Timken Company Aktie

Good morning, everyone. Welcome to the Timken Company's 2026 Investor Day. My name is Neil Frohnapple, Vice President of Investor Relations for Timken. We're excited to have many with us here in the room today in New York City, and we welcome those who are joining us virtually via webcast. We appreciate everyone taking the time to learn more about how Timken intends to elevate its performance.

Let's start by taking a look at the agenda. This morning, you'll hear from our President and CEO, Lucian Boldea, who will give you an overview of Timken's strategic plan to accelerate profitable growth and structurally increase margins. Then our Chief Technology Officer, John Szarka will spend time discussing how Timken's innovation and technology will support our growth in the next generation of motion systems. After John speaks, we'll take a short break, and then our President of Industrial Motion, Tim Graham will take you through how we're winning with customers and creating value as one Timken. Our final presentation today will be from Mike Discenza, Executive Vice President and CFO, as he shares more details on the company's growth algorithm, margin outlook, and will give more detail on our new 2028 financial targets. After Lucian provides a few closing comments. We'll have John, Tim and Mike back to the stage for a Q&A session.

For the Q&A session, we'll have mics going around for those here in the room and those attending virtually can e-mail me with your question at any time during the event at [email protected]. After the Q&A session, we hope those here in person will join us for a networking reception and lunch.

Before we get started, let me direct your attention to the safe harbor statement on Slide 5 of the presentation materials. We will be making forward-looking statements throughout the course of the presentations today, and we will also reference certain non-GAAP financial information. They have been reconciled and will appear disclosed in the appendix of the presentation. Please take a moment to read through the statement. Before I pass it over to Lucian, let's start with a brief video to set the stage for the day.

[Presentation]

All right. Thank you, Neil. And to all of you on behalf of our leadership team, our Board and our Board Chairman, John Timken, present with us today. A very warm welcome to our 2026 Investor Day. It's a privilege to be here with you today and to represent 19,000 employees of the Timken Company and share with you our strategy and our vision for the future. What you just saw in the video here reflects who we are as a company, a company built on technology leadership, engineering excellence and strong customer relationships.

Today, I will build on that and talk about where we are, how we're evolving and where we are going. We see a clear path to improve our performance over time, strengthen our leadership position, accelerate growth and deliver stronger and more consistent financial outcomes. But as David Cody used to say, the proof is in the doing, so we will share with you the what and the how, and give you insight into both our strategy as well as our execution discipline that we are building upon.

We're starting from a tremendous foundation. This was started 125 years ago by Henry Timken and it was built upon over many decades. We have a clear vision of the future, and we're fortunate to be well positioned to capitalize on a number of key mega trends that we'll talk to you about today.

More importantly, we're taking actions that will drive our transformation to faster growth in the short term. Those actions focus on 3 areas: portfolio simplification, focusing on the right strategic verticals and taking advantage of regional opportunities. The end result that we'll share with you today is a compelling set of financial targets that include significantly higher margins. We're committed to achieving this higher performance through a very disciplined execution framework. We have a very strong foundation, and I'll spend the next few minutes walking through an overview of the company that we are today. We're a leader in advanced motion technology, and we design and manufacture highly engineered systems and components, 2/3 of our revenue comes from our engineered bearings product line, while 1/3 comes from our industrial motion solution portfolio.

Our team and operations span over 45 countries, and in 2025, we generated $4.6 billion of revenue with trough EBITDA margins of 17.4%. Our cash generation and balance sheet remains strong with net leverage in the middle of our long-term range even using trough EBITDA. This has enabled continued disciplined capital allocation, extending our 104-year continuous streak of quarterly dividend payments. This combination of scale, global reach, financial strength, coupled with strong execution discipline provides a solid base for the next phase of our journey.

We have the privilege of working with amazing customers. Together, we bring solutions that truly impact the world. Our teams deliver drives that power aircraft carriers with precision gears, bearings and automated lubrication systems. Our bearings expertise advances deep space exploration, including the James Webb telescope. Our participation in infrastructure is broad from mining to metals processing and cement to reliable and heavy construction equipment. Our history in transportation started in automotive, but today is largely anchored in rail and aerospace. Our precision drives technologies enable precision surgeries, and we have also broad offerings that support power generation that is essential in the AI economy.

We're in the environment and applications for performance and reliability are nonnegotiable. And our products play a direct role in enabling systems performance, safety and uptime for our customers. As a result, we wake up each and every day feeling privileged to be able to be a trusted partner to our customers and continue to earn that right through our service and solutions each and every day. This is a key strength of our business and an important foundation of how we create value as we move forward.

We're humbled by the trust placing us by our customers. The slide you see here behind me, we've not talked about today, so you're the first ones to see it, but last month, 3 of our technical staff the privilege to be on board of the U.S. Navy recovery vessel that was out to pick up some very precious cargo. It's a testament of the reputation of our Philadelphia gear business that we've earned with what is the definition of a highly critical application, keeping our sailors moving during a time of war or in this case, a time of peace.

This slide provides the evolution of our portfolio transformation into motion leader, and it's been driven by the acquisitions that we've done over the last 10 years. Please keep in mind that the chart that you see does not even represent a full set of acquisitions, the full list. What you see is just a strong statement, though, of the degree of the transformation. We're building a higher-performing motion leader. We're focusing and accelerating a journey that started over a decade ago through targeted acquisitions we'll be expanding beyond engineered bearings into a broader set of motion technologies that include lubrication systems, precision drives as well as linear motion.

This has allowed us to increase our participation in high-value applications and strengthen our position in key verticals enabling our Industrial Motion business to gain critical mass and lead the next frontier of growth for the Timken Company.

So the rest of the discussion today will really focus on 2 elements. First of all, how this transformation creates a different company, but second, how do we execute in the short term to enable performance while we transform.

So let's get started and talk about who we are today. So our multinational footprint is what allows us to operate at scale. Please note that I said multinational, I didn't say global, and that was deliberate. We're not the single location exporter. We're truly a multinational player who can think globally and act locally while maintaining a single global high-quality performance standard. We have over 100 manufacturing sites and 30 innovation centers with a presence across all major industrial regions. Why is that important? It's because this footprint enables us to be close to our customers. It enables us to work with them from idea to full-scale manufacturing. It also allows us to scale technologies and solutions across regions. But most importantly, as you will see today as part of our growth algorithm, it creates an infrastructure that we can leverage to take solutions from one market or one region into another.

This combination that you see here of global scale, global quality standards and a local presence is an important competitive advantage for us, and it's one that we will be able to leverage in the current very dynamic geopolitical environment that we all face every day. We've updated our end market sales mix also, and this better reflects our market focus as a company, but more importantly, it demonstrates the growth potential that's in front of us.

As you step back and you look at the end mix of markets that are in front of you, a very compelling picture emerges. Almost half of our revenue is exposed to markets that grow well above GDP, and the better news there is that, that growth is expected to persist in the coming years. Why is that? Because it's driven by compelling megatrends and we see outgrowth as we focus on those strategic verticals and we focus on regional growth opportunities, and we'll cover both of those with you today.

But a strong and robust growth strategy begins with focusing on attractive end markets, but then you have to have a customer offering that is well aligned with megatrends that sustain that growth. So let's talk a bit about the megatrends that drive Timken's end market growth, and what you will see is that they're clearly persistent and compelling.

Start with automation and robotics. We're just scratching the surface there as we tackle the skill gap that we're facing as a global community. Our workforce is aging. I'm not the first one to tell you that. But frankly, expecting different work conditions and work life balance than in the past. Robotics and automation are key to solving that problem, and we are uniquely positioned to play a very key role. I'm not going to steal our CTO's thunder on how we do this, but the good news for you is you only have to wait 20 more minutes to find out. Aerospace and defense is another vector that's driving our growth. We enjoy a strong position in both air and marine defense as well as civil aviation and we'll continue to evolve our offerings to meet this growing need.

In the field of power and electrification, we're well positioned with both engineered bearings products as well as industrial motion solutions and both the businesses can participate and are already participating in that growth. And last but not least, as infrastructure continues to be built out around the world, our legacy positions give us a front row seat to innovate with our customers as emerging market mobility demand increases and infrastructure is modernized through automation and autonomous operations that require a new level of reliability and service.

So I'll walk you through the end markets and the megatrends, and now let's click down and discuss the strategic verticals inside these end markets that are expected to grow high single digits through 2028. So I'll give some of you a peek behind the curtain and tell you how we arrived at these verticals. I think with many of you as we went through the Q&A and I did my roadshows over the last few months, you saw this thought process evolve and you probably recognize some of this.

It all started last fall, and it started last fall with a very simple question, which is where are we winning and why, and where are we winning, it's actually right behind you here. It's in the strategic verticals. The premise going forward now is twofold, and it's not a big leap. It's that it's easier to win where you're already winning and you have positive market momentum. And second, if you focus on that with an 80-20 mindset, you can accelerate that growth by allocating R&D resources and growth resources disproportionately to those verticals.

We've also modified our org structure, both regionally as well as globally to drive this focus inside the regions as well as inside our P&L. So I know normally, at least to this group, if the pitch is, the future is different from the past, that's a very difficult sale to make. But in this case, it's not because the future is actually just a better version of the past.

You see the outperformance in the last few years that was in a down economic cycle. The cycle is going to be more favorable, but what you also see is the impact of doubling down and focusing on 80/20. The future here is really anchored in that 80-20 discipline and in that mindset to accelerate growth, it's not a completely different set of strategies than where we've been.

End markets are important, and we do need to discuss those. But at the same time, at the end of the day, it's customers that make that buying decision. So we have to understand their evolving expectations, so let's talk about those for a moment. OEMs are no different from the rest of us. They face the same skill gap, and as a result, they increasingly outsource some of the engineering complexity to their suppliers. Additionally, as suppliers, we're increasingly expected to think of life cycle economics and go from a product offering to more of an end-to-end solution that incorporates rebuild and replacement. Good news for us is that through our acquisitions over the past decade, we're now well positioned really capitalize on this trend in several markets.

Last but not least, we see the third trend that you see there, which is increasing competitive pressure in high-volume applications. There, we're faced with the choice we either have to make substantial investments in capital into automation to really get to a new cost structure or exit those businesses. The automotive OE business that Tim will talk to you about later today, and those exit actions are really a result and a good example of this trend.

Of course, those decisions will always be made on a case-by-case basis, but I can tell you that the first 2 expectations from customers that you see here, whether it's life cycle expectations or whether it's increasing complexity that outsources engineering, those offer a way more compelling growth vector for us than the third one, so they'll always be prioritized. So as you pull all this together and step back, what does all this say? It says that we must continue to evolve. So let's talk a little bit about what that means. It means going from a component supplier to a design partner, it means going from competing on unit economics to value across the life cycle and finally, it means going from a product-led offering to fully integrated applications engineer.

So as you look at this, this might seem like a lot of transformation but it actually turns out to be a lot shorter of a path for our team than most would realize. So let's spend the next few minutes and talk about why that is the case. So I always like to think about a business in terms of sales motion because in the end, that's how you understand how you make value, how you create value, how you interact with the market, how you interact with your customers. So in orange here is the sales motion of the engineered bearings business. It's a business that's underpinned by technology that then creates highly engineered components, sell those to OEMs and then further creates value through rebuild and aftermarket.

Compare that to industrial motion, there we actually sell engineered systems today, whether it's an automated lubrication system, whether it's a complex gear drive or whether it's a linear motion assembly, whether it's mechanically or electrically actuated, it's based on a foundation of engineering knowledge that then allows us to outsource components.

So in very simple terms, industrial motion, the sales motion, the business model begins where engineered bearings leads off. So what that says is when you combine the 2 models that you see here on the right-hand side, you get a very compelling combination. And that combination then allows you to lead with a systems-first approach, which is a very important feature of our future success. For example, in a vertical, this enables us to offer a one Timken engineer system. So as an example, you can think a gearbox, you can think a humanoid assembly, you can think an industrial robot moving platform. And that component or that assembly can be based on first party as well as third-party components. This leads to greater life cycle economics, the lease to service, the lease to rebuild, and it leads to other revenue models. And Tim will walk you into specific examples where we're already doing that. Given the growth in our Industrial Motion business over the last 10 years, we are now at that point where we've reached critical mass, and another way to think about this is Industrial Motion now becomes the storefront for the Timken business rather than the historical approach, which was using the engineered bearings channels, or product channels to pull through a solution.

It's a pretty meaningful change in our posture and it's 1 that is underpinned by significant execution infrastructure that we will discuss going forward. I'm excited to share with you our Elevate to Outperform strategy. It's not an aspiration. It's actually a statement of intent. It's a commitment, and it's 1 that we underpin with solid execution and sustainable execution. It's based on disciplined processes that are repeatable and scalable. What we do is we aim to elevate our game in very tangible ways to achieve top quartile financial performance over the coming years.

So let me give you a flavor now of the execution discipline that we are already practicing. Our Elevate to Outperform strategy is focused on the 3 pillars you see in front of you. They are our North Star, they drive the choices we make, the structure we're building and more importantly, our operating model and our 80/20 mindset.

It starts with Pillar 1. If you recall, that's the first thing we talked about last fall, and that is optimizing the portfolio. This is an ongoing activity. It's not a 1 and done, and it has to be done to make sure that we're participating in the areas that create the most value, and we draw from those where we're not the natural owner.

The second pillar requires us to focus our resources on strategic verticals where we have a more compelling value proposition and withdraw from those where we don't. And in Pillar 3, leveraging our multinational footprint allows us for significant growth opportunities, and this is especially true for our company because what is unique about us is 1/3 of our revenue is Industrial Motion businesses which are almost all single region businesses or were at least at the time of acquisition.

So the 3 pillars get executed across 3 time horizons, and we'll talk about how that's different. But these pillars are meant to age well, they're meant to stay here and they're meant to evolve with our strategy and with our transformation.

So here are the 3 time horizons, and they really represent the progression of our strategy. Over the next 3 years. Obviously, they continue beyond that. We're well underway with Horizon 1 with the objective to transform the core make the quick and no regrets decisions that are in front of us. They involve portfolio actions, like the ones we've already announced, and we'll discuss in more detail today. They involve focusing our customer-facing efforts to the most attractive segments and markets and then driving the most lucrative regional translations available.

As we move towards Horizon 2, which we expect to accelerate next year, we evolve the model. We refine both our portfolio actions as well as the strategic vertical offerings while continuing that regional penetration.

In 2028, we'll scale that advantage, and that is reflected here in Horizon 3. That's the exciting part. That's the destination. That's when the flywheel becomes scalable and it creates a competitive advantage that is difficult to duplicate. It results in a growth engine that is both organic and inorganic in nature with reliable and predictable outcomes across the economic cycle.

So let's now double-click on each of the time horizons and see how each pillar evolves a little more in depth. So in Horizon 1 over the short term, we're optimizing the portfolio by exiting nonstrategic product lines, reducing complexity and streamlining our 100-plus manufacturing site network and supply chain. We expect this to deliver structural margin improvement.

Next, the strategic vertical focus involves doubling down the resources where we're winning and accelerating technology-led growth and focusing R&D and also increasing R&D dollars in these verticals. It also involves very targeted M&A, and the recently announced [indiscernible] is a great example. And I say targeted because we're looking for M&A that affords quick and relatively straightforward synergy delivery for this first horizon.

As we leverage our multinational footprint operating as One Timken, that affords us the ability to create the ecosystem, structure and operating model to enable rapid translation of our single region businesses into new regions, and Tim will cover examples for you later today.

As we head to Horizon 2, we evolve the model. The portfolio work becomes more deliberate and more bold. 80-20 enable simplification, and you see the benefits of that in our financial results as we begin next year. We'll consider complementary acquisitions to enhance those positions in our key verticals. Most importantly, our strategic vertical focus now takes shape at the customer level in a more deliberate way.

80/20, just like the name says, identifies your 80 customers. And it's those 80 customers that then we build clear and compelling offerings for they are distinct and differentiated, but we do so 1 single customer at a time. The regional playbook is relatively unchanged, but it does become more standardized in Horizon 2 because then it needs to be repeatable and it needs to require less intervention.

Scaling this advantage is really Horizon 3, and that's where we want to land. In 2028 and beyond is when this model is fully institutionalized, it becomes who we are, what we're known for and how we operate in everything that we do. Our portfolio work is now an integral part of our quarterly strategy process. With a scalable integration model, we now can pursue more aspirational acquisitions into higher growth verticals where significant synergies will be required to produce a compelling business case. The strategic verticals become more fully aligned with our innovation portfolio and process and then our key accounts, technology road maps, new products and service offerings, all flow via a single process.

Last but not least, our regions will be operating at that point with enough autonomy to be nimble and drive integration and growth while operating within a well-prescribed global operating model. As a result, we expect the execution of our Elevate to Outperform strategy to translate into top quartile financial performance versus our peer group.

Our strategy is anchored by a very disciplined execution framework, so this is where we get to the proof is in the doing. The Timken Company has strong fundamentals today. Our foundation of global businesses and processes, coupled with technical knowledge and a lean mindset are key to this, but they're really just a required starting point.

Our key capabilities, build on that and include the brand equity that we've created, our global footprint, both in engineering capability and assets. But last but not least, the customer-facing capability adds further to that execution framework. Now those elements all are key, and we're driving from those strong fundamentals to another level of execution.

Foundationally, what we're doing is we're taking our manufacturing-focused operating system to a Timken operating system that extends broadly across the enterprise. This means we incorporate lean in all we do. We've implemented already a disciplined operating model. There's nothing novel about it. It's a tried-and-true model that has been successful at many high-performing companies in our space. Our capabilities are being enhanced with the creation of all new organizations for us, such as the Chief Technology Officer organization, Chief Marketing Officer, both of them are present here today, as well as regional and P&L structures that are well aligned with the 3 pillars.

