up outside the U.S. India has been a real strong performer for us. You know, Europe's been relatively flat, I would say, overall. And then we were up in the Americas.

Rob: It's we're up outside the U S. India has been a real strong performer for US Europe has been relatively flat I would say overall and then we've been up in the Americas and I would tell you in the Americas, it's been both.

Philip D. Fracassa: And I would tell you, in the Americas, it's been both, you know, MRO service activity, but also, I would say, outgrowing the OE builds freight cars built in North America. And that was certainly a pleasant surprise as we moved through the quarter and was one of the reasons we moved it over to the right. And then, you know, just to kind of fully close the loop, I would say, on sectors that kind of moved to the left or leaned left, we did move heavy industries over, just given the order book activity that we saw in Q2, you know, that's late cycle, that's project spend in, you know, big sectors like oil and gas and metals, OE activity.

X: Pro service activity, but also outgrowing I would say outgrowing the OE builds.

X: Freight car builds in North America and that was.

X: Certainly a pleasant surprise as we moved through the quarter and was one of the reasons, we moved it over to the right.

X: And then just to kind of fully <unk>.

X: Close the loop I would say.

X: On the sectors that kind of moved to the left leaned left we did move heavy industries over just given the order book activity that we saw in Q2, that's late cycle that's project spend.

X: In big sectors, like oil and gas and metals OE OE activity move that over to the left just given the order activity. We saw and then probably leaned left a little in off highway state. It stayed in the far left column, but we did adjust that a little bit for AG.

Philip D. Fracassa: Move that over to the left, just given the order activity we saw, and then probably leaned left a little in off-highway. It stayed in the far left column, but we did adjust that a little bit for agriculture.

Richard G. Kyle: But those would really be the only sectors that we would have moved either physically or in terms of orders. The only add I'd have to that is the first part of your question on orders. Our sequential guide for Q2 is... minus three, minus four-ish percent per quarter, which is significantly better than last year's sequential. But again, there we saw, you know, coming out of the supply chain issues and the significant slowdown. But it'd be, you know, a little, pretty similar, a little softer than what we had in 21, 22.

X: But those would really be the only sectors that we that we would have moved either.

X: Either physically or kind of intellectually as we updated the as we updated the outlook.

Speaker Change: And the only add I'd have to add a very helpful. Sorry first part of your question on orders our sequential guide on Q2 as you know.

X: Minus three minus four ish percent.

X: Per quarter, which is significantly better than last year's sequential.

X: But again, there we saw coming out of the supply chain issues and the significant slowdown, but it would be you know a little.

X: Pretty similar a little softer than what we had in 'twenty one 'twenty two so I'd say it again, we're looking at normal seasonality.

Richard G. Kyle: So I'd say, again, we're looking at normal seasonality. As Phil highlighted, some strength in some pockets, some wins in there, and then some areas that are softer and some offsetting. So, you know, fairly normal, and that's what I would say the order pattern is supporting. Then the other part, I would... throw in Phil Hitmarine, which is something we put out some press releases on the last several years saying that we've had some really good platform wins there over the years.

Phil: As Phil highlighted some strength in some some pockets some wins in there.

Phil: And then some areas that are softer in some offsetting so fairly normal and that that's what I would say the order pattern is supporting and then the other part I would say.

Phil: And Phil Phil hit Marine, which is something we put out some press releases on last several years that we've had some really good platform wins there over the years.

Speaker Change: We don't talk a lot about our platform once because most of them come in the form of $10000 here $100000, there occasionally get up to a million dollars.

Richard G. Kyle: We don't talk a lot about our platform wins because most of them come in the form of $10,000 here, $100,000 there, occasionally getting up to a million. But we've got a really good application engineering pipeline and some really good self-help coming that, again, is in line with our outgrowth initiatives as well. So feel good about that as well.

Phil: But we've got a really good application engineering pipeline and some really good self help coming.

Phil: That again was in line with our outgrowth initiatives as well so still feel good about that as well.

Speaker Change: Thank you.

Speaker Change: The next question comes from Bryan Blair with Oppenheimer.

Bryan Francis Blair: Thank you. The next question comes from Bryan Blair with Oppenheimer. Bryan, please go ahead.

Brian: Brian. Please go ahead.

Bryan Francis Blair: Thank you good morning, guys.

Bryan Francis Blair: Thank you. Morning, guys. Hey, Bryan.

Brian: Hey, Brian.

Bryan Francis Blair: Okay.

Speaker Change: I was hoping you could drill down a little bit more on industrial distribution trends.

Philip D. Fracassa: Someone could drill down a little bit more on industrial distribution trends, which sounds like relatively supportive within, you know, a very choppy and fluid demand backdrop. What was the monthly order cadence through Q2 and into early Q3? And how does that progression compare to typical seasonality?

Speaker Change: Sounds like.

Speaker Change: Relatively supportive within.

Speaker Change: A very choppy and fluid demand backdrop.

Bryan Francis Blair: But what was the monthly order cadence through Q2 and into early Q3.

Bryan Francis Blair: Is that progression and compare it to.

Speaker Change: Typical seasonality.

Speaker Change: Yes, Thanks, Bryan I would say overall relatively rare.

Philip D. Fracassa: Yeah, thanks, Bryan. I would say overall relatively, relatively stable and pretty much in line with normal seasonality, I would say in terms of progression through the quarter and then, you know, looking at the full year. But you're right, in the quarter, I would say, once again, we talked about this last quarter, but industrial distribution was, I would say, a little bit of a pleasant surprise in terms of the performance we saw.

Speaker Change: Relatively stable and pretty much in line with normal seasonality I would say in terms of.

Speaker Change: Progression through the through the quarter and then looking at the full year, but you are right in the quarter I would say it once again, we've talked about this last quarter, but industrial distribution was I would say a little bit of a pleasant surprise in terms of the performance. We saw it was up in the quarter, probably a little bit call. It mid single digits.

Philip D. Fracassa: It was up in the quarter, you know, probably in, you know, a little bit, call it the mid-single digits-ish range, and that would be pretty much globally, everywhere but Europe. We were up in the Americas, up in Asia, up in both North and Latin America. So it's been pretty broad support, and that's kind of driven by, you know, continued industrial activity, continued MRO activity. You know, I talked about heavy industries being down, which is kind of the OEM side of, you know, metals, oil, and gas, other big markets. But the MRO side, which generally gets served through distribution, you know, continues to roll along.

Speaker Change: Ish range.

