Q2 2025 The Timken Co Earnings Call
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Good morning. My name is Emily and I'll be your conference operator today.
At this time I would like to welcome everyone. To Tim's second quarter earnings release conference call.
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Thank you, operator and welcome everyone to our second quarter 2025 earnings conference call. This is Neil frohnapple vice president of investor relations for the Timken company. We appreciate you joining us today.
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 timing companies' President and CEO, Rich Kyle.
And Bill for Casa, 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 1 question and 1 follow-up at a time to allow everyone a chance to participate.
During today's call, you may hear forward-looking statements related to our future Financial results, plans and business operations.
Our actual results May differ materially from those projected or implied due to a variety of factors which we described in Greater detail in. Today's press release and 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 Gap 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.
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.
Overall second quarter results were in line with our expectations. As the team is managing well through this period of uncertainty and continued soft Market environment.
Total sales in the quarter were down less than 1% from last year. And organic sales were down 2 and a half percent driven by lower demand in both segments, partially offset by higher pricing.
For total backlog at the end of June was up mid single digits. Compared to the first quarter, which is a positive indicator for 2026.
Both below prior year, driven by lower volumes higher, tariff costs and unfavorable currency.
In the quarter, we generated 78 million of free cash flow raised. Our quarterly dividend by 3% and purchased 340,000 shares of stock.
Tim can continue to create shareholder value through the compounding impact of our disciplined Capital allocation actions.
Turning to the Outlook. We are focused on finishing the year strong, while positioning the company for industrial expansion in 26.
Bill will take you through the updated 2025 Outlook and assumptions. That detail. But we expect the operating environment to remain challenging over the rest of the year, primarily due to the uncertainty surrounding trade, and its impact on costs demand and other macros.
Customer demand has been relatively stable year to date at low levels. However, we are reducing the high-end of our full year, earnings Outlook to reflect, a more cautious view. Second half primarily to the volatile trade situation.
The team remains focused on managing our costs to the current market demand, as well as driving structural cost actions. That will contribute to margin expansion over time.
The Mexico plant will continue to ramp up and productivity will improve through the end of the year.
We are also on track to complete 3 plant closures in the second half of the year.
These actions will mitigate the plan volume declines in the second half and positively impact margins in 26.
The Tariff situation remains volatile, but our large US manufacturing footprint will serve us. Well to adapt to the changes and we remain confident in our ability to mitigate the direct impact from tariffs.
We continue to actively pass the costs into the market, through repricing, the portfolio. Albeit with some expected, lag and timing.
Pricing was up sequentially compared to the first quarter, and we expect further price realization as we move through the second half.
While still early, we are optimistic on the outlook for 26.
Backlog is inflected despite the trade situation and its trade stabilizes and end-user confidence improves. We expect industrial markets to expand.
Additionally timkin will benefit next year from wins in the marketplace as well as the carryover of pricing and cost savings.
Both our portfolio and our operating capabilities are better positioned to capitalize on industrial strength.
We also expect a positive impact in Q2 from portfolio moves, including the automotive OE business, which we highlighted last quarter.
Discussions with affected customers are ongoing and we expect the outcome to have a positive impact on our margins in 26 and Beyond.
We also continue to invest in the parts of our portfolio with the highest returns and best growth potential.
An example of this is timin's position in the automation sector.
We're focused on scaling and high growth applications. That include industrial robotics, Factory automation, medical, Robotics and humanoids.
With roll on Cone Drive, spana ncgi, added to the timing branded products. We have built a broad product offering to serve these applications, and we will continue to invest, to support future growth.
The company's customer focused Innovation application, engineering, expertise and advanced manufacturing capabilities, our competitive, strengths as the automation Mega Trend accelerates.
With respect to the CEO search. The board is working diligently to advance the process and bring it to a successful closure.
Interest in the role of strong and members of the search committee are confident that we will soon identify the next leader to take Timken to new levels of performance.
In the meantime, we continue to advance the company along the same strategic path.
The timet management team is strong experienced and focused on executing our strategy. Their confident in the company's ability to deliver higher levels of performance and create shareholder value. As we Advanced timkin, is a global technology leader across diverse industrial markets.
With that, let me turn over the call to Phil for a more detailed review of the numbers and outlook.
Okay. Thanks Rich. And good morning, everyone.
For the financial review, I'm going to start on slide 12 of the materials with the summary of our second quarter results.
Overall revenue for the quarter was $1.17 billion, down less than 1% from last year.
Adjusted EBITDA margins were 17.7%, and the adjusted EPS for the quarter was $1.42.
Turning to slide 13, let's take a closer look at our second quarter sales.
Organically sales were down 2 and a half percent from last year with volumes lower, but pricing higher across both segments.
And the rate of organic decline improved modestly compared to Q1.
Of growth to the Top Line.
And foreign currency translation contributed modestly as well.
On the right, you can see how the second quarter fared in terms of organic growth by region.
This excludes both currency and acquisitions.
Let me provide a little color on each region.
in Asia Pacific, we were up 2% from last year, led by growth in China with a significant Improvement in wind energy shipments
In India was flattened the quarter at a good run rate while the rest of the region was lower.
In the Americas, our largest region we were down, 3%.
While the region continues to be relatively stable. Overall, we did see lower Revenue in the Distribution off Highway and Auto Truck sectors.
On the positive side.
Revenue in the general industrial sector was up.
And finally, we were down 5% in emea. I continued industrial softness in that region.
But I would point out that the year-on-year rate of decline has improved considerably as compared to the last several quarters, and we saw revenue growth in distribution during the quarter.
Both of which are good signs.
Training decide, 14 adjusted, EBA was 208 million.
Or 17.7% of sales in the second quarter compared to 230 million, or 19.5% of sales last year.