Last but not least, delivering a One Timken system to key customers in key verticals requires a different level of processes, systems, tools and capabilities, and all those are either already in place or well underway. Mike, our CFO, will walk you through all the details in our financials, but this is a summary of our 2028 financial targets, and these are driven by our Elevate to Outperform strategy.

These represent new record levels of performance for our company and position us for substantial transformation in the long term. It's important to note that none of these targets include putting our cash to work, whether it's an M&A or share buyback. You'll note that our EBITDA margin target of 21% to 23% represents a 500 basis point increase from where we are today, and more importantly, most of this is driven by actions not only within our control, but you'll follow the math later, quite a bit of it are actions that we have already taken.

Our EPS is projected to be about $8.50 a share in 2028, and our cash flow will increase by $200 million over the next 3 years. This is not an aspiration. This is already underway, and we're excited to make this happen. Also, it's important to note that this is an interim goal. As we drive to our vision, this is the beginning of the journey, and this is the first set of financial milestones that we commit to.

Our vision is compelling, and our vision continues the journey that was started 125 years ago. That vision is to be a trusted partner to our valued customers, those who entrusted us for decades and would win with us going forward. We're a leader in advanced motion technology, and we're innovating for the next industrial revolution. Our differentiated technology will carry us into the future and will position us to win in new markets like humanoids that require precise motion, and also applications that feed the AI-driven power demand.

This is more than a vision. It's a goal. And it's 1 that has a plan, and that plan is already underway and has already proof point of success that we'll share with you today. But let me now step away and let you enjoy the best part of today. You're about to hear from our Chief Technology Officer, John Szarka, the guy who I think has the best job in the company. And you will see why I'm so excited, not only to have John on my team but also why I'm so confident that we will deliver on our future. John. .

Thanks, Lucian. Again, John Szarka, Chief Technology Officer for Timken. I've been in this role for a little less than 5 months, but I've been with Timken for over 20 years, and over the last 5 years, I was leading our engineered bearings product team. And I'm really excited today to share with you guys insights about how Timken is leveraging technology to create value for our customers in their most critical motion control applications today.

Customers have been turning to Timken for over 125 years to really help increase their power density, improved system efficiency and increasing precision motion across their applications, or frankly, any time they need help with solving a problem. Technology has really been at the core of what we do since the beginning, but what's new that I'm going to talk to you guys about today is really about how we're going to be able to scale this in ways that were not possible before and it's all through creating better connections across our enterprise technology groups and really standardizing on the best practices that we're using to accelerate our innovation cycles. And this is all about creating more customer value, whether it's in the applications that we service, the products that we make, the regions that we do business, it's all going to help us elevate to outperform across all the horizons that Lucian had talked about.

I want to start off by really walking you guys through the history of where we've come from, because I really think it's going to help you see where we're headed. You're going to notice 2 things when you look at this slide. The first thing is we continue to increase our serviceable addressable market, but the other piece is we continue to climb up the customer value chain with the products and technologies that we have.

It all started with the tapered roller bearing. And with that, we really built a strong knowledge around tribology, precision manufacturing and metallurgy. And we use this every day in the foundation of how we make high-performance products that customers trust. As we move in the 1990s, we started to begin to broaden our range of bearing products with more precision bearings, mounted bearings and industrial bearings. And again, this is more advanced products, but really the secret sauce of what we did over this time is expand our application knowledge and the tools that we use to work with customers and solve their problems every day in their toughest applications.

As you move into 2010, we really started to expand our products into power transmission components and really built out with couplings, chains, power systems and automatic lubrication. And again, this is about getting into more complex products and solutions for our customers. But then our most recent chapters have been all about getting into integrated system solutions with products like our linear motion and our precision gearing lines. And this journey has really put us in a strong position with a diverse range of products and expanding what we're able to do and system solutions that our customers value.

Now I want to talk a little bit about the foundation of how we operate with our technology across our organization. And it all starts off really with engineering where it matters. And we focus on mission-critical applications with our customers. And when I say mission-critical, I'm talking about spaces where failure is not acceptable.

A great example of that would be the reduction gear in the Navy ship that Lucian pointed out earlier, where a failure would lead to a propeller that doesn't work, which is not acceptable and could be extremely dangerous. Over 60% of our applications today live in these mission-critical applications.

The second piece is about how we innovate with customers, and we work with them very early in their design cycles. And with our largest, most strategic customers, we're with them every day at the beginning of their design cycles. And what this does for us is it allows them to help optimize their entire system versus the individual component that we've been supplying. And that allows them to downsize the whole system. A great example of that would be like in a gear drive as an example, where we can model their entire system and help them with how big they need to make their shaft, how big their housing needs to be, all that leads to reducing the total package that their system is and saves them weight, which saves them cost.

And then the third element is really about how we execute with multinational scale. We've got over 2,000 engineers around the world that are face-to-face with our customers every single day, understanding their problems, speaking their local languages and helping them solve them. And these are really the fundamentals at the core of how we support customers across Timken today. That said, the model has been very good for us, but just like we innovate with our customers, we have to continue to innovate our model if we want to deliver the next generation of growth. So what we're going to do that's different?

The first thing is, is putting more focus on integrated system solutions in our strategic verticals that Lucian had talked about. And if you really think about our history of what we've been doing back to that slide, we really are positioned well to do this. The first thing we've done is we've expanded our range of motion control products with couplings, chains and brakes as an example.

But the second piece is we've really built out our engineering expertise in systems with lubrication systems, linear systems and our precision drives business. You combine that back with the strong engineering foundation that we have and the fact that customers trust us with the products that we make are going to perform well in their applications, it and opens up a whole new set of doors for us of what we can do with our customers.

The second piece that we're going to pivot on is more about understanding where our technology resources are, understanding where they're needed . We've got the 2,000 engineers all over the world. And we're really putting in a new model that's going to help us with understanding the biggest opportunities that we have across those areas and really aligning the resources to focus on the biggest opportunities versus anyone that comes in front of them.

And then finally, what we're doing is we're putting in a more repeatable innovation playbook of how we operate that's going to really take our enterprise-wide idealization to implementation process, that's going to help scale the smaller regional businesses that we have today by taking their technology across a broader range of customers, regions and platforms of where we go.

So I'm really confident that this is going to help us go from local product innovation to more scaled system solutions across our priority verticals and really create sustainable growth. So over my 20 years at Timken, I already knew that we had a lot of good products and engineering capabilities. But after being in this role for almost 5 months now and really increasing my engagement across all of our different businesses as One Timken, I've got a whole new appreciation for the products and engineering capabilities that we have in this company.

And knowing the applications that we have in space, I can honestly tell you that not even the sky is the limit of where we're able to solve customer problems and create value for them. We've got a strong foundation of knowledge and engineering across a broad range of motion technologies. And this really allows us to design these increased complex and integrated system solutions for our customers. And this is very unique to Timken's capabilities and would be very hard for anybody else to replicate.

So now what I want to do is share with you guys a little bit of -- or some examples of where technology is really apply today across the mega trends and market sectors that Lucian had talked about earlier, and my hope is that you're going to get a glimpse into the deep value that we're already creating for customers, but also get a glimpse into the future of how much more is possible.

So the first ecosystem I want to talk about is automation and robotics, and this falls into our market sector of automation and industrial solutions. And this is a very exciting space for Timken with lots of opportunities, and you can see on this slide, just some of the examples of the positions that we're already in today. Whether a factory is new or old or whether it's full of people or highly automated, factories all over the world count on our products for their core infrastructure, things like bearings and couplings that keep those factories running.

With that said, the labor shortage that's in front of us and need to drive for cost reductions, automation is going to increase the amount of opportunities that we have. Thinking about our strain wave and our cycloidal drives that are used in robotic arms as an example, or the linear systems used in customized designed automation systems. And then when it comes to automation, if customers need micro precision or the ability to lift things the size of a car, we really have the right products and know-how to engineer the right custom solutions for them that deliver reliability and efficiency.

The labor shortage doesn't only impact people working on the manufacturing line. It also impacts maintenance teams, and this really increases the value of our highly reliable products that we make for them as they have less people to do MRO for them. In addition, it increases the value of our automatic lubrication systems because people don't have to go to all the different lubrication points throughout their factory as often as they would have before.

Industrial robotics are very valuable for customers, but the fact that they're stationary has its limitations. The number of assets a given robot can reach or being able to move parts from 1 asset to another really limits the value that they can create, so there's something called a robot transfer unit that helps solve that problem by putting the robot on tracks that moves it around the plant from 1 asset to another. These need to be custom designed for every factory because no factories are the same with the way they've laid out all their assets. And these typically have a 10- to 16-week lead time to build something like this -- design it and build it.

And what we've done is we've developed a modular design of how we do this, that allows us to go from design to ship in as little as 4 weeks, which creates extra value for customers. But the other great value for this for the customer is the fact that as they change their plant layouts, they can reconfigure this system good part for Timken is that it provides us another touch point with them and help them redesign that system and service it over time, and it's not a single transaction.

And this is a great example of how we're doing system solutions today that uses many different components and is custom engineered to fit what the customer needs. And you'll remember back to our earnings call, Lucian mentioned double-digit growth in our linear systems business in North America. This is an example of exactly where that's coming from.

Now when you want to talk about robots or robotics in an unstructured environment, you think about humanoid. And this is an exciting but very highly dynamic and rapidly evolving market. But there's clearly very big opportunities for Timken in this space. We have the core motion technologies that our customers are looking for in this space for their actuators in the bearings, encoders, precision drives and linear systems that we make today.

And it's estimated that these actuators are going to be 25% to 30% of the bill of materials within a giving humanoid. So given the size of the opportunity, we put together a cross-functional team that's working on how we enter this space successfully. We have a pipeline of over $100 million today, we've quoted tens of millions of dollars in the space, and we've delivered multiple prototypes to several customers in the humanoid space.

When you think about this, if you add in our engineering expertise, our U.S. manufacturing footprint and our ability to scale, this creates a huge opportunity for Timken as this market develops.

Next, I want to talk a little bit about the AI race, and the AI race is really driving 2 major things. The first thing is the need for data centers, and the second thing is the need for power. And this is fueling 2 of our market sectors today of power and electrification, and infrastructure. And this whole space starts with the raw materials or mining that's necessary.

And whether this is for a data center or any power infrastructure project, mining is still necessary. And customers have been counting on Timken bearings, couplings, brakes and breathers to maximize uptime within their mine sites for many years. And then as you move into the power generation itself, whether it's renewable energy or fossil fuels, customers are counting on Timken products every day with the slew drives that we make for solar or the gear drives and power plants that we make, or the bearings that go into wind turbines.

And then if you get into semiconductor manufacturing itself, there's much more precision equipment that's used in this space, and they count on our linear systems, couplings and precision bearings to manufacture the semiconductors themselves.

And then finally, when you get to the data center, the data centers are full of chips using lots of power, that creates a lot of heat. And that heat is the enemy of the data center. So there's the massive cooling systems, which have our bearings in them and couplings that help remove that heat. And if they go down, the entire data center will go down, so it's still a critical application for the plant -- or for the data center itself.

So Timken has got a portfolio that really creates significant value across these verticals today. As I mentioned, power is a big challenge for data centers, and it can often even be the bottleneck for getting a plant up and running. And they're turning to on-site power as the solution, but even the gas turbine industry is constrained with long lead times today. So we have a customer that's turned to Timken because they located unused 50-hertz turbines overseas, and because of our long history in our Philadelphia gear business of designing and building power generation load gears, they knew we could help them with this problem. So we've designed them custom load gears that will convert the power of the turbines to match the 60-hertz generation that's used in the U.S.

So this is another great example of how we're doing integrated system solutions today for our customers. This will cut the lead time for them and get their project off the ground much faster by eliminating the bottleneck of power generation for the data center.

Now I want to turn to aerospace as an example. New designs in aerospace and defense market are always pushing the limits of what's possible. They're looking for lighter weight, higher speeds, all still -- while maintaining extremely high reliability. Timken's got a lot of applications across both commercial and military space here, and whether it's air, land or sea and even space, this puts us in a great position in this vertical. And why is it so great for Timken? Well, it's because everything is mission critical. Whether you want to talk about the bearings that go into gear drives of a helicopter, where failure is catastrophic, to the cycloidal drives and precision bearings that we supply to satellites that operate in extreme conditions, vacuums and very extreme temperatures, where no maintenance and repair is possible and failures costly, to the main reduction gears in the Navy ships that we supply, where failure leaves them stranded at sea.

But in addition to being mission critical, they're also always looking for weight reduction to improve their profitability because it reduces fuel consumption and allows them to carry more cargo. And there's a balancing here of really making sure you maintain the reliability while you're reducing weight.

A great example of where we do this today is actually with the commercial airline seat manufacturers. So we work with these customers to shave ounces off of all the linear systems that go in every 1 of those seats in the airplane that still needs to operate for thousands of cycles throughout that aircraft's life. That said, reliability is still extremely important because nobody wants to be stuck on an airplane for 14 hours when the seat doesn't recline, so even reliability is important in that application as well.

But another example about weight savings is with the new bearing technology that we've developed. We're working with customers on their next generation of higher efficiency aircraft engines and gear drives. And we've developed and tested a new ceramic roller that reduces the weight while maintaining the same stiffness and life of the bearing. The rolling element itself is 58% lighter than the traditional steel rollers and the fact that this is inside of the drivetrain further increases the value that it creates for the customer with weight reduction.

As we talk to customers about this technology, their eyes absolutely light up thinking about what's possible, and we're working with several of them on prototypes for their future generation platforms. But what's really amazing here is that they're so enthusiastic about the technology, they're actually looking at retrofitting some of their older designs and taking advantage of this technology earlier than having to wait for a complete redesign.

And for those that understand the aerospace industry know that they're not looking to do redesigns unless it's absolutely necessary or the benefit is massive for them, so you can see how valuable they find this new technology that we've developed.

And then the last ecosystem I want to talk about is urbanization and rail systems. And this touches our market sectors of infrastructure and industrial transportation and mobility. So urbanization is driving a need for increased passenger rail and metro that they constantly want to run smoother, faster and more reliable. But you also have developing countries like India, as an example, investing heavily in their freight rail infrastructure to support their expanding economy across the country.

And we have a lot of touch points across these industries, whether you look at the bearings and lubrication systems used on freight, to -- as you move into the passenger car, you add the need for linear systems on the doors or if you get into the bearings, couplings and lubrication systems in the construction equipment that's needed for the infrastructure build-out.

If you've ever been in a tunnel and wondered how in the world did they build this, up on this slide, you can see an example of a tunnel boring machine, and that's the piece of equipment that they use today to build these tunnels. They're massive in size. They're 30 to 60 feet tall, hundreds of feet long, and on the front of them, there's a bunch of cutter heads that break up all the rock and are very extreme and demanding application.

Customers count on Timken bearings inside of those applications because they know that they're going to be the most reliable option that they have. And this keeps their projects running on schedule and on budget, and really create significant value for them completing their projects on time.

And then the last example I want to talk about is really about where technology and customer intimacy come together to create sustained value. So we have a customer in Brazil that we do on-site reconditioning of their rail bearings with today, and they were running into an issue with the electrification of the drivetrain, causing electric arcs through the bearings in their MSUs or motor suspension units. And as we thought about this and thinking about the electrification trend and the fact that we have the technology that can solve this problem, we put our engineers to work and really developed a solution to solve this by optimizing the geometry of the bearing on the outside, but then also adding a dielectric coating to prevent the arcing from happening.

As a customer installed these, they've gotten 2x the life out of the bearings, reducing their total cost of ownership from this. And the fact that electrification is happening in so many spots, and we have the ability now to extend this to other customers with the same application, but other applications experiencing the same problem and creates a real growth opportunity for Timken.

So I really hope that these examples showcase how Timken's technology is an enabler to drive the 3 pillars that Lucian talked about for Elevate to Outperform. First thing I want to point out is Timken is a technology leader that customers value and trust with a strong product reputation, and that's not easy. As we go forward, we're going to use 80/20 to really better focus those resources under the highest value opportunities that we have.

Second, we've got many touch points across those strategic verticals that we have today with all of our products, and this really creates the access with customers that is needed to create the more complex system solutions that we're talking about today and create more value for our customers.

And then finally, we're going to deploy a new technology process across One Timken that really ensures our ability to scale and improve efficiency in everything that we do, so I'm really excited about where we are today, and I'm confident in the technology we're developing is really going to have a bright future for Timken and our customers. And with that, I'll turn it over to Neil.

Okay. Thanks, John. Thanks, Lucian. I appreciate what you guys have shared thus far, very exciting presentations. Well, I'm getting a little nervous and I might be replaced by humanoid at the next Investor Day. We're now going to take a break. There are refreshments that are available here in the room and we'll start back up around 10:05.

[Break]

All right. Everybody, if you could please find your seats, we're going to go ahead and get started again. Just a friendly reminder to our virtual audience, please e-mail your questions ahead of time, if possible for the Q&A session Okay. Now please join me in welcoming Tim Graham, President of Industrial Motion to the podium.

Thanks, Neil. As Neil said, I'm Tim Graham, President of the Industrial Motion business. I've been in this role for about a year. I had the privilege of leading the business the last year, which has been fantastic. Prior to that, I spent really 2 decades building this engineered bearing multinational footprint that we talk about, and you're going to hear more about today. So really familiar with the company, understand how we operate and understand what makes us tick and how to leverage that and utilize it going forward. So there's no question, John does have the coldest job in the company.

But quite frankly, mine is not bad either. I get to work with 19,000 really talented individuals that really work together to take all the fun stuff that John develops and his team developed to the market to solve our customers' challenges. I'm going to spend my time talking about how we do that across the temping company, leveraging the strengths of the industrial motion and the engineered bearing businesses. Then I'll turn it over to Mike, and he'll talk about what that means to company financials. As Lucian mentioned, we operate 2 complementary businesses that bring unique strengths that we're able to utilize to grow the Timken Company revenue globally. Industrial Motion is currently about 1/3 of our sales revenue and leads our expansion into motion control and power transmission solutions. The business unit is made up of regional industry-leading technology-driven companies that not only expands our content in key applications, but also expands our customer reach, increasing our share of wallet in high-growth markets.

