Q4 2024 The Timken Co Earnings Call
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At this time I would like to welcome everyone to Timken fourth quarter earnings release Conference call all.
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Speaker Change: Thank you Mr.
Speaker Change: Mr Fair enough. Paul you May begin your conference. Thank you operator, and welcome everyone to our fourth 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.
Speaker Change: You can also access this material through the download feature on the earnings call webcast link.
Speaker Change: With me today are the Timken company's president and CEO toric matter.
Phil: And Phil for Casa our Chief Financial Officer.
Speaker Change: We will have opening comments this morning from both Tarek 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.
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.
Speaker Change: 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 without expressed written consent, we prohibit any use recording or transmission of any portion of the call.
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 Tarek.
Tarek: Thanks Neil.
Tarek: Good morning, everyone and thank you for joining us I will begin with our fourth quarter results and outlook for 2025.
Tarek: And I will also share a bit more of our priorities for the year as well as perspectives from engaging with different stakeholders.
Tarek: Starting to look at the fourth quarter.
Tarek: Overall revenue was down one 6%.
Tarek: Versus last year organically revenue decreased three 5%. The main driver of week revenue was our European demand.
Tarek: The Pacific was modestly down with China decline moderating at the comps got easier.
Tarek: <unk> was up slightly in the India continued its growth path.
Tarek: We expect the profitability.
Tarek: Adjusted EBITDA margins came in at 16, 6% down 130 basis points from last year, and 30 basis points from third quarter.
Tarek: Adjusted earnings per share was $1 16 down 15% from last year.
Tarek: Fourth quarter margins benefited from cost actions, along with a favorable mix in both segments. In addition.
Tarek: <unk> performed very well with accretive margins in its first full quarter as part of Timken.
Tarek: Finally, we generated 125 million of free cash flow in the fourth quarter, which took us about 300 billion for the full year.
Tarek: Now, let's take a look at the initial outlook for 2025.
Tarek: Given the current level of demand and economic uncertainty, we're taking a cautious view on the outlook for 2025.
Tarek: We anticipate the organic sales will be slightly lower for the year due to continued weakness in Europe.
Tarek: We expect the industrial market conditions to remain challenging as we start the year and our guidance assumes organic sales were lower year on year.
Tarek: The first half.
Tarek: And we also have incorporated the impact of China tariffs into our current guidance.
Tarek: On Mexico and to Canada tariffs, we have cost sourcing and price actions to mitigate the overall tariff impact like we did in 2018.
Tarek: Well go into more specifics later.
Tarek: Overall, we are guiding adjusted EPS to be down modestly from 2024 at the midpoint.
Tarek: This mainly reflects the unfavorable currency impacts.
Tarek: Kind of a cautious demand outlook, we expect our cost savings to partially offset some of the challenges that we see.
Tarek: We expect to deliver around 75 million of incremental cost savings in 2025.
Tarek: This is accomplished by accelerating of our footprint initiatives and introductions when it comes to operative head count, which would match up our softer demand.
Tarek: Input tactics supply chain management actions, along with reduced discretionary spending and SG&A.
Tarek: The cost savings are expected to offset inflation and is driving the flattish margin outlook, despite lower organic sales and a sizable currency headwind improvements in networking capital combined with lower capex should generate at least $400 million of free cash flow in 2025.
Tarek: In addition, we will prioritize investing in product lines and services with the highest returns and the best growth potential we plan to continue our disciplined approach on capital allocation, we will look at accretive M&A to increase our presence in growing markets.
Tarek: And share buybacks also remain an attractive option in the current environment.
Tarek: As we look to improve timken performance in the future I would like to take a few moments to provide you with a high level summary observations.
Tarek: Our priorities for 2025 and the opportunities that lie ahead.
Speaker Change: Since I started with Timken September I've had a chance to visit 30 of our locations throughout the United States, Europe, India and China.
Tarek: I also met with 80 customers and channel partners.
Tarek: And then I also had meetings with some of you with us today and many other shareholders to get their perspective, and your perspective on our performance and expectations going forward. It has been a very informative and engaging experience and I'll share with you a short summary from those meetings along with my own first of all it up.
Tarek: Duration.
Tarek: Let's start with Timken strengths.
Tarek: There are many.
Tarek: Beginning with our people to deliver quality products and services those will help our customers solve complex technical problems during my visits.
Tarek: Got it very positive feedback on our team's ability to help our customers design better products and solutions. We also have a disciplined approach to capital allocation, which has diversified our portfolio and lifted our financial performance over the years, but more importantly.
Tarek: What can we do better.
Tarek: Challenge for us is to grow faster, but improving margins and returns.
Tarek: We also need to reduce the impact of market cycles, and all of our performance, especially when it comes to margins. So how shall we do this.
Tarek: I believe you can go faster or putting customers. So the core of our own product design and development.
Tarek: This means being more customer centric works is being product centric.
Tarek: When I met with customers in China, Europe, and U S. It was very clear that value, our technical capabilities and one timken innovation and engineering expertise to help them meet their cost and performance needs for the local markets.
Tarek: Given our understanding of their applications combined with our manufacturing footprint, we need to incorporate their needs in our products.
Tarek: More local for local.
Tarek: It also evaluating over the entire portfolio of product lines and services.
Tarek: With an eye towards growth and profitability.
Tarek: We will prioritize R&D capital and resources for the higher organic growth and better return parts of our portfolio at all.
Tarek: Also looking to reduce the level of vertical integration across our entire portfolio going forward I recently visited our new planned expansion in Virginia, which will open later this year with production.
Tarek: Good investment.
Tarek: Support additional share gains in the Indian market, whatever industrial bearings business is a portfolio, which has grown significantly over the past decade and as I toured the facility I was impressed with the world class manufacturing technology.
Tarek: The team's enthusiasm for bringing the offering to more customers.
Tarek: We also have the potential to accelerate cross selling between engineered bearings and industrial motion segments.
Both with channel partners and original equipment manufacturers as an example, let's take a look at the commercial Marine segment, which is an attractive growth market for us with the recent addition of lagers Smith sealing solutions now we have a full package tau for marine customers with our bearings couplings lubrication systems and more the luggage.
Tarek: Smith team shared the go to market together with the rest of thinking plans during my visit that location near Rotterdam, a few weeks back.
Tarek: The deep customer relationships and channel partners have languished Smith are opening doors for our broader portfolio.
We see good wins for our industrial motion business already as well as our bearings portfolio in the Marine segment. Languishment is also benefiting from broader opportunities that they see in Asia and U S. Thanks to the presence of timken relationship and many of the interesting segments for Languishment we.