Speaker Change: And that would be pretty much globally everywhere, but Europe, we were up in the Americas up and up in Asia.

Phil: Up in both North and Latin America. So it's been it's been pretty broad support and Thats kind of driven by continued industrial activity continued MRO activity and I talked about heavy industries.

Phil: Being down which is kind of the OEM the OE side of call in metals oil and gas other big markets, but the the MRO side generally get served through distribution continues to continues to roll along so we do and then relative to relative to inventory. We do believe inventories are.

Philip D. Fracassa: So, you know, we do believe inventories appear to be at good levels for this level of demand. So, you know, we've talked about inventory for the last several quarters, but it does feel like inventories are in, you know, relatively good shape for this level of demand, you know, moving through the rest of the year. That's good to hear and very helpful, Keller. And then some follow-up to Steve's question.

Phil: Peer to be at good levels for this for.

Phil: This level of demand so we've talked about inventory for the last several quarters, but it does feel like inventories are in.

Phil: Relatively.

Phil: Good shape for this level of demand.

Phil: Moving to the rest of the year.

Phil: Yeah.

Speaker Change: That's good to hear and very helpful color.

Speaker Change: And then somewhat of a follow up to Steve's question.

Bryan Francis Blair: Obviously, through recent demand pressure, your team's been, you know, pretty active in managing run rate costs, as well as some streamlining of your manufacturing footprint. How should we think about the cost savings achieved to date? What's incremental in the back half?

Speaker Change: Honestly, it's through recent demand pressure came spin.

Speaker Change: Pretty active in managing our run rate costs as well as <unk>.

Speaker Change: Some streamlining of your manufacturing footprint.

Speaker Change: How should we think about the cost savings achieved to date.

Speaker Change: Incremental in the back half and is there a level of structural.

Speaker Change: Cost out that we should keep in mind for 2025.

Speaker Change: Yes, I think the right way to think about it is I mean, obviously for us.

Philip D. Fracassa: And is there a level of structural cost out that we should keep in mind for 2025? Yeah, I think the right way to think about it is, obviously, for us, operational excellence, particularly in an environment like this, is a lot of small and, you know, we talked about the big initiatives, the plant expansions, which enable us to take out other, you know, in most cases, higher cost facilities and replace them with more cost-effective, more efficient facilities, in some cases, in low cost countries or best cost countries.

Speaker Change: Operational excellence, particularly in an environment. Like this is is a lot of small and we talked about the big initiatives that plant expansions, which enable us to take out.

Speaker Change: Other in most cases higher cost facilities and replace with.

Speaker Change: More cost effective.

Speaker Change: More efficient facilities and in some cases in low cost countries or best cost countries. So I mean that continues but it's also a lot of smaller initiatives as well. So for example, we've been really focused on.

Philip D. Fracassa: So I mean, that continues, but there are also a lot of smaller initiatives as well. So for example, we've been really focused on, you know, hiring, and I would say in our operational footprint, we continue to be down over 10%. From, you know, call it a year ago, as we in pockets of the business where it's been weaker, we've been adjusting our headcount levels, you know, with an eye towards, hey, these markets are going to recover. So let's make sure we keep, you know, we keep critical folks in that kind of thing.

Speaker Change: <unk> and I would say in our in our operated footprint. We continue we're down continue to be down over 10% from call. It a year ago as we in pockets of the business, where it's been weaker we've been adjusting our head count levels with an eye towards Hey, These markets are going to recover so let's make sure we keep we keep critical folks.

Speaker Change: And that kind of thing, but aligning with lower demand we have been accelerating the acquisition integration to drive synergies, especially considering we didn't we haven't done a deal. So far this year, that's given us an opportunity to really.

Philip D. Fracassa: But aligning with lower demands, we've been accelerating acquisition and integration to drive synergies, especially considering we didn't, we haven't done a deal so far this year. That's given us an opportunity to really step on the gas, if you will, around acquisition integration, which I think you're starting to see come through, not only in the acquisition performance that we specifically isolate, but also even on the Timken side as well And then I would say, you know, when we talk about the big facilities, we've consolidated, you know, a number of smaller facilities, a good half a dozen smaller facilities over the last 12 to 18 months, which are all incremental benefits, if you will.

Speaker Change: Step on the gas if you will around acquisition integration, which I think youre starting to see that come through not only in the acquisition performance yet, we specifically isolate but also even in even on the timken side as well.

Speaker Change: And then I would say when we talk about the pit facilities, we've consolidated a number of.

Speaker Change: I would say a number of smaller facilities that half a dozen smaller facilities over the last 12 months to 18 months, which are all incremental.

Speaker Change: Benefits. If you will so we tend to not provide dollar amounts because you need that you need those savings to offset inflation offset volume declines offset some of the other headwinds you have but theres no question. When you look at the manufacturing bucket, if you will and even the material bucket. We've done a lot of work on material savings tactics.

Philip D. Fracassa: So we tend not to provide dollar amounts because, you know, you need that, you need those savings to offset inflation, offset volume declines, offset some of the other headwinds you have. But there's no question, you know, when you look at the manufacturing bucket, if you will, and even the material bucket, we've done a lot of work on material savings tactics.

Speaker Change: Youre seeing really good benefit which has been margin supportive then.

Philip D. Fracassa: You know, you're seeing really good benefits, which has been margin supportive in 2024. And I think as we move into next year, it could be margin accretive in 2025 or should be margin accretive in 2025. I would just add, as Phil said, we don't necessarily say it's 30 or 40 million dollars, but we do have a lot of activity there. It's probably a little more weighted to industrial motion right now.

Speaker Change: 2024, and I think as we move into next year.

Speaker Change: It could be margin accretive in 2020 fiber should be margin accretive 2025.

Speaker Change: Yeah, I would just add as Phil said.

Speaker Change: So you say, it's 30 or $40 million, we do have a lot of activity. There is probably a little more weighted to industrial motion right now.

Richard G. Kyle: Again, as Phil said, we've been consolidating quite a few smaller facilities there, and it's really embedded into our margin targets, and I think when you look at the first half of the year, north of 20 percent EBITDA margins in a pretty significantly down start to the year from a revenue standpoint, it wasn't long ago that 20 percent margins were what we were shooting for at peak revenue. So it's indicative of it's key to our margin expansion goals and our long-term financial targets, and it's embedded in those targets.

Speaker Change: Again, as Phil said, we've been consolidating quite a few smaller facilities, there and it's really embedded into our margin targets I think when you look at the first half of the year.

