Timken Company (The)

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. Frohnapple, you may begin your conference.

Thank you, operator, and welcome everyone to our fourth quarter 2024 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 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. Thank you for joining us. I will begin with our fourth quarter results and outlook for 2025. Then I will also share a bit more of our priorities for the year, as well as perspectives from engaging with different stakeholders. Let's start with a look at the fourth quarter. Overall, revenue was down 1.6%. versus last year. Organically, revenue decreased 2.5%. The main driver of weak revenue was our European demand. Asia Pacific was modestly down, with China decline moderating as the comps got easier. America's was up slightly, and India continued its growth path. With respect to profitability, adjusted EBDA margins came in at 16.6%, down 130 basis points from last year. and 30 basis points from third quarter. Adjusted earnings per share was $1.16, down 15% from last year. Our fourth quarter margins benefited from cost actions along with a favorable mix in both segments. In addition, CGI performed very well with accruative margins in its first full quarter as part of 10K. Finally, we generated 25 million of free cash flow in the fourth quarter, which took us about 300 million for the full year. Now let's take a look at the initial outlook for 2025. Given the current level of demand and economic uncertainty, we're taking a cautious view on the outlook for 2025. We anticipate the organic sales will be slightly lower for the year due to continued weakness in Europe. We expect industrial market conditions to remain challenging As we start the year and our guidance assumes organic sales lower year on year in the first half. And we also have incorporated the impact of China tariffs into our current guidance. On Mexico and Canada tariffs, we have cost sourcing and price actions to mitigate the overall tariff impact like we did in 2018. Phil will go into more specifics later. Overall, we're guiding adjusted EPS to be down modestly from 2024 at the midpoint. This mainly reflects the unfavorable currency impacts and our cautious demand outlook. We expect our cost savings to partially offset some of the challenges that we see ahead. We expect to deliver around 75 million of incremental cost savings in 2025. This is accomplished by accelerating our footprint initiatives and introductions when it comes to operative headcount, which will match our softer demand, input tactics, supply chain management actions, along with reduced discretionary spending in SG&A. The cost savings are expected to offset inflation and is driving the flourished margin outlook despite lowered 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. 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, and share buybacks also remain an attractive option in the current environment. As we look to improve Timken's performance in the future, I would like to take a few moments to provide you with a high level summary on observations, our priorities for 2025, and the opportunities that lie ahead. Since I started with Timken in September, I've had a chance to visit 30 of our locations throughout the United States, Europe, India, and China. I also met with 80 customers and channel partners. Phil and 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 an engaging experience, and I'll share with you a short summary from those meetings along with my own personal observations. Let's start with Timken's strengths. There are many. Beginning with our people who deliver quality products and services, Those who help our customers solve complex technical problems. During my visits, I got a 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, what can we do better? The challenge for us is to grow faster on improving margins and returns. We also need to reduce the impact of market cycles on our performance, especially when it comes to margins. So how shall we do this? I believe we can go faster of putting customers to the core of our own product design and development. This means being more customer centric versus being product centric. When I met with customers in China, Europe, and US, it was very clear the value of our technical capabilities and want Timkin innovation and engineering expertise to help them meet their cost and performance needs for the local markets. Given our understanding of their applications, combined with our manufacturing footprint, we need to incorporate their needs in our products, become more local for local. We're also evaluating our entire portfolio of product lines and services with an eye towards growth and profitability. We will prioritize R&D, capital, and resources for the higher organic growth and better return parts of our portfolio. We're also looking to reduce the level of vertical integration across our entire portfolio going forward. I recently visited our new plant expansion in Baruch, India, which will open later this year with production. It's a good investment and will support additional share gains in the Indian market for our industrial bearings business. It's 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 and the team's enthusiasm for bringing the offering to more customers. We also have the potential to accelerate cross-selling between engineered bearings and industrial motion segments. both with general 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 Lager-Schmidt's sealing solutions, now we have a full package to offer marine customers with our bearings, couplings, lubrication systems, and more. The Lager-Schmidt team shared their go-to-market together with the rest of Timken's plants during my visit to their location near Rotterdam a few weeks back. The deep customer relationships and channel partners of Lager-Schmidt 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. Lager-Schmidt is also benefiting from broader opportunities that they see in Asia and US, thanks to the presence of Timken's relationship in many of the interesting segments for Lager-Schmidt. We have many such opportunities throughout a company. So priorities for the year. We want to sell more of the most profitable part of the portfolio. The cost savings we have in mind, the $75 million, will counter many of the headwinds that we see in the business today. And the process improvements that we have in action today will also generate a higher level of cash as we have provided in our guidance. It's still early on and I'm continuously learning about the opportunities and challenges for Timken, but I wanted to share just a few ways that we can harness Timken's strengths and improve this company. I look forward to sharing more details on this work and our plans later this year. 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. our value proposition and our ability to win in this marketplace. Finally, I want to acknowledge the planned retirement of someone who's been instrumental to advancing that value proposition. Chris Coughlin, the leader of our industrial emotions business, will retire after a 41-year career in Timken. Chris has played a pivotal role in diversifying the company's business and improving the profitability over the years. Organic growth initiatives, product innovation, strategic M&A, and growing of the industrial motion businesses, I would personally like to thank Chris for his many contributions to Timken's success. We've 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 will retire at the end of the year, allowing him to continue to advance the industrial motion business and to ensure that we have a seamless and stable leadership transition. With that, let me turn over the call to Phil for a more detailed review of the numbers and the outlook.