Tarek: Many such opportunities throughout the company.
Tarek: Our priorities for the year.
Tarek: We want to sell more of the most profitable part of the portfolio.
Tarek: The cost savings we have in mind, the 75 million to account for many of the headwinds that we see in the business today.
Tarek: And the process improvements that we have in action today, but also to generate a higher level of cash as if you have provided in our guidance.
Tarek: It's still early on and I'm continuously learning about the opportunities and challenges for timken.
Tarek: I wanted to share just a few ways that we can harness timken strengths and improve this company I look forward to sharing more details on this work and our plans later this year.
Tarek: Timken is successful because we have passionate dedicated colleagues who have innovated for more than 125 years to deliver quality products and services that delight, our customers I firmly believe in the team.
Tarek: Our value proposition and our ability to win in this marketplace.
Tarek: Finally, I want to acknowledge the planned retirement of someone who has been instrumental to advancing that value proposition.
Tarek: This call and the leader of our industrial emotions business.
Speaker Change: He will retire after 41 year career and Tim King.
Speaker Change: Chris has played a pivotal role in diversifying the company's business.
Speaker Change: And improving the profitability over the years.
Speaker Change: Ganic growth initiatives product innovation strategic M&A and growing of the industrial motion businesses.
Chris: Personally like to thank Chris, but his many contributions to timken success.
Chris: Launched a search process to find the most qualified and capable leader for this very important job both internally and externally we have good candidates.
Chris: Chris will retire at the end of the year and I'll bring him to continue to advance industrial motion business and to ensure that we have a seamless and stable leadership transition.
Phil: With that let me turn over the call to Phil for a more detailed review of the numbers and the outlook.
Chris: <unk>.
Phil: Okay. Thank you to Eric and good morning, everyone.
Phil: For the financial review I'm going to start on slide 12 of the presentation materials with a summary of our fourth quarter results.
Phil: Revenue for the quarter came in at one point <unk> 7 billion.
Phil: One 6% from last year.
Phil: Adjusted EBITDA margins were 16, 6%.
Phil: And adjusted earnings per share for the quarter came in at $1 16.
Phil: Turning to slide 13.
Phil: Let's take a closer look at our fourth quarter sales performance.
Phil: Organically sales were down two 6%.
Phil: Volumes were lower while pricing remain positive.
Phil: Looking at the rest of the revenue block recent acquisitions, namely CGI and Lager Schmidt contributed one 9% of net growth in the quarter.
Phil: While foreign currency translation was a modest headwind to the top line.
Phil: On the right hand side of the slide you can see organic growth by region.
Phil: Excluding currency and net acquisition impacts.
Phil: Let me comment briefly on each region.
Phil: The Americas, our largest region continued to show good resiliency in the quarter.
Phil: As we were up about 2% from last year.
Phil: We saw solid growth in marine distribution and rail.
Phil: While the off highway sector was lower as we expected.
Phil: In Asia Pacific, we were down 3%.
Phil: China was down again, due mainly to lower renewable energy demand, but the rate of decline has moderated.
Phil: India and the rest of the region continued to post solid growth.
Phil: Higher revenue in the distribution and rail sectors.
Phil: And finally, we were down 11% in EMEA.
Phil: Due to the continued industrial slowdown in Western Europe.
Phil: Most sectors were lower led by general and heavy industrial automation and off highway.
Phil: Europe remains our weakest region heading into 2025.
Phil: Turning to slide 14, adjusted EBITDA in the fourth quarter was $178 million or 16, 6% of sales.
Phil: Compared to a 195 million or 17, 9% of sales last year.
While down year on year margins in the quarter came in better than expected due to favorable mix and improved cost performance.
Phil: Looking more closely at the change in adjusted EBITDA dollars for the quarter you can see that the decrease versus last year was driven mainly by the impact of lower sales volume and higher manufacturing and logistics costs.
Phil: Net partially by favorable price mix.
Phil: Benefit of acquisitions and currency.
Phil: And lower SG&A expense.
Phil: Let me comment a little further on some of the key drivers.
Phil: With respect to price mix.
Phil: Pricing was positive in both segments in the quarter.
Phil: Pricing continues to hold up well in this environment.
Phil: Mix was also positive in both segments as distributions generally outperformed OE sectors again in the fourth quarter.
Phil: In addition, we benefited from a sizable marine project in the quarter, which drove higher revenue.
Phil: Favorable mix.
Phil: Looking at material and logistics costs logistics costs were higher versus last year as we expected.
Phil: While material costs were modestly lower.
Phil: On the manufacturing line performance was unfavorable in the quarter driven by the continued year over year impact of inflation and ramp costs associated with our new belts capacity in Mexico.
Phil: In addition, note that we had a favorable supplier recovery and a favorable warranty settlement last year that did not repeat.
Phil: Collectively these items more than offset the impact of cost reduction initiatives in the quarter.
Phil: Looking at the SG&A other line expenses were down from last year.
Phil: Cost actions and other tactics more than offset year on year wage inflation.
Phil: Currency was positive $4 million as the prior period had some transaction losses that did not repeat.
Phil: And finally, our recent acquisitions continue to perform well contributing 6 million of adjusted EBITDA in the quarter.
Phil: It was accretive to company margins.
Phil: Moving to slide 15, we posted net income of $71 million or $1 one per diluted share for the quarter on a GAAP basis.
Phil: Current period includes 15 <unk> of net expense from special items, which is comprised of acquisition amortization and other net charges.
Phil: On an adjusted basis, we earned $1 16 per share down 15% from last year, but above our expectations.
Phil: With respect to some below the line items.
Phil: Interest expense in the fourth quarter was $3 million lower year over year, reflecting.
Phil: The benefit of debt paid down from cash flow.
Phil: Our adjusted tax rate for the quarter came in at 27%.
Phil: In line with expectations, but up from last year based on our geographic mix of earnings.
Phil: And finally, non controlling interest and diluted shares were roughly flat.
Phil: While depreciation expense was up slightly in the quarter.
Phil: Now, let's move to the business segment results, starting with engineered bearings on slide 16.
Phil: In the fourth quarter engineered bearings sales were $708 million down.
Phil: Down two 3% from last year.
Phil: Organically sales were down one 1% driven.
Phil: Driven by lower end market demand in Europe, partially offset by slightly higher sales across the rest of the world.
Phil: Among market sectors off highway renewable energy.