Speaker Change: North of 20% EBIT margins.

Phil: In a pretty significantly down start to the year from a revenue standpoint.

Speaker Change: It wasn't long ago that the 20% margins, we were shooting for it at a peak revenue. So it is indicative of its key to our margin expansion goals and our long term financial targets and it's embedded in those targets.

Speaker Change: Understood and again very helpful color. Thank you.

Robert Stephen Barger: Understandable. And again, very helpful, Keller. Thank you. Our next question comes from Steve Barger with Qbank Capital Markets. Please go ahead, Steve.

Brian: Thanks, Brian.

Speaker Change: Our next question comes from Steve Barker with Keybanc capital markets. Please go ahead Steve.

Robert Stephen Barger: Hey, good morning, guys.

Robert Stephen Barger: Hey, good morning, guys. I think this segment reclassification five or six quarters ago was meant to show industrial motion as maybe the growthier side of the business, basically the old process control stuff. But the organic decline has kind of tracked the bearings over the past three or four quarters. Has the industrial motion revenue trend surprised you, and how do you expect those segments to perform in a recovery? Yeah, maybe I'd start, Steve. I would tell you it was a larger organic decline than probably you expected, and certainly, we would have expected ordinarily. But that marine, the marine item, I think, was significant.

Speaker Change: Thank you.

Speaker Change: I think the segment reclassification five or six quarters ago was meant to show industrial motion is maybe the growth of your side of the business basically the old process control stuff, but the organic decline is kind of track to bearings over the past three or four quarters.

Speaker Change #117: The industrial motion revenue trends surprised you and how do you expect those segments will track in a recovery.

Speaker Change: Yes, maybe I'll start Steve I would tell you.

Philip D. Fracassa: It's kind of why we called it out. Marine was down really significantly. And again, we expect to be up for the full year, but that marine business sits in industrial motion, and that decline was a significant contributor to the, you know, minus nine-ish organic for the quarter. You know, if you take the marine out, you're probably closer to five or six down organic, more in line with, you know, maybe what you're seeing across the rest of the industrial landscape. The other point is, you know, we do have some of the businesses that we own that are running extremely well. You know, Linear Motion, in particular, does have a large European audience.

Speaker Change: Was a larger organic decline and then probably.

Speaker Change #102: You expected and certainly we would expect.

Speaker Change: Have expected ordinarily, but that marine the marine item I think was significant kind of it's kind of why we called it out marine was down really significantly and again, we expect to be up for the full year, but that marine business sits in industrial motion and that decline was a significant contributor of the minus nine ish organic for the <unk>.

Philip D. Fracassa: So it's hard to overcome the headwinds in Europe, but overall, I would say, the mix of business we have is really good, as you know. And I think over time, we'll, you know, you'll see it should, with the markets that the industrial motion business is indexed to, we do believe probably has the ability to grow a little bit faster than, say, the markets that the bearing business is indexed to. And then from a margin standpoint, you know, we've got the Mexico plant ramp going on, we had the large volume decline. Military marine mixing industrial motion up, I would say.

Speaker Change: Quarter, if you take the marine out you're probably closer to <unk>.

Speaker Change: Five or six down organic more in line with.

Robert Stephen Barger: With maybe what youre seeing across the rest of the industrial landscape.

Speaker Change: Your point is we do have some of the businesses that we own that are running extremely well.

Robert Stephen Barger: Linear motion in particular does have a large European exposure. So it's hard to overcome the headwinds in Europe, but overall I would say that mix of business. We have is.

Robert Stephen Barger: It's really good as you know and I think over time will youll see it should with the markets that the industrial motion business is index to we do believe probably.

Robert Stephen Barger: Has the ability to grow a little bit faster than say, where the market's at the bearing business is indexed to and then from a margin standpoint, we've got the Mexico plant ramp going on we had the large volume declined military marine mixes industrial motion up I would say, so and that's what nets down it can have an impact, but I do think over time industrial motion as index too.

Philip D. Fracassa: So when that's down, it can have an impact. But I do think over time, industrial motion is indexed to, you know, relatively higher growth markets with the ability to generate, you know, relatively higher margins as well. Yeah, we certainly are targeting a slightly higher growth rate in industrial motion than in bearings, but we're looking to, you know, certainly looking to achieve growth in both. And in addition to the mix issue that Phil highlighted, industrial motion is a little more weighted to Europe and tends to be, at the moment, a tougher geography for us.

Robert Stephen Barger: Relatively higher growth markets with the ability to generate relatively higher margins as well.

Robert Stephen Barger: Yes.

Speaker Change: Certainly our target slightly.

Speaker Change: Slightly slightly higher growth rate in an industrial motion and bearings, but but looking to certainly.

Speaker Change: Looking to achieve growth in both and in addition to the mix issue that Phil highlighted industrial motion is a little more weighted to Europe and tends to be at the moment.

Speaker Change: Ah tougher geography for us so that's a little bit of a temporary.

Richard G. Kyle: So that's a little bit of a temporary headwind. And then, you know, I'd also add, you know, we continue to diversify the organic mix of the bearing business as well. And certainly, still, off-highway capital equipment is a critical market for the bearing business and is cyclical, but we've diversified more to the aftermarket. GGB was a significant diversification for us.

Speaker Change: And then I'd also put in.

Speaker Change: Continue to diversify the organic mix of the bearing business as well and certainly still.

Speaker Change: Off highway capital equipment as a as a critical.

Speaker Change: Market for the bearing business and is cyclical, but we've diversified more of the aftermarket DGB wasn't significant diversification for us.

Richard G. Kyle: ARB revenue has been has been strong. So, you know, there are some positives within the Bering side to point to as well. Yeah, and to the long-term margin commentary, in the first half, Engineer Bearings' EBITDA margin averaged about 130 basis points above Industrial Motion. Given how you view revenue and expected mix in the back half, does that relationship hold, or does IM have higher margin in the back? Yeah, I think for the full year, certainly would be a little. We would expect both segments to be at or above 20% for the year, with a call it a tighter delta than what you would have seen in q1 or q2.

Speaker Change: <unk> revenue has been has been strong so.

Speaker Change: Some positives in there within the bearing side to point to as well.

Speaker Change: Yeah and to the long term margin commentary in the first half engineered bearings EBITDA margin averaged about 130 basis points above industrial motion.

Speaker Change #113: Given how you view revenue and expected mix in the back half does that relationship hold or does.

Speaker Change #126: Have higher margin in the back half.

