1Q 2025 Earnings Investor Presentation April 30, 2025 The Timken Company The Company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the finalization of the Company's financial statements for the first quarter 2025; fluctuations in customer demand for the Company's products or services; unanticipated changes in business relationships with customers or their purchases from the Company; changes i ...

Company Performance - Timken reported quarterly earnings of $1.40 per share, missing the Zacks Consensus Estimate of $1.43 per share, and down from $1.77 per share a year ago, representing an earnings surprise of -2.10% [1] - The company posted revenues of $1.14 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.61%, but down from $1.19 billion year-over-year [2] - Over the last four quarters, Timken has surpassed consensus EPS estimates two times and topped consensus revenue estimates four times [2] Stock Outlook - Timken shares have declined approximately 8.6% since the beginning of the year, compared to a decline of -5.5% for the S&P 500 [3] - The current consensus EPS estimate for the coming quarter is $1.49 on revenues of $1.15 billion, and for the current fiscal year, it is $5.46 on revenues of $4.46 billion [7] - The estimate revisions trend for Timken is currently unfavorable, resulting in a Zacks Rank 5 (Strong Sell), indicating expected underperformance in the near future [6] Industry Context - The Electronics - Miscellaneous Products industry, to which Timken belongs, is currently in the bottom 42% of over 250 Zacks industries, suggesting that the industry outlook may negatively impact stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Core Insights - The Timken Company reported first-quarter 2025 net sales of $1.14 billion, a decrease of 4.2% compared to the same period last year, attributed to lower end-market demand and unfavorable foreign currency translation, partially offset by acquisitions [1][13] - Net income for the quarter was $78.3 million, or $1.11 per diluted share, down from $103.5 million, or $1.46 per diluted share, in the prior year [2][26] - The company has adjusted its full-year 2025 outlook, forecasting diluted earnings per share in the range of $3.90 to $4.40 and adjusted earnings per share between $5.10 and $5.60, reflecting the impact of tariffs and expected lower demand [9][51] Financial Performance - First-quarter adjusted EBITDA was $208.1 million, representing 18.2% of sales, down from $246.4 million or 20.7% of sales in the same quarter last year [3][6] - The net income margin for the quarter was 6.9%, a decline from 8.7% in the previous year [2][19] - Free cash flow increased to $23.4 million from $5.2 million in the prior year, with net cash provided by operations rising to $58.6 million [4][41] Segment Performance - Engineered Bearings segment sales were $760.7 million, down 5.2% year-over-year, primarily due to lower demand in various sectors [5][19] - Industrial Motion segment sales decreased by 2.1% to $379.6 million, with higher revenue in some platforms offset by lower demand in others [7][19] - Adjusted EBITDA for the Engineered Bearings segment was $159.2 million, or 20.9% of sales, compared to $181.4 million or 22.6% of sales in the prior year [6][19] Outlook and Strategic Initiatives - The company is implementing cost reduction measures expected to generate gross savings of approximately $75 million in 2025 [10][11] - Timken anticipates a net direct impact from tariffs of about $25 million in 2025, with plans to mitigate these costs by year-end [9][10] - The management remains focused on navigating the unpredictable business environment and is actively pursuing pricing and cost-saving strategies [11][30]

Group 1 - The article highlights twelve actionable investment ideas on tickers with less coverage, referred to as "The Undercovered Dozen" [1] - Inclusion criteria for "undercovered" tickers include a market cap greater than $100 million, more than 800 symbol page views in the last 90 days, and fewer than two articles published in the past 30 days [1] - The ideas presented can range from large caps that are considered "boring" to promising small caps that are up-and-coming [1]

Group 1 - The Timken Company will release its Q1 2025 financial results on April 30, 2025, before the New York Stock Exchange opens [1] - A conference call will be held on the same day at 11:00 a.m. Eastern Time to discuss the financial performance with investors and analysts [2] - The company reported $4.6 billion in sales for 2024 and operates in 45 countries with approximately 19,000 employees [3] Group 2 - The financial results and conference call materials will be available online at the company's investor relations website [1] - Live dial-in and replay options for the conference call are provided for participants [2] - The Timken Company has over 125 years of experience in engineered bearings and industrial motion, focusing on customer-centric solutions [3]

Core Points - Tarak B. Mehta has departed as CEO and director of The Timken Company effective immediately due to personal reasons [1] - Richard G. Kyle has been appointed as interim president and CEO, having previously served in this role from 2014 to 2024 [2][4] - The Timken Board of Directors has initiated a comprehensive search for a new CEO, engaging Crist Kolder Associates to assist in identifying suitable candidates [3] Company Performance and Strategy - The Timken Company reported $4.6 billion in sales for 2024 and employs approximately 19,000 people across 45 countries [5] - Under Richard G. Kyle's previous leadership, Timken transformed into a global diversified industrial leader, achieving record financial performance and focusing on profitable growth [4] - The company emphasizes its strong leadership team and resilient business model, expressing confidence in its future and ability to drive profitable growth [3]