Phil: General and heavy industrial and auto and truck were lower versus last year.
Phil: But more or less along the lines of what we were expecting.
Phil: On the positive side, we delivered strong growth in the distribution sector in the quarter.
Phil: Which is the industrial aftermarket.
Phil: Rail and aerospace were also up year over year.
Phil: Currency was a headwind to revenue of more than 1%.
Phil: The net impact of acquisitions and divestitures was slightly favorable.
Phil: Engineered bearings adjusted EBITDA in the quarter was $122 million or 17, 2% of sales.
Phil: Compared to 133 million or 18, 3% of sales last year.
Phil: Our segment margin reflects the impact of lower volume and higher logistics and manufacturing costs.
Phil: Partially offset by favorable price mix.
Phil: Now, let's turn to industrial motion on slide 17.
Phil: In the fourth quarter industrial motion sales were $366 million.
Phil: Down slightly from last year.
Phil: Organically sales declined five 6%.
Phil: This lower demand was partially offset by slightly higher pricing.
Phil: Most of our platform saw lower revenue year over year.
Phil: Lubrication and linear motion, we're down a continued weakness in western Europe.
Phil: Services was also lower but that business ended the year with a backlog at multi year highs and.
Phil: And belt and chain was impacted by lower AD demand in North America.
Phil: On the positive side.
Phil: <unk> system platform was up significantly on higher military marine revenue in the quarter Act.
Phil: Acquisitions contributed five 6% to the top line completely offsetting the lower organic sales while currency was slightly negative.
Phil: Industrial motion adjusted EBITDA for the quarter was $71 million or 19, 3% of sales compared.
Phil: Compared to $82 million or 22, 2% of sales last year.
Phil: Tough comp.
Phil: Our segment margin was impacted by lower volume and <unk>.
Phil: Higher manufacturing costs.
Phil: Including the impact of higher capitalized variances last year and ramp costs related to our new pulse capacity in Mexico.
Phil: On the positive side recent acquisitions were accretive to margins in the quarter and we benefited from price mix, including the favorable mix from marine that I mentioned earlier.
Phil: SG&A expense was also lower.
Phil: Moving to slide 18, we generated strong operating cash flow of $179 million in the fourth quarter.
Phil: And after Capex of $54 million free cash flow was $125 million about $50 million higher than last year.
Phil: By favorable working capital performance.
Phil: This brought our free cash flow to $306 million for the full year.
Phil: In line with our most recent guidance.
Phil: From a capital allocation standpoint.
Phil: Turned $33 million to shareholders during the quarter through share buybacks and the payment of our 410th consecutive quarterly dividend.
Phil: And looking at the balance sheet, we reduced net debt by nearly $300 million during the year.
Phil: And ended the fourth quarter with net debt to adjusted EBITDA at two times right in the middle of our targeted range.
Phil: Now, let's turn to our initial outlook for 2025.
Phil: In summary on slide 19.
Phil: As Tarek mentioned, we're taking a cautious view on the outlook.
Phil: Given continued market softness in Europe.
Phil: Overall global economic uncertainty.
And our limited visibility.
Phil: Starting on the sales outlook, we're planning for full year revenue to be in the range of down 1% to down 4% in total.
Phil: We're down two 5% at the midpoint versus 2024.
Phil: The CGI acquisition completed this past September should contribute just under 1% to our revenue for the year.
Phil: And we're planning for currency to be a headwind of over 2% for the full year based on current exchange rates, which reflect a stronger U S. Dollar.
Excluding.
Phil: Acquisitions and currency, we're planning for revenue to be down about 1% organically for the full year at the midpoint.
Phil: This reflects lower volumes in Europe, with slightly higher pricing across the portfolio.
Phil: And our guidance assumes that organic sales will be lower year over year in the first half.
Phil: On the bottom line, we expect adjusted earnings per share in the range of $5 30 to $5 and 80.
Phil: For modeling purposes, I think of the full year adjusted EPS outlook to be split.
Phil: <unk>, 52% to 53% in the first half.
Phil: 47% to 48% in the second half.
Phil: This earnings outlook implies that our 2025 consolidated adjusted EBITDA margin will be around 18, 5% at the midpoint.
Phil: With 2024, despite lower organic sales and a sizable headwind from currency.
Phil: Our margin outlook reflects the benefit of the $75 million in total cost savings that tarek highlighted earlier.
Phil: Which are more than offsetting continued inflation in labor and other input costs.
Phil: We also expect CGI to be accretive to margins.
Phil: Note that the midpoint of our guidance assumes that margins will be down year on year in the first half on tough comps and then be up year on year in the second half as our cost actions ramp through the year.
Phil: Moving to free cash flow, we expect to generate at least 400 million for the full year, we're over 120% conversion on GAAP net income.
Phil: This is a significant step up from 2024 and reflects favorable working capital performance reduced capex and lower taxes, which are expected to more than offset the impact.
Phil: Our lower earnings.
Phil: We're planning for Capex of around three 5% of sales.
Phil: As less in recent years and some larger projects are winding down.
Phil: We will continue to focus our capex dollars on optimizing our manufacturing footprint.
Phil: Supporting our margin and long term growth objectives.
Phil: Finally, we anticipate full year net interest expense to be around $105 million in 2025.
Phil: And for the adjusted tax rate to remain 27%.
Phil: And as a reference we included slide 20.
Phil: To provide a high level illustration of the net impact of the various drivers on our 2025 adjusted EPS outlook.
Phil: Here, you'll see a large expected impact from currency.
Phil: Yeah.
Phil: With respect to tariffs. Please note that our guidance does not include any impact from potential tariffs related to Canada and Mexico as.
Phil: As we continue to monitor and evaluate that situation.
Phil: However, our guidance does include the incremental 10% tariff on China I'd note that we expect the China impact to be fairly immaterial after mitigation.
Phil: And as we did back in 2018, we would expect to mitigate the impact of additional tariffs over time through pricing and surcharges.
Phil: We are seeing in supply chain initiatives and other tactics.
Phil: We will update our guidance as needed as we gain a clearer view on the overall tariff situation.
Phil: To summarize timken posted a solid finish to the year and.
Phil: In 2024 stance is the third best year for revenue and.
And EPS in the 125 year history of the company.
Phil: I'd like to thank our entire team for their strong execution in a tough environment.
Phil: In 2025, we're focused on delivering our margin and earnings guidance and we'll be ready to capitalize on an industrial recovery when it occurs.
Phil: This concludes our formal remarks, and we'll now open the line for questions operator.