Speaker Change: Yes, I think for the full year, certainly would be a little we would expect both segments to.

Speaker Change #105: To be at or above 20% for the year with with call. It a tighter delta than what you would've seen in Q1 or Q2.

Speaker Change #100: But I would I would think dish is given what's happening given what's happening and I am with the bell.

Richard G. Kyle: But I would think this year, given what's happening in IM with the belt expansion, et cetera, probably industrial motion may be a little bit lower, but they'd be very close to one another. Okay. Thanks. Our next question comes from Tim Thein with Raymond James. Please go ahead.

Speaker Change: Belts expansion et cetera, probably industrial motion, maybe a little bit lower but they would be very close to one another.

Speaker Change: Understood.

Speaker Change: Thanks.

Steve: Thanks, Steve.

Speaker Change: Our next question comes from Tim Thein with Raymond James. Please go ahead.

Timothy W. Thein: Hi, yes good.

Timothy W. Thein: Hi. Yeah, good morning. Phil, maybe just on the Ipada Bridge as we think about the back half of the year. Just directionally, I believe I heard earlier comments on pricing for the full year. I think you said you maintain the 50 to 100 basis points of price. I'm just trying to think through that and then kind of the interplay with what you guys are seeing on the manufacturing cost side. And, you know, the comps have gotten all. I'll screw you just given what's transpired over the past couple quarters.

Timothy W. Thein: Phil maybe just on the EBITDA bridge.

Speaker Change: As we think about the back half of the year.

Speaker Change #109: Just directionally.

Speaker Change: I believe I heard the comments on on pricing for the full year.

Speaker Change: Okay.

Speaker Change: I think you said.

Speaker Change #112: Maintain the 50 to 100 basis points of price. So I'm just trying to think how to think through that.

Speaker Change: And then kind of the interplay with what you guys are seeing on the manufacturing cost side.

Speaker Change: The comps have gotten all.

Speaker Change: Gulf squarely just given what's transpired over the past couple of quarters. So just how to think about kind of the relationship between the two in the back half of the year.

Timothy W. Thein: So just how to think about kind of the relationship between the two in the back half. Sure, Tim, and welcome back. I should start with Sure, on the margins, our margins would typically be a little lower in the second half from the first half, just with normal seasonality. And I would say this year will be sort of no different. But as we look at the back half, I think a couple things I keep in mind is that we are going to continue to see a little bit lower sequential volume. So you go first half, second half; you've got lower volume sequentially.

Speaker Change: Sure, Tim and welcome back I should say I should start with <unk>.

Timothy W. Thein: Sure on the margins our margins would typically be a little lower in the second half from the first half just with normal seasonality and as we are and I would say this this year will be sort of sort of no different but as we look at the back half I think a couple of things I'd keep in mind as well.

Timothy W. Thein: We are going to continue to see.

Speaker Change: A little bit lower sequential volumes. So you go first half second half you got lower volumes sequentially.

Philip D. Fracassa: We did, we were flat to up a little bit on inventory as we move through the first half of the year. We're going to look to take a little bit of inventory out in the second half, which can be a headwind on the manufacturing line. You know, still seeing, we'll have the, you know, ramp costs as the belt expansion continues to ramp. We continue to try to get India launched, you know, probably by the beginning of early next year, we'll continue to have some ramp costs there.

Speaker Change: It did.

Speaker Change: We were flat to up a little bit on inventory as we move through the first half of the year, we're going to look to take a little bit of inventory out in the second half, which can which can be a headwind on the manufacturing line.

Speaker Change: Still seeing you know we'll have the.

Speaker Change: Ramp costs as adults expansion continues to ramp we continue to try to get India launched.

Speaker Change: Probably by the beginning of early next year, we'll continue to have some ramp costs, there and then I would say.

Philip D. Fracassa: And then I would say, you know, the overall pricing, we held the guy for pricing, but that's kind of more the first half way that it's in the run rate. But I would really say the couple things to point out as you look at the first half and the second half would be kind of lower sequential sales, lower production volume, and logistics kind of started to hit us in the second quarter. We'll probably have a little bit of a headwind there too.

Speaker Change: The overall pricing, we held the guide for pricing, but thats kind of more more first half weighted it's in the run rate.

Speaker Change: But I would really say the couple of things to point out as you look first half second half would be kind of lower sequential sales lower production volume logistics kind of started to hit us in the second quarter, we'll probably have a little bit of a headwind there too and then the ongoing operational excellence initiatives that were going to katina execute churn offset as much of that as we can but but do expect margins.

Philip D. Fracassa: And then the ongoing operational excellence initiatives that we're going to continue to execute trying to offset as much of that as we can, but do expect margins to be down. You know, as we look at the third quarter in particular, I talked about the third quarter revenue, but, you know, EBITDA margins will be down year on year and sequentially. And I think as you look to the fourth quarter, you'll see a similar situation. Okay, that's helpful.

Speaker Change: To be down.

Speaker Change: As we look in the third quarter in particular, I talked about the third quarter revenue, but for EBITDA margins will be down year on year and sequentially.

Speaker Change: And I think as you look to the.

Speaker Change: To the fourth quarter Youll see youll see a similar similar situations as well.

Speaker Change: Okay. That's helpful. Thank you Phil and then just thinking about that.

Timothy W. Thein: And then just thinking about the impact on the bearing segment as you hopefully kind of bottom out on China Wind and just thinking about what potential recovery looks like there. Just given the volatility in that business and some, I think, a little bit more challenging from a pricing standpoint. Will that impact you at all? As we come out of it, just in terms of kind of the incrementals and that business, I'm just thinking, has there been kind of like a structural reset of the margins of that business, just given the amplitude of the decline? Or is that... Should we not expect that?

Speaker Change #124: The impact on <unk>.

Speaker Change #104: Bearing segment as you.

Speaker Change: Hopefully kind of.

Speaker Change: Bottom out on China, wind and just thinking about what.

Speaker Change: Potential recovery looks like there just given the.

Speaker Change: The volatility in that business and some.

Speaker Change: I think a little bit more challenging from a pricing standpoint.

Speaker Change: Get well that will that impact at all.

Speaker Change: As we come out of it just in terms of kind of the incrementals in that business.

Speaker Change #157: I am just thinking is that has there been kind of like a structural reset of that the margins of that business just given the.

Speaker Change: The amplitude of the decline or is that can we.

Speaker Change: Don't expect that.

Speaker Change #141: Well I'd say, there's certainly been a reset of the volume right and I think.