We're able to leverage the strong customer positions through regional sales and engineering expertise that the engineered bearing business has built over many decades to engage and solve customers' challenging problems. Our portfolio spans linear motion systems, lubrication systems, precision drives and power transmission solutions. Across many of these categories, we hold strong market positions. What differentiates the Industrial Motion business, though, is our ability to combine these technologies with our engineered bearing portfolio to customize solutions that participate in specific and complex customer applications. We have clearly evolved from selling individual components to predominantly designing, selling and servicing systems that expand our reach into the broader motion system, helping customers improve reliability, efficiency and performance.

As part of Timken's broader Elevate to Outperform strategy, Industrial Motion is focused on 3 pillars to accelerate growth. First, we're focused on optimizing the portfolio ensuring that we have businesses in the portfolio that we are the rightful owners of. Our portfolio shaping activities have been very active with our recent divestiture of the belts business that is expected to increase our segment EBITDA margins by 200-plus basis points.

Secondly, we're focusing our resources, both talent and capital on high-growth strategic verticals where we are positioned to win in the marketplace. A great example is the continued investment in our high-growth [indiscernible] Seals business, which has been growing at 10-plus percent CAGR for 7 years. This year, we found ourselves in need of additional floor space for equipment to continue to feed the growth through their capital budget. In 2026 alone, their capital budget is double that of the overall Temping company average capital as a percent of sales invested. And third, we leveraged the Timken Company multinational footprint to operate as One Timken company, both commercially and operationally, utilizing regional resources and footprint to accelerate growth into new regions.

Two great proof points of Timken taking action within the last 2 months of portfolio shaping is our recent acquisition of Bijur Delimon and divestiture of the belts business. The belts business divestiture is consistent with our 80/20 mindset to improve margins and focus our resources on strategic verticals. Again, we fully expect to realize a greater than 200 basis point improvement in segment EBITDA margins.

The acquisition of Bijur Delimon is a great fit. It expands our lubrication system offering in high-growth verticals as well as continuing to grow our lubrication business. This acquisition was a strong strategic fit that will be accretive to Industrial Motion segment margins post synergy and will allow us to scale the lubrication systems platform to greater than $500 million in annual revenue.

The integration is off to a great start, and it's led by our office of transformation team. As Lucian recently mentioned in our Q1 earnings call, Pillar 3 of our growth strategy is scaling several of the motion platforms globally. Many of the industrial motion platform started as strong regional businesses with deep technical expertise. Our opportunity now is to scale these platforms globally, utilizing Timken's existing international footprint, and commercial infrastructure for engineered bearings.

We continue to expand Linear Motion and Lubrication Systems businesses outside of their home regions of Europe into key growth regions. For example, Linear Motion is on pace to grow revenue nearly 50% in North America in 2026, that's a 5-0, so significant growth in North America out of linear.

While we're focusing the precision drives and power transmission solutions outside of the U.S. to grow in new expanding regions. By leveraging our existing manufacturing, distribution and customer relationships globally, we can accelerate the expansion of these specialized motion technologies. This approach allows us to scale efficiently while preserving the engineering expertise that differentiates these businesses.

In Engineered Bearings, we offer the customer access and global infrastructure that we are increasingly leveraging to accelerate growth, including Industrial Motion as we've shown, the motion businesses offer huge potential through global expansion. In Engineered Bearings, we live our specification driven advantage. We serve safety-critical, high-performance applications across industrial markets, in aerospace, rail and wind energy.

These are markets also characterized by long life cycles, high switching costs and recurring aftermarket demand. While Industrial Motion expands access and adjacency, Engineered Bearing provides the installed base, the margin durability and cash flow that underpin our portfolio.

Together, this is what drives us to operate as One Timken going forward, leveraging the breadth of the global ecosystem and regional, commercially focused teams to generate additional value creation in the depths of customer specifications.

Within engineered bearings, we hold leading positions across several high-specification bearing categories. We compete at the top tier globally with a broad range of industrial mounted and plane bearings and then with specialty bearings for aerospace precision, rail and wind applications. We are laser-focused on technically demanding OE applications requiring engineering depth, advanced manufacturing capability and global support for high-performance bearings.

Our breadth across these categories has and will continue to enable us to grow our share of wallet across multiple verticals and most importantly, across the full product life cycle for higher-margin service parts. The strength of our technology, our product portfolio and our global reach forms the foundation for both growth and strong profitability.

While Engineered Bearing already holds strong positions, we see meaningful opportunity to further improve performance. We are executing 3 focused initiatives to elevate the business, which in the following slides I'll talk about in more detail.

Relative to the first pillar, portfolio optimization, we are selectively exiting low-return parts of the bearing business and reallocating capital and resources towards high-margin industrial markets. Secondly, we are reducing structural complexity through disciplined 80/20 execution in all regions. And third, we are taking our established Timken operating system to the next level to drive enterprise-wide productivity and margin improvements.

Together, these actions are expected to structurally improve profitability and further strengthen cash generation over time. Again, the first step in elevating performance is portfolio optimization. Those of you who have tracked the Timken Company over a longer period know that we have significantly reduced our exposure in auto OE applications in prior years. Concretely, we have discontinued close to $1 billion worth of bearing business in automotive OE over the past 2 decades and replaced it with higher margin industrial sales.

Since the outbreak of COVID in 2020 and higher inflation in the following years, we have experienced a declining profitability in our automotive OE business again with structural margin pressures in this segment and low return on invested capital.

With our strategy, we are taking the deliberate decision to exit the remaining lower return exposure and invest more resources in higher-margin industrial verticals. I'd like to mention that we are executing this shift in a phased manner, preserving key customer relationships while responsibly managing stranded cost.

As a result of this initiative, it's expected to contribute approximately 150 basis points of segment margin improvement over time.

The second initiative entails our recently started disciplined 80/20 initiative. As the term suggests, on 1 side, we are engaging in concerted actions globally to reduce the structural complexity of our business. As you can imagine, our legacy of solving customers' technical challenges for 125 years and the outcome of adding products and customers naturally has built complexity over time.

On the other side, and more importantly, for the long run, we are systematically refocusing the organization on market segments, customers and products where we have the strongest right to win. For priority customers, we are aligning operations and business processes to deliver best-in-class service and responsiveness through the cycle.

For lower priority segments, we are simplifying the model. For example, self-service, shifting business towards distribution and rigorously automating the business to reduce cost to serve. To give you an idea of what the analysis tells us, in the Engineered Bearing business today, 50% of our active SKUs and 50% of our customers are generating only about 1% of our revenue. It's difficult to see and you can't unsee it, but half of our SKUs and half of our customers generate about 1% of revenue. So far, we've identified about 25% of our bearing SKUs for harmonization. We've trained more than 300 leaders in the 80/20 methodology, and we have appointed more than 20 work stream leaders that are passionate about driving the initiative and growing our best customers into raving fans of Timken.

As you heard me talk about in the beginning, I spent 2 decades running the Engineered Bearing business on the operations side, generally, globally. I've lived globally. I've worked globally. I can tell you the impact of this and getting this right, we can't overestimate what the impact is to the operating side of the business, not just from a cost standpoint, but what I'm most excited about in my new role, it allows us to utilize that capacity, both equipment as well as people and capital to find ways to grow in the marketplace, and so very excited.

We've won the hearts and minds of our 19,000 associates, they understand this, and now they're aggressively walking down the path with us. Now that you have a better understanding of how the 2 businesses operate and where the focused initiatives are, let's spend some time talking about what it means to really operate as One Timken and what that will mean for our customers and our business.

As we expand our ecosystem, it is equally important that we simplify how customers engage across Timken. Historically, the business has operated through largely separate commercial organizations. We have now aligned our commercial teams around customers and vertical markets rather than products with strong regional teams focused on translating customer needs and demand in their regions to accelerate growth. This includes a new regional-led sales structure, clear channel strategies and a focus on high-value customers through our 80/20 approach.

We are investing in the digital customer experience and data integration to make it easier for customers to get the engineering support needed to design the systems required. Together, these changes allow us to present a single Timken interface to customers and expand our share of wallet. The engineered bearing business has been focused on providing high-end customized solutions to the food and beverage industry for many years. But as we operate as One Timken, we are bringing a solution set to the food and beverage industry that now includes many industrial motion products also such as couplings, chain, linear and lubrication systems as well as third-party content in the solutions.

This makes us much more than a component supplier and creates a much stickier relationship, where we are now able to be part of the total system design from the beginning, ensuring that we participate in the long aftermarket tail.

When we integrate technologies together as a system and content, the value we deliver increases significantly. Let me use a marine propulsion example. Historically, Lagersmit was focused on providing sealing solutions. Because of our integrated solution development, we are now able to sell a fully integrated marine propulsion solution, including not just seals, but also stern tubes, several bearing types and several lubrication systems including an oil circulation system from our recent Bijur Delimon acquisition.

As a proven system provider and at the core of our customers' applications, we continue to see opportunities to provide more value not just in the form of physical components, but also aftermarket service and support. The new system approach in this example will drive the lifetime revenue value of 3x that of simply supplying the seal as a component.

Another rapidly growing application area for our Motion Technologies is robotics and advanced automation. In surgical robots, our systems support several critical motion functions within these systems with our linear guides, cross roller bearings, ball screws and high-precision drive systems, enabling extremely precise movements that are required.

The complex design requirements and regulated nature of these platforms limit supplier turnover and improved replacement and service revenues and margins. Our recent CGI acquisition was a leading supplier of precision gears to the medical robotics industry. Now as part of One Timken, we have expanded into a system solution that includes several different drive systems, bearings and linear guides to bring a full package to this rapidly growing market and customer base globally.

This system approach gives us access to 50x the lifetime revenue of opportunity. Again, this includes several third-party content as well as we continue to drive being a total system provider. What brings this all together is the Timken operating system that has continued to be deployed across the entire Timken company driving our execution framework, which started back in 2016 with a focus on lean principles and root cause problem solving on the shop floor and having trained over 3,000 leaders across 35 sites and delivered significant manufacturing output improvements, evolved in 2023 into the Timken manufacturing operating system that expanded to focus on material flow, machine effectiveness and methods optimization, driving greater than 30% productivity improvement. And it is now our Timken operating system, driving strategy execution and consistency across the company focused on delivering greater than 500 basis points of margin improvement across the business through initiatives that you've heard about today around portfolio transformation, 80/20 program and driving the execution rigor into industrial motion as well as the indirect organizations.

Thank you. I'll now turn it over to Mike for the financial review.

Thank you, Tim. Good morning, everyone, and thank you for joining us both here and in the room and online. I'm Mike Discenza, our Chief Financial Officer. And many of you know, I began in this role as the CFO in August of last year. But I have been with Timken for over 25 years now. And while it's obvious, this is my first time at Investor Day in this role, it's actually the third Investor Day I've participated in as part of the team. And there's excitement surrounding each of those previous Investor Days, but this one is different. The energy is higher this time, and I am more excited about what the team is doing and what the future holds than I have been at any time during my extensive career with the company. Timken is well positioned for the future, and we're moving with urgency to deliver on the Elevate to Outperform plan.

Today, I'll walk through the 2028 financial targets that Lucian outlined. I'll explain the revenue growth algorithm and the margin outlook, and I'll show how the actions you heard about earlier translate into significant earnings growth. I'll also cover the impact of our portfolio 80/20 actions, including the automotive OE exit and the belt's divestiture, and explain why those moves matter. Finally, I'll lay out our capital allocation framework and the optionality we have because of a strong balance sheet and significant free cash flow expected.

My goal is simple, show the transparent math behind our targets and why our plan is realistic, actionable and value creating. We're not just betting on a market recovery. We are reshaping the company to earn higher growth and better margins regardless of the cycle.

So we launched our transformation program in January of this year to take our performance to new levels. This is a full company effort designed to sharpen our strategic focus and drive measurable results with a dedicated transformation office reporting directly to me, we have clear accountability across the business, governing execution across revenue, cost and investment initiatives. We have strong early traction with 17 structured work streams putting 80/20 into action. Our priorities are how we grow, how we manage costs and how we deploy capital end to end.

Before I get into the math and targets, though, I want to spend a few minutes on how we'll actually execute and measure our progress. At the heart of this transformation is the 80/20 mindset. It's something we've already mobilized across the company, and I couldn't be more excited about the financial benefits. Why am I so confident? After 25 years working in and around the bearing business, from the plant floor to strategic planning, I've seen firsthand what complexity costs us. The 80/20 approach to our transformation is about ruthlessly focusing on the things that create disproportionate value. The products, customers and processes that truly move the needle. It is in a short-term cost-cutting program. It's a strategic simplification that frees up people, cash and capabilities so we can invest where Timken can win.

I believe in this 80-20 approach and frankly, why I get so excited because it removes complexity that slows us down and consumes margin. It frees resources to accelerate growth in our strategic verticals, it makes the business more predictable and easier to scale globally, and it creates space to invest in R&D and go-to-market muscle where we get the best returns.

Put simply, 80/20 gives us leverage. It lets us redeploy talent and capital into higher-return initiatives and accelerates the margin and growth story we're presenting today. To ensure we convert initiatives into outcomes, we've set clear KPIs and a tight governance cadence with weekly work stream checkpoints, biweekly integration updates and monthly executive reviews. Key indicators that we're using include things like SKU reduction percentage, application engineering hours redeployed to strategic verticals and customers, margin accretion from portfolio actions, R&D spend on prioritized platforms, and working capital days improvement. And as Tim mentioned, we've already started SKU rationalization actions, and that simplification will allow better line balancing that improves both throughput and reduces urgent expedite costs.

And finally, we'll be transparent about our progress. And of course, we will course-correct quickly where needed. Overall, these actions that are underway to transform the core, along with the team's 80/20 mindset form the pillars of the Elevate to Outperform program. The bottom line is this: the execution of the strategy that you heard today is expected to directly translate into compelling financial outcomes, including accelerating growth and margin uplift through 2028. This is not theoretical. It's operational, simplify, redeploy, invest and leverage the power of One Timken.

Starting in 2027, we expect to show tangible margin improvement from portfolio moves and early 80/20 actions that will be visible in segment margins and improved working capital conversion. Collectively, the combination of redeployed resources, higher R&D effectiveness and platform expansion should materially contribute to our revenue and margin targets. Importantly, this success is repeatable, with a simpler portfolio and concentrated go-to-market, Timken will become faster, more predictable and more capital efficient.

The 80/20 discipline is not new, but it is the right lever for Timken right now. It's about creating the runway for our best talent and best products to scale globally. That's how you turn capability into superior returns and how you build a company that thrives across cycles. 80/20 is the practical engine behind our transformation and the numbers I'll walk through today.

So let's talk about the revenue growth algorithm. Our target is mid-single-digit organic growth annually through 2028, outpacing the market by more than 100 basis points per year. Starting from roughly $4.6 billion of reported sales in 2025, portfolio actions like the auto exit, belts divestiture and the recent Bijur Delimon acquisition, create a cleaner pro forma 2025 base of about $4.4 billion.

From that base, growth comes from 3 places. First, the underlying market growth, including pricing, which contributes about 350 to 400 basis points of the CAGR. Second, outgrowth from our strategic verticals for an incremental 50 to 100 basis points annually. And thirdly, global platform expansion adds another 30 to 50 basis points annually including the aggressive industrial motion regional expansion, which Tim highlighted earlier.

Collectively, these actions drive more than 100 basis points of annual outgrowth versus the underlying market and bring us to a 2028 revenue range of $5 billion to $5.2 billion. We expect adjusted EBITDA margins of 21% to 23% in 2028. And roughly a 500 basis point improvement versus 2025 at the midpoint. This would be a new record for Timken.

The drivers breakdown like this. First, we expect a positive 100 to 150 basis point contribution from the operating leverage on market growth. Keep in mind, this is net of incremental investment we're planning to help accelerate growth as part of the transformation plan. Again, the reduction in complexity as part of 80/20 will free up resources that we intend to redeploy to help support our growth initiatives. And we're also planning to increase R&D expense over the time horizon, which would be embedded in that line, for example.

Next, we're forecasting a 150 to 200 basis point margin gain from portfolio optimization related to the automotive exit and belts divestiture. I'll cover these respective actions in more detail in a few moments, but you'll notice that this is the biggest driver on the margin bridge and is in our control with actions already underway. With respect to the strategic verticals, the outgrowth we are targeting is expected to contribute 100 to 150 basis points to the 2028 margin target.

And then our global platform expansion as part of Pillar 3 is driven primarily by outgrowth within the margin-accretive industrial motion platforms such as linear motion and automated lubrication systems. What I want to emphasize is that most of the margin increase is within our control through execution and portfolio actions and not dependent solely on volume recovery. So here's the first of the portfolio actions I want to highlight. We're reducing automotive OE exposure in a phased way, as Tim highlighted earlier. Action is already underway set us up to exit about $150 million of revenue through 2028. That exit is expected to add about 150 basis points to engineered bearings segment margins when complete, and it frees resources to redeploy into higher return areas.

We're applying that same portfolio, 80/20 discipline in Industrial Motion. Our recent announcement to divest the belt business allows us to materially improve the structural profitability of the segment and simplifies our portfolio, generating more than 200 basis points of margin improvement on a run rate basis and roughly $100 million of revenue removed from the segment.

On a pro forma basis, Industrial Motion EBITDA margins rise above 21% just from this action. And this action will be accretive to EPS in 2027, and it lets us, of course, redeploy resources into our strategic growth verticals. This next slide provides details on the 2028 outlook for sales and margins by segment, inclusive of the portfolio optimization in both segments I just highlighted.

Both segments are expected to contribute to total company sales growth, but you can see that the CAGR is meaningfully higher for Industrial Motion. Industrial Motion is indexed to relatively higher growth markets like robotics and automation and has more regional expansion opportunities as part of Pillar 3.