Looking at the year-over-year change in adjusted EBA dollars.
The decrease was driven by the impact of lower volume.
Incremental growth, tariff costs, I'll come back to tariffs in a moment.
Unfavorable manufacturing mixed and currency.
These headwinds were partially offset by higher pricing, including tariff-related pricing, lower material and logistics costs, and the benefit of the CGI acquisition.
Let me comment a little further on these drivers.
On price, max pricing was positive in the quarter, while mix was negative.
and pricing was also up sequentially from the first quarter due to the initial tariff related pricing actions. We've put through
So the net impact from tariffs was just slightly unfavorable in the quarter as pricing actions. Almost fully offset the incremental tariff costs.
looking at material and Logistics material was notably lower versus last year due in part to cost savings tactics,
And a logistics was also slightly down.
On the manufacturing line, performance was negatively impacted by a reduction in inventory levels versus the last year, which drove unfavorable cost absorption.
In addition, we continue to experience High ramp costs associated with our new belts, facility in Mexico.
Collectively. These items plus normal inflation more than offset, the positive impact of savings from cost reduction actions in the quarter.
Currency was negative $5 million, driven by the weaker U.S. dollar, which caused them transactional losses in the period.
And finally our CGI acquisition continues to perform well contributing 4 million of adjusted ebit da which was a creative to company margins in the quarter.
Moving to slide 15. We posted second quarter, net income of 79 million or a $112 per diluted share on a gap basis.
The quarter includes 30 cents of net expense from special items which is comprised of acquisition amortization restructuring and other charges.
On an adjusted basis. We earned a $142 per share down from a $1.63 last year, but largely in line with our expectations
Interest expense in the second quarter was about 3 million lower than last year. All our adjusted tax rate was 27% as expected.
And diluted shares were down slightly reflecting, net, share BuyBacks over the past 12 months.
Now, let's move to our business segment results, starting with engineered bearings on slide 16.
Engineer bearing sales were $777 million in the quarter, down 0.8% from last year. The change is essentially all organic, as the business continues to stabilize.
Across regions. We saw lower-end market demand in Europe and the Americas.
Mostly offset by higher revenue in Asia.
Among Market, sectors Auto truck, off-highway and heavy industries were down from last year as we expected.
On the positive side, renewable energy and general industrial were both solidly higher versus last year.
Engineered bearings adjusted to be bad down. Was 153 million or 19.7% of sales in the quarter?
Compared to $166 million, or 21.2% of sales last year.
Partially offset by higher pricing, and the benefit of cost reduction actions along with lower material and Logistics costs.
Now, let's turn to Industrial motion on slide 17.
Industrial motion sales were 396 million in the quarter.
Down 7% from last year.
Organically sales decline 5.9% as lower demand was partially offset by higher pricing.
Most platforms posted lower revenue year-over-year.
Change saw the largest decline as it continues to be impacted by lower abdomen in North America.
Lubrication systems were lower on softer demand in Europe, including our end-user retrofit business.
And the drive systems and services platform was also down.
Drive systems were impacted by lower solar demand and marine timing.
While Services was impacted by tough comps last year and some project push-ups.
Our backlog and services remains relatively strong.
On the positive side, our linear motion platform was up in the quarter driven by higher sales in North America including the benefit of some new business wins in the warehousing Logistics sector.
And finally, the CGI acquisition contributed 3.6% to the Top Line while currency translation was a benefit of 1.6%.
Industrial motion. Adjusted ibida was 73 million or 18.3% of sales in the quarter.
Compared to $80 million, or 20% of sales, last year.
The decline in segments, margins, reflects the impact of lower. Volume incremental gross, tariff costs.
Belts, plant ramp inefficiencies, and higher SG&A expenses in the quarter were driven by a discrete approval for potential bad debt.
On the positive side pricing was favorable. And the CGI acquisition was a Creed of the margins in the quarter.
Moving to slide 18, you could see that we generated operating cash flow of 111 million in the second quarter.
And after capex of $33 million, free cash flow was $78 million.
We expect stronger cash flow in the back half of the year, driven by normal seasonality and lower cash taxes.
From a capital, allocation standpoint, we returned, 47 million to shareholders through dividends and share repurchases during the quarter.
We raised our dividend in May, setting 2025 up to be the 12th straight year of annual dividend increases.
And we bought back more than 340,000 shares of Timken stock.
Looking at the balance sheet, we ended the second quarter with net debt to adjust to the beta at 2.3 times which is within our targeted range.
With expected free cash flow in the second half. And our longer term outlook for EA. Growth, we remain in great position to deploy Capital, to create value for shareholders,
Now, let's turn to the updated outlook for full year 2025 with a summary on slide, 19.
You'll notice that we reduced the top end of our prior earnings guidance range, as we are, taking a cautious view on the second half.
So, let's go through it in detail, starting with sales.
Overall, we are maintaining the midpoint of our Revenue guide at down just over 1%. But the components have changed.
Organically, we now expect sales to be down around 2% at the midpoint.
which is 1 percentage point lower than our prior guide.
This is being offset by a 1-point improvement from currency, which takes currency to neutral to the top line for the full year.
Acquisitions are unchanged, as we still expect CGI to contribute, just under 1% to our revenue for the year.
And note that revenue and that business is up over 10% since we bought it.
Now, let me provide a little more color on the updated, organic Revenue Outlook.
First, there is no change to our pricing assumption for the full year.
We are successfully passing through higher tariff costs into the marketplace through pricing.
So, the changes entirely reflect volume, which indicates a cautious view on second half demand, given the continued trade-related economic uncertainty.
Here to date, our order intake rates have been improving and our backlog is up versus the end of the first quarter, both of which are good signs as we begin to look ahead to 2026.