Philip D. Fracassa: Well, I'd say there's certainly been a reset of the volume, right, and I think they said this in the last call as well, we're also looking, this is a.., opportunity to come out of this with a better geographic mix and a better mix between OEM and the aftermarket because we haven't been in the market for that long we're disproportionately weighted to the OEM side and then you know we really chose to participate primarily in the China market a decade ago because it was it was open up versus the other markets were were served by existing players but but we've penetrated those markets as well so we expect to put more emphasis into a better geographic mix , Dr. David Ritchie, Stephen Volkmann, Michael Feniger, Michael Shlisky, Robert Wertheimer, Timothy Thein, Neil Frohnapple, Bryan Blair, Christopher Dankert, Robert Wertheimer, Timken, Yeah, and I would I would only add, Tim, that, you know, when you look at the the bearing business, we've talked about this before is it is it is more capital intensive. So it does tend to see it can see a little bit stronger incrementals on the way up and can kind of have to fight a little bit a little bit steeper decrementals on the way down.

Speaker Change #141: So just in the last call as well we're also looking at says.

Speaker Change #132: Opportunity to come out of this with a better geographic mix and a better mix between OEM and the aftermarket because we haven't been in the market for that long were were disproportionately weighted to.

Speaker Change: The OEM side, and then we really chose to participate primarily in the China market a decade ago. Because it was it was open up versus the other markets, where we're served by existing players, but we've penetrated those markets as well so we.

Speaker Change: Back to put more emphasis into a better geographic mix.

Speaker Change: Coming out of it and still remain optimistic that the China market will.

Speaker Change: Rebound as well.

Speaker Change: As we said before the wind.

Speaker Change #114: Margins were kind of in line with the company average and could still.

Speaker Change #114: We still expect good incrementals coming out of that have a fair amount of fixed costs associated with that we've done a good job getting after the variable cost, but no reason to think we wouldn't drop the incrementals through its normal ish.

Speaker Change: Levels.

Philip D. Fracassa: And we've managed through it very well. But I do think, you know, if we're back up next year on the bearing side of the house, we should generate really, really good incrementals. And then maybe my last point on China is that we have, you know, we did make some investments in China to improve our manufacturing footprint. I think while while volumes are down on the wind side, I think the manufacturing investment has helped us lower costs, which has helped mitigate some of that impact, as has the maturity of the products, the technology, the volume. As you mentioned, prices have come down in wind, but they've largely been on a gradual downward trajectory since So, again, come back and say we'd be optimistic that we would be able to leverage the incremental volume well. Got it.

Speaker Change #143: Yeah, and I would I would only add.

Speaker Change: Tim when you look at the bearing business we've talked about this before is it is it is.

Speaker Change #108: More capital intensive so it does tend to see it can see show a little bit stronger incrementals on the way up and can kind of have to fight a little bit little bit steeper decremental is on the way down and we've managed through it very well, but I do think.

Speaker Change #108: If we're back up next year on the on the bearing side of the house that.

Speaker Change #108: We should generate really really good incrementals and then last point, maybe on China. As we have we did make some investments in China to improve our manufacturing footprint and I think while the while volumes are down on the wind side I think the manufacturing investment has has helped us lower costs at which has helped mitigate some of that impact as has the maturity of the.

Speaker Change: Sure.

Speaker Change: The products the technology the volume.

Speaker Change #121: As you mentioned prices have come down in wind.

Speaker Change: But on a gradual downward trajectory since we've been in the market, but still a cost as we and others get better at producing the product and its relatively new.

Speaker Change #128: New technology, so and come back and say we'd be.

Speaker Change: Optimistically, we would be able to.

Speaker Change: The incremental volume well.

Richard G. Kyle: Got it thank you alright and rich.

Timothy W. Thein: Thank you. All right. And Rich, best of luck and enjoy whatever's next for you. Thank you.

Speaker Change: Best of luck and enjoying whatever whatever's next for you. Thank you. Thanks, Tim I appreciate that.

Michael Shlisky: Thanks, Tim. I appreciate that. The next question comes from Mike Shlisky with DA Davidson & Co. Please go ahead, Mike.

Speaker Change: Next question comes from Mike <unk> with D. A Davidson. Please go ahead Mike.

Mike: Good morning, and thanks for taking my question.

Richard G. Kyle: Good morning, and thanks for taking my questions. I'm going to quickly touch on off-highway for a moment. I've been hearing a lot of the OEMs are looking to focus on inventories in the back half of the year, trying to, you know, bring them down through the fourth quarter. What do you think? What have they told you about their ability to get to where they want to be by the fourth quarter?

Speaker Change: Wanted to quickly touch on off highway for high there.

Speaker Change: Yes.

Mike: To touch on off highway.

Speaker Change #134: I've been hearing a lot of the Oems are looking to.

Speaker Change: Both are inventories in the back half of the year kind of bring them down through the fourth quarter.

Speaker Change #144: What do you think what are they told you about their ability to get to where they wanted to be by the by the by the fourth quarter. What do you think that folks still have some more inventory to take out in the first part of 2025.

Richard G. Kyle: Or do you think that folks still have some more inventory to take out in the first part of 2020? It varies by market, but certainly the one that's gotten more press here lately would be agriculture and has been down. For us, ag went down last year, so we started feeling that earlier with inventory correction for our part of the channel. So our comps as we head into the second half of the year are probably better than theirs are.

Speaker Change: Yes.

Speaker Change #119: It varies by market, but certainly the one that's got more press here of late we would be and it's been down.

Speaker Change #107: For Us AG went down last year. So we started feeling that earlier with inventory correction.

Speaker Change #101: For our part of the of the channel. So are our comps as we head into the second half of the year, probably better than what theirs are.

Richard G. Kyle: So some of the headline numbers that the ag industry is dealing with are probably a little worse than the parts suppliers to it, but certainly, there's a level of caution in ag going across the rest of the year. Mining and construction probably a little bit better, and maybe for us, a little more global presence in those two markets as well versus agriculture, which is a little heavier weighted to the United States. So I'd say overall it's down. We have it in the high single digits. It's down for the full year that way as well. Too early to say where we'll be at for next year. Okay, I got it.

Speaker Change #101: So some of the headline numbers.

Speaker Change #101: AG industry is dealing with is probably a little worse than the parts suppliers to it.

Speaker Change #101: But certainly there is a level of caution.

Speaker Change: <unk> going across the rest of the year.

Speaker Change: Mining and construction, probably a little bit better and and maybe for us a little more global presence in those two markets as well versus AG.