In addition, the Engineered Bearings segment has a higher revenue impact expected from portfolio optimization. I want to reiterate what I said a few slides back, that our mid-single-digit organic growth rate is higher than the total sales CAGR we show here since this includes the impact of the portfolio optimization. Both segments are expected to reach record margins in 2028, led by Industrial Motion expanding by around 700 basis points at the midpoint versus 2025.

Just to reiterate, most of this margin expansion is driven by disciplined execution of Elevate to Outperform, and about 1/3 of it is from the portfolio actions already underway. And that margin expansion is a critical driver to our higher earnings and free cash flow trajectory. Timken has also proven its ability to consistently generate strong free cash flow which will fuel our strategic initiatives and enable us to continue returning capital to shareholders.

Overall, we generated approximately $1.1 billion of free cash flow over the last 3 years. More importantly, we're expecting to generate around $1.3 billion in free cash flow over the next 3 years in total. This represents a $200 million increase versus the prior period based on around 95% conversion of GAAP net income, with the higher margin outlook being an important driver, along with our 80/20 simplification actions, which will help unlock working capital.

And here is our disciplined capital allocation framework. We're effectively compounding this strong free cash flow and utilizing our investment-grade balance sheet to fuel our growth initiatives while consistently returning cash to shareholders. Investing in our core business remains our #1 priority as it generally produces the highest risk-adjusted returns on capital. We're targeting CapEx in the range of 3.5% of sales, which compares to the company's previous range of 3.5% to 4%. Our capital intensity is expected to continue to move lower over time as Industrial Motion becomes a larger percentage of the overall company, and we more efficiently leverage our existing asset base through our 80/20 mindset.

Second, we expect to continue to pay an attractive dividend that grows over time. The expected payout ratio this year is below 25% of adjusted earnings, and we think the payout ratio will remain below 25% over the foreseeable future given the significant earnings growth we expect. I'll cover M&A and share buybacks further in a few minutes, but both remain very attractive options for deploying capital to enhance our earnings power and maximize returns.

And finally, we're still targeting net debt in the range of 1.5 to 2.5x adjusted EBITDA, which is the foundation of our capital deployment framework and is in line with the low to mid-BBB investment-grade credit rating.

Another point I'd like to make here is that return on invested capital comprises 30% of the long-term incentive plan for our leadership team, so disciplined capital deployment is especially important. And the free cash flow generation and strong earnings growth expected provides significant capital deployment optionality over the next 3 years.

Based on the cash flow and EBITDA outlook, we expect to have $2.4 billion in total capital to deploy over the next 3 years, while still maintaining a net leverage ratio at 2x. Note that this includes $1.6 billion in cash available to deploy towards M&A and share buybacks, and keep in mind that our 2028 targets do not include incremental M&A and share buybacks, which represents upside.

Let me focus a bit more on the potential capital deployment optionality, specific to acquisitions and how we think about M&A. On the right side, you can see listed the core principles for future acquisitions. With respect to fit, Timken needs to be a natural owner of a target, and it should have alignment with the strategic verticals we've detailed. Additionally, an acquisition needs to be financially attractive with the intent of maintaining the company's investment-grade rated balance sheet. And note that when we consider M&A, we do that relative to buybacks as an alternative.

Timken has demonstrated a strong history of returning capital to shareholders with nearly $2 billion returned through dividends and buybacks over the last 10 years, and returning significant amounts of capital to shareholders is expected to remain an important element of capital deployment over the coming years. You can see we've delivered 12 consecutive years of higher annual dividends and 2026 will mark 13 years based on the recent quarterly dividend increase approved by the board a few weeks ago.

Since 2013, we have reduced our share count by approximately 25% on a net basis. We currently have authorization to repurchase up to 10 million shares through 2031 and have been actively buying back stock thus far in 2026. Given where our stock is trading and the confidence we have in the future earnings power of the company, we would expect share repurchase to remain an attractive use of capital.

Let me now turn to our balance sheet, which remains a key strength of the company. Today, we are reaffirming our net leverage target range of 1.5 to 2.5x. Note that we maintained leverage right around 2x the last few years as we've paid down debt levels to offset the declining EBITDA from an extended period of lower end market demand. Overall, our balance sheet puts us in a great position to drive shareholder value creation through capital deployment.

So let me close on the summary of our 2028 financial targets that Lucian highlighted earlier. The bottom line is this, we expect significant sales growth, margin expansion and higher earnings over the next 3 years, driven by Timken's Elevate to Outperform plan. These would all represent new records for the company and really demonstrate that we're building a more simplified, higher growth and higher-margin Timken Company. Thank you all for your time today. I hope you can sense the excitement we have for the future earnings power of the company and the value creation potential. With that, I'll turn it back over to Lucian to provide a few closing remarks before we move to the Q&A session. Lucian?

All right. Thank you, Mike. I think you've heard my close with a word, excitement, and I hope you can sense that from all the presenters. What I want to do in my closing remarks is bring you kind of back to where we started from and maybe help understand where that excitement comes from. That excitement comes from confidence in the strategy and in its execution, and it comes from having implemented most of the financial elements that are required to execute and also from having already taken several of the actions that are well aligned with the 3 pillars.

We've gone through our 80/20 portfolio, and its identified our accretive portfolio moves that are well underway. Our strategic vertical focus that we've talked to you about is already driving out growth. And our multinational footprint is creating new growth vectors that are already starting to bear fruit. These 3 pillars that you saw today, they're the foundation of how we do it. They're the foundation of how we're organizing and they're the foundation of our operating model. They will evolve over time, and we've outlined that with you, but they would most importantly become part of who we are and what sets us apart.

So let me try to wrap up with the punchline of why Timken. Obviously, I'm biased, but with facts like the ones behind me, I think it's a bias that's anchored in a very compelling reality. We've got a tremendous foundation to build upon. We have the customer credibility in the right market spaces. We've got the balance sheet to invest in growth. We're in the right verticals. The wind is at our back and megatrends are in our favor. We have a clear and compelling execution framework. And this is the most important part, which is it's not revolutionary. It's tried and true. It is simple discipline and clarity in execution, its simplicity, and we're moving with urgency. This recipe coupled with speed and agility, it results in a strategy that always works.

Whether it works or not is in our control, and we stand here confident and accountable to you to make it work. Last but not least, we're committed to our financial targets. These are not aspirations, they are commitments that we make to ourselves to deliver. And so thank you for your time, and we very much look forward to answering your questions. So I want to turn it over back to Neil. Neil?

Thanks, Lucian. Okay. We're now going to move to the Q&A session. We're going to have chairs brought up here in front. So please raise your hand. And you ask a question, just announce what firm you're with, your name. And then we'll have a couple of mics in the room, and then I'm going to try to navigate between some virtual audience questions as well. First, we're going to go to Brian and then we'll hit David over here. So Bryan go ahead.

Bryan Blair from Oppenheimer. Really good color throughout. To start Q&A at a high level. Maybe elaborate a bit more on the revamped Timken operating model. That can mean a lot of different things to different companies, and frankly, it can be more or less impactful or needle moving. How should we think of operating model revisions, the changes underway in the context of Timken's evolution?

Yes. Thank you for the question, Bryan. So something I'm very passionate about because I've seen it work. And it's kind of simple and basic, it's a little bit almost you want to get healthy, what do you want to do? You want to go to the gym, eat better, sleep more, drink more water, everybody knows it. But the proofs in the doing.

This is no different. It's based on basic fundamental principles, which is you have management routines that are well defined, very prescriptive, based on 1 version of the truth. You have a cadence. So we have something that is called business decision week, so it's 1 week of the month. When we sit down and there's a day for functions and there's a day for regions and there is a day for the P&L. You make all the decisions that weak, then you have time for the rest of the month to engage with the market, engage with the customer. It doesn't even take the whole week. We don't do -- it's not a surprise agenda. It's not an agenda of the month. It's a bit -- think of Danaher operating system. All work goes through a standard process. Everything is not a crisis, everything is not special. If your standard processes work well, you can leverage those to really make decisions and drive forward. But the biggest core principle behind it is 1 version of the truth and simplification. So that's around the business day to day.

Then there's a quarterly cadence, which goes around the strategy. So what that means is strategy is not an annual process that results in a fancy book that goes on a shelf, the strategy has an execution plan, and then we monitor the strategy execution on a quarterly basis. M&A integration is another part of that. So M&A integration, every single acquisition or divestiture as a leader, whether it's called a separation manager or an integration manager. There's a business case, no need to create a new 1 because when we did the divestiture or the acquisition, we reviewed 1 with the Board, we already have it. We just use that one, and we'll use that 1 every 2 weeks, and it's people you see in front of you today that review that. Everything doesn't work like you planned, but your review and adjust and you don't put away the original commitment. That is the commitment, that's the only 1 that that is there, that's what we look at. And then we adjust to the market reality in terms of what we need to do different, but what we need to do different is not reset the goal.

And yes, everything won't work perfect. And at some point that's why we do portfolio management, there will be 1 of those acquisitions, 1 out of 10, 115 that maybe wasn't meant to be and then you take action, but use that discipline. So it's really tried-and-true operating model, taking kind of the best of what we've been able to learn from others and using it again, it's not -- there's nothing novel about it. No secret mousetrap here. It's just literally the tried-and-true model that we're applying with rigor and with discipline and using 80/20 on top of that because really, when you try to apply that model to the existing complexity, just imagine you're trying to drag half your customers and half your SKUs through this model over 1% of the revenue. I mean, it doesn't make sense.

So that's where simplification will enable the model. But the model is in place already. We have the routine, we have the cadence. And little things like these monthly meetings have the same agenda every month, the same slides every month, finance creates them, and there's just new updated numbers, but it's not a new version of the scoreboard on the stadium. It's the same scoreboard we saw last month, how did it change and what's different and what are we doing about it?

Yes. Appreciate the detail. As a follow-up, you have pretty healthy Industrial Motion financial targets that you put out or commitments. How should we think about market growth and your team's out growth similar to the bridge that you provided on Slide 65, but segment versus consolidated?.

Yes. Look, I think given where we sit today, we had to put down what we see in front of us. And I think you can look at this and say, is everything you're going to get out of 80/20 in here? Or is there more regional translation than you have? And we've tried to give you our best look that we see today, and that's -- Industrial Motion growth is no different. So the margin, again, as Tim talked about, we have a significant step-up just from the belts exit alone. That one's already -- yes, we still need to close, but it's something that's well underway.

We understand the margin accretion on some of these businesses as they grow. As you can imagine, when you sell into medical surgical equipment that's really good margin business. Tim talked about Lagersmit now with a long track record of 10% growth, over 10% growth. So those are all accretive to the portfolio. So just outgrowing those businesses already gives you margin lift. Some businesses like linear like lubrication do have also nice leverage on the fixed cost on the volumes, so that helps as well in terms of leverage.

But I think overall, this is what we see in front of us. We also recognize translating these businesses -- and that's, I think, the aha moment. It's not as simple as they don't have a product catalog that you just hand to the bearing sales force and say, please sell this. It's an engineered solution business, which means you've got to build the ecosystem, which means if you want to take a roll-on out of Italy to France, you've got to replicate your Italian-speaking, many engineers with many relationships on the other side of the Alps. It's just reality. When you try to do it in the U.S., it's the same. So we've done that in the U.S. actually, for roll-on we're seeing it bear fruit. But there will be a sequence on how we invest and how we do it.

But I'm excited that this -- these 3 pillars -- I've been asked before, so how long do you think you can sort of live off of these? Is this a short term? Is this not I think 80-20, there's a benefit from simplification that's quick, but the benefit from focus on the 80, that's longer lasting. So I think that will carry us. Focusing on the verticals, you heard talking about humanoid, talking about automation, that growth will fuel for quite sometimes the growth of Industrial Motion. And the regional translations will take a while before we run out of ground there. And then obviously, there's further capital deployment for M&A.

Great. Go to David here in the front.

David Raso, Evercore ISI. First, Capital Markets Day as CEO. Just curious, when you were rolling this this plan out, just so we learned sort of where do you feel -- and I'm speaking about metrics, not just qualitative. What are some of the metrics you would say you held back, you feel those are maybe a little more conservative? And where were the areas that you felt you were willing to put your neck out a little bit. And then the follow-up be kind of more specific.

Can you update us on where the auto OE divestitures are backing away from low-margin revenues are in your negotiations and the revenue that you're embedding in the guide for humanoid in particular.

Okay. So I'll hand out to Tim because otherwise, I would be telling you what Tim is doing every day. So you'll hear it straight from him. But on the metrics on the metrics themselves, I would tell you it was surprising because I would have expected I'm going to have to sell these to the left of me, and that was actually not the case. I think we had enough time for Investor Day that we were able to go through the logic through the math through everything and arrive at numbers that everybody is aligned behind, so it wasn't like a big internal negotiation.

When I -- what was, at least for me, a design principle going in is that there's not going to be big numbers and yes, but -- so we could have put out revenue of 5.5% up there and then come back and say, "Yes, yes, but remember, now we exited automotive, so you get to deduct $200 million from that " So you got $500 million, but it's -- you get 5.5%, but it's 5.2%. So we budgeted all that. We budgeted reinvestment into our margin because we didn't want to come back in 2 years and say, "Well, we hit our margin, but we had -- we want to spend on R&D for the future, so it's less, that's in." So we try to give metrics that are all in. So we don't revise because as a new management team, the most important thing that we have to earn is credibility.

And we recognize that and putting numbers behind us is 1 thing, delivering them day in, day out, and that obviously means Q2 and Q3 and Q4 and the rest of them after that, but that's what it was. So I wouldn't say there was 1 that was just a big debate over. Do you want to talk about...

Sure. Yes, I'd love to. So on the automotive I'll say, exit plan. That's been going on for quite a few years. As we said, we've been sort of ramping that down. We took another look at it. We really have line of sight. If you look over the next 2 or 3 years, we've already got, I would say, 85%, 90% of our contracts and our discussions done with customers to know what that plan is going to look like really through the end of 2028. We may bleed into 2029. But for the most part, we have time frames locked down. We understand what we're going to do from a capacity standpoint. And so I would think about it in that time frame.

The humanoid revenues?

Yes. So on the humanoid revenues, John mentioned a few of them. We're still into the world of leading indicators versus revenue in hand. So I think what we know is what pipeline we have and we already mentioned it's over $100 million. We've quoted on tens of millions of dollars of business that at least if you listen to customers, it's not that far out in time or that will begin to materialize with supplied prototypes. So that is that is in motion or pun intended, but the pace at which it will happen, depends these OEMs, especially the typical ones you would think in the humanoid space tend to be very ambitious. And sometimes, they turn out to be right.

So if you take their estimates, then it's faster, if you take what is more reasonable historically, then maybe not as quick. But I can't really give you an exact time other than to say how big the pipeline is at this point. But I would say humanoid is a bit binary or if this is going to be a big platform, then obviously, it will require some capital investment, it will require there's a -- it can only go so fast to get big because we have to invest for it. And that takes 18, 24 months to do. So that's kind of at least at the minimum, that's a limitation.

Angel Castillo with Morgan Stanley back here. Just wanted to maybe follow along those lines a little bit more. Lucian, you talked about just giving us, I guess, ultimately what you see today. There was a lot of what you described that ultimately alluded to, potentially the ability to take market share to grow your aftermarket business, given the opportunities that some of these other products maybe are kind of unlocking and your systems approach to maybe drive growth even beyond where some of those faster growth end markets are.

I just want to clarify, should we assume that, that's all kind of incremental upside? How would you kind of characterize those opportunities? Or are those kind of embedded already in what you've laid out in that backdrop for growth? And then a separate question, just -- in terms of the $1.6 billion, that's not included in capital deployment, Mike, in terms of EPS or M&A, how should we think about that on an annual basis? Is this something that you're going to -- we should think about kind of steadily deployed each year that you'll do buybacks if you don't do M&A that year? And then as it relates to that, just if you could talk about the M&A pipeline, just again, help us understand the cadence.

Yes. So I appreciate the question. And 1 thing I would maybe clarify a little bit, so market share is usually a dangerous game to play because it results usually in the same share at less price. And so I'm a firm believer and share of wallet versus market share, so how can you get that share of wallet from the customer, what else can you add to your offering to get more share of wallet.

Now if you can get market share by a completely different offering, so you -- and that's the beauty of 80/20. If you really focus on which ones are 80s customers and which ones are your 20s. What Tim didn't tell you is, yes, 50% of the customers cover 1% of the revenue, but a very small percentage of customers cover half the revenue.

So you have half the revenue with really a very small number of customers, so how do you go to those customers and engage them differently and get more share of wallet, whether that share of wallet is first-party content, third-party content, it's back to that systems engineer. And again, I was talking and break with several of you, the systems engineer doesn't have to be 100% of what we do. There will still be a product sale that we do to a customer that just wants to buy a product, whether we do it directly, whether we do it through a channel partner, but to those key verticals and the key verticals don't buy anything key customers in the key verticals, in there is where we want to go for that share of wallet and how do you get more of that from customers.

So that's what drives the growth. So if you think about the 2 vectors, it's the verticals, driving share of wallet and then it's the regional penetration. And the regional penetration that does have an element of share shift the beauty there is we're in the very elegant position of being the minority share. So then it's very difficult for somebody to fight back because it cost them a lot than it would cost us.

And the capital allocation question. So maybe first, I'd highlight that something I mentioned, which is we finished the last several years with our net leverage right around 2x, and we reaffirmed our target leverage range. So you can put that construct on it first, that we're going to continue to be disciplined in our capital allocation. I think that's important. As far as timing goes, hard to lay out the timing on that. I'd say we'll be opportunistic with our M&A pipeline as we've been. We've given you the criteria for what M&A looks like. So it has to be a natural owner strategic vertical fit, et cetera, so we'll continue to look for opportunities like that. But we aren't going to let our balance sheet go underutilized. So we will continue to balance those 2 and make sure that we're staying disciplined, but staying active.