Phil: Operator.
Phil: Thank you we will now begin the question and answer session. If you would like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Phil: Your mind or you feel like your question has already been answered.
Phil: Press Star followed by two to withdraw yourself from Nikkei.
Okay.
Speaker Change: Our first question comes from the line of Steve Volkmann with Jefferies.
Speaker Change: Please go ahead.
Steve Volkmann: Good morning, everybody or some way so.
Steve Volkmann: Maybe just starting off with the sort of outlook for 2025 Big picture.
Steve Volkmann: We've seen the ISO now.
Steve Volkmann: And Steve could you say, Steve This is Phil could you speak up a little bit we're having difficulty hearing in the room.
Steve Volkmann: Yeah.
Steve Volkmann: Sure.
Steve Volkmann: Sorry about that.
Steve Volkmann: A little better now.
Steve Volkmann: Yes.
Steve Volkmann: Go ahead, you can come back to me.
Steve Volkmann: No go ahead, we can hear you.
Steve Volkmann: Okay Alright.
Steve Volkmann: I wanted to just big picture on the outlets are 25, because we've seen it.
Steve Volkmann: Right.
Steve Volkmann: Okay.
Steve Volkmann: And.
Speaker Change: Obviously, some better activity at your distributors both of those things are usually pretty good leading indicators for you, but you seem to be fairly conservative.
Steve Volkmann: I'm wondering if there's anything specifically that's kind of holding you back.
Speaker Change: The shorter cycle nature of your business.
Speaker Change: Thanks, Steve I mean, as we said we are cautious we have a cautious outlook on the market primarily driven by Europe.
Speaker Change: So RBC for most sectors were down and that's the main reason for us and given the demand uncertainty we are being a bit cautious.
Speaker Change: When it comes to the overall market and maybe Phil you can give us perspective on the specific segments, Yes, no I think that's right, Steve obviously, the ASM turning positive.
Speaker Change: Certainly certainly nice to see but we decided to take a cautious view on the outlook for the reasons Tarek mentioned so.
Speaker Change: Think of it as you know Europe Europe down.
Speaker Change: Slightly the rest of the world sort of flat to slightly up which is getting to that minus one and then cross sectors, we highlighted positive sectors being aerospace and services.
All of our sectors being what you might expect off highway.
Speaker Change: Heavy industries, which tends to be one of the later cycle markets for us.
Speaker Change: Being down to Enbrel, given the strong year, we had last year, we did factor in a little bit of a tough.
Speaker Change: Tough comp a little bit down year on year, but overall I think the theme is stability net net but we're not we're not going to factor in a recovery until we see it in and at this point, we were hesitant to do it. So we took the view on the outlook.
Speaker Change: E C.
Speaker Change: Okay, Alright fair enough maybe.
Speaker Change: Maybe a follow up then on the tariffs fill it sounds like you've kind of got China covered.
Speaker Change: But can you just give us order of magnitude.
Speaker Change: Sort of what part of your Cogs might be exposed to Mexico. So we can just think about how that might play through if it does happen.
Speaker Change: Yeah sure. So I think the theme there really the point on tariffs as we've got a global footprint and as you know, but our largest manufacturing footprint in the U S. So I think relatively speaking it's been a strength it will continue to be a strength.
Speaker Change: Relative to the tariffs, we do have stuff, obviously goods flowing all over the World, Canada, Mexico would be a short term headwind you know it can take time to for the mitigation tactics to take effect. So if if we had all three countries with all ways. If you will 25% tariffs it would be a near term headwind to the tune of call.
Speaker Change: Not huge call it mid single digit millions per month, but as soon as we did back in 2018 19, we would we would expect to mitigate that over over a relatively short amount of time through pricing surcharges source plant changes or supply chain or other tactics.
Speaker Change: That we might employ and obviously, we're hopeful that the situation resolves itself, but.
Speaker Change: But that's the gist of it and we're also modeling impacts across the rest of the world, It's still premature to talk about those but.
Speaker Change: But that's kind of the gist of it and then relatively to China, the 10% wasn't a big impact we don't import a lot from China, but so after mitigation it was fairly material on the overall okay.
Speaker Change: Super helpful. Thank you.
Speaker Change: Thanks, Steve.
Moderator: Our next question comes from David Raso with Evercore ISI.
Speaker Change: Please go ahead David.
Speaker Change: Hi, Thank you I was wondering if you could help us with maybe the book to Bill in the fourth quarter of the size of the backlog sort of Dovetailing into do you see the first half of 'twenty five the organic sales decline being less than the last couple of quarters, you know less than that 2.5% to 3%, we've seen recently or out.
Speaker Change: Similar level and then I have a follow up on that a little bigger picture question.
Yes, maybe I'll start in <unk>.
Speaker Change: <unk> can jump in so David I would tell you the order book in terms of where it is today versus where it was last year. It is down year over year some of that being attributable to shorter lead times today than maybe what we were quoting a year ago, but we feel like the order book, where it sits today is certainly supportive of our full year guide as to your second question in terms of the order of magnitude.
Speaker Change: The decline I think the best way to think about the first half we have.
Speaker Change: Organic decline kind of on the order of what we saw in the fourth quarter.
Speaker Change: With a little bit more than that in Q1, a little bit less than that in Q2, and then in the second half look for look for revenue to be.
Speaker Change: Flatten and then slightly up as we move through the second half of the year.
Speaker Change: Alright, that's helpful and my follow up.
Speaker Change: Just to get a sense of the actions that you're thinking of taking.
Speaker Change: How should we think about that most of the things that you're considering.
Speaker Change: Now that you've obviously seen a lot of the factories talked a lot of customers. Obviously, we've had some head count reduction already but can you just give us a sense when we look at the $75 million of gross savings.
Speaker Change: Of actions already taken.
Speaker Change: Just order of magnitude just should it be similar size larger size, just trying to get a sense of the magnitude of actions you're thinking have taken.
Speaker Change: Yeah.
Speaker Change: Just as a clarification I mean, we have been clear on the 75, where are the key buckets are you talking about in addition in case, we see something more challenging or is it specifically the details on the 75.
Speaker Change: Not to 75 moving forward some of the larger actions that you're thinking about that you mentioned, we'll hear about later this year just curious some of the other actions you're thinking about that might not all be cost savings or could be portfolio thoughts just trying to get a sense of.
Speaker Change: From here, what should we expect some further activity.
Speaker Change: I think when it comes to 2025, you've been quite clear of what we are planning to do and then at the appropriate time, we'll come back with more specifics.