Speaker Change: AG, a little heavier weighted to the United States.

Speaker Change: So I'd say overall is down and we have it in the high single digits down for the full year that way as well too early to say, where it will be out for next year.

Speaker Change #133: Okay got it and then I wanted to ask about the about the M&A pipeline. Obviously the things that you can do is good for a couple of deals a year.

Michael Shlisky: And I want to ask about the M&A pipeline. Obviously, it seems like it's always good for a couple of deals a year. Give us some thoughts as to whether you are in any late-stage conversations with any decent-sized targets here or just some broad view as to what the evaluations look like and the number of targets that are out there today. Yeah, so we had a very active year last year, six deals in and one out.

Speaker Change #137: Can you give us some thoughts as to are you in any late stage content.

Speaker Change #151: I was talking to here or just some broad views.

Speaker Change: Sure.

Speaker Change #127: My question is look like and the targets that are out there today.

Speaker Change #129: Yes, so we had a very active year last year.

Speaker Change: Thanks.

Speaker Change: Deals are in in one one out we also made a divestiture last year, so a pretty active year last year.

Michael Shlisky: We also made a divestiture last year, so it was a pretty active year. We came into the year with, again, a little higher debt level, but certainly nothing that would prohibit us from doing something. It's been two quarters since we closed anything.

Speaker Change: Came into the year with again, a little higher debt level, but certainly nothing that would prohibit us from doing something.

Speaker Change: And two quarters since our since we've closed anything.

Richard G. Kyle: It would certainly be optimistic that in the next 12 to 18 months, you would see us again, as you said, bringing in one, two, three small to medium-sized deals, very consistent with the strategy. Business leaders remain very engaged in that, so I don't see any reason to pause that with the CEO transition. We expect to continue to be active over the next and the rest of this year or certainly in the next year. Okay, thank you.

Speaker Change: Certainly be optimistic.

Speaker Change: In the next 12 to 18 months.

Speaker Change: I would see US again as you said bring in 123 small to medium sized deals.

Speaker Change #130: Very consistent with the strategy and.

Speaker Change: Business leaders remain very engaged in that survey.

Speaker Change: I don't see any reason to pause that with the CEO transition and.

Speaker Change: We would expect.

Speaker Change: To continue to be active over the next.

Speaker Change: Either the rest of this year are certainly.

Speaker Change: In the next year.

Speaker Change: Okay. Thank you.

Mike: Thanks, Mike.

Speaker Change: Okay.

Speaker Change: The next question comes from Angel Castillo with Morgan Stanley. Please go ahead.

Angel Castillo: Thanks, Mike. The next question comes from Angel Castillo with Morgan Stanley. Please go ahead.

Angel Castillo: Hi, Thanks for taking my question just wanted to go back to commentary here about.

Philip D. Fracassa: Hi, thanks for taking my question. Just wanted to go back to a comment earlier about logistics costs. So there's been a lot of great discussion on the self-help side, but maybe if you could just talk about your cost basket and generally what you're kind of expecting here in the second half for those costs, kind of the evolution. Yeah, sure. Thanks, Angel.

Angel Castillo: Logistics cost so theres been a lot of great discussion on the self help side, but maybe if you could just talk about your cost basket and generally what youre kind of expecting here in the second half on those costs kind of evolution.

Ange: Yeah sure. Thanks, Ange I would say that that was the one cost that we have seen in flight quite a bit certainly starting in the second quarter and we do expect that to continue for the rest of the year and quite frankly, when we talk about material and logistics, we sort of entered the year expecting material.

Angel Castillo: I would say, yeah, that was the one cost that we have seen inflate quite a bit, certainly starting in the second quarter, and we do expect that to continue for the rest of the year. And quite frankly, when we talk about materials and logistics, we sort of entered the year expecting, you know, material logistics to be kind of favorable for the year. And at this point, I would say it's probably more flattish with material favorable, but, you know, logistics likely unfavorable for the year, just given where container rates are presently, especially coming out of China.

Speaker Change: <unk> logistics to be kind of favorable for the year and at this point I would say, it's probably more flattish with material favorable but logistics likely unfavorable for the year, just given where container rates are presently, especially coming out of coming out of China, but again thats where.

Angel Castillo: But again, that's where, you know, in the second quarter and for the rest of the year, some of the self-help operational excellence initiatives are going to come into play because we do believe, you know, while versus April, the outlook for logistics has gotten worse, we do believe, you know, we'll be able to offset that through, you know, the targeted cost actions, the acquisition integration, and all the things that we've been working Very helpful.

Speaker Change: In the second quarter and for the rest of the year some of the.

Speaker Change: Self help operational excellence initiatives are going to come into play because we do believe while versus April the outlook for logistics has gotten worse, we do believe we'll be able to offset that through.

Speaker Change: The targeted cost actions the acquisition integration and all the things that we've been we've been working on.

Speaker Change #135: Very helpful and then back to maybe cash flow very strong cash flow generation in the second half and when you talked about inventories maybe needing to work down a little bit.

Philip D. Fracassa: And then back to maybe cash flow. So, a very strong kind of cash regeneration here in the second half. And you talked about inventories maybe needing to work down a little bit. Can you maybe help quantify that? And then, you know, as you think about a year next year where you're seeing renewable energy potentially recover and just a little bit of a turning point, could you just talk about kind of the pre-cash regeneration and working capital? Just a little bit more color on all that would be helpful.

Speaker Change #139: Just maybe help quantify that and then as you think about a year next year, where you are seeing.

Speaker Change #131: Overall energy potentially cover in just a little bit of a turning point could you just talk about kind of free cash generation and working capital.

Speaker Change: Just a little bit more color on all of that would be helpful.

Richard G. Kyle: Let me start with just a little bit on the inventory, and I'll let Phil take it to the full cash flow level. As we mentioned, we're certainly looking at a step up from Q4 to Q1 in revenue. So right now, we're targeting a fairly modest inventory reduction between now and the end of the year. You need the inventory more for the start of the next year.

Speaker Change: Let me start with just a little bit on the inventory and I'll, let Phil take it to the full cash flow level as we look as mentioned, we're certainly looking at a step up from Q4 to Q1 in revenue.

Phil: So right now we're you know we're targeting a fairly modest inventory reduction between now and the end of the year you need inventory more for the start to next year.

Phil: As the year.

Phil: As the year progresses, if we feel a little more bullish on the start of the year as we get to November December you might see us.

Phil: No more cautious on the.

