Timken Company (The)

Good morning. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to Timken's first 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, please press star then the number two on your telephone keypad. Thank you. Mr. Frohnapel, you may begin your conference.

Thank you, operator, and welcome everyone to our first quarter 2025 earnings conference call. This is Neil Frohnapel, 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 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, Neal. Good morning, everyone, and it's good to be with you on the earnings call again through this leadership transition. I'll begin with a brief look at our first quarter results and updated outlook for 2025. Then I will share a bit more about our near-term strategic priorities. Starting with the first quarter, we delivered solid results as the team executed well on cost actions and other initiatives to help offset challenging operating conditions. Overall, sales in the quarter were over $1.1 billion, with organic revenue down around 3% from last year. We saw lower demand in Europe and the Americas while we were up in Asia, driven by growth and wind energy. Overall, our total backlog was up low single digits compared to the fourth quarter. This is significant since backlog was down sequentially in the first quarter, both in 2023 and 24, so it does support that we are seeing stabilization in in-market demand. Adjusted EBITDA margins came in at 18.2%, and adjusted earnings per share was $1.40, both below prior year, driven primarily by lower volumes, higher manufacturing costs, and unfavorable mix. Results in the quarter were helped by targeted cost actions and continued strong performance from the CGI acquisition. Finally, we generated higher free cash flow compared to the prior year and ended the quarter with a solid balance sheet. Turning to the outlook, we're focused on performing well through this environment while continuing to advance our strategy. Phil will take you through the updated outlook and assumptions in detail, but we expect industrial market conditions to remain challenging over the rest of the year. The guide is our current best estimate given the trade situation and the heightened level of uncertainty that we and our customers are facing. I would add that we have not seen any significant change in demand, Orders and shipments in April remain in line with our expectations. However, the tariffs and pricing have not yet fully hit the marketplace. So like everybody else, we will continue to closely monitor and react to the situation as it develops. On tariffs, we are quickly responding and actively passing the cost into the market through repricing the portfolio. Long term, we are confident in our ability to mitigate the direct impact from tariffs. We expect to fully offset the cost impact on a run rate basis by the end of the year, and we would expect to eventually recover margin on the incremental costs as well. However, we estimate a net direct impact from tariffs currently in place of around $25 million this year. This accounts for the time it will take to implement pricing and other actions to offset the costs expected from tariffs. This is the tariff scenario as of today, and as we all know, it has been very fluid. Finally, we are reaffirming our commitment to deliver $75 million of cost savings in 2025 and are still planning to generate significant free cash flow this year, providing us with flexibility moving forward. While the tariff situation is presenting short-term headwinds and distractions, we have successfully navigated many similar macro headwinds while simultaneously advancing the company, and that is what we intend to do through the tariff dynamics as well. With respect to the recent CEO transition, the Board is continuing a comprehensive search process to identify the best person to lead Timken into the future. In the meantime, our strategic priorities and financial aspirations remain unchanged. We are focused on winning in the marketplace to deliver profitable growth, operating with excellence, and creating shareholder value through the disciplined allocation of capital. The Board is confident that we have a proven strategy and a strong and tenured management team that is capable of executing that strategy to deliver shareholder value in the coming years. Product vitality and customer centricity are at the heart of our business model and drive our organic growth initiatives. It's how we differentiate, win, and compete in the marketplace. We are staying close to our customers to support their short and long-term needs, and our portfolio solutions and technical expertise positions us well to grow with them. Operational excellence is a core competency. Our strength in this area is an advantage that will help us operate through this unpredictable environment to deliver resilient performance in 2025 and to return to growth in 26. Our disciplined approach to capital allocation is at the core of our strategy. It has diversified our portfolio and better positioned us to grow during normal times and to deliver more resilient performance through uncertain times. The company will continue to generate strong cash flow, and we are confident in our ability to create shareholder value. We are actively investing in the parts of the portfolio with the highest returns and the best growth potential. Likewise, we are working on enhancing the profitability of the company as we have in the past. With respect to the portfolio, we are always looking at it from both a strategic and financial standpoint to strengthen the company and enhance our financial performance for the long term. Initial output of the portfolio review has us focused on a significant portion of our automotive OE business, which we have recently begun to address. We would not expect any material impact to 2025 results, but we do expect our actions to have a positive impact on margins in 2026 and 2027. And while we are currently navigating and executing for the short term, I am confident that Timken will come out of this period stronger and we'll be back on track to achieve new levels of financial performance. With that, let me turn the call over to Phil for a more detailed review of the numbers and outlook.