Core Insights - The Timken Company has been recognized as a 2025 World's Most Ethical Companies honoree by Ethisphere, highlighting its commitment to ethical business practices and governance [1][2] - Timken is one of only 10 companies to appear on the annual list 14 or more times, showcasing its long-standing dedication to ethical standards [2] - The recognition reflects Timken's focus on transparency, integrity, and a strong culture of ethics, which are valued by employees and stakeholders [2][4] Company Overview - Timken is a global technology leader in engineered bearings and industrial motion, with $4.6 billion in sales reported for 2024 [4] - The company employs approximately 19,000 people and operates in 45 countries, emphasizing its extensive global presence [4] - Timken has been innovating and creating customer-centric solutions for over 125 years, focusing on reliability and efficiency [4] Recognition Process - Ethisphere's assessment involves a proprietary questionnaire requiring companies to provide over 240 proof points related to ethics, compliance, governance, and social impact [3] - The annual list includes 136 companies from 19 countries and 44 industries, indicating a competitive and rigorous selection process [2][3]

Company Overview - The Timken Company is a global technology leader in engineered bearings and industrial motion, with a focus on designing next-generation products for diverse industries [2] - The company has over 125 years of experience in innovation and creating customer-centric solutions that enhance reliability and efficiency [2] - In 2024, Timken reported sales of $4.6 billion and employs approximately 19,000 people across 45 countries [2] Upcoming Events - Timken will participate in the BofA Global Research Global Industrials Conference in London on March 18, 2025 [1] - Key representatives from Timken at the conference will include Philip D. Fracassa, executive vice president and chief financial officer, and Andreas Roellgen, executive vice president and president of Engineered Bearings [1] - Materials shared during the conference will be accessible online for investors [1]

Core Points - The Timken Company is providing scholarships to 20 students pursuing various careers, demonstrating its commitment to education and community support [1][2] - Since the inception of the Timken Global Scholars Program in 1958, the company has awarded over $27 million in scholarships to 855 students [1] - The company reported $4.6 billion in sales for 2024 and employs approximately 19,000 people globally, operating in 45 countries [6] Scholarship Details - The Henry Timken Scholar Award, valued at $25,000 annually and renewable for up to three years, was awarded to Andrew Ziarko, who plans to study biomedical engineering and pre-dentistry [2] - The Jack Timken Scholar Award, valued at $20,000 annually and renewable for up to three years, was awarded to McGregor Brough, who intends to study business [3] - Six students received $10,000 annual awards, renewable for up to three years, while 12 students earned one-time scholarships of $10,000 each [3][4] Student Profiles - Notable scholarship recipients include: - Hannah Harley, majoring in biology at Michigan State University [4] - Frederick Li, studying biomedical engineering at Washington University in St. Louis [4] - Carter Russell, aspiring to study computer science and biomedical engineering at MIT [4] - Vedant Saraswat, planning to study organic chemistry at the National University of Singapore [4] - Aakar Sinha, majoring in computer science at Stanford University [4] - Navneet Vamanamoorthy, attending All India Institute of Medical Sciences for medical sciences [4] - Kendria Bynum, pursuing accounting at the University of North Carolina [4] - Layla De Vries, currently studying medicine in Germany [4] - Kristina Hess, studying speech pathology and audiology at Kent State University [4] - Sylvia Hough, majoring in astrophysics at The Ohio State University [4] - Martina Klecka, pursuing kinesiology at Azusa Pacific University [4] - Brynn Otto, studying biological sciences at Clemson University [5]