Speaker Change: Its portfolio of whether its cost or whether it is other actions that we believe the team will need to take in order to move the business to the next level of performance, we will come back.
Speaker Change: Details later in the year.
Speaker Change: Yeah, and if I could just maybe add David.
Speaker Change: We focused on margins this year and really <unk>.
Speaker Change: Focused on delivering the margin guide that we put out there. So the 75 was really designed to help us protect margins and maybe just a little more color on it I think it's going to ramp as we move through the year. So we started in the fourth quarter is going to continue to ramp I think of it is around 40% of that number gain in the first half probably 60% in the second half and where we will end the year.
Speaker Change: In terms of a run rate all else equal probably implies on the order of $20 million carryover into 2026, mainly in the first half of 'twenty six.
Speaker Change: All else equal just based on the run rate, we would expect to exit the year and if that if that's helpful.
Speaker Change: That is helpful. Okay. Thank you so much.
Speaker Change: Thanks, David.
Speaker Change: Yes.
Speaker Change: The next question comes from Bryan Blair with Oppenheimer. Please go ahead Brian.
Bryan Blair: Thank you good morning, yes.
Speaker Change: Hey, Brian too.
Bryan Blair: So staying on the 75.
Bryan Blair: For a minute.
Bryan Blair: Helpful detail in terms of phasing there.
Bryan Blair: Can you break out.
Bryan Blair: Or split.
Bryan Blair: The benefit to Cogs, and SG&A, respectively, and then.
Bryan Blair: Approximate breakout across bearings industrial motion in corporate.
Bryan Blair: Sure Brian happy to do it so with respect to bearings and industrial motion think of it as around two thirds bearing around one third industrial motion and maybe I'll dive in a little bit deeper on that so on industrial motion.
Probably not too surprising some of the items are what we've talked about with you before so the it's Steve.
Bryan Blair: The new Bell capacity, we've got coming online in Mexico, we were working on some tactics relative to chain as well as <unk>.
Bryan Blair: Consolidating some lubrication facilities in Europe. Those are some some of the larger projects behind it bearings I would tell you, it's probably a lot more a lot of individual projects.
Bryan Blair: Operative head count reduction would be the biggest thing, but but also material tactics other supply chain tactics labor efficiencies and the like and then to your last point, we do have a big a big component.
Bryan Blair: SG&A in there as well and it's certainly more cogs than SG&A, but if I had to estimate its probably 80 2080, twentyish Cogs the right way to think about it.
Speaker Change: And also I mean, just to add to what Phil said the operational continuous improvement component is is one of the biggest overall.
Speaker Change: So we saw good progress in 2024, and we are increasing the emphasis and focus with support from the employees to improve.
Speaker Change: Understood I appreciate the detail.
Speaker Change: And sorry, you have the range of Timken for a few more months now perhaps you can offer a bit more detail on where you see the most attractive profitable growth opportunities across the portfolio.
Speaker Change: And how those insights may influence organic strategy.
Speaker Change: Organic.
Speaker Change: Capital deployment going forward.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Absolutely an area, where we are already starting to take a look without going to the specifics of very concrete details about product lines, which are the most profitable for obvious reasons.
But we see opportunity that and the team is focusing on how do they get forward both from a growth point of view, but also new customer and new segments point of view.
Speaker Change: One of the first areas of focus and then we start to see some good results already.
Speaker Change: We will continue to push that forward when it comes to the portfolio side.
Speaker Change: Assessment will be.
Speaker Change: Based on growth and profitability.
Speaker Change: Well as the end market exposure when it comes to the portfolio component I'll be exposed to high end growth markets.
Speaker Change: And then you did mention it that I would like to highlight at the level of vertical the vertical integration of our portfolio will be of specific focus for us going forward as well in terms of making decisions and taking action.
Speaker Change: Understood. Thanks again.
Brian: Thanks, Brian.
Speaker Change: Thanks, Brian.
Speaker Change: The next question comes from Kyle <unk> with Citi.
Speaker Change: Please go ahead Kyle.
Kyle: Thank you I wanted to follow up on that last question. So it's nice that Tarek I saw it in the press release, you said there were many opportunities do you see the strength in the product portfolio. So I guess as you tour around the globe just is there any kind of lower.
Speaker Change: Do you see to strengthen the product portfolio and then maybe.
Speaker Change: Longer term, where you could see the portfolio going any any sort of product gaps.
Scott: Thanks, Thanks Scott.
Scott: In the travel it's it becomes it became more and more clear and I mentioned it also.
Speaker Change: We need to become more customer centric, we got a very product focused company, we need to become more customer centric specifically in their travels in the United States, China and India.
Speaker Change: Making sure our products are are tailored for the local needs is an opportunity that we can.
Speaker Change: Really push in the next in the upcoming short term midterm, which will make us even more relevant and contribute to our customers' performance, that's what I see as a.
Speaker Change: A very important part of what we can do.
And then on the mid to long term I mean, as I said, we are going to take a very thorough view both of the existing portfolio, but also by the new opportunities to deploy capital would be given our core strength and the way we go to market as well as the overall economic and demand environment. So that's that's the.
Speaker Change: We are going to take on on that portfolio.
Speaker Change: Helpful. Thank you and then I noticed that the guide reflects slightly higher pricing year over year.
Speaker Change: Any sort of difference in how we should think about pricing in the first half or second half and then just how you're prepared I guess to pass through any sort of tariffs and cost increases on through pricing.
Speaker Change: Can you give us maybe.
Speaker Change: So maybe help us or call kind of the actions that were taken in 2018 and those impacts and I think there was some delay in 2018 from responding to tariffs and then those pricing actions to go into effect. Thank you.
Speaker Change: So let's take the first part of your question, Yes, we do but the current guide out there on the current assumptions, we do expect a slight increase in price.
Speaker Change: Going into 2025.
Speaker Change: So far what we've seen.
Speaker Change: Reductions, we've taken that seem to be holding up.
Speaker Change: When it comes to the tariff and the specifics of the tariff yes. There is a gap typically between the time, we see a cost increase in the time to recover in.
Speaker Change: In 2018, we did a pretty good job overall, it didn't necessarily impact our profitability, but.
Speaker Change: But given the size and the magnitude of this we are taking a hard look with other teams maybe Phil you can give a bit more specifics since sure 18 is no happy to do it and thanks for the question Kyle and on the pricing I think <unk> got it right I would say, it's when we say slightly higher pricing think of it as kind of lesson less than less than 50.