Phil: The inventory and if if we get a little more pessimistic on the start of next year, you might see us get a little more aggressive this year on the cash flow, but it really is more about the start to next year, which again right now we would be expecting to see a significant step up from Q4.

Philip D. Fracassa: But it really is more about the start of next year, which, again, right now, we would be expecting to see a significant step up from Q4. Yeah, I think, you know, Rich hit it. I would just add, you know, normally we'll see that seasonal working capital liquidation, if you will, given that the fourth quarter tends to be the lowest quarter from a revenue standpoint, from a seasonality standpoint, we'll typically see receivables come down seasonally in the second half. We're expecting that. We probably ended the second quarter a little bit higher from a day standpoint.

Philip D. Fracassa: So we should make that up and see that come back in line in the second, in the second half. I should say, you know, Rich talked about the inventory. A lot of that does hinge on the fourth quarter, and what's happening in the fourth quarter is always a little bit of an unknown, particularly in the shorter cycle part of our business. But, you know, we'll typically see some inventory come out in the fourth quarter and would not expect anything differently this year.

Speaker Change: Yes, I think.

Speaker Change: Richard I would just add you know normally we will see that seasonal working capital liquidation. If you will given that the fourth quarter tends to be the lowest quarter from a revenue standpoint from a seasonality standpoint, we'll typically see receivables come down seasonally in the second half we're expecting that we probably ended the second quarter with a little bit.

Speaker Change: Higher from a day standpoint, so we should make that up and see that come back in line in the second in the second half I should say.

Speaker Change #145: Rich rich talked about the inventory a lot of that does hinge on the fourth quarter and what's happening in the fourth quarter is always a little bit of an unknown, particularly in the shorter cycle part of our business but.

Philip D. Fracassa: So that's really the main driver of the offset to that would be we will have those taxes that we'll have to pay in the second half related to the India transaction, which will offset that a little bit.

Richard G. Kyle: We'll typically see some inventory come out in the fourth quarter and would not.

Richard G. Kyle: Expect anything differently I would say this year. So that's really the main drivers of the offset to that would be we will have those.

Richard G. Kyle: Taxes that we will have to pay in the second half related to the India transaction, which will offset that a little bit but net net.

Philip D. Fracassa: But net net, you know, we'll see cash flow step up significantly, you know, in the second half and be very supportive of our guide of greater than 350 million for the full year. The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Richard G. Kyle: We will see cash flow step up significantly in the second half and very supportive of our guide of greater than $350 million for the for the full year.

Speaker Change #138: Very helpful. Thank you.

Speaker Change #138: Okay.

Richard G. Kyle: The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Joseph Alfred Ritchie: Thanks, good morning everybody, and Rich, I wish you the best in whatever's next. My first question, and I apologize if you touched on this already, I did go dark for a couple minutes. I'm curious, heavy industries. You guys have experienced several cycles in the past; obviously, some of your biggest customers have announced production cuts. How do you see this playing out from a timing standpoint? I know you don't have a crystal ball, but just utilizing your prior experience and how long it could take to get to normal demand patterns for that business going forward. Yeah, sure, Joe. Maybe I'll hit them both. I'll hit heavy industries and then also hit the highway because they're, you know, they're, they're similar in many respects.

Joseph Alfred Ritchie: Thanks, Good morning, everybody and rich wishing you the best in whatever is that.

Joseph Alfred Ritchie: Thanks, Joe.

Richard G. Kyle: Hi.

Joseph Alfred Ritchie: My first question.

Speaker Change #125: And I apologize if you touched on this already did go dark for a couple of minutes.

Speaker Change #118: I'm curious heavy industries right you guys have experience.

Speaker Change #120: Several cycles in the past.

Richard G. Kyle: Obviously some of your your biggest customers have announced production cuts.

Speaker Change #106: How do you see this playing out from a timing standpoint, I know you don't have a crystal ball, but just utilizing your prior experience and how long it could take to get there.

Speaker Change #103: Normal demand patterns for that business going forward.

Speaker Change #150: Yes, sure Joe maybe I'll hit I'll hit them, both hit heavy industries and then also hit hit off highway because there <unk>.

Speaker Change #110: Similar in many respects when we talk about heavy industries, it's typically the big.

Philip D. Fracassa: When we talk about heavy industries, it's typically the big markets like oil and gas, metals, aggregate cement, pulp, and paper, you know, OE activity into those markets. And we typically do the late cycle, usually the last, sector that slows for us. And we did see some debt. We were down in Q2, and we did see some softening in the order intake rate, which is why we moved it over to the left. That one's always a little bit hard to predict.

Speaker Change #110: Markets like oil and gas metals aggregate cement pulp and paper OE activity.

Speaker Change #110: Into those markets and we did that is typically the late cycle, usually the last sector that slows for us and we did see some.

Philip D. Fracassa: It's more project spend than it is some kind of recurring revenue. But I would tell you the MRO side of all that, which generally gets served through distribution, you know, continues to roll along. We are seeing continued good activity on the MRO side in markets like metals, oil, and gas, pulp and paper, aggregates, and cement. Now on off-highway, which is more of the recurring revenue, you know, as Rich said, we started to decline in off-highway, you know, kind of in the middle of last year or so.

Speaker Change #110: We were down in Q2 did see some softening in the in the order intake rate, which is why we moved it over to the left that one is always a little bit hard to predict because it's more project spend and it is kind of recurring revenue, but I would tell you. The MRO side of all of that which generally gets served through distribution continues to continues to roll along we are.

Speaker Change #110: We're seeing continued good activity on the MRO side in markets like metals oil and gas pulp and paper aggregates cement now on off highway which is more of the recurring revenue.

Philip D. Fracassa: We're sort of one year into de-stocking, you know, slashing lower demand levels. We're expecting that to continue, you know, into the second half, and then by the end of the year, we will have been down in those markets in particular, probably seven, which would be pretty normal, maybe maybe arguably on the long end of normal, so it's hard to predict, it's very dependent on interest rates and the overall economic situation, if you will, but we do feel like these markets have been depressed for quite some time, and Guys, that's helpful, Phil.

Speaker Change #110: As rich said, we started to decline in off highway you know kind of the middle of last year. So we're sort of one year into <unk>.

Richard G. Kyle: Destocking slash slash lower demand levels, we're expecting that to continue.

Richard G. Kyle: Into the second half and then by the end of the year, we will have been down in those markets in particular, probably seven quarters.