Rob Werheimer, Melius Research. So you've laid out a lot of changes, which is fantastic, and I wanted to ask about organic outgrowth and what is the driver of that over the next couple of years? So maybe system sales takes a little while to get moving, maybe it doesn't, maybe cross-border selling. So how do you think about that outgrowth and what the sources are.

And then second, I'll just ask them both at once, on M&A, do you see integration of M&A is different now? Maybe it's more strategic as you're trying to build systems and solutions, maybe you're doing more integration as opposed to adding pools of assets. I'm curious what your thoughts are.

Yes. So let me start with the second one, maybe it's a little more straightforward. So M&A, if you're the natural owner, it's inherently much easier. And integration, the purpose of integration is not to get everybody to use an orange pen because we're not Timken. The purpose of doing an integration is to create value for the shareholder. And if you look at Bijur Delimon for example, it's been -- Tim can tell you this, it's hard to tell after 2 months, who's Bijur and who's Timken because who they're working with are people who speak the same language, who have the same interest to have the same underlying technology, but they have a different customer base in different regions with complementary solutions. All of a sudden, they're stronger together, so they're excited. So that's happening.

Now what we need to make sure as a management team is that we put in the investment that we said we were going to do. So for example, Lagersmit today is spending 2x the rate of CapEx that the rest of Timken is spending, which is wonderful. They're also growing at more than 2x the average of the company. So that's what we want to do. But we need to be here to say if that was a synergy case, if that's what we decided we're going to put our money where our mouth is. So that's on the acquisition integration.

And again, the reason we highlighted the 3 time horizons because there was a lot of debate for putting 3 pillars and 3 time horizons for trying to explain a 3x3, which is not trivial to do. But the reason we did that is to really share with you that this strategy evolves over time, and M&A is part of this, where you start with no regrets, you go a little more bold. And at some point, when you really have confidence in the machine is when you can do more transformational things.

But if you look at the history of companies before us that have done transformations like we'd like to do when Parker or others did their -- they didn't do -- it wasn't the first deal that they signed up for that was only accretive after massive synergy achievement, which they did achieve, so we want to have high confidence in the machine before we go big.

Until then, we're going to go with things like Bijur where it's a little more straightforward. In terms of the outgrowth, you can think back to the same 2 dimensions, which is what can I get from these geographic translations that are really not dependent on market growth that's just taking a technology from an ecosystem from 1 region to another. And then it's the share of wallet with customers, and when half of your customers are 1% of the revenue and half your revenue is with, call it, 10% or 5% of your customers or even less, can you go to that top list of customers and get more share of wallet and more than pay for the 1% at the same time get the leverage.

But the other very important element that we're bringing back through the P&L is verticals are important. We didn't talk about the back of the store a lot, sweating the assets. If you look at our trajectory over the last few years, even in Engineered Bearings and you deduct price from the revenue, you actually have lower volumes, and so if your volumes decline, you can go look for leverage on the extra revenue all day long, it's not going to be there.

Volumes have to at some point go up. So paying attention both the volume as well as the revenue, I think, is going to be important, which is what the P&L will do. So the P&L will be fully aligned with assets, really sweating those assets, really making sure that if we keep that asset, then we keep an eye on the utilization and the piece count. If the asset is not a long-term keeper then, okay, fine, then let's take that strategy. We will do both. But I think it's the discipline on the volume, it's the outgrowth in the regions, and then it's the share of wallet in the segments.

Tomo, JPMorgan. I'd like to ask about the pricing power with One Timken business model. And how much do you bake in the pricing out of the revenue growth and the financial target? And especially if you could talk about how should we think about the incremental pricing power that could come from the business model shift itself? And if you could talk about also some potential competitive changes from possible NSK NTN integrations when it comes to the pricing, please?

Yes. Look, if you step back and look at the business, we separated to EB and IM and talk a little bit separately. If you look at EB margins and you compare it to our peers, we're doing pretty well. So it's not an issue that we don't have a good pricing machine. We have actually a pretty good pricing machine. But in the end, what the question is, is twofold. One is what I said below. Are you balancing that price and volume correctly? Are you simplifying enough to where you're running your assets most efficiently because when you run the complexity that we run, your most frequent operation is called changeover, and changeover is charity, that's money losing. That's not productive.

And so you want to do your productive campaigns as long as possible, and you want to have as few changeovers as possible. So that helps on the price versus cost.

And then we have businesses that are so accretive to the portfolio. Just like you saw, we had -- it's easy for you to conclude that we at least had 2 that were highly dilutive to the portfolio because we're getting margin lift from exiting those. Likewise, we have accretive ones. So how do I double down and invest into those more accretive into the accretive businesses. So I think it's going to be much more of a mixed focus. But the last thing I would leave you with, which I think is the most important 1 is I always started a business with a material margin because if I don't have material margin, then there's nothing for me to worry about, then I have to go out and get some more from customers.

The material margin of this company is very healthy. So now how do I keep more of that to the bottom line? And I keep it by simplifying, I keep it by getting the right mix. I keep it by running my factory as well versus let me go and skim some more on the price. Mike can talk to you about what's baked in, we have some price baked in, but I would say this is not a let's go price higher plan. This is a let's run the business better. Do you want to talk about price, Mike?

Yes. Just a simple answer. Assumed in that revenue growth, that market growth bucket, there's about 100 basis points of pricing assumed in there, so -- which is consistent with what we've been doing recently. And when you consider the 80/20 actions, et cetera, that I think is well within our delivery as our ability to deliver, as Lucian said, our pricing mechanism works really well. So we'll continue to price where appropriate, but assumed in the models of around 100 basis points of growth.

The question just around the discussion around 80/20. Just more kind of at the plant level, are there complexities that, that brings up in that you have plants that don't just make products for auto they may sell into distribution and other applications. So how do you manage that if that is an issue that you have to kind of get around just in terms of how you think about allocating those resources?

And then I guess, Part B, it doesn't sound like cash flows are going to be an issue, but just thinking about looking at Timken India trading at almost 45x EBITDA. Is there opportunity to -- or potential to further sell down and potentially monetize that stake? Or are there -- I know there are some control issues that may arise. So maybe just the potential opportunity to leverage that highly valuable stake.

Yes. Sure. Do you want to I'll take the last part first and then you want to -- we can come back maybe Tim can cover that. So over the last several years, we have taken our stake in Timken India down from 68% to about 51% ownership right now. So as it stands, there's no plans to further take advantage of that. It doesn't mean we're not always looking at it. But as you point out, control issues, if we go below 51%, so it's a very valuable part of our operation. And so I would say there's no current further plans to do anything with that, but we'll continue to look at it.

In reference to the first question, clearly, when you look across our number of plants globally, there is some complexity and there's some overlap in there when you look at 80/20. What I would say is not as much as you would inherently think. And I would say, historically, when we try to go take a look at this, we sort of got scared away because of those interconnectedness of the assets. And so I think the 80/20 methodology, what it's brought us to is -- there are areas that are very clean that we can go action right now. And then there are other areas that are a little bit messier where it's going to take a little bit of time to unwind and look about how -- look to how we reevaluate those asset structures globally.

And so -- what I would say is we're not letting it hold us back now for 1 thing, which historically, we are at risk of that. So we are moving forward in areas where it makes sense. It's clean, go do it. There are some other areas and probably less than we all thought that really are -- have some of that interconnectivity we have to deal with, but it's not really a major part of it.

Maybe just to add to that, specific to the auto, you mentioned, Tim, the auto part of that. So as Tim mentioned in his in his section, responsibly managing the stranded cost is an important part of what we have to do. And so -- and I think we've demonstrated that over time that we address that with restructuring reorganizations. And so we'll always manage that responsibly, and -- but what's assumed in those targets is already accounting for any stranded costs that we're not able to address. .

Yes. And 80/20, culturally, if you roll out 80/20 into an organization within the first 5 minutes, you're going to hear 2 things from the sales force. One is all little customers are called baby whales and then all big customers buy baby products. And so if you buy into those 2 things, then you pack up and go home. What you saw behind us is we said 50% of our SKUs and customers are covering 1% of the revenue, and we said we're immediately targeting 25%.

So we're not allowing the dialogue to slow us down. We're saying, yes, you are correct. There is such a thing as a big customer buying a small product, then there is such a thing as a baby will but half of what we have is not that. So let's not let great be the enemy of good. Let's start today and action what we can do. And if right away, I can only rationalize 25% of my SKUs, that's still huge progress, and then we'll go through the other 25% and see whether we can rationalize 20% of that 25% or 24%. But we will go through that. So that's the approach. The approach is solve for yes, what can you do today and let's not let the debate of the last percent hold up everything else.

It's -- we've established that philosophy very early on. We've seen that before, and we've learned from the past, and I think that's why you see us move with a lot more speed and confidence than before.

Joe Ritchie from Goldman Sachs. I appreciate all the details today. I guess just focused on this whole SKU rationalization. I'm trying to connect the dots on the financial targets of 150 to 200 basis points of portfolio optimization. And then the fact that you're getting rid of the auto business, you're exiting the belts business and that seems to basically get you most of the way there, if not all the way there. So just help me connect the dots between the financial targets? It just seems like there might be some more opportunity on the portfolio rationalization size? .

So a couple of things. So one, what we gave for the margin lift on belts and on auto, our segment margins in each of the businesses. So if you take that, then you got to take 1/3 of the 200 for belts, right? And that translates into only 60 for the company. And then the 150 auto, 2/3 of that is 100. So you get out of the 350 you only get about half. So that's that piece and we have 500 total. The other part is the 500 total is net of investments. So there is another more than 100 that investment. So it's really more like 600 in total. So there is a good 350, 400 on top of that. Is there upside on that? Is it possible?

Yes. I think if you talk to people who have done 80/20 before, 80/20 consultants, generally, people will quote you a number that's maybe a little more than what we have here. What we have is what we think is reasonable that we can execute in this time horizon. Again, this is a 3-year view because the same people that would tell you that there is typically 400, 500 bps of lift, they will tell you it's 3 to 4 years to get it, and this is -- we'd have to get it in to have it actually fully hit in year 3.

So that's part of it is you're not really reaching steady state on 80/20. We're going to try to do better. Of course, we're going to try to do better. But this is not a -- we've got the 700 in the bag, let's sign up for 500. That was not the approach here.

Okay. That's super helpful. And then maybe just 1 other question, so there are other companies that have taken this approach and it's been super successful in terms of expanding margins over the past decade. I think of somebody like an ITW is a good example of that. When they tried to pivot to growth, it was a little bit more of a struggle. I'm just wondering, as you're thinking about your own KPIs and how you're going to manage that almost like transfer process from rationalizing your SKUs to getting more out of your organization to grow. Just help us understand that a little bit further.

Yes. The beauty is we commissioned the 80s teams and the 20s teams at the same time. So this is not a -- let's go save a bunch of money and then we'll figure out what to do with it. We literally did that all at the same time. the training that's being done, and we're using a consulting firm. We've talked about it publicly strategic. They're the leader in this. people that be using spend time in IT coincidentally.

So they've seen they've seen a movie before. And so obviously, we're benefiting from some of those lessons and also some of their colleagues are from other companies that have done this, and they've implemented 80/20 and many other companies. So we're Again, we're trying to invent nothing new. We're trying to learn from others that have done it. But we've really focused on making sure even the training itself, if you come to our 80/20 training, it's -- it's 2 days. And you learn about the 20 in the first 3 hours and then the next 1.5 days is about the 80s, it's about how you grow. And that's really the emphasis that the balance. We're over investing on that side because, frankly, if you look at our DNA, go cut this, go exit this, we'll do that. That will get done.

I'm not worried about that. It's the second part that muscle that needs to have the confidence. We've changed our organizational structure. So for example, we only had regional leaders for 2 of our regions for really the far away regions. There was no European leader. There was no Americas leader. Well, that's the majority of the revenue of the company.

Now 100% of the revenue is box balance between regions and P&L. There's no region without a regional leader. There's no factory without a P&L that owns it. So that box balancing also allows then the regions to prioritize market-facing resources and you hold them accountable for pipeline, for order book for growth and then you can hold the factories accountable for fact your absorption for managing the cost for all the things you would use to manage the back of the store well.

So it allows us to do both of those, and that's the brand's question, that's where the operating model is or the magic comes in, you got to bring that together because you're operating the back of the store in the front of the store and then they have to come together.

The other thing I would add to that, add to Lucian is when you look at this, we've got both businesses that are in this 80/20. And so when you look at how each of those businesses are positioned for this the industrial motion position, as you've heard, we're taking that as the storefront. They know how to grow. They are the fastest growing. So when we talk about growth, we're really leaning on that industrial motion portfolio to continue to grow at higher levels outgrowth and then pull in the bearing side of this from a system.

The bearing side is the 1 that has the 125 years of history, when we talk about more of the 20s, right? And so we're in a great position with a little bit of wind at our back on managing both these, and we can get benefits out of both. So I think that's part of the behind the scenes also.

Thanks so much for all the great info. I had a couple of questions on the capital deployment slide. First is, I noticed that the CapEx is $500 million in both periods prior and going forward. I might have thought with the focus on some of the growth verticals that the CapEx number would be greater going forward. So if you talk about that a little bit. And then the other question related to that slide is the portion M&A and share repurchase, just to understand how you're thinking a little bit more.

Is the share repurchase more of a residual. So if you can't spend all the money on good acquisitions you like, then you got a share repurchase? Or is it at a given point in time, you look at the relative returns of each of those and decide accordingly.

Yes. Sure. So let me start with the second one. And Mike, obviously, I'm sure, is going to want to add. But key at least in the short to medium term back to walk before we run is balanced. So we're not going to go in 1 extreme direction or another better farm acquisitions, things like that, that's -- we have to we have to develop a lot of confidence into where we're all the muscle that's required to integrate and to create value out of something that's more binary like that. So that will, by definition, almost have a balanced approach will we go all the way to share buybacks.

No, because again, our focus on verticals is going to require continued portfolio refresh. We have pretty good healthy list of acquisition targets that we know we want. They don't all become available when we choose. But when they become available, we can move quickly. I think we've demonstrated on Bijur Delimon from the time that I could spell the name to the time that we had an announcement was very, very short. And we moved with speed and thank goodness, we moved toward speed because that market has picked up pretty significantly since we closed on the acquisition, and we were able to close on that at a pretty good value. Mike, if you want to add?

Yes, I can take the CapEx question. A couple of things on that. One, with our shift to growth, especially around the industrial motion portfolio, they are a little bit less capital intense. So I can get more bang for the buck to use a term by keeping those dollars the same. And then we're putting an 80-20 lens on everything we're doing. And I would say it's the same for how we spend our capital. aligned to our strategic verticals now. So making sure that our capital is leveraged against where we're going to get the best opportunity for growth. And so while I may be spending the same dollars, I'm hopefully spending them a little more effectively and aligned. So between the capital intensity going down and the more focused investment, the dollars stay the same.

Thank you. A very interesting presentation this morning. Two questions. I'll just ask them 1 at a time. just to make sure the margin uplift from the businesses you're exiting belts and parts of your auto portfolio, I mean that implies that the EBITDA margins for those respective businesses are running in the order of 2,500 basis points below the segment average, if I did my math correctly. And I just want to verify that, that's correct that there's not some other element to the margin improvement associated with those divestitures? .

Yes. I don't know if it's exactly true 2,500 in each segment, but your order of magnitude isn't wrong and your conclusion is not wrong.

Okay. That's what I figured. I just wanted -- second, so Engineered Bearings, if I look at the 2028 target, 21% to 23% EBITDA margin, that's sort of similar to prior segment peak, I think, in 2023 adjusted for the uplift from the auto exit. So I guess what's holding you back? Or what are the headwinds working against getting above a prior segment margin peak for engineered bearings on a like-for-like basis as you look out to 2028 or beyond. .

Yes. Look, I think there's several segments in there where we were at a different point in the growth trajectory than we are today at the last cycle. So for example, wind would be an example of that where you see it in our revenue, and a lot of that change is more price than revenue. So wind has now become a heavily China business, which has a little different competitive dynamics than it had when it was on the upswing. So that's an example in that mix. But I think in general, it's just the margins in that business are a little more challenged. -- than in the rest.

But the other piece is what I referred to earlier, which is the volume leverage. We've not kept the sufficient eye on the volume and of the utilization. That's what the asset which is what I think has -- so that's 1 area, frankly, that will get a lot more attention going forward. What's baked in there now is what we said -- what we see in front of us, but that's 1 we will pay a close attention to.

Yes. And maybe just to clarify, Justin, so in 2023, we had just over 20% adjusted EBITDA margins for engineered bearings and the midpoint of the target is 22% for engineered bearings, so just...

Steve Barger from KeyBanc. One for Tim. You're leading on industrial motion for growth and bringing bearings along -- in the slides, you showed how the One Timken approach can increase lifetime value by 3x, 4x, in one case, 50 times. How do you start that conversation about displacing the incumbents to get that share? And how long do you think that process takes?

Sure. Great question. Listen, we've already got many of our industrial motion businesses and products are already pulling bearings through. And so if you look at Philadelphia Gear, right, they're using Timken bearings when they do their gearbox either new business or repair. And so it's already done. It's really about how do you continue to leverage that more as you go to the market, knowing that we can now take not just bearings, right, but we're able to leverage other industrial motion acquisitions that may be and historically didn't have the opportunity to pull other products through, whether it be bearings or other Timken components, right?

So if your question specifically on bearings, I think from a displacement standpoint, we already continually look at that to make sure that we've got the right components going through the products. I think we -- with now as part of One Timken, we'll go back and take another look, and it's really John, as part of his prior role looked at, do we have all the bearing pull-through that we could in our industrial motion applications, I think, from my standpoint, as that portfolio has grown to the size it is now, we're going to see a bigger uplift coming through quite frankly, the time to shift to sourcing decisions to Timken bearings are fairly short, to be honest, right? It's not really a long tent in the pole in most of our applications.