On the bottom line.
We now expect adjusted earnings per share in the range of $0.0510 to $0.0540 per share.
Note that we held the low end of our prior outlooks. But reduce the top end by 20 cents. You'll see a walk at the various puts and takes on a later slide, which I'll hit in a moment.
Our revised Outlook implies that our full year. Consolidated, adjusted ebit time, margin will be in the mid 17% range.
To 100 million for the year. Both unchanged from our prior guide.
Moving to cash flow or affirming, our prior Outlook to generate, 375 million of free cash flow at the midpoint, which is more than 130% conversion on gaap, net income.
Moving the slide 20.
Here, we provide an overview and update on the direct impact of tariffs on timkin.
We covered most of this on last quarter's call. So let me just hit the changes.
We're currently estimating a full year net negative impact from tariffs of approximately 10 million or 10 cents per share.
This is an improvement from our prior estimate of 25 million or 25 cents. Per share, driven by the reduction in tariff rates between the US and China partially offset by higher assumed grades for other countries.
The situation remains fluid, but our team is on track to fully mitigate this impact through pricing and other actions on a run rate basis by the end of the year, and recapture merchants in 2026.
On 521, we provide a bridge of the $0.10 per share reduction in our 2025 adjusted EPS outlook at the midpoint.
Here, you can see the positive 15 cent change related to tariffs, which I just covered.
And you'll also see a net favorable 10-cent impact from currency.
These items are more than offset by a negative change of $0.35 from organic, which reflects the lower volume assumption, as well as unfavorable mix and our expectation for lower margins in the back half of the year due to the Belt ramp and other incremental cost headwinds.
With that said, we are still targeting significant cost savings for the full year, which will offset inflation, labor, and other input costs.
in summary Tim is managing well through this period of elevated uncertainty and remains focused on finishing the year strong, while positioning the company to capitalize on an industrial Market recovery,
We are increasingly optimistic about 2026 and are confident in the company's ability to deliver higher levels of performance next year and beyond.
This concludes our formal remarks and will not open the line for questions, operator.
Thank you. As a reminder. If you would like to ask a question today, please press star followed by the number 1 on your telephone keypad. Now, if you change your mind or you feel like your question has already been answered, please. Press star. Followed by 2 to withdraw yourself from the queue.
Our first question today comes from Kyle menes with Citi group.
Please, go ahead, Kyle.
Morning guys. I was I was hoping if you could just unpack the the trim to the organic.
Volume guide a little bit more. I mean, it sounds like based on your prepared remarks Trends in in the quarter have been pretty stable really year to date and then you've seen backlog growth in both the first quarter and second quarter. So could you just help me understand what what you're seeing and hearing in the markets and customers? That's leading you to take down the second hat. Organic growth guide. Or is it just you guys being cautious on tariff on certainty?
Yeah. Hey Cal it's Phil uh thanks for the question. So uh, I would I would put it more in the category of, you know, just wanting to be cautious on the second half of the year. Uh, you know, uh, we're not seeing acceleration per se, we're certainly not seeing any deceleration, the markets remain stable. Uh, so we wanted to be a little cautious on back half, demand, just giving the uncertainty around trade which, you know, filters into the filters. Into the markets as you know. And we we do believe that as as we get more certainty around trade, you couple that with a tax bill. You couple that with, you know, maybe a maybe a rate cut. As we as we move through the year, we do think all those things likely impact 26, uh, in a positive way. But uh, it's it's usually atypical for our markets to accelerate uh, in the second half. So we just
At this point in the year, uh, given where we're at, we just thought it was prudent to be a little bit more cautious on on the Outlook.
Gotcha, helpful caller and then um, starting to get more questions on humanoid robots from investors. Um would love to hear from you guys. Just um your thoughts on timing's applications for humanoid robots and just in general you know, the size and and potential that you see, in, in robotics I guess for timkin
Yeah, so I'll take that, uh, the last part robotics. If you open it up to automation, obviously already a sizable market for us. Um, and 1 that I think we're well positioned to grow in significantly.
On medical robotics, but has an industrial play as well. Uh, cone and Spa and timkin. Uh, have significant plays and Factory Automation and
Uh, roll on with some specialty and Warehouse automation, but also uh, some of the other, uh, parts of factory automation, the humanoid Market itself. Uh, we do we are working on applications today. Uh, we have a small amount of Revenue would expect
A, a good or uh, cader offset small amount of Revenue, but it takes a, a few years of a good cager to even get up to 10 million dollars. So, I think it's going to be, it's going to be a relatively small number, the next couple of years. Um, we're working with multiple
Oems uh, on uh, on future designs. Uh, but I think it's, it's a longer term play for sure. Still on the humanoid side. The uh, the other part of the automation marketer are here today and, and growing
Helpful. Thank you.
Thanks Kyle.
Thank you. Our next question comes from Brian Blair with Oppenheim.
Please go ahead, Brian.
Thank you morning, guys.
I'm Brian.
to uh,
To follow up on a question on the relative conservatism of the the revised guide or or to ask in a different way. Um, what were month by month orders through Q2, and how does July look relative to the second quarter level?
Yeah, I would say uh on the second part on the second part of the question, around July, look, we'll close the books on July next week, but, uh, you know, the sales rates were running, would be in line to maybe slightly ahead of the midpoint of our guide. So I think July, we're off to a pretty good start relative to uh, a relative relative to July as far as the order. Uh, intake rates go. I mean, we don't typically comment on the month by month, but suffice to say, I think the, you know, the order intake rates have been improving. As we move through the year, the order of book was up or the backlog was up sequentially from the first quarter, uh, you know, kind of, you know, still sort of, I think flattish year on year. But uh, but what we're seeing from an order intake standpoint of backlog standpoint, obviously gives us confidence, but, you know, I think the word on the second half would be more cautiousness, um, uh, than conservatism and obviously, uh, you know, we move some markets to the left on our Market chart, um, heavy Industries. Just because, you know, the projects, uh, projects spend was coming
A little bit lower than we anticipated.