Richard G. Kyle: Which which is would be pretty normal maybe maybe arguably on the long end of normal.

Richard G. Kyle: So it's hard to predict it's very dependent on interest rates and the overall economic situation. If you will but we do feel like these.

Richard G. Kyle: These markets have been depressed for.

Richard G. Kyle: Quite some time and we're in a good position I think the step up next year.

Richard G. Kyle: Got it that's helpful. Phil and I guess look we danced around.

Joseph Alfred Ritchie: And I guess, look, we've danced around the margin question a little bit for next year at this point, just because there are a lot of moving pieces that are impacting margins this year. But let's say we get back to a more normal environment where it's more like 3, 4, 5% type growth for your businesses. Should your, you know, based on everything that's transpired this year, would you expect incremental margins to be above normal? Like, how do we think about, you know, the right jumping off point from this year into next year on the incremental? Yeah, it's probably a little bit early.

Speaker Change #160: The margin question, a little bit for next year at this point just because there are a lot of moving pieces that are impacting margins. This year, but let's say, we get back to a more normal environment, where it's more like three or four or 5% type growth for your businesses. What you said based on everything that's transpired. This year would you expect incremental margins to be.

Speaker Change #111: Above normal like how do we think about.

Speaker Change #122: The right jumping off point from this year into next year on the on the Incrementals.

Speaker Change #158: Yes, it's probably a little bit early but again I think we're still committed to long term targets. So I think if we're.

Richard G. Kyle: But again, I think, you know, we're still committed to long-term targets. So I think if we're up next year, we would expect to take another step on that margin path to get us to average 20 over a cycle, not just at the top of the cycle, which would say, you know, we've got to be above that at the peak and hold on at the trough. So we'd expect to take another step forward, but it's probably too early to talk specifically. Okay, great.

Speaker Change #122: If we're up next year, we would expect to make to take another step on that margin path to get us to to average 20 over a cycle not just at the top of the cycle, which would say we've got a we've got to be above that at peak and hold on it at the trough. So we would expect to take another step up but probably too early to talk specifically about it.

Speaker Change #152: Okay, great. Thanks, guys.

Joseph Alfred Ritchie: Thanks, guys. Thanks, Jim. We have time for one more question, and so our final question today comes from Chris Dankert with Loop Capital. Chris, please go ahead.

Jim: Thanks, Jim.

Speaker Change #156: We have time for one more question and so our final question today comes from Chris Dankert with late capsule, Chris. Please go ahead.

Christopher M. Dankert: Hey, Thanks for squeezing me in guys.

Christopher M. Dankert: Hey, thanks for squeezing me in, guys. I guess I'll just keep it to one here. Again, India has been really impressive this year in terms of growth. I guess, maybe just conceptually, as you kind of look at the markets inside of India. Would you expect there's some durability? Is there legs there into 25 and beyond? Or is there some risk that, you know, India risks looking kind of like China's wind as we move into 25, 26, and beyond there?

Christopher M. Dankert: I guess I'll just keep it to one here.

Christopher M. Dankert: Again, India has been really impressive this year in terms of growth I guess, maybe just conceptually as you kind of look at the markets inside of India.

Speaker Change #159: Would you expect there's some durability of their legs, there into 'twenty five and beyond or is there some risk that India risk looking kind of like China. When there's a move into 25 26 and beyond there.

Speaker Change #148: I think there is reason for both short and term short and long term optimism there.

Richard G. Kyle: I think there's reason for both short- and long-term optimism there. Short-term, there's good momentum; longer-term... I think India is a beneficiary of some of the diversification that companies are looking for in their global supply chains not to have overweighted to China or any other geography, and India is a beneficiary of that.

Speaker Change #122: Short term there is good momentum longer term.

Speaker Change #122: I think India is a beneficiary of some of the diversification that.

Speaker Change #122: Companies are looking with their global supply chains not to have a overweighted.

Speaker Change #122: To China or any other geography, and India is a beneficiary of that and I think it's.

Speaker Change #111: Fairly broad based and across industrial markets. So I think there's reason for optimism.

Richard G. Kyle: And I think it's fairly broad-based across industrial markets. So I think there's reason for optimism for the foreseeable future. Yeah, well, thanks for the call there, Ritchie, and congratulations again. Thank you. Those are all the questions we have time for today.

Speaker Change #111: And for the foreseeable future.

Speaker Change #111: Okay, well, thanks for the color there Richard and congratulations again.

Speaker Change #153: Thank you.

Speaker Change #149: That's all the questions. We have time for today. Thank you you have any final comments or remarks.

Richard G. Kyle: Sir, do you have any final comments or remarks? Yes, thank you, Emily. As this is my last quarterly call as CEO, I wanted to thank the investment community for its support over the last decade. In particular, those of you that have invested in the company over that time. Those of you that have followed Timken for a couple of decades have witnessed a dramatic transformation in this 125-year-old industrial company. It has been a privilege for me to be a part of it for the last 19 years.

Emily: Yes, Thank you Emily.

Speaker Change #116: As this is my last quarterly call as CEO I wanted to thank the investment community for the support over the last decade.

Speaker Change #111: And in particular those of you that have invested in the company over that time.

Speaker Change #111: Those of you that have followed timken for a couple of decades I've witnessed a dramatic transformation in this 125 year old industrial company.

Speaker Change #111: It was a privilege for me to be a part of it for the last 19 years on both very proud of what we've achieved during my tenure and also very confident that the company will continue to prosper after I transition out of my leadership role.

Richard G. Kyle: I'm both very proud of what we've achieved during my tenure and also very confident that the company will continue to prosper after I transition out of my leadership role. We have a great group of employees around the world. The company has been performing at both a high and consistent level for many years.

Speaker Change #111: We have a great group of employees around the world.

Speaker Change #142: Company has been performing at both the high and consistent level for many years, our portfolio is strong and I look forward to supporting toric in the 19000 employees at Timken achieved new heights for shareholders customers and employees in the years to come.

Neil Frohnapple: Our portfolio is strong, and I look forward to supporting TARIC and the 19,000 employees at Timken to achieve new heights for shareholders, customers, and employees in the years to come. Thanks, and back to you, Neil. Yeah, thanks, Rich, and 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. Thank you for participating in today's Timken second quarter earnings release conference call. You may now disconnect.

Speaker Change #142: Thanks, and back to you Aneel, yeah, Thanks, rich and 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.

Speaker Change #146: Thank you for participating in today's typical second quarter earnings release Conference call you may now disconnect.

Speaker Change #146: [music].