Yes. And I think the other opportunity that's even more compelling is synergies inside IM. So we've combined a number of the businesses into a precision drives portfolio. So or that's already 1 business unit, they're presenting themselves to the market as one, they're talking to customers as one. So whether it's account driver whether it's assist drive, whether it's a precision driver that you get out of CGI either way. that gets presented as 1 solution. And they're already as we speak, engaging with customers like that as 1 face to the market. New markets like humanoid, obviously, that depends on how fast that technology scales up. .

Also related to the CapEx on humanoid if that is to turn out to be something very significant, which all likelihood is that it will, then obviously that has CapEx implications, but it also has implications for John and his team on how we make these parts because how you scale this in a way that's cost competitive because when this goes big, they're not going to want 5 of them. This is going to be a mass production of something that needs to be reimagined versus how it's done today.

Thanks, Steve. We do have a question online. In engineered bearings, should we think about the phasing of the 150 basis points of margin benefit from exiting auto OE is falling in line with the sales impact, i.e., minimal in 2026, 50 bps in 2027 and 100 bps in 2028 or is it more front-end loaded?

Yes, I can take that one. So I think fair to assume that the impact this year is minimal and already incorporated in our guidance from May 6. Not ready to provide '27 outlook yet, but it will be -- we'll -- as volume goes down, obviously, stranded cost becomes an issue. We'll manage that to the best we can. But I would say that between the pricing actions we're taking and our cost management that it will come in, call it phased over time.

I don't know if it quite be -- as even as that, but it would come in phased over time. But then Really, the big uplift is not until you get to the end, if you will, and we're able to address all of the stranded costs.

Just wanted to ask 2 questions. One of them is, does the reorganization of the company towards 80/20 has it -- or does it impact on your distribution partners? And have they provided any input? And yes, maybe I'll start with there and ask a follow-up.

We're not the only ones who do 80/20. So I think when you think about 80/20, okay, I'm going to have fewer customers, people talk to use words like fire customers, things like that. This is I don't think it's any longer an adversarial action. I think it's accepted in the industry that people do this. It's part of being a good steward of a business. And so that's the tone of the conversations, whether that's with our customers that buy small volumes or whether that's with our important channel partners who will remain very strategic and very important to us. They can be beneficiaries of this because on that 50% of the customers, there is a significant portion of those that we will let them manage.

Now they will have to work with us because if those same small customers buy the one-off parts, then we haven't fixed anything, but they will have to work with us to where if they take the small customers, then how do we rationalize the SKUs, how do we transition them to more standard product. But it's a partnership that in the end will be good for them. And it really allows them to do what they're good at and ask what is -- so we've had -- I met personally with some of our larger distributors. And I can tell you it's a very productive conversation. It's understood that their are other suppliers do it. And we're getting points because we're approaching them early, which is always good in life. We're sharing very openly what we're trying to accomplish, and then we're letting them be part of the how, which is what gets the buy in.

And just a last question on headcount. Do you think at the end of the process, does the net headcount at Timken grow, shrink or stay the same?

Yes. Look, the intent is not to achieve value via headcount, the intent here. But will there be certain activities that will require less headcount absolutely, there will be no doubt there will be. But we will also have to also redeploy that headcount because some of these initiatives will require more investment, absolutely. And so if you think about creating these ecosystems for industrial motion businesses in new countries, this is a pretty significant upfront investment.

You do have to do a little bit of the build it and they will come. We're not going to build the factory first, the factory, I'll tolerate the logistics and tariffs and whatever inefficiency they'll prove that somebody is buying something, and -- but the engineering, the customer-facing ecosystem, the prototyping that all needs to be there. So there will be investment and reduction at the same time. I couldn't tell you exactly where it's going to net out. But what I can tell you is we're not doing 80/20 with a headcount target in mind. We're doing it with a simplification and with a growth in mind.

Great. Any more questions in the room? We've got time for another question. We do have 1 more on the virtual audience. Can you just talk about the impact from exiting auto OE business, so the automotive aftermarket outlook, does that impact that business at all? .

Yes. I think from our standpoint, no, we're really focused on the automotive OE side of this. The automotive aftermarket business operates very differently and operate separately. We certainly understand if there are implications around that. There was a question earlier about mixing of sort of markets, high volume, low volume. Clearly, there is some of that in there. but again, not as much as we would think. And so we're going into the auto OE fix with an eye towards the automotive aftermarket and making sure that we continue to manage that business the way it needs to be managed.

All right. Well, thanks, everyone, for joining us today. If you have any further questions after today's event, please contact me. Thank you, and this concludes Timken's 2026 Investor Day.

Good morning. My name is Ms. Kara 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. [Operator Instructions] Thank you. Mr. Frohnapple, you may begin your conference.

Thank you, operator, and welcome, everyone, to our first quarter 2026 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, Lucian Boldea; and Mike Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike 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 expressed written consent, we prohibit any use, recording or transmission of any portion of the call. Finally, just a reminder that we are hosting an Investor Day on Wednesday, May 20 in New York City so we hope that you will join us either virtually or in person. With that, I would like to thank you for your interest in the Timken Company, and I will now turn the call over to Lucian.

Thanks, Neil, and good morning, everyone. We appreciate your interest in Timken and for joining us today. I would like to start by thanking our Timken team for their hard work to deliver an excellent start to 2026. We're gaining momentum and making great progress executing our strategic priorities, including 2 recent actions to advance our 80/20 portfolio work. Our financial performance is strong, and we are pleased to have achieved double-digit earnings growth and margin expansion in the first quarter. Turning to our results for the quarter. Total sales were up 8% from last year and organic revenue grew more than 4%, driven by higher pricing and volume growth in the Industrial Motion segment.

We expanded EBITDA margins to 18.8% in the quarter and adjusted earnings per share increased nearly 20% year-over-year to $1.67. With respect to capital allocation, we repurchased approximately 280,000 shares and acquired Bijur Delimon, which I'll talk about more in a moment. We ended the quarter with a strong balance sheet and net leverage of only 2.1x and giving us continued flexibility to pursue our balanced approach to capital allocation. While Mike will take you through the details of our 2026 outlook, we are raising our guidance for organic revenue, margins and earnings. Our outlook now implies 13% adjusted EPS growth at the midpoint of our range compared to the 8% we previously guided and includes a more positive price/cost impact related to tariffs.

We saw improved customer demand across most end markets, which was reflected in our recent order activity. Our backlog at the end of the quarter was up both sequentially and year-on-year continuing the positive momentum we experienced in the back half of last year. These trends support the increase in organic sales outlook for the year to 3% growth. Despite continued volatility around trade and geopolitics, our team is operating with urgency to execute our strategic priorities and deliver stronger performance in 2026. As I mentioned earlier, we are deeply engaged in advancing our 80/20 strategic initiatives, including optimizing our portfolio as we are prioritizing actions that will have the greatest impact to company margins and growth.

Last quarter, we announced that we are extending the 80/20 discipline across our entire enterprise to reduce complexity and streamline operations. While still early in the process, we are moving quickly. We have established a transformation office with dedicated 80/20 teams responsible for leading the execution of major work streams. We have completed comprehensive training across many areas of the business. And as of today, nearly 300 Timken leaders are fully trained and putting 80/20 principles into action. Our focus on these initiatives have driven 2 recent actions. On May 1, we announced the sale of our belts business to Gates, this divestiture is expected to simplify our portfolio, free up resources to redeploy to our growth initiatives and structurally improve margins for the Industrial Motion segment. We expect to complete that transaction in the third quarter.

Secondly, we acquired Bijur Delimon, which strengthens Sinking Industrial Motion portfolio in key markets and is expected to be accretive to Industrial Motion segment margins after synergies. Timken is the natural owner of this business, and it scales our automated lubrication systems platform to nearly $400 million in total revenue. These 2 portfolio moves are aligned with 80/20 and that result is a higher-margin, faster-growing Industrial Motion segment. Our teams around the world are energized by the benefits of 80/20, and we are confident it will be a major driver of value creation over time. I remain confident about the opportunity to raise Timken's organic growth trajectory by focusing on the fastest-growing verticals and regions. This includes driving synergies through the global expansion of our acquired businesses, and we are gaining traction. For example, we saw double-digit organic growth during the first quarter in our linear motion platform in the Americas, driven by new business wins within factory automation.

We're excited about the many opportunities like this ahead to leverage Timken's strength and create new ways to drive higher performance. Before I turn over the call to Mike, I want to touch on the leadership transition we initiated for our Engineered Bearings segment and thank Andreas Regan for his many years of service to Timken. An external search is underway for a permanent successor. During this time, Tim Graham, our President of Industrial Motion will serve as Interim President of Engineered Bearings. Tim spent decades leading teams within engineered bearings, including most recently as Vice President of Operations. His deep knowledge of our operations and customers across Engineered Bearings will ensure a seamless transition.

Our Bearings business set the foundation for Timken more than 125 years ago and remains critical to our future. Together with industrial motion, we have a very compelling customer value proposition. I am focused on building the right leadership structure to best position our teams around the world for even greater success. With that, let me turn the call over to Mike for a more detailed review of the results and outlook. Mike?

Thanks, Lucian, and good morning, everyone. For the financial review, I'm going to start on Slide 8 of the materials with a summary of our strong first quarter results. Overall, total revenue for the quarter was $1.23 billion, which was up 8% from last year. Adjusted EBITDA margins increased to 18.8% and adjusted earnings per share for the quarter was $1.67, up significantly versus last year. Turning to Slide 9. Let's take a closer look at our first quarter sales. Organically, sales were up 4.3% from last year. The increase was driven by higher pricing across both segments and higher demand in the Industrial Motion segment, while volumes were relatively flat in Engineered Bearings.

Looking at the rest of the revenue lock, foreign currency translation contributed 3.4% growth to the top line. The acquisition of Bijur Delimon, which closed in mid-March added a small amount of sales to the quarter. On the right, you can see first quarter performance in terms of organic growth by region. In the Americas, our largest region, we were up 6% and driven by growth across both segments in North America, while Latin America was relatively flat. In EMEA, we were up 5% from last year, driven by solid growth across both segments. And finally, we were down 1% in Asia Pacific as growth in India was slightly more than offset by lower demand in China.

Turning to Slide 10. Adjusted EBITDA was $231 million or 18.8% of sales in the first quarter compared to 18.2% of sales last year. Organically, Incremental margins were approximately 35%. So solid operating performance from the team during the quarter. Let me comment a little further on a few of the different drivers on the EBITDA bridge you can see on this slide. Starting with the impact from mix, it was a notable year-on-year benefit driven by relatively stronger performance by several of our most profitable platforms within Industrial Motion. With respect to pricing in the quarter, it was positive $32 million and added nearly 3% to the top line as we continue to put through pricing actions to recover the margin impact from tariffs. And as you can see on the slide, tariffs were a $20 million headwind versus last year.

Looking at material and logistics, costs were lower versus last year, driven mostly by savings tactics in the Engineered Bearings segment and material cost deflation in Asia Pacific. With respect to the manufacturing cost line, the increase from last year reflects labor and other cost inflation as well as a timing impact related to inventory accounting. Moving to the SG&A and other line. Expenses were up from last year, driven by higher incentive comp and spending on strategic initiatives. Now let's move to our business segment results. Starting with Engineered Bearings on Slide 11. Engineered Bearing sales were $806 million in the quarter, up 6% from last year. Organic sales were up 3%, driven by higher pricing while currency translation added another 3%. Among market sectors, Aerospace and Heavy Industries achieved the strongest gains versus last year. We also posted growth in general industrial, off-highway and renewable energy.

Revenue was relatively flat across the distribution and on-highway sectors, while rail shipments were down from last year. Engineered Bearings adjusted EBITDA was $159 million or 19.7% of sales in the first quarter compared to 20.9% of sales last year. Margins in the quarter were negatively impacted by higher operating costs compared to last year. Now let's turn to Industrial Motion on Slide 12. Industrial Motion sales were $425 million in the quarter, an all-time quarterly record for the segment and up 12% from last year. Organically, sales increased 7%, driven by higher demand across most sectors and higher pricing. Currency translation was a benefit of 4.2%, while the Bijur Delimon acquisition added 0.8%. The segment saw growth in the quarter across all product platforms and was led by double-digit gains in the Americas.

Among market sectors, automation, distribution and heavy industries achieved the strongest gains versus the prior year. We also generated growth in the off-highway and aerospace sectors, while solar sales were down. Industrial Motion's adjusted EBITDA margins came in at 21.5% of sales in the first quarter, up significantly from last year. The increase in segment margins reflect strong operational execution by the team, as well as the impact of higher volumes and favorable price mix.

Moving to Slide 13. You can see that we generated operating cash flow of $39 million in the first quarter. And after CapEx free cash flow was slightly positive. Keep in mind that the first quarter is typically our seasonally low quarter for free cash flow, and we expect cash flow to step up significantly as we move through the rest of the year. From a capital allocation standpoint, we returned $53 million of cash to shareholders through share buybacks and dividends in the first quarter. Note that the Board recently approved a new 5-year share repurchase authorization for 10 million shares. Looking at the balance sheet, we ended the first quarter with net debt to adjusted EBITDA at 2.1x, which is near the middle of our targeted range.

Now let's turn to the current outlook for full year 2026 with a summary on Slide 15. We are increasing our outlook across the board. Starting with net sales, we are raising our full year outlook to an increase of 4% to 6% in total, up from the prior range of 2% to 4%. Organically, we now expect revenue to be up 3% at the midpoint, a 1 point increase from the initial guide. The current outlook also adds 1% for M&A to include the expected revenue for the Bijur Delimon acquisition. We are still planning for currency to contribute around 1% to our revenue for the year, unchanged from our prior outlook. On the bottom line, we expect adjusted earnings per share in the range of $5.75 to $6.25, up $0.25 at the midpoint versus the prior outlook. Note that the outlook assumes year-over-year earnings growth every quarter this year. The current earnings outlook implies that our 2026 consolidated adjusted EBITDA margin will be approximately 18% at the midpoint, up from 17.4% in 2025 and slightly higher than the prior guidance.

Note that the midpoint of the ranges implies an incremental margin of approximately 30% for the full year. For the second quarter, we expect organic revenue, adjusted EBITDA margins and adjusted EPS to all be higher than last year. However, we expect adjusted EPS to be modestly lower sequentially compared to the first quarter to reflect incremental inflation and some customer activity we saw pulled forward from Q2 related to the uncertainty around the situation in the Middle East. Moving to free cash flow, we expect to generate $350 million to $375 million for the full year or approximately 105% conversion on GAAP net income at the midpoint.

On Slide 16, we provide an updated view on our 2026 organic sales outlook by market sector, which includes the impact of both volumes and pricing. Note that we are raising our outlook for the heavy industries and off-highway sectors based on stronger-than-expected year-to-date performance and the positive trends we see in the order book. Moving to Slide 17. Here, we provide a bridge of the $0.25 per share increase in our 2026 adjusted EPS outlook at the midpoint. First, you can see a $0.20 positive impact from the organic sales change. Next, we're estimating an incremental $0.15 per share tailwind from tariffs versus our prior guide. This primarily reflects the lower tariff rate on India and a modest net positive impact from the changes to Section 232 on April 6.

And finally, we're factoring a $0.10 headwind into guidance to account for potential incremental cost inflation over the rest of the year. In summary, the company delivered better-than-expected first quarter results, and the team is committed to delivering the increased outlook for 2026. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian?

Thanks, Mike. We entered 2026 with momentum, and this quarter reinforces our confidence in the path ahead. Our portfolio is becoming sharper. Our 80/20 initiatives are accelerating and we're executing with urgency to position Timken for stronger growth and higher margins in 2026. I look forward to sharing more details with you soon at our Investor Day on May 20 in New York City.

Thanks, Lucian. This concludes our formal remarks, and we'll now open up the line for questions. Operator.

[Operator Instructions] Your first question comes from the line of Steve Volkmann with Jefferies.

I'm going to dive in on the changed guidance, Mike, your Slide 17, I guess. And I'm curious about the tariffs, the $0.15 benefit. I assume that's mostly IEEPA and India. Is there any scenario where you get rebates on what you've paid? And how are you thinking about that? And then is there also some potential for additional tariffs as we go through these 301 kind of studies through the summer? .

Great. Well, Steve, thank you for the questions. You sized it up right on the India part. We previously had talked about that. And so the change in IEEPA and because India represents a large part of our imports into the U.S., that was one of the bigger impacts and then the small net impact from the Section 232 change. So those are the big drivers on tariffs. As it relates to IEEPA, the process is unfolding. We're following the process. And if and when we have something to communicate on that, we'll relay that later. But nothing is assumed in our guidance for anything related to IEEPA refunds. As far as additional tariffs, it's a fluid situation related to 232, we think we've sized it up as best as possible, so I don't anticipate anything further. But of course, as the administration announces further changes that could impact us, and again, we communicate that if and when that was appropriate.

Okay. Fair enough. And then you also talked about the $0.10 sort of cost inflation, and I don't want to put words in your mouth, but that sounded more like a placeholder rather than you see more costs. Is that like cushion? Or do you actually see that kind of cost inflation?

Yes. Steve, this is Lucian. Let me take that. So it is somewhat of a player, but I'll tell you the degrees of what we're seeing today. So it's -- it depends by region. So if you're sitting, for example, in India, you're already experiencing an inflationary environment as we said today. In China, not really almost somewhat in the opposite direction. If you look in Europe, you're starting to see signs of it and in the U.S. not as much. And so where we're already seeing the increases were already underway with price increases, in some cases, first round, in some cases, second round. But this is now for us, not a new muscle. It's a well exercised muscle. It's one that's in place, the customers understand there's something about when you drive home even as a customer to the gas pump and the price of gasoline is higher.