Services is 1 where, you know, it's generally, it can be a discretionary spend. So that's 1 where we we've been seeing some push outs, their backlog remains high. And I think though that Revenue, uh, will come at some point but, you know, we wanted to be a little bit more cautious there. And then with distribution, you know, distribution can kind of Bounce month-to-month. It's been relatively stable. We're relatively flat in the in the quarter. You know, North America was down a little bit. Europe was up a little bit but we did kind of move distribution to the to the neutral column as well. The as sort of the basis for the, uh, the more, um, cautious guide, if you will. And then rail on, on the flip side rail continues to perform. Well, we moved it over to be neutral despite freight car, builds expected to be down significantly in North America. This year, we're seeing some new, some good business, uh, activity and winds outside the United States and really protecting or expanding share Even in our core Market as well. So yeah, just to give you a little bit of extra color, but but we do feel confident that, um, as we look ahead to 26,
You know, we do feel that with with some help on the trade front and some a reasonable resolution there in in the remaining countries that are sort of Up For Debate. Uh I do think a little uh we should uh we should be pretty good heading into 26.
Okay, makes sense. I appreciate the color.
Um, maybe offer
A little more of an update on your discussions with Auto oems. Uh but what's a realistic time frame to uh, you know, to finalize those discussions with negotiations? Is the expectation that you'll still impact a little more than half of Auto AE revenue. And when you get to that point, um, are you willing to quantify or otherwise frame the margin lift uh, as mixed reset.
Yes, on the little more than half, I would say that's still what, uh, what we're focusing on right now. Uh, it's too early to say how the discussions are going to play out. They're active; I would expect.
That we would be able when we get to the the uh, 26.
Next year, uh, but certainly would expect uh some positive uplift. By the time you get to the second half of of next year and you know, the outcome is, is uncertain, um, we'd expect some combination of exiting some parts of the portfolio and repricing some parts of the portfolio. Uh, and then in the repricing, some of it temporary between now and when we exit and some of it, uh, that would that would, uh, extend into multiple years. So,
uh TBD but uh would definitely expect some margin uplift from it in the second half of
of 2026.
Okay, understood. Thanks again.
Thanks Brian.
Thank you. Our next question.
Comes from Rob. What time out with Milius research.
Please go ahead, Rob.
Thank you. Good morning, guys.
Um, hey Rob, my question is Bill. You just kind of walked through some of those. Hey, some of those markets that changed. I, I guess when I looked at I was slightly surprised not, not shocked on any of it, but slightly surprised, just on distribution. I wonder if you could characterize, you know, where inventory levels are, or or whether there was anything that drove that maybe it's just hesitancy about around tariff. Um, I wonder if you could describe it a little bit more detail the services, um, what that constitutes and and what the decision-making around that is, and I'll ask my last 1 here. Uh, it's nice to see the recovery in Renewables and wind. I suppose, I wonder if you could just
Give some sort of a description of the strength there uh threat from Chinese oems and just where you stand in that market. Thank you.
Sure Rob. Uh, thanks for the question. So relative to distribution, obviously, you know, it's a short cycle part of our business. It um, you know, we were, we had, we had moved it to be up kind of mid singles, call it, you know, 3 to 4 and then we moved it back to neutral sort of leaning, right? So I wouldn't have, I wouldn't call it. A 5-point change. It was more of a kind of a low single digit Point change in the Outlook. And, you know, from a um, and again, that was just really being cautious, just giving the short cycle nature of that market, you know, inventories, where we see where we have visibility, would suggest that inventories are at, uh, good levels, uh, for this level of demand, but, you know, that can, you know, that can obviously change quickly if, uh, if the market weakens. But, uh, but where we see inventory, which is mainly North America and then maybe to a lesser degree in Europe, would suggest inventories are in a pretty good spot and I would say that's even true. If we go move into the OEM part of our business, you know, there is always it can vary by market by customer around the world, but, but the larger market
Markets that we serve, you know, off Highway um uh in you know industrial markets would suggest a lot of the dto that we had been um uh anticipating is kind of behind us now. So we feel inventories are at good levels. We're going to, we're going to take a little bit of our own inventory out in the second half, just with normal seasonality, and then I think sets us up pretty well.
Uh, heading into next year.
On the services. So, if you think of Tim can service business, it's mainly Industrial Services. I think, uh, highspeed gearbox, uh, reconditioning, uh, bearing reconditioning. We also do motor, uh, motor repair and typically, typically tied to a a gearbox uh, repair, if you will, and that can be.
Will have spares. And oftentimes, you know, if you have a, if something's broken on the line, it's got to be fixed immediately that obviously gets done. Sometimes there's a spare, so you put the spare in and then, it becomes a question of when you recondition the spare, and you can push that out for a little bit of time. And I, and I, and we do believe with the Tariff uncertainty. Uh, it is causing some of that discretionary spend, whether it's in Services, whether it's in automatic lubrication and the retrofit business, which is where we can retrofit older equipment with our automatic lubrication systems to eliminate the need for manual, uh, regressing. You know, that type of spend can get pushed out in a, in an uncertain environment like this, which is kind of what we're seeing. Uh, but overall, the backlog remains, and that business has been very consistent. Very consistent, high margin, uh, business for us over time. So, no, no concerns there. Other than, you know, we got to get a little bit of this, um, uncertainty behind us and then and then last point on the wind energy. We did see a really nice Step Up In Demand.