Speaker Change: <unk> in terms of across the year, it's pretty even across the year just given how the pricing hit last year. So no real first half second half Delta of note I would say and then on the on the tariff, so where we price or put surcharges through.
Speaker Change: There can be a lag so the main mitigation tactics will be pricing and surcharges in distribution and can typically be pretty quick.
Speaker Change: Think of it as less than a quarter.
Speaker Change: Or less Oems tend to be contract by contract. So we're surcharges are involved there it can be a quarter or so where its contract renegotiations and can take maybe a little bit longer than that but but I would say, we got the lion's share of the tariffs covered within our within a couple of quarters.
Speaker Change: Call it two to three quarters.
Speaker Change: Last time, which was mainly a mainly a China China situation as you'll recall, so feel very confident we can offset it and we will offset it and then obviously the.
Speaker Change: Our bigger concern would be what it does to the overall demand picture, which is tough to predict but but we'll keep an eye on that as we move forward.
Speaker Change: Great. Thank you guys.
Scott: Thanks Scott.
Speaker Change: Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead.
Angel Castillo: Good morning, and thanks for taking my question I just wanted to go back to I guess the commentary Matt.
Angel Castillo: Hey, How's it going maybe I think you said you want to be cautious until you see demand improving I was wondering if you could comment on maybe what kind of order trends you are seeing thus far in January.
Angel Castillo: Any step change in either direction.
Angel Castillo: You could comment on that in particular across the key end markets or verticals.
Angel Castillo: I mean as far as January.
Angel Castillo: January goes it's coming pretty much in line with what.
Angel Castillo: Guidance of our plan is so no real change relative to what we have said so far.
Angel Castillo: And then as we said, let's see what the actual demand situation looks like.
That's a short summary on January is pretty much going to plan, yeah, and I would maybe add Ann Julian obviously, we haven't we have decent visibility one quarter out it was really more across the rest of the year. So if I could just maybe comment on on Q1, we do expect revenue to step up sequentially from the fourth quarter to the first quarter as it normally does.
Angel Castillo: Although we are expecting a little less than normal increase just given the given the weakness we had in Europe to end the year as well as we got a we had a tough comp in marine just given the strength we saw there in the fourth quarter. So year over year, we would imply organic revenue being down sort of low to mid single digits and then all in with currency probably down in.
Angel Castillo: The mid single digit range, and then from a margin standpoint.
Angel Castillo: Similar story expect merchants to step up nicely from Q4 on the higher revenue, but for margins to be down year over year, just because last year was a real a real difficult comp. It was it was the high point for the year in margins and I think when you think about it.
Angel Castillo: Year over year, you think about it as sort of we are looking to be probably a couple of hundred basis points lower in the first quarter and then for margins for the year on year and margins to improve as we move through the year main reason being is the cost savings ramp we'll see some improvement.
Angel Castillo: Beyond our normal sequential pattern just get from the cost actions.
Angel Castillo: And as Phil said look our short term focus right now is very much on cost given the uncertainty that we see.
Angel Castillo: So we want to do the team is fully focused to see if we can manage the same similar levels of profitability as we did in a more challenging environment, which we see in 2025 versus 2024.
Speaker Change: That's very helpful. Thank you and maybe I just wanted to go back on the asset footprint I think a lot of it has been talked about maybe in terms of vertical integration are just beginning to advance.
Speaker Change: Your your your growth I was wondering how do you kind of overlay the dynamic around trade policy and just uncertainty from the U S. As you consider whether it's accelerating footprint initiatives or are some of the growth any implications on your kind of desire or willingness to kind of invest in certain markets.
Speaker Change: In particular, Mexico, where you have your new <unk>.
Speaker Change: <unk> investment just if you could kind of help us understand that it wasn't really one that was flagged I guess as you're kind of ways to deal with the tariffs in terms of the footprint, but just how are you thinking about the investments.
Speaker Change: Let's start with the bigger overview, we want to be in region for region. That's our number one priority.
Speaker Change: And well when it comes to the belts initiative that was a longer term perspective, we still believe that the Mexico footprint and its productivity provides a very compelling value proposition for the customers in the U S. Obviously, we have to take a look into the tariffs and how long trend and sustained they are but our mid to long term strategy is based.
Speaker Change: On serving the local market customers in the local markets take United States for example.
Speaker Change: One of the biggest markets if not it is the biggest market for us today in terms of turnover and we have over 30 locations all ready to serve customers. There. So that's helping us be in country for country quote unquote. The vast majority of our turnover in the U S. So by operations in the U S. So that's that's how we're thinking overall.
Speaker Change: On the on the strategic side and then.
Speaker Change:
Speaker Change: Given the uncertainty we have to deal with the reality and that's what we will do but that's hopefully that gives you a bit of perspective.
Speaker Change: Obviously, the overall market.
Speaker Change: It does thank you.
Speaker Change: Thanks Angela.
Speaker Change: Sure.
Speaker Change: Our next question comes from Mike Smith with D. A Davidson.
Speaker Change: Please go ahead.
Mike Smith: Yes, hi, good morning, Thanks for taking my questions here I wanted to dive a little deeper into some of your comments on cross selling.
Mike Smith: I think you mentioned lager Smiths as one example.
Mike Smith: Could you maybe give us.
Mike Smith: Kind of a.
Speaker Change: Broad number as to what you think the untapped potential is from cross selling.
Speaker Change: And maybe how long it might take to to realize a good amount of that opportunity.
Thanks, Mike.
Speaker Change: I was just giving you a few examples.
Speaker Change: We see.
Speaker Change: Few examples and what are the areas, we're going to focus on is exactly as you say what can we do on a more institutional basis, what can we do across the entire sales organization. So we have some very specific incentive schemes set up with our sales organization to ensure that.
Speaker Change: Let me see leads.
We are passing them on to parts of the organization, but the relevance is extremely high.
And just as an example, we have close to 9000 customers who come visit our site design bearings and then we have obviously, Mexico bearings, our seals and lubrication and we're looking to connect the two with a potential customer who is looking to find a technical solution on bearings, but when it comes to the numbers its hard to woodland.
Speaker Change: Numbers on it.
Speaker Change: An area, where we will probably dive deeper and will come back when we have a more comprehensive plan later in the year with what what these numbers could look like.
Speaker Change: At this point, we're just going into the details to see what they could be.
Speaker Change: Later in the year, we might have more specifics.
Speaker Change: Great. Thanks for that maybe secondly, what we're about 15 minutes into the call here and no one's asked about yet so I will bring it up.