You understand that everything else is going up. So there is a level of understanding and appreciation that we are in this environment. So we'll continue to work with customers closely. But yes, I mean, it's our best guess of what it can be at this point. We are seeing parts of it already, and we're taking action. But we're prepared, and we're obviously in communications with our customers to be sure that we overcome this headwind.

Your next question comes from the line of David Raso with Evercore.

I was just curious, with the rest of the year guide implying somewhat notably slower organic, right, about 2.5% after the 4.3% in the first quarter. Given a lot of the positive commentary around the end market, can you maybe help us a little bit how much business do you think pulled from 2Q to 1Q? Or should we look at the organic guide maybe some level of conservatism. And I just wanted to also ask, just given the meeting coming up in 2 weeks, anything you want to put out there is what we should expect at the meeting, especially given that it was interesting, the 80/20 rollout now being a little broader in the recent M&A in the last week or so. Just curious if things have changed a little bit how you're thinking about timing of actions and so forth since when you first joined Timken.

Yes. So let me take the first part of that, at least on the lower organic. So a couple of things. Hard to say exactly how much was pulled from second quarter to first quarter, but we think that from an EPS standpoint or from a top line standpoint, maybe a 1% top line. So you think normally seasonally, we would step up from the first quarter to the second quarter, a couple of percent. We're now seeing that more flat. So we think that was about 1% pulled forward. So as it relates to the rest of the year, there's still a lot of uncertainty. Certainly, the Iran conflict creates further uncertainty. We don't have a lot of sales in the Middle East. So it's not necessarily a direct impact, but the impact around the world on the macro economies could certainly be -- could pull down that organic growth. So we are still expecting growth year-over-year for the rest of the year, but just being maybe a little bit trying to take into account a little bit that Iran conflict impact. Lucian, anything to add?

Yes. No. So if you look at normal seasonality, as you had from Q1 to Q2, you would normally expect a couple of percent step-up, I think in this case, as Mike said, we've pulled maybe 1% out of Q2 into Q1. So then something more flattish is probably more consistent with historic seasonality by the time you account for that pull forward. But that's the extent to which we can see. As Mike said, the good news is we don't yet see demand distraction from the conflict. We see inflationary pressure, but we don't see demand distraction. So the pipeline still remains robust, order book still remains very robust. The order book was up year-over-year also grew sequentially, which is very encouraging.

And so I think all in all, we still remain cautiously optimistic, I would say. But to the extent that the conflict gets resolved and then obviously provide some upside. But where we sit, it does not yet seem to affect demand. And then to your second question on Investor Day. Obviously, we'll have a lot more detail on these topics. But basically, the main objective is really to detail our strategy and the long-term vision. And then really from that, give you the double click on how are we doing on our transformation, what does that look like? And also more importantly, give you a bit of a flavor on what is the execution discipline behind it. As you alluded to it, we'll talk about 80/20. So we'll provide way more detail on the actions we've already taken, try to quantify those on the portfolio for you and then also provide a bit of a road map on where we're headed.

And then obviously, the financial targets on what all this sums up so we'll give you a multiyear projection as well. But certainly very excited to share all that with you. I think the story is coming together very nicely, and the team is very excited to be in front of you on May 20.

Your next question comes from the line of Rob Wertheimer with Melius Research.

You had a few things go right to help raise the full year outlook. And I wonder if you could attribute that to end market strength or some of the 80/20 and other initiatives are already paying off. That's the first question. .

Yes. We outlined a few things and no doubt market demand helped, no doubt we communicated in Q3 and Q4 that we're starting to see positive momentum on the book-to-bill side, on building pipeline, building the order book. So I think that definitely has helped. But we have done quite a bit of self-help as well. So one of the growth factors that I was most bullish about from the first day I got in this job and with every day that goes by, I'm more excited about it is regional growth. We have an entire portfolio in the Industrial Motion acquired businesses that are businesses that are more regional in nature, single region businesses. So taking those businesses into new regions, is an important vector.

So we talked last year about prioritizing that. And for example, the linear motion business, that business is primarily a European business, and it's not even a European business. It's a German and Italian business. So taking that to the rest of Europe and taking that into the Americas just provides a pretty significant growth vector. And that's true for other businesses in that portfolio. But that linear motion business alone is growing double digit in the Americas, and it's a significant number. It's not a teens kind of number. It's a significant growth number. It's off of a lower base to start with. But we're winning in warehouse automation and other applications that are rapidly growing. So it's an exciting growth vector for us. So it's a combination of self-help and also the market. It's also 80/20, you alluded to it. The impact of 80/20, I would say right now is less so on a quantitative kind of simplification, but it is on a mindset.

We have very early on in the process adopted the mindset of let's double down in the markets and industries where we're winning and invest less where we're not, that's already paying off. We have reorganized our commercial teams. We've verticalized them to where we're more in a one Timken phase to the industry. We've built regional teams that each region has the autonomy to operate and make decisions locally under a global framework. And so those things are already showing. And if you look at our regional results, where in some regions defined gravity a little bit compared to our competitors. So we had a nice run here in Europe, for example, continuing our good run in places like India and the U.S., but that -- some of that is self-help and us being a little more focused.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

I was just hoping we could earn back a little bit more of the backlog. You said it's up sequentially and year-over-year. I guess just any way to kind of quantify that for us? And just any particular pockets around markets where you're seeing, I guess, more of a boost in kind of the backlog right now. And I just would love -- I guess, if you could share also any color on kind of order activity in April versus March. I think you mentioned that you're seeing activity still -- or I guess, in your guidance, activity more kind of flattish in 2Q versus 1Q due to some of that pull forward. But I guess curious if you're seeing that also reflected in your orders or how that kind of compares as we think about maybe that degree of conservatism on how much was maybe pull forward versus just underlying demand?

Yes. I think if you look at the order book, both year-over-year and it was up significantly year-over-year, and really the leaders are off-highway, aerospace, rail and wind. Those are the 4 verticals that are mostly contributing to that. I think the significant momentum in the Americas, Europe doing pretty well, as I added to China -- I'm sorry, India doing quite well. China is still a little bit soft. We're very encouraged by the fact that the order book was still up sequentially versus Q4. The challenge to translate order book math into precise quarterly revenue math, obviously, in the long run, it works out, but you have shorter cycle businesses, longer cycles. So that's where it doesn't quite translate one to one, but over time, when the order book is up significantly at some point, that flows through the revenue. So that's why we're encouraged.

I think if you look at markets in general and you look at Q1 kind of as a guide, we saw strong activity across both segments. Americas was a big region for that. Power gen for pretty strong on the demand, metals was pretty strong. And so you saw activity related to kind of general economic activity picking up that was quite helpful. General Industrial was another one. So I think it's pretty broad across the sectors. We've been cautious to really not hang our hats on this too early because I think part of it is the market is still somewhat not taking into account the Middle East disruption maybe sufficiently because the order books are certainly not reflecting that and the demand is not reflecting it.

We see the inflationary pressure, as I mentioned earlier, but we don't see it having any impact on the demand. So that history would say that there might be some impact at some point. But at this point, we're not seeing that, but that also gives us a little bit of reason for caution. As for April, April is off to a good start, I would say. If you compare to where we thought we would be, we're about where we thought we would be. The part to keep in mind is whatever dynamic drove March being a little stronger because April got pulled into March because customers realize they're in an inflationary environment, there's an environment of supply chain uncertainties.

So more products sooner in hand is better. that same dynamic persist in April. So I don't think this would have been the typical that if you had accelerated orders from April to March that you would see a slow first week in April because conflict is still there. The uncertainty is still there. So there's still a bit of pulling on that demand. Again, it was modest, it is about 1%. So it's not a big number, but that's April is consistent with what we expected April to be so far, both in terms of revenue and just in terms of continued strength on building order book.

That's very helpful. And then I just wanted to -- I guess, if we could -- if we were to take all this together and think about kind of the segments and the cadence you ultimately expect for kind of sales and margins 2Q through 4Q, I was hoping you could kind of help at the segment level kind of unpack that. And then just to clarify on the price cost, you indicated that the $0.10 is kind of baking in some of the potential risk for inflation, but curious if the price increases you said you're starting to action if you've also assumed that in the guidance or if you're waiting to see how those kind of go through to -- before you kind of embedding that?

Yes. I mean we've only embedded prices that we already see in the guide. So I think to the extent that we have something from us, so part of that $0.10 is probably embedded with the corresponding price but not all of it yet. There's a timing there of when do you get the inflationary increase and when do the prices actually flow through the P&L. So that's why we thought it's a little more prudent to at this point, not have all that perfectly matched yet. I think if you look at the 2 segments, what I would say for the rest of the year is we do expect the trend to continue where you see a little more growth in Industrial Motion than you see in Engineered Bearings and so that will continue throughout 2026.

I think if you look at first half of '26, being up at 3% to 4% and second half being up 2% to 3% is kind of what we expect right now when we look at what the drivers are and how those are reflected in the 2 segments.

Your next question comes from the line of Kyle Menges with Citigroup.

I was hoping if we could talk a little bit more about the portfolio transformation and maybe the M&A pipeline. I know we'll hear more about this at the Investor Day, but Lucian, I am curious do we already have a pretty good idea of the focus areas for M&A. And I'm just curious how that pipeline is building now that I'm assuming you already have a pretty good idea of where you want to expand inorganically?

Yes. Thank you for the question. And I would say it's still work in progress. I think there's different phases to portfolio transformation. The first thing we said is, okay, let's look with an 80/20 lens and say, what is the portion of the portfolio where you have some noted moves where those portfolios don't naturally belong to us, we're not the natural owner, let's take those actions. And we committed about a quarter ago that we would take action on up to a single-digit percent of the portfolio. So this is not a big portion of the company but a single-digit percentage. And I think if you look at the actions we have already communicated, whether that's around auto OEM or whether that's around the divestiture of the belts business, that's now the majority of that single-digit percent.

So from a divestiture standpoint, I think we're -- we've tackled the majority of what needs to be tackled. And then from an acquisition standpoint, what we've also said is in the short term until we have our strategy fully defined and laid out, we will be a little more fair way, a little more opportunistic in terms of what's available. I think Bijur Delimon was a great example that sometime mid- to late Q4, it became actionable, and I can tell you it couldn't be more grateful to the team. I think from the time we started talking about it at the time we were done was somewhere around a 90-day time range. So I think a level of speed was demonstrated that's to be commended and we ended up with a really good acquisition that fits naturally in our portfolio very nicely. I can tell you, it's only been a couple of months, and it's hard to find who are the Bijur people and who are the Timken people because they're in the same industry, they have complementary market coverage. They have complementary product lines, complementary regional coverage.

So there -- it's a win-win. They're helping each other be successful. So that's -- we want more of those. So to the extent that those that we have on our -- we have our list. And as they become available, we're prepared to act quickly. So opportunistic ones, I think you're going to see us act very quickly. More transformational in nature, obviously, those will be a little post communicating our strategy really outlining what the growth verticals are and what positions we're trying to build. We'll also highlight at Investor Day a bit of a time horizon approach of what do we try to do in terms of transformation by time horizon. And so that will provide you a little more clarity to the question. But in terms of opportunistic M&A, I think you can look at be sure as a nice example of what we would like to do more of that builds out these platforms, our lubrication platforms, we've not talked a lot about it, but it's now $400-plus million, and it's got a nice runway to get to $500 million.

Our Linear Motion platform is comparable in size and so you can start thinking about building these $0.5 billion platforms across the enterprise that start to be very interesting and start to be market-leading positions. And so that's the kind of M&A playbook that we're looking at least in the short to medium term.

That's helpful. And then it would be great to get a little bit more color on the belts divestiture. Maybe just how it came together? Anything you're willing to share on the financial profile of that business as well? And then after this gets sold, does that also reduce the tariff impact for Timken? .

Yes. So Belts was really one of those. It's very consistent with our near-term strategic priorities, very consistent with 80/20. And even more importantly, it's the best example I can come up with of a business ending up with a natural owner. So I'm actually happy for our Timken team members that are in the belt business being a part of Gates, I think they'll be able to continue to be successful in the business and Gates will do a nice job with the business.

So that -- it's really a win-win from that standpoint. For us, we'll quantify it more exactly at Investor Day, but what I would tell you is it will structurally increase the profitability 2 ways. One is it does make us up, but then it also allows us to redeploy resources to faster-growing areas in the portfolio. So that simplification further increases it. It will structurally increase the adjusted EBITDA margins of Industrial Motions business. Again, we'll quantify that for you exactly at Investor Day, but there is a structural step-up in IM.

Your next question comes from the line of Steve Barger with KeyBanc Capital Markets.

First one for Mike. Just going back to the cadence for the quarters and the sequential decline in 2Q EPS. Will 2Q still be the high point for the next 3 quarters? Or will 2Q and 3Q be relatively even before the normal kind of seasonal step down in 4Q? .

Steve, thanks for the question. Yes, we would expect a normal seasonal step down from 2Q to 3Q and then 3Q to 4Q. So we do have some seasonality built in, typical seasonality. So I guess this would be the high point. Relative to your question, you asked that was a high point since EPS is coming down, then first quarter would be the high point. Second quarter would be a little bit lower than normal seasonal step down.

Got it. And then for volution, it's kind of a 2-speed industrial world with aerospace and defense, data center grid infrastructure, all showing great demand. And there's just a more restrained general industrial. Are there any real standout opportunities you see where Timken currently doesn't participate. And can you specifically talk about humanoids just given increasing news flow and investor interest there? .

Yes. So look, I think we do participate in some of the verticals that you mentioned, but we have upside in participating in those. I've been bullish about power generation utilities from the day I got here, and I continue to be bullish about that. We have a better footprint, frankly, in it than we've talked about. And so that's one that's quite exciting. And then obviously, what all the verticals that you mentioned have in common is they do drive the need for infrastructure. And so I should drive the need for infrastructure, then heavy equipment, off-highway all that gets pulled through. The new one that, of course, gets a lot of press these days is humanoids. But what I want to start with is what problem are humanoids solving and the problem they're solving is the skill gap that we have today, both in quantity and quality in terms of labor because of demographics, because of how people want to live and work. And so automation, in general, fills that need and humanoids is a subset.

And I think if you look at just the industrial automation alone, the portfolio that we've built through the acquisitions is remarkable. And if you look at our CAGR internally, we've grown double digit in that market since 2018. So this is not one that we decided last quarter to start focusing on, we did decide to double down on it. So that's accelerating that growth rate. But how we participate, think about our Cone Drive and our Spin AI business that offer Harmonic solutions, they offer cycloidal drives, our roll-on acquisition offering linear actuators that really create that seventh axis for industrial robots, medical robots, servicing through our CGI precision gearing, our Timken bearings or our Cone Drive Harmonic solutions, autonomous guided vehicles also Cone Drive and Rollon and then humanoids and exoskeletons.

This is one where Cone Drive, Timken Bearings are also already present. So that's just from what we have today. And then obviously, humanoids offers an additional vector again. I know wait for Investor Day seems to be a very common answer. But I'll give you a little teaser that will have our newly appointed Chief Technology Officer, talk to you about that in a little more detail on how we see the opportunity and how we plan to go after it. But this is certainly a vector that we are nicely positioned as a company to be able to benefit from.

That's really good color. Just 1 quick follow-up. Are you seeing the secondary infrastructure play come through an off-highway specifically? Or is that more just cyclical recovery there?

Yes, I don't know that I'm smart enough to fully separate that. I think if you look at it regionally, there's certainly an uptick, and I think the net growth is certainly driven by those by those macro trends. If you look at the amount of construction that's required for data centers, the amount of infrastructure that's required to do that, the amount of infrastructure for utilities that all requires a lot of heavy equipment. And if you look at the performance of some of our customers, they certainly highlight that being as a big driver. But what I would tell you is from our chair, what we said, we see order book beefing up, we see the pipeline getting stronger from those customers. And obviously, it's a combination of recovery and some of those macro trends.

And maybe if I could just add some color because in addition to the infrastructure that Lucian highlighted, we are seeing some green shoots in ag. So part of that off-highway, the ag business, which we've talked about as being down. We're starting to see some green shoots there. So that's also in that. So not just the infrastructure piece, but ag as well. .

Your next question comes from the line of Tomo Sano with JPMorgan.

Good morning, everyone. Slide 16 shows improved outlooks across nearly all end markets, but your full year organic growth guidance was raised to 3%. So in Q1, most of the organic growth appear to be price driven rather than volumes. So given the broader-based end market improvement and PMI about 50, should we expect a greater contribution from volume in the coming quarters? Or will organic growth remain primary price led? .

Yes. Look, you've got 2 factors going on. So one is, of course, the year-over-year pricing comparison. We big price during the year last year. So that year-over-year comparison is going to dampen so you're going to get less contributions for that. You're also going to get less contribution from FX. And so the proportion of the growth in the revenue overall that comes from volume is going to be a little bit higher for the reasons that you just mentioned, and that's true for organic growth as well.

And just a follow-up on like ongoing 80/20 initiatives and portfolio rationalization, is there any intentional short-term restraint on the volume growth as you focus on the higher-margin products and customers. Could you talk about that for 80/20 for the volume growth, please?

Yes. And thank you for the question because it's a great question. It's one we get internally as well. And I can tell you, the intent of 80/20 is to grow. The intent is not to prune and shrink to perfection. The good news, and we will share the more specific data with you during Investor Day is if you look at our mix, very little pruning of revenue is required to dramatically affect complexity. And so what that means is really the price of simplicity is a lot lower than you would expect in our portfolio from where we sit. So that's very exciting. But I can tell you that already with the 300 people that we have trained and with the focus that we have there's way more energy, passion and focus on the 80s than there is on the 20s. And what I mean by that is we'll take care of the simplification. We'll take care of dealing with the tail products or what we need to do in -- with certain customers.