Is that can you have given that pull ahead? But we do believe the markets um uh, you know, on its way to recovery. Obviously it'll be several years before we get back to where we were but we're uh, we're confident with what we see. And then obviously, we did see some shares shifts last year with the market being down. So much as you typically, uh, typically might see in in that kind of situation, but we did get some of that business back and, and I and, and where we're focused in terms of, you know, the gearbox and then being very thoughtful about where we plan on the main shaft applications. Um, you know, we feel there's enough. There's enough, uh, Market there for us to compete, when and Achieve our growth objectives,
Rob, the only point I'd add is going back to the distribution comment.
When we experience unexpected cost pressures, uh, back when inflation was hitting a few years back, and now with tariffs, we do realize price faster and distribution than we do in uh, in OEM. So that is positively impacting the revenue numbers. Uh, and OEM pricing will will catch up to that. Uh, in time,
Perfect. Thanks, everyone. Thank you, guys.
Thank you. Our next question comes from Angel Castillo with Morgan Stanley.
Please go ahead.
Hi, good morning, and thanks for taking my question. Um, sorry to be a dead horse here, but I just wanted to clarify kind of understanding everything, or interpreting it correctly, but sounds like your orders are at this point are suggesting, um, you know, kind of end of the year results would be above the midpoint, or at the top end of your guide. So, if, if we do get an atypical recovery, whether it's because of the 1, big, beautiful bill, or some other factors. Um, my understanding that correctly, that that would put results, then above the 540. And it's just something that given the kind of abnormal nature of that. You're, you're just not underwriting at this point. But, um, if if, and if so, if that's correct, I guess anything to consider in terms of potential, pull forward of demand or or push-ups, I think you mentioned some in in services that maybe impacts your ability to see that. If, if you do see any atypical recovery,
Yeah, so thanks for the question angel. I would say, um,
for us to exceed the high end of the guide would really require an acceleration in demand in the back half of the year. And right now, our guidance would assume, uh, that year-over-year, uh, organic, uh, revenue is down year on year in the second half, uh, headline will look a little better than the first half, but when you take pricing out, it's probably very consistent, you know, uh, period to period. So if we were to see, re actually Revenue growth in the second half, that would be, what we
We would need to see in order to, um, move to the high end above the high, end of the guy. But I mean, we're we put the range out there because we feel that it's a range that, uh, we're confident in, we're comfortable with. And, and the high end of the guide would uh, would assume, you know, kind of kind of flattish, you know, organic in the second half there roughly, uh, with pricing positive, and then just a slight negative on, on the volume. So, um, that would give you some sense and, and, and that was 1 of the reasons. Frankly, we trimmed it is. We didn't want to assume an acceleration in demand in the second half, just give them where we're at. We felt it was just more prudent to uh to frame the guide around. You know. Flat organic second half would get you sort of at the high end and then a little bit lower than where we uh, than the midpoint would get you to the low end. And you know, that's, that's just sort of where we think it.
That's very helpful. Thank you. And then maybe just down uh back to some of the commentary around automation or robotics. Um, 2 2 on that 1. Any particular, you know, aspects of your portfolio that you think, uh, you still need in terms of going out there and getting some potential both on to be able to participate in, in that world kind of in the future as it pertains to again, robotics or humanoids. And as we think about, you know, the CEO on go and transition is what's kind of the appetite to potentially do m&a while that's ongoing, or should we assume that? That's kind of m&a is on pause until we get a CEO and announcement.
I'll take the second one first. Uh, I would say we continue to...
Uh, pursue M&A. We haven't done any since the CGI acquisition, but, uh, you know, I think if we were to do something,
In uh, uh, while with the CEO searches going on, or in the early days, of, of a new CEO, it's going to be something that's probably bolt on and very close and similar to what we've we've been doing, um, and that's the pipeline that we've been working when will continue to work. So I, uh, would certainly not, uh,
Say that. Uh, an acquisition is out of the question uh uh during the CEO transition.
You know, I would tell you we're approaching it much like we do. Other high growth markets is, you know, let's uh, let's form a, you know, cross functional team within the company. Let's look at technology we have in the portfolio and what what we think is going to take to compete and win and then, whether whether we're going to do that organically, or if there's gaps in the portfolio, certainly m&a would would come into play along the lines of what Rich talked about, but I tell you, in, in the area of Robotics again, you know, humanoids, you know, very early Innings, but in the broad area of Robotics, we've got very good capabilities and drive systems, certainly our, uh, our Precision, uh, bearings. If you will, as, as, as well as some other products, and I do think, as we move forward, you'll see us, um, continue to continue, to improve the portfolio, and our capabilities to be able to, to be able to compete and win if that market grows. Yeah. And I I'd say we, we don't
Need anything else in our portfolio today to win with the portfolio? We have. So we don't we don't have to have something to bundle with it, but there are certainly other technologies that could uh, could supplement what we have today and some potential things that we can do both organically and and organically. But uh it's not a necessity.
For what we for for the portfolio, we have to win in the coming years.
Very helpful. Thank you.
Thank you. Our next question comes from Stephen Volkman with Jeffrey's please go ahead, Steven.
Excellent, good morning everybody. Um, I wanted to go back to the kind of Auto, um, contract project. Uh, whatever we're calling that, I remember the last time you guys went through this, I think you ended up sort of exiting about a third and and re-pricing maybe 2/3. Is that a reasonable way to think about this exercise? Or is there something different about it this time?
Uh, well, I think it is, it it's a little different this time. I mean, that time we went in um, with, with a slightly different approach and, and we had Automotive plans back then, Etc, that required a lot of restructuring. We, we do not have a Automotive plant in our portfolio. Today, we make Automotive Products and and mixed industrial, uh, plants. So it's I'd say, it's fairly different both in in scale and and, and complexity, and I would say it's too early to know what the what the mix is going to be. Um probably also different than than then, I mean, where where we're at today has been you know, to Niche for us that uh that we've narrowed down to over the last 10 years, that we're pretty sizable in, we're pretty good at
We have a sizable us footprint.