Speaker Change: Renewable energy projects in Asia curious I forgot to ask on what's happening there. It sounds like they have been down in this particular quarter, but any likelihood tunnel that you might be seeing there.
Speaker Change: In 2025, perhaps or just any update to how that's going and the timing of how that might.
Speaker Change: Work out as we go through the next couple of quarters here.
Speaker Change: Yeah, as we said.
Speaker Change: We expect the overall wind energy sales to be flattish in 2025 overall.
Speaker Change: I think the market seems to have found.
Speaker Change: A low level.
Speaker Change: A lot of it is running at a lower level. It is a function of projects and policy. So I wouldn't want to call anything when it comes to the market, but it is running at a lower level and we have gone through most of our order and subsequent revenue decline when it comes to the vast majority of that when it comes to that.
Speaker Change: Renewables, specifically on the wind.
Speaker Change: And the solar continues to be performing at the levels of expectations. So we don't see the same dynamics in solar as we have seen in and win so far yeah, and I would say, Mike we did see the rate of decline in renewable moderate in the fourth quarter as we had expected and as we had hoped and as Kirk said it is nice to see stability.
Speaker Change: <unk> there so last quarter, we talked about we didn't see growth in 2005, we saw more stability and sort of flattish revenue and I think if.
Speaker Change: Between then and now I think it's only kind of reaffirm that so we do expect that flattish flattish growth as Charles talked about but I do think as <unk>.
Speaker Change: The ability in that market is encouraging.
Speaker Change: Okay.
Speaker Change: Thank you thanks.
Speaker Change: Thanks, Mike.
Speaker Change: Thanks, Brian.
Speaker Change: Yeah.
Speaker Change: The next question comes from Kevin Stein with Raymond James. Please go ahead.
Kevin Stein: Yeah. Thanks, Good morning, excuse me.
Kevin Stein: The first question I had was just on distribution and specifically in North America.
Speaker Change: And I think that's maybe two or three quarters in a row, where you noted growth there and it's it's obviously one of many metrics and it's probably not the best one but if you look at the the results of some of the public industrial distributors that youre close to yes there.
Kevin Stein: Theyre still reporting family.
Kevin Stein: Not immaterial year over year daily sales declines and obviously your sales don't have to line up perfectly with that but I'm just wondering if that's.
Kevin Stein: A function of stocking levels or changes in the stocking levels or.
Kevin Stein: Perhaps maybe maybe gaining a share of wallet there or you know neither I'm just curious maybe if you can talk about what you've seen there and what what the assumptions for 'twenty five include on distribution.
Kevin Stein: And maybe just more broadly not just north America. Thank you.
Speaker Change: Thanks, Tim.
Speaker Change: Just give you a quick update commentary, yes, it has been performing well for us as we've said.
Speaker Change: We believe our share of wallet with distributors might be increasing you remember we have diversified our portfolio quite broadly in the last years.
Speaker Change: While I cannot be very precise.
Speaker Change: As you said when we look at their performance versus our performance, we're quite happy with our performance and we seem to be increasing a bit the share of the wallet is what I would say.
Speaker Change: When it comes through distribution more broadly, we still expect the distribution to be.
Speaker Change: About moderate.
Speaker Change: When it comes to.
Speaker Change: <unk> year on year, so that means flattish in 2025 relative to the growth we saw in 2020, especially the acceleration we saw in the fourth quarter as we said so we're again being a bit cautious given their performance. So we don't want to be over optimistic in terms of distribution.
Speaker Change: Yes, I would maybe add Tim Yeah, we feel like inventories, where we have visibility are at pretty good levels, particularly in North America, and Europe may have a little bit of Destocking still going on but as Kirk said, we given the strength that we saw last year. The outlook. This year is for sort of flattish just assuming.
Speaker Change: Consistent with the overall cautious guidance.
Speaker Change: Okay, Alright got it and then tariff one of the things you mentioned that.
Speaker Change: In your earlier remarks, something about reducing vertical integration.
Speaker Change: It maybe would've been a topic 10 years or however, many years ago in the steel business, but.
Speaker Change: Right, maybe I know for FERC.
Speaker Change: For competitive reasons, that's not something you want to divulge everything but can you maybe just expand on that in terms of where and what that may be inhaling in terms of.
Speaker Change: A L a more capital light model.
Speaker Change: That's something I would've thought of in terms of an opportunity for timken, but maybe you can speak to that.
Speaker Change: Yes. Thanks.
Speaker Change: Traveling around and looking at the good work done by the operations team.
Speaker Change: Lots of different parts of the world, we have seen at least I have seen a good pockets of.
Speaker Change: Less vertical integration when it comes to our performance and delivery and these are opportunities that I think are we are looking to accelerate across a more broader part of the portfolio.
Speaker Change: And yes, I wouldn't say, we would go from a go to an asset light model, but can be reduce our capex intensity and can we increase our flexibility to fluctuations in demand using a bit more aggressive.
Speaker Change: Vertical integration model versus what we have today, that's the area, where we're focused.
Speaker Change: Some time, it's not going to happen overnight, but it's an area, where we are we see opportunities based on at least what the team has done and what we've seen in terms of results.
Speaker Change: Got it alright, thanks a lot.
Speaker Change: Thanks, Tim is also by the way. It's also reflected in our Capex already in 2025, it is a bit lighter than before or so.
Speaker Change: Okay.
Speaker Change: Our next question comes from Steve Barger with Keybanc capital markets. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thanks.
Speaker Change: Maybe this is related to the last question somewhat.
Speaker Change: About being more customer centric or being more relevant and contributing to customer performance does that mean embedding engineers with customers are doing some outsourced design work.
Speaker Change: Does that look like in practice.
Steve: Well, thanks, Steve look and the problems it became very very clear.
Steve: We are and our team is very valued in terms of the technical competence and capabilities.
Steve: I mean, the customer centric gifts involving the customers in our product design, even more than we are today. So that means looking at if you look I would think about China think about India, I think about U S being more specific with our product design portfolio based on the needs of these specific markets and customers in these specific markets.
Steve: And they tend to be quite different.
Steve: Both from the value price points as well as performance.
Steve: To ensure.
Steve: Our products are tailored more than they are today.
Steve: Customers in these markets. So that's the primary focus when it comes to being more customer centric and then the other part is with our broader portfolio. We do have an opportunity as I discussed before.
Speaker Change: But he was doing bearings, they suddenly have a lubrication.
Speaker Change: Need almost every bearing now can be selectively take a look at our lubrication portfolio.
