Timken Company (The)

Good morning, my name is Emily and I'll be your conference operator today. At this time I would like to welcome everyone to Timken's third 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. Froneapple, you may begin your conference.

Thanks, Emily, and welcome everyone to our third quarter 2024 earnings conference call. This is Neil Froneapple, 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, Tarek Mehta, and Phil Fricasa, our Chief Financial Officer. We will have opening comments this morning from both Tarek 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 Tarek.

Thanks, Neil, and good morning, everyone. Today is my first earnings call as a member of the Timken Company, and I thank you for joining us. I will begin by discussing our results, and then we'll share some personal observations from my first 60 days at Timken. Let's start with a look at the quarter and the outlook. Industrial markets remained softer during third quarter, and we saw mixed performance across different sectors and geographies. Organically, revenue was down 3% from last year, and geographically, in Europe, we saw soft demand for most of the portfolio, and in China, revenue was down mainly due to wind. On the positive side, we were up slightly in the Americas and saw continued strength in India. Our order backlog was stable with the second quarter. At 16.9%, the adjusted EBITDA margin was down 200 basis points, and our earnings per share came in at $1.23 compared to $1.55 last year. Both earnings per share and margins fell short of our expectations. Lower volumes combined with the higher logistics costs and other headwinds in the quarter were the main reason for the shortfall. Phil will go through these items in more detail a little bit later on. Pricing remained slightly higher in the quarter. On a positive note, we saw continued strong and margin-accurative performance from our acquisitions that we have made recently, DeskCase, Lager-Schmidt, and CGI. During the third quarter, we also closed on CGI, which will add presence in high-growth medical robotics and automation space. CGI also gives us a good position in precision drive systems and will be accretive to the industrial motion business going forward. This quarter, India as a market and aero, defense, and marine as sectors also showed both good growth and good performance. Second half of this year is proving to be more challenging than expected across several sectors and geographies. Our updated 2024 outlook reflects the third quarter performance as well as a softer than normal fourth quarter. We want to align cost and capacity with the market demand, both to improve margins and also respond to our customers. We will provide more details in early February on specific actions and their impact on 2025. On a personal note, It's an honor to lead Timken at this exciting time in its history. I have long admired Timken for its strong brands, its reputation for quality, innovation, and excellence. During my first 60 days, in order to get an external perspective on Timken, I met with analysts, some of our key investors, and spent time with greater than 60 channel partners and customers. I also visited colleagues in 18 production facilities in United States, Europe, and China. All of which gives me a good start in understanding the business, our team's strengths, and the market segments that we operate in. During the visits, I also saw how we are developing innovative products to address some of the most challenging applications for our customers. I was impressed with the talent and the organization. as well as the critical role our products play in improving the reliability and efficiency of our customers' applications. It's still early, but here are a few high-level examples of what we are doing to strengthen the company for 2025 and beyond. First, we're aligning our capacity and cost to the market demand by implementing cost reductions at a product line level, which will improve margins. We will take a look at our entire portfolio of product lines with an eye towards allocating capital and resources for higher organic growth and better returns. We already see some good examples to build on. Third, we will maintain our disciplined and deliberate approach to capital allocation. We expect M&A to help us further diversify the portfolio and increase our presence in attractive growth markets. An example of that is the CGIA. acquisition we made this quarter. In addition, we will work to reduce our net working capital, which will improve our free cash flow and returns on invested capital. This will require changes in the process and will take a bit of time to implement, but we expect our cash performance to improve over time. Again, it's early, and today we only share some initial reflections, but we will have more to say at a later date. Today I also want to highlight that 2024 is the 125th anniversary of Timken. It has really been the team's commitment to customers, innovation, and excellence that is both reflected in the product quality and the service level over the last 125 years that has resulted in the strong brand of Timken in the industry. Timken has built a strong foundation and achieved significant improvements in performance over the last several years. As a team, we will build on this foundation a profitable growth future that delivers better cash flow, higher earnings per share, and better returns for the invested capital. And with that, let me turn the call over to Phil for a more detailed review of the numbers and outlook. Phil.