Uh, so there's, you know, there's some value there in in what we do that, um, you know, it's but again it's too early to see if we're going to be able to uh, successfully improve what we get paid for that value that we bring.
Okay. All right, good. That's a good, good color. And then I just wanted to think a little bit about 2026 and who knows where the markets will be for God's sake. But, um, it seems like you'll have some tailwinds; you'll have something from this auto project, and then I guess you have some plant closures as well. Um, you'll probably have a little bit of price cost as you get that fully implemented. Um, is it possible to kind of, first of all, is that like, is that a good list? Is there anything I'm missing? And then, second of all, can any of that, um, have numbers put around it yet?
It's too early to put numbers. I think it's a good list. I wouldn't say it's a conclusive list but but to your point um I think there's a lot of factors pointing
To uh, and first to your point of who knows. And certainly we don't know, and we don't have that level of visibility as, you know, to most of our portfolio out past 6 months. But I think there's a lot of factors pointing to that it could be an upturn next year. And then there's a lot of factors that we have a lot of self-help. So, you know, if you comment on your list. First, let me just mention the duration of the downturn that we've been in. It's been quite a few.
Quarters.
Um short cycle usually uh 8 quarters 10. Quarters is a is pretty long for us.
Um, as you know, we would because of the multiple points of our inventory and our own facilities in our oems and their, their dealers are Distributors. And then end users,
Uh, we swing more in in in both directions and then I think the trend line you're looking at is Phil said, I mean, even if, uh, even with the Outlook we have today we're approaching zero sales with that Outlook in the second half. And, uh, which typically means you're going to be heading to positive, uh, shortly thereafter versus. I mean, we typically, once we start in a direction, we go that way for several quarters. So I think there's a lot of
Needs to be.
Happening sooner rather than later. Whether it's the third quarter of this year, or the first or second of next year. But but at some point that should invert,
And also some Trends within our orders as, as we, uh, implied. Um, Phil talked about moving from, uh, a more uncertain environment to a more certain environment. We took some steps with that recently, with the the Japanese and, and European Union,
Uh, trade agreements.
Uh, there's the tax certainty environment, that, that we're that we're in now, which is, which is also a positive. So I think those certainly are pointing to that as well. And then,
Uh, from a self-help perspective, I think we've got self-help on the put the audio OEM aside uh which you know, could be a negative on the top line next year. Uh, but I think uh either way would be a positive on the bottom line. But we've got some positives from a mixed perspective. Our our portfolio is better than the last up Market that that we went into our mixes better. Um, and then we also have uh, we will have a fair amount of carryover price next year, as well as new price. And some of the things that we have not been able to uh, pass pricing through yet because of agreements as the terrorists of it. So we'll have some uh, positive price heading in the next year. And then also uh, a really good self-help story from a cost perspective. Uh, the 3 plants, you talked about some of the other
A productivity tools productivity uh measures that we've implemented. Both from a sgna standpoint, as well as from a manufacturing standpoint. I would expect to leverage those, those volume improved. So I think we've got a a good self-help story and uh with some market help could be could be a good year next year. Yeah. No. I think I think Rich hit at all Steve. The only thing I would add is you know certainly with the cost savings action to be in second half weighted and our belts, our plant ramps which would be Delta is the is in the thick of it now but we've also got the India plant ramping as those plants ramp. I think that helps 26. So I think we're going to start the year in a pretty good spot from a price cost standpoint and too early to talk about incremental is is as rich said, but I do think it will put us in a good position. And if we've got some, we've got some volume to work with. We got some demand to work with to, to print, you know, real, you know, good incremental relative uh, to what we would, what what historically do at that point in the cycle. So I I do think we're uh, we're in a pretty good spot there.
Finally, I just throw in that. Um, another year of capital allocation and we will have, uh,
We bought a few shares of this year, not a lot, but we'll reduce debt through the course of the year. If we, if we do not do another acquisition and, uh, and then throw in next year's cash flow as well. Would expect some benefit next year from uh, Capital allocation as well.
Super. All right. There's a lot there. I appreciate it. But you forgot the humanoid robot inflection.
We'll put that in the 27 buckets. Yeah.
Thank you.
Thank you. Our next question comes from
Please go ahead.
Hey, Steve, we can't hear you.
Oh, sorry about that. Um, we can hear you now. You address.
Okay, great. Um,
Richard dressed some of the timings specific Dynamics, around the back, half guide. Um, but we have seen a couple of other short cycle bearing companies return to modest, but still positive organic growth. So I just want to ask about market share issues anywhere in the portfolio or or any areas where pricing is getting more competitive and disadvantaging. You anything like that going on.
No, I don't think, uh, you know, if we're not comparing Weld to a peer right now, I would say it's a mix issue. We don't think we're losing. Well, we know we're not losing any share.
Uh, anywhere except with, with the, uh, Automotive actions and that hasn't kicked in yet. But we, that that's likely for next year, that we will lose some concede. Some share their by, by Design, but we're definitely not losing any share.
And the pricing is going up. Uh, it's been going up and I think it'll go up again next year. I just needs to go up, uh, um, at least as much or more than what costs do, um, which again, we've got a little bit of lag but uh, I would say the both during the inflationary time as well as tariff time, the bearing industry is shown that uh we will recover those costs and uh and I'm confident that Tim can will do so.