Financial Performance - Timken reported net sales of $4.573 billion in 2024, a decrease of 4.1% compared to $4.769 billion in 2023[129]. - Net income attributable to The Timken Company was $352.7 million in 2024, down 10.5% from $394.1 million in 2023[129]. - Adjusted net income for 2024 was $409.4 million, down from $508.1 million in 2023, with adjusted EBITDA of $844.8 million, compared to $939.7 million in 2023[206]. - The adjusted EBITDA margin for 2024 was 18.5%, down from 19.7% in 2023[206]. - Operating income for 2024 was $611.1 million, down from $657.1 million in 2023, reflecting a decrease of 7.0%[233]. - Basic earnings per share for 2024 were $5.02, down from $5.52 in 2023, representing a decrease of 9.1%[233]. - Diluted earnings per share (EPS) for 2024 was $4.99, down from $5.47 in 2023, while adjusted EPS decreased to $5.79 from $7.05[209]. - The company reported a comprehensive income attributable to The Timken Company of $192.3 million in 2024, significantly lower than $422.5 million in 2023[234]. - Net income for 2024 was $375.3 million, down from $408.0 million in 2023, representing a decrease of about 8.0%[237]. Segment Performance - The Engineered Bearings segment serves various industries, including wind energy, agriculture, and aerospace, while the Industrial Motion segment includes products like industrial drives and automatic lubrication systems[126]. - Engineered Bearings segment net sales decreased by $223.4 million or 6.9% in 2024 compared to 2023, primarily due to lower demand in China and Europe[145]. - Adjusted EBITDA for the Engineered Bearings segment decreased by $74.4 million or 10.9% in 2024 compared to 2023, primarily due to lower sales net of cost of products sold[146]. - Industrial Motion segment net sales increased by $27.4 million or 1.8% in 2024 compared to 2023, driven by acquisitions[148]. - Adjusted EBITDA for the Industrial Motion segment decreased by $13.3 million or 4.2% in 2024 compared to 2023, primarily due to lower sales net of cost of products sold[149]. Cash Flow and Debt Management - Net cash provided by operating activities decreased by $69.5 million to $475.7 million in 2024 compared to 2023[152]. - Net cash used in investing activities decreased by $501.9 million to $304.6 million in 2024 compared to 2023, primarily due to a decrease in cash used for acquisitions[155]. - Total debt decreased to $2,062.7 million in 2024 from $2,395.9 million in 2023, while net debt decreased to $1,689.5 million from $1,977.0 million[157]. - The ratio of net debt to capital improved to 36.1% in 2024 from 42.2% in 2023, indicating a stronger financial position[158]. - The Company had $373.2 million in cash and cash equivalents as of December 31, 2024, with $843.9 million available under committed credit lines[159]. - The Company plans to fund investments in attractive market sectors with cash and cash equivalents and unused lines of credit[159]. - The Company entered into a $750 million unsecured revolving credit facility and a $400 million unsecured term loan facility, both maturing on December 5, 2027[160]. - The Company expects to generate a higher amount of cash from operating activities in 2025 compared to 2024, driven by improved working capital performance and lower capital expenditures, estimated at 3.5% of sales[165]. Acquisitions and Investments - Timken acquired CGI, Inc. in September 2024, enhancing its industrial motion product portfolio, particularly in medical robotics[128]. - The Company acquired CGI for $167.1 million, enhancing its product portfolio in medical robotics[269]. - In 2023, the Company completed six acquisitions, including Lagersmit for $128.2 million and Des-Case for $123.2 million, contributing to its Industrial Motion segment[270]. - The total purchase price for the three acquisitions in November 2023 was $95.7 million, net of cash acquired[271]. - Goodwill for the 2024 acquisitions was $61.4 million, while total assets acquired amounted to $206.2 million[272]. - The Company incurred acquisition-related costs of $2.0 million for the CGI acquisition, recorded in selling, general and administrative expenses[269]. Tax and Pension Obligations - The effective tax rate for 2024 was 24.1%, an increase of 1.0% from 23.1% in 2023, primarily due to higher effective tax rates in foreign jurisdictions[138][140]. - The Company made cash contributions of $24.6 million to its defined benefit pension plans in 2024[168]. - The Company recognized a net periodic benefit cost of $12.2 million for defined benefit pension plans in 2024, down from $33.8 million in 2023, with a net mark-to-market gain of $0.7 million in 2024 compared to a charge of $21.6 million in 2023[192][193]. - The expected net periodic benefit cost for 2025 is approximately $14 million, reflecting an increase from $12.2 million in 2024, primarily due to higher expected interest costs[193]. - The Company plans to contribute approximately $38 million to its defined benefit pension plans in 2025, up from $24.6 million in 2024, with $8 million expected to be contributed to the U.K. pension plan[194]. Environmental and Social Responsibility - The Company aims to reduce Scope 1 and Scope 2 greenhouse gas emissions intensity by 50% by 2030, as part of its corporate social responsibility initiatives[128]. Foreign Currency and Market Risks - The company recognized a foreign currency exchange loss of $9.3 million for the year ended December 31, 2024, compared to a loss of $14.8 million in 2023[218]. - Foreign currency translation adjustments resulted in a loss of $161.2 million in 2024, compared to a gain of $33.5 million in 2023[234]. - The company had $471.6 million of hedges in place as of December 31, 2024, to mitigate foreign currency exchange rate risks[229]. - A hypothetical 10% weakening of the U.S. dollar would have resulted in a benefit of $11.9 million related to hedges[229]. Management Changes - On March 26, 2024, the company announced the retirement of CEO Richard G. Kyle, with Tarak Mehta appointed as the new CEO effective September 5, 2024[219].