Timken Company (The)

My name is Emily and I'll be your conference operator today. At this time, I would like to welcome everyone to Timken's second quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two on your telephone keypad. Thank you. Mr. Frontapple, you may begin your conference.

Thanks, Emily, and welcome everyone to our second quarter 2024 earnings conference call. This is Neil Frontapple, 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 Timken Company's President and CEO, Rich Kyle, and Phil Fricasa, our Chief Financial Officer. We will have opening comments this morning from both Rich and Phil before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time, to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the Timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation 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. Timken delivered a solid second quarter with revenue and profits in line with expectations. Our results continue to demonstrate the strength and diversity of our portfolio and the successful execution of our strategy to build Timken into a diversified industrial leader. Revenue was down 7% from last year's record second quarter and roughly flat sequentially from the first quarter. Renewable energy drove the decline and was down over 40% from last year. China wind, which is the driver of the renewable decline, did stabilize sequentially in the second quarter for both revenue and orders. Rail, aerospace, and industrial distribution crawl up organically over prior year, which helped mitigate the impact from renewable energy. The diversity and the strength of the portfolio are helping us navigate through a weak market environment. Margins of 19.5% were strong. Earnings per share of $1.63 were negatively impacted by the revenue, as well as a modestly higher tax rate and higher interest costs. Price remained modestly positive, and costs continued to improve year over year. We have ramped down variable costs with the softening demand, and we continue to improve our cost structure through our footprint, integration, and productivity initiatives. The Mexico Bearing Plant is contributing favorably to our year over year results. The plant also recently began production of belts and will be ramping up volume into next year. The belt expansion is currently a headwind in the results, but will inflect to a positive in 2025 as we scale the operation and consolidate facilities. The Nadella integration and the roll-on continued in the quarter, and we continue to see good margin performance in the business despite a relatively soft market environment. We also took further steps to integrate American Roller Bearings and GGB into the Timken Bearing and both product lines are contributing favorably to results. Our operations are running very well, and we have excellent focus on both delivering short-term results in our operating metrics, as well as investing in long-term improvement initiatives that will yield results in 2025. From a capital allocation standpoint, we purchased nearly 400,000 shares in the quarter and completed the final sell-down of our position in Timken India Limited. Our net debt position stands slightly below the midpoint of our targeted leverage range. When combined with strong second half cash flow, we would expect capital allocation to be a meaningful contributor to results over the next 18 months. After CapEx and the dividend, our bias remains weighted to bolt on M&A to continue to strengthen the portfolio, advance the strategy to scale as an industrial leader, and to achieve our long-term financial targets. Turning to the forecast, We are continuing to plan for seasonal sequential revenue declines in the third and fourth quarters. We expect our year-over-year revenue results to improve significantly in the second half, but that is primarily due to easing comps, particularly in renewable energy. China wind has been the primary drag on our revenue for the last four quarters. As I said earlier, China wind orders and revenue have stabilized, and we have the backlog to support the second half guide. Nothing changed materially in the second quarter to alter our full year revenue outlook. Most customers and markets now share our view that a broad second half strengthening in industrial markets is unlikely. The July revenue results and trends support our guidance assumptions. On the bottom line, the midpoint of our guide is for $6.10 and just under 19% EBITDA margins. We are guiding to a second half decline in EBITDA margins to account for normal seasonality structurally we're in good position for margins to step up in the first quarter of 2025 as they typically do as we look to 2025 and beyond we're confident that our markets will rebound and that we will return to growth we also remain committed to achieving our long-term financial targets and finally the ceo transit transition remains on track for early september targ meta is looking forward to joining timkins soon and we are committed to a smooth transition supported by 19,000 talented employees and a proven and tenured leadership team. Timken is well positioned for future growth and success under Tarek's leadership. I'll now turn it over to Phil.