Us, you know, local for local content is uh is pretty high relative to the main focus that we compete with. So I do think as these um uh, trade deals, get concluded, and that we end up with, you know, maybe a a, a smaller or tariff regime around the world. I do think that'll naturally, uh, benefit us here in the United States just giving our relatively higher local for local content.
Understood. And for automation, how integrated are the sales teams across lubrication, drive systems, and linear motion? Are you optimized for selling the entire product line with one voice? So you're making sure you can kind of take share in what should be an expanding market.
I I would say we do both today, we have special product Specialists, we have Market specialist, uh, and, and that's fairly common for us, but we're we're definitely getting cross-selling benefits.
Um, but you know, as an example, uh, with the CGI acquisition, that was our really our first step into medical robotics. They, they sell more into that space with. We actually sold them bearings. So we were in that space as well with, uh, from a bearing perspective. Uh, and and Cone and spin AA did a little bit in there, but, but we have not, we don't do a full integration there. We, we take the best of, uh, all all parts. And and, uh,
Most of our sales page typically is a little bit of Market, uh, some some geography and, and some product. And and again, it's a most of what we do is uh, a very technical sale. So you need a lot of uh product expertise.
Uh, within linear, within our Harmonic Drive, uh, within a cycloidal drive, within a bearing, etc.
Understood. And just as a follow-on, if I look at your automation sector sales on slide 8, you know it's obviously been flat to a little down for a couple of years. Do you have enough visibility to assume that it will outgrow whatever the portfolio does in 2026?
yeah, I'd say the the decline there's been really in the factory automation space and that market has certainly been been down um,
It totally to call whether that's going to be up next year. But uh, but our
Uh, our order Trend and backlog and customer sentiment. I would say would, uh, would indicate that better times are ahead. Yeah, and the only thing there Steve to keep in mind too is the automatic lubrication systems business that we have, which is an automation play. If you will it, not not robotics but an automation play is, is heavily, um, exposed to the off Highway market. So, there's that markets come down, um, it's been impacted as well. So I think,
We're in a good I think in a good spot there to return to growth, uh, next year. But uh, but I just wanted to point that out as well.
No, thanks. Appreciate it.
Thank you. Our next question comes from Tim Sign with Raymond James. Please go ahead.
Oh, thank you guys, good, good morning. Um, I I, uh, apologies in advance, if these were were asked, I, I was just bouncing between calls here and and I'll, I'll package them together. I, I, the first is
On the China win business, I'm curious.
If uh, if if you saw or perceived there to be any sort of of pull forward, or I guess pre-b buy uh in in the first half that was something that that 1 of your peers had had called out that that potentially that's the first quarter was was flattered by by some pull forward ahead of some policy catalyst. So that that's a question 1. And then on the second I'm curious with respect to the the distribution uh segment and and that kind of um tweaked down and maybe rich just from your historical lens.
You know, how, how do, how is that business historically, or you know what? What has it told you about? You know, in around cycle inflections? I'm just curious. If that
If that business directionally is is lower, is that, you know, been acted as sort of a, you know, a lead indicator and and an inflection points historically or, or not, I'm just just curious what you would make if anything of of that. So, thank you.
Yeah, hey, Tim. This is Phil, I'll take the first, uh, the first part on the Wind we did. As we as we look at the results coming in and and uh, Q2 and then obviously q1 as well. We do, we do believe there's been some pull ahead.
Ahead of the regulatory change that wanted to affect June 1st. So it will it will cause I think a more muted uh growth profile in the second half so we still expect to be up for the year. Um uh certainly and when but it will be a little bit more muted in the second half because of that poll head.
Yeah, and, uh, you know, on the...
First, the second question. Tim, you know, our distribution partners, particularly when you look globally. Both...
Sell to smaller OEMs, as well as the maintenance cycle. So, I mean, we would tend to see.
More of an inventory impact through that channel, but the end user reduces inventory when the distributor does, uh, but less of a.
"Peak to peak, trough to trough, uh, uh, decline or increase as well, because the maintenance cycle, as equipment runs longer, etc., is significantly less cyclical than the new equipment, uh, capital, uh, part of it. So,"
Uh, you know, I wouldn’t read too much into what we’re seeing. It’s a pretty small, small number overall at this point; small change.
All right, that makes sense. Thank you guys.
Thanks Tim.
Thank you. Our next question comes from Mike schleske with da Davidson companies. Please go ahead.
Uh, hi. Good morning. Um, you had mentioned, uh, backlog is being up sequentially. Uh, any idea which and markets will groups, were, were driving for driving. That sounds like if they're more positive on 2026. There's some long cycle stuff in there but this carries as to what the kind of getting uh, edge here of the um,
Help for reflection.
Yeah, hey thanks Mike, this is Phil. So um, you know you're right backlog was up sequentially. You know, I would say pretty Broad and we're seeing it in, you know, where we where we needed to see it in terms of the industrial sectors. Um, whether it be off Highway, we've seen renewable, go up we, you know, a lot of General industrial, probably not so much in heavy Industries, heavy Industries, quite yet because that tends to be later cycle, but it's been, it's been pretty broad across the portfolio. We don't typically go into too much detail kind of Market by market but uh, it wasn't, it certainly wasn't like, you know, idiosyncratic the 1 market or anything like that.
Okay, great. Um, and then I also want to ask about just two, most recent kind of broad policy initiatives that came out: the big, beautiful bill and then the agreement with Europe on the tariffs.
Just curious, you know, in the days, following both of those announcements and I think 1 was just the last couple of days have you gotten any um, new uh, quote requests or calls from customers that were kind of on the sidelines, waiting to get this kind of news. Uh, did you get a kind of sudden influx of of some interest? Um, that you were kind of hoping for or kind of waiting on just the last couple of weeks here.
Uh, so I'll take the last part, and I would say, no, we there's nothing, uh, that sudden.