Speaker Change: And I talked to the customers, who we have relationships for many years and obviously they have a lubrication need and given our technical competence and the brand we can and see examples of putting through and creating opportunities for our lubrication business.
Speaker Change: <unk> business. So these are the areas, where we can become a bit more customer focused.
Speaker Change: In terms of our offer and customer inputs in terms of our own portfolio and being local bundle.
Speaker Change: So if I'm hearing you right then for your in region kind of strategy, it's having your.
Speaker Change: Customer application engineers really better understand the customer requirements. So that you can do more of that cross selling.
Speaker Change: Yes on the on the <unk>.
Speaker Change: Requirement side, absolutely, but also to make sure that the.
Speaker Change: The customers' needs are part of our product portfolio that we produce in the region for the region. So you can imagine.
Speaker Change: Being a little bit less global a bit more local on the portfolio.
Speaker Change: Directional component that.
Speaker Change: We're talking about that means our design engineers and application engineers in the region are getting input from the customers on what they want an example of that is what we have done well in the wind business with the change in the product and.
Speaker Change: Both the cost and the price and the performance in the last four or five months some good progress.
Speaker Change: Got it and then just one quick follow up.
Speaker Change: You also talked about focusing on more profitable parts of the portfolio and reviewing how your go to market does that mean potentially exiting some product lines that are less favorable or which do you see as having structural headwinds to margin expansion.
Speaker Change: I mean, it's a bit too early.
Speaker Change: We said we come back in the fall.
Speaker Change: Later in the year with more specifics on exactly giving an answer to your question, we will come back with more specifics later in the year.
Speaker Change: Yes.
Speaker Change: Understood. Thanks.
Thanks, Steve.
Speaker Change: The next question comes from Michael Feniger with Bank of America.
Speaker Change: Please go ahead.
Michael Feniger: Hey, guys. Thanks for squeezing me in I know, we're running we're running a little long just can you see any.
Speaker Change: With your commentary about the end of the quarter or even in January is there any centric hearing from distributors or customers theres, a pre buy or pull forward of sorts.
Speaker Change: Post election behind me before tariffs.
Speaker Change: If anything it seemed a little regular on a pull forward that you would want to flag.
Speaker Change: No I would say Mike Good question I'm glad you asked it I would say no I mean, we actually.
Speaker Change: Kind of inquired a lot internally around that.
Speaker Change: No we didn't see anything.
Speaker Change: Significant sooner that would be material in terms of a pre buy.
Speaker Change: In the fourth quarter.
Speaker Change: Would have impacted it in an unusual way.
Speaker Change: Perfect and just lastly, I know you guys gave a lot of common trying to renewables.
Speaker Change: And good to hear about the stabilization there just.
Speaker Change: There are some some pickup of signs around maybe some pricing pressure there I think that even flagged earlier about a little push for local content I don't know if you guys are actually seeing a sea change there that's more just the cycle being a little bit weaker just any comments you are seeing on the pricing side of that renewable that you'd want to highlight thanks everyone.
Speaker Change: I mean, I guess, you can imagine when such a volume drop happens competitiveness dynamics, meaning the prices.
Speaker Change: For sure under pressure and while that might have been the case in 2024 VCR market share stabilizing.
Speaker Change: Towards the latter half of 'twenty, four and hardly early indications in 'twenty five and that's our assumption going in we don't see any increase in intensity relative to what we said and we are changing our portfolio to meet the requirements and <unk>.
Both on the profitability side as well as a customer site.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thanks, Mike Thanks, Mike.
Speaker Change: Our next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.
Speaker Change: Thanks, and good afternoon guys.
Speaker Change: Hi.
Speaker Change: I guess a couple of quick ones.
Speaker Change: Slide 14.
Speaker Change: What do you guys have the range or the manufacturing cost item was a pretty big item and I know, Phil I think you mentioned.
Speaker Change: Couple of things in your prepared comments, but like can we double click on this like what happened.
Speaker Change: This bridge the $31 million.
Speaker Change: For the quarter.
Speaker Change: Okay.
Speaker Change: No great question, Joe Theres really a couple of things going on last year.
Speaker Change: Lastly, a difficult comp last year, we had some some benefits that came through we had a favorable supplier and we talked about this on last year's call favorable supplier settlement, we had a customer warranty settlement that was favorable and we also had.
Speaker Change: A year over year, we had.
Speaker Change: I would say a.
Speaker Change: Pretty large amount of capitalized variances last year from an inventory accounting standpoint that we didn't really see repeat this year. So we sort of had.
Speaker Change: And that's a big chunk of that $31 million.
Speaker Change: You see on the slide and the rest would be the.
Speaker Change: The normal inflation offset by the cost reduction actions, but the but I would say.
Speaker Change: Big chunk of that number was actually benefits from last year that did not repeat so.
Speaker Change: We won't see that.
Speaker Change: Continue as we as we move forward it to the same degree.
Speaker Change: Okay, yes that makes sense.
Speaker Change: So let me just ask just a broader question actually thinking about your guidance and maybe going back to last year. When you set your initial guide thank.
Speaker Change: I think you were I think you were calling for organic growth down six and a half and you basically came in pretty close to that number and fully recognize that the short you know your business is fairly short cycle, but as you kind of think about the construct of the 2025 guide in the organic that's baked and I guess I don't know.
Speaker Change: There is there any level of confidence based on the conversations that you're having with your with your key customers.
Speaker Change: And then like if there is potentially you know any downside risks of the organic number.
Speaker Change: What do you what do you think is the most at risk in 2025 from an end market standpoint.
Speaker Change: I would say, yes, I think our aimed right now is to keep delivering higher performance through the cycle. So the focus is very much on the profitability.
Speaker Change: And our cost programs are very much along those lines.
Speaker Change: It's a difficult crystal ball to see through in 'twenty, five, but everything that we've heard in the last couple of weeks it doesn't make it easier.
Speaker Change: Potential impact on demand. So the team is very much tuned to making sure that our costs are in line and then we are being cautious because we see the uncertainty in the market. So our focus right now is in the short term as costs and margin, making sure we deliver on that and then let's see what have.
Speaker Change: Later in the year from a growth perspective.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Joe.
Speaker Change: Thank you.
Speaker Change: No remaining questions at this time, Sir do you have any final comments or remarks.
Speaker Change: Okay.
Speaker Change: Thanks, Emily 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: Yes.
Speaker Change: Yeah.
Thank you for participating and Timken fourth quarter earnings release Conference call you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.