Uh and then I'll take the the generally and then what uh Phil maybe comment on some of the specifics, it wants to go there. But I I think in both cases again coming back to just certainty uh and
and knowing where the tariffs are going to be for a period with Europe. Uh, we can all put between customers, Etc. Now all start operating to that gives you more confidence to invest which again drives a lot of our demand is when uh, when investment is made.
Um, you know, net, whether you know how.
How successful impactful it is and in uh increasing capital investment in the United States. Uh, to the degree, you believe that is is going to happen. Then I think the timing companies going to be a significant beneficiary of that. Uh, that'll be, you know, relatively I think uh,
I would say it's slow to play out, but it's not a sudden thing that's going to happen in the next week or month. Yeah, maybe one thing to add there. Mike, this is Phil. So Rich is right. I mean, typically we would see it would take at least a couple of quarters for things like that to work their way into the top line, if you will. But on tariffs, just one point. So the 10-cent headwind we have in the guide, we in that guide have contemplated, you know, some escalation of tariff rates as we move forward. So I did, certainly, if China goes back to 145, that would probably...
We require a, a relook at that number, but you know, the movement in Europe up 5%. If there's movements like that in other countries, you know, we we we have tried to, uh, contemplate that in the guide, where I feel like we would have it covered provided. It's not a, uh, uh, it's not a, you know, like what we had, uh, in China at the beginning of all this.
Thanks very much.
Thank you. Our next question comes from Chris Dankert with Loop Capital Markets.
Please go ahead. Chris.
Hey, good morning. Thanks for taking the question. Hey, Chris.
The tariff impact. So, you know, maybe a little bit more than a point benefit in Q2 here. It sounds like the full year guys are unchanged. So, less than 2% price for the full year. Things are stepping up sequentially, correct? But just, it sounds like they're fairly de minimis in terms of what we're getting from the first quarter to the second, and then second into the back half of the year. Is that the right way to think about it?
Yeah. So we certainly had positive price in the quarter. Uh, Chris, uh, you know, we we came into the year talking about, you know, pre tariffs, you know, less than we said less than 50 bits of Base pricing pre- tariffs. And then we did talk about specifically, you know, 16 million of pricing that were contemplating so far. So all in, we will be, um, you know, well above, um, 1 and a half, uh, you know, 1 and a half 150 dips for the year and I do think that'll be more back halfway because we did do some mid Q2 pricing and then we've got some mid Q3 uh, pricing coming in as well. So would expect pricing to step up, um, year-over-year as we move through the back, half of the year and then for the full year to be in that um, you know, to be sort of in that 150 to to 200 range for the full year.
That that's helpful. Thanks Phil. Um and then I guess, just on, you know, the the factory loading for the belts and and Mexico I guess if uh belt and a are so weak right now is that causing the the factory loading to be a little bit weaker. Um and then the margin to be lower than you would have expected there. I mean, is that 4 million ibida headwinds you call?
About the deck is the majority of that tied to the Belt plant less than the belts plant. Um just any color you can give on on that um kind of get in that program up and running.
Our, our, our, uh, belt businesses down, uh, it's, uh, plays. It's a sign, a significant market for us, and that market is down. Uh, so it's, that's contributing, but it's also, you know, factor of we, we still have the plant.
In the US that that'll be closed uh at the end of August, but we still have that we still have uh training costs ramp up costs.
And some inefficiencies in the, in the Mexico facility. Uh, but again you should see, you know, we'll see, certainly the uh, the 3 plant costs that we have within the operation come out within the next couple of months. And uh, you know, nothing we're seeing is, is all that, uh, atypical. Uh, it takes a little time to, uh, to replicate the capabilities in, in the other facility.
Yeah, I mean, you know, big picture Chris, that negative 4 million in in the walk, it's the inventory changes. The big piece because we, uh, we, uh, liquidated some inventory of this quarter. We actually built some last quarter that had a cost absorption impact. The belts would be negative um uh as well and then offsetting that would be the the cost savings actions that were implementing. So those would be sort of the 3 3, big buckets in there that are all, you know that are all in that, you know, single digit. Millions that would get us to that number
Got it. But that's helpful. Thanks so much, guys.
Thank you. Our final question.
With Bank of America.
Please go ahead, Michael.
Thank you. Hey guys. Thanks for squeezing me in I I promise I'll keep it short just on the margin Guidance. The mid 17 versus I think prior was mid to high 70. 15%. I I might have missed. This is it? Is it? It sounds like it's purely. Just your organic growth, coming down a little bit and is it to decremental? Your kind of assuming on that is that similar has has your view on that decremental change a little bit. As I I know you're trying to take some inventory out um just kind of trying to understand just to change the margin guide and and and around that decrement on the back half. Thanks guys.
Yeah, I got it. No. Thanks, Mike, and we always have time for you, uh, but on the, uh, on the decremental. So, you're right the the the the, the drop in the margins for the full year. Really 3 things, you know, tariffs would have gotten better. That would have been a favorable item in that walk. And then the 2 1 favor would be the volume, taking the volume Outlook, down a point, you know, at the, at the volume leverage, if you will, would have been quite high and then we, we are planning on next to be, um, call it more unfavorable than we have been previously, contemplating, which again is additive to that. And then we also did assume some cost um uh incremental cost.
Headwinds with the belt ramp taking a little bit longer than we anticipated as well as you know, uh, you know, some of the other, uh, impacts we were seeing. So it was, it was sort of a variety of things, but then driving a higher overall decremental uh slightly higher overall decremental, which kind of pushed the uh pushed the margins down that 50 BS or close to 50 BS from where we were before.
Thank you.
Thanks Mike.
Here there are no remaining questions at this time. Third, you have any final comments or remarks.
Yeah, 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.
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