But in the end, what it comes down to is what happens when you double down when you focus a very high percentage of our revenue is concentrated with a very small number of customers. So how do you serve those customers differently. And sometimes, timing in life is everything. And we're doing 80/20 at the perfect time because when order books are up, when customers are motivated to find product, even frankly, when we have a little bit of geopolitical uncertainty and supply chain uncertainty, customers are receptive to really being treated differentially by their suppliers and committing more of their volume to us as we commit a better service to them. So this is the perfect time to have those discussions with our large customers. So no, I do not expect to see volume declines that are related to 80/20. But I do expect to see dramatic simplification and possibly volume increases.

And the reason volume increases is when you simplify your product slate in a factory, we spend so much time on changeovers in our factories, making a short run of product for a customer that maybe doesn't order as often, and we could run so much more efficiently for some of these larger customers that have more consistent demand. And so there is a fine line, obviously, not going all the way to high volume, low complexity. That's what we're trying to get away from. But even with our existing mix of customers, just getting a little more of that share of wallet is going to make a big difference. So the whole motivation of 80/20 is growth. It's not shrinking.

Your next question comes from the line of Tim Thein with Raymond James.

I just wanted -- I touched on price a couple of times, but I just wanted to make sure I got the right kind of takeaway here. And the question just relates to price versus variable costs as we go through the year. Just how you're thinking about that? And I asking that there's -- historically, there have been times when markets inflect that tends to be in more inflationary environment, which is good, but there's some contractual constraints that have limited that kind of the timing and your ability to push price. So I don't know if that's an analogous period of where we are now, but just kind of curious how that -- how you expect those 2 to behave, again, price versus variable cost for the balance of the year?

Yes. Tim, I appreciate the question. And it is, as I said earlier, this is a well-exercised muscle in terms of getting prices up. At the same time, the situation we're in today is slightly different from where we've been before. So when we started from no tariff to tariffs, basically, there was only one move on price, and that was up for everybody everywhere, whereas now you have multiple dimensions that smooth out the curve a little bit. So you've got, in some cases, tariffs going away where you might still have some prices that are a little more sticky. And then you have other cases where inflation is coming in where you have to price up. So you have both areas under the curve on the way up or on the way down that are offsetting each other.

So a little bit of margin expansion in some cases and some you might have a little short-term margin compression as you get the prices up. So that's why -- and plus, it's a pretty modest number when you look in comparison to what we've dealt with before. We put $10 million as a placeholder, but we're not at least as of today, looking at that full amount. And so a little smaller amount, more dynamics in both directions, which will allow us to do a lot better job than we were able to do when it was just a onetime big hit of tens of millions of dollars.

Okay. All right. Understood. And then maybe just, close, just on Industrial Motion and the growth outlook there, that historically, I think of that as being a lot more European exposed, which is where one could potentially be maybe a little bit more concerned or cautious just given the current conflict and how that second derivative of higher oil prices, et cetera, impacts the outlook. So maybe if you spend just a second there. I know it's not all Europe, but I don't know, just maybe what kind of helps to underpin that outlook for Industrial Motion.

Yes. No, I appreciate it. So Industrial Motion, I think if you look at the segments of Industrial Motion so the linear business and the lubrication business are certainly majority European businesses and together their, call it, half of industrial motion. But then you've got Cone, you've got Philadelphia Gear, you've got CGI that are primarily U.S. businesses. And so by the time you average it all out, it's not as heavy European as you might think. And then obviously, the Philadelphia Gear business is heavily exposed to defense to marine and that business is growing strongly as well. More importantly, I think Linear Motion, if you look even in Q1, we were up substantially and the growth was driven by the Americas. Although the business is the majority European business, automation projects in the U.S. is what drove it.

And then for our Lubrication business, which also historically was a European business, one of the big value propositions of Bijur Delimon was their heavy Asia, a lot of India footprint in rail in places where we didn't have a stronger footprint with our automated lubrication systems. So that provides a growth vector as well and then being up in off-highway, being up in general industrial helps lubrication. I think ag picking up helps Industrial Motion, whether that's chain, whether that's other places, coupling clutches seals for off-highway and industrial distribution also helps on the industrial motion side. And those businesses, again, the coupling clutches and seals, that's also more of a U.S. business with the PT Tech and other elements of the business. So we feel good about the position that Industrial Motion is in and more importantly, we feel good about how Industrial Motion and EB are coming together, and that's one of the things we'll spend a lot of time on at Investor Day to explain how the that combined sales motion really creates a unique value proposition for customers.

Your next question comes from the line of Mike Shlisky with D.A. Davidson. .

Wanted to ask about your comments on ag and some of the green shoots you're seeing there. I guess I want to just a couple more details there. I guess, is it replacement demand and parts versus OEM. And also, are you getting any commentary from the OEMs to some of your upside here, looking to increase production in the fourth quarter of this year in advance of their making 2027 models or their better outlook for 2027.

Yes. Mike here. Thanks for the question. Answering the last part first, yes, we don't can't really comment on that in terms of how fourth quarter is shaping up, we don't give that specific guidance. And certainly as it gets closer to 2017, we'll be able to give you some outlook on what that is. as it relates specifically to ag, we're seeing increasing order books. It's hard to know if it's restocking, I think, is what you're getting to. Is it OEM driven? Again, I would say it's just general green shoots in that space that we're seeing. So I would assume it's a little bit of both. But it's just now turning from what has been a pretty long down cycle there. So -- so we'll see what that turns into. But right now, just beginnings of green shoots for us there. .

Yes. And the year-over-year math looks compelling. But then if you take a long enough time horizon, you realize that it's -- part of it is the comp. It's just off of a very low base. And so that's why it's hard to draw too many long-term conclusions based on that, but it's certainly no longer a year-over-year headwind, it's now more of a tailwind.

Sure. I can appreciate that. And just secondly, just a quick housekeeping question, really. What you sold to Gates the Belt business hasn't typically closed yet. So is that still part of the guidance? And is that I guess it's currently a headwind to EBITDA margins, but once that is officially closed, like you increase your margin outflow again?

Yes. So that's correct. It is until it's -- until the transaction closes, it will be part of our guidance. So it is included in our guidance today. And as we said, we expect that to be a structural improvement to Industrial Motion margins. So post closing, then yes, we would give -- we'd expect that to be an improvement to Industrial Motion margins. Again, back to Investor Day, we'll lay this out more clearly for you at Investor Day. And so you can see that exact margin impact.

Yes. But keep in mind just the practicality of it. So we said it's as you look at 2026. So we said we're going to expect close sometime in Q3 and then obviously, there is an element of stranded cost that has to be dealt with to get the full benefit that we're going to outline for you. Obviously, we'll work on that expeditiously, but don't think of it as a one-day event where all that happens at the same time. There will be a mixing up, no doubt, the first day. But then to get the full lift, we also have a little bit of self-help to do that, obviously, we'll be prepared to do quickly.

There are no remaining questions at this time. Sir, do you have any final comments or remarks?

Yes. Thank you, operator, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call. .

Thank you for participating in Timken's first quarter earnings release conference call. You may now disconnect.

I think we're all set. So I'm Kyle Magnus. I'm Citi's U.S. machinery analyst. Pleased to be joined by the Timken team today. To my immediate right, I've got Lucian Boldea, the President and CEO; and then Mike Discenza, VP and CFO. Thanks for being here with us today.

Thanks for having us.

Thank you.

Maybe to start, Lucian, you've now been in the seat for about 6 months. So it would be great just to get your high-level thoughts on what stood out during your time at Timken thus far and what opportunities you're most excited about going forward?

Yes. Look, I think the one sentence summary is it's -- I'm very lucky, came at the right time into a great company. And I think when you look at the position the company sits in, you start with the most important part, which is the cash generation. How is that engine going? And it's been a strong one, and it continues to be strong. Health of the balance sheet, very, very strong. We're at the beginning of, hopefully, where the industrial cycle starts picking up and our debt leverage is in a very healthy range at the, call it, the bottom of the cycle now. So that's a great place to start.

You look at the portfolio, a number of acquisitions, a number of difficult choices on divesting a lot of automotive business have been done. They're behind us. So now it's time to build on all that work that has been done and to continue from there. And I think the company is really poised for growth. Some of the choices we have in front of us, obviously, operating rigor is very important. So that's something that we're going to continue to double down on. We've talked about the portfolio and how that works on the portfolio is very important, applying 80/20 to that and now broadening that 80/20 approach is critical beyond the portfolio.

Awesome. Maybe we can talk about some of your near-term strategic priorities. I know 80/20 is going to be a main focus area for you. But just what should we expect from some of these 80/20 initiatives over the next 6 to 12 months?

Yes. And look, 80/20 is these days a very catchy word and sometimes not uniformly understood what it is and what it isn't. And people do it for different reasons. If you separate, there's the 80 and there's the 20, which is the 80 is what I'm going to double down on and the 20 is what I'm going to discontinue.

And so how do you balance that investment is investment of time and investment of mind share is important. And our focus is broadening this approach, but the main objective is not to make a smaller, more perfect company. The main objective is to get the organic growth engine going better than it is now to leverage our global footprint to accelerate the penetration globally of our acquisitions. That's why we're doing this. So -- but to do that and to avoid just adding a lot of resources, you have to stop doing something. So that's where this is a mindset. This is an approach and you look at simplification, how do you simplify your customer mix, your product portfolio in the end, your operations because the world of operating as a U.S. company where you're an exporter or you or you make something in one region, that world is kind of behind us, at least for the time being, you have to operate in region, making region, serve in region to avoid tariffs to be able to serve your customers efficiently.

So for that, you need to simplify. So this is all kind of one big umbrella of simplification, one big umbrella of giving 19,000 people the freedom to make choices on where are we going to do less, where are we going to do more? That's really the idea behind it.

Got it. And on the portfolio side, with the 80-20, you've already announced the auto OE pruning. You talked on the last earnings call looking at perhaps pruning a single-digit percentage of the portfolio. I know you'll give more of a framework at the Investor Day that's upcoming, but just maybe some high-level overview on what you're doing and how you're thinking about balancing doubling down on growth versus potentially exiting more areas of the business.

Yes. Look, the focus is really in the end. We want to grow the top line. We also want to improve our mix and our margin in the end. So to the extent that we have businesses that are dilutive. And obviously, any company, if your average margin is a certain number, you're going to have some businesses below and some above. So one way to improve the average is to stop things that are below, and that's why you avoid having to continue to drive our pricing on the things that are well above and jeopardize your growth rate there. You want to leave those growing very nicely and you want to stop those that bring you down. And so that's going to be the focus. The focus is what are the margin-dilutive businesses. And then can we fix them quickly and you can underline quickly 3x? Or are they just not us. And if they're if they're not us, then is there another better natural owner for those businesses who would be better positioned to take advantage of the market position.

And doubling down on growth, I guess, in the immediate term, it's more going to be focused on organic but also some inorganic opportunities. Just can you talk about that a little bit.

Yes. Look, I started out with how excited I am about our cash generation, our balance sheet, which means it allows you a balanced allocation of capital, which we are committed to. That includes M&A. So inorganic growth will be part of the story going forward. But first and foremost, we got to do what's in our hands today and not dream of what we could find tomorrow, and that's organic growth. And so how do we do that? And the great news is the acquisitions that we have in our industrial Motions portfolio, many of them were regional companies. And the Timken Company is about as global as they come. I wouldn't even call it global anymore, I would call it a multinational company because we have almost stand-alone operations now in every region of the world. And thank God, we have that with all the tariffs now that really helps us operate efficiently.

So in that framework, when you do all these acquisitions that are regional businesses, it affords you the opportunity to globalize those. So we have a couple of businesses, linear motion, our lubrication business, there, 3/4 of the footprint is European today. There's no inherent reason why that would be the case. They're not -- it's not an application that don't exist in Europe it exists globally.

So we are now on a very aggressive path taking those to other regions. And obviously, first region, if you're already in Europe, you came to the Americas, and in one of those examples, for instance, were up 20% year-over-year in the U.S. now it's off of a smaller base, but it demonstrates we are able to build a pipeline very quickly if we're able to close on the pipeline at very good rates, which means what we're offering the market wants. So now how do you accelerate that? How do you scale that? That's really a significant organic growth opportunity for us.

Awesome. It's good to hear some early examples of success with that. You did mention on the fourth quarter call, you've now broadened out this 80/20 strategy really across the entire enterprise. So maybe talk about some of those upfront investments and the initial costs. It sounds like it could be over a few quarters to position the company to see some of these benefits over the medium to long-term. And yes, can you give us just a sense of what that might look like and what value you think this can drive the Timken both on the growth and the margin side?

Yes. Look, at this point, it's important to understand where we are in the process of portfolio 80/20, we kind of started almost the first week I showed up. We started in earnest broadening the 80-20 sometimes late Q4. So we've done enough analysis to know that there is opportunity. So that we know. How big is it for our company, that's something that we're still working on. So what we're relying on now is what is typical. And what is typical for a company that embarks on this journey is that in the first couple of quarters, you have a net cost to do this because there's a lot of analysis, there's resources. We already disclosed publicly. We've engaged a third-party firm to help us with this. And so that's kind of first half year.

Second half year, usually, you start generating enough value that you pay for the investment. So it's kind of net neutral. And then third half year is when you start actually generating a net gain. So that would say that first half of '26 will be in the net investment, second half, probably neutral. And then first half of '27, we would see we would think that we would see a return. Tell you that what's typical. No self-respecting leadership team is going to want to be typical. So we're going to try to do a little better than typical. But that's if you picked up the phone today and called our good friends at strategics, they would -- this is what they were telling.

Great. Maybe a high-level question for Mike. You were appointed CFO a couple of months ago, but you've been with the company for over 25 years. So I think it would be great to hear your perspective just on how Timken and the portfolio has really transformed over time as well as the strategy and just the evolution you've seen at the company over your tenure?

Yes. Thanks, Kyle. I have been with the company 25 years, and a lot has happened in that 25 years. When I started with the company, I'll say we were more than 50% bearings, probably closer to a 90-plus percent bearings. More than 50% on-highway markets. And as I look at it now, we've really accelerated growth into, I'll call it, the more attractive parts of the engineered bearings markets. And obviously, what we've done with our industrial motion portfolio really built out a nice portfolio.

And then what we've done over the last 10-plus years is really focused on, I'll say, moving away from the more cyclical markets into more secular and higher-growth markets. Things like automation, passenger rail, renewable energy, where we have a strong right to win and a great secular trend behind it. And in those markets, which now make up probably 1/3 of the company's revenue, we've been able to grow at a 10% -- excuse me, a double-digit CAGR over the last 10 years. So really, really transformed from what was an on-highway tapered roller bearing company for all intents and purposes into a much broader much more attractive, much less cyclical company. So quite a lot has changed in 25 years.

It sounds like it. And Lucian has already talked about the free cash flow and balance sheet strength. So maybe piggybacking off that, can you speak a little bit to your capital allocation priorities in 2026 and any longer-term framework, but maybe more on the near-term first.

Yes. So like Lucian said, really strong cash generation. That's happened and will continue to happen. We have a great cash-generating business. We've targeted our leverage to be in the, call it, the 1.5x to 2.5x range, and we've ended the last several years, right in the middle of that range. So we've had strong discipline, and I would say we're going to continue to maintain that capital allocation discipline going forward. And it's been a balanced approach. Share repurchases, we've done quite a bit, and you can see the slide here since 2013, repurchased more than 25% of our shares. So we've been able to deploy capital there. But we've also built out quite an extensive portfolio of acquisitions. And so -- we'll continue to stay disciplined. We'll continue to stay balanced, but M&A remains an attractive opportunity for us, and we'll continue to deploy capital there.

Great. And maybe on that subject, just -- what's the M&A pipeline looking like today? How are you thinking about smaller strategic bolt-ons over the next few years versus maybe something a little more transformative?

Yes. Look, I think that's part of the conversation. We look forward to having at Investor Day. I can give you a bit of a teaser. I think what -- at least the way I try to think about the world is what are the macro trends that if I say them to this room, everybody nod their head and thinks it's obvious, it's nothing controversial. So is it automation and robotics? Is it electrification and power generation? Is it defense? Those are the kind of persistent macro trends that are here to stay for the foreseeable future. So if that's the case, then the next dimension to that is what are the industry verticals, the markets that the company wants to focus on. And we already mentioned the one that we don't want to focus, which is the on-highway one. So now that's fine, but where are we going? What are those markets?

And then at the intersection of those macro trends in the markets are enabling acquisition opportunities. And those come in different sizes, obviously, if you -- where we are putting all the eggs in 1 basket on a transformational one, there may be a time at some point to consider that, but I think there's opportunity in the short-term for bolt-ons. There's opportunity for a little bit of pruning and there's opportunity for adding. As Mike said, and I don't want to gloss over what he said, 1/3 of the portfolio over the last 10 years has grown at 12%. So mathematically, double-digit mathematically, that ought to be enough to lift the company. Why didn't that happen? The reason that didn't happen is because at the same time, we exited a number of businesses. Well, there's a couple of pieces of good news. We're kind of slowly running out of -- we had over $1 billion to exit when we were $2.5 billion worth of automotive were -- that proportion now is very, very different. I mentioned single-digit total, what's in place. So there's a lot less to walk away from.

The 1/3 continues to pick up the momentum continues to grow. And with accretive M&A to that growth, we really should be able to alter this and bend the curve on the organic side and then also enable us to do more bolt-ons.

Great. I'll pause to see if there's any questions from the audience. We got 1 over here.

I just wanted to ask, especially given your experience at Honeywell, we've seen the industrial automation market undergo a couple of changes over the last couple of decades. And the current Timken portfolio is quite geared towards 6 axis or 7 axis robots that kind of they benefit from your strong position in like in your actuators, guardrails, guides, things like that. So do you think that there is a need to shift the portfolio towards products that go more into humannoids, things like planetary roller bearings. Is that something you would look to do considering that in 10 years' time, the future of industrial automation could be humanoid?

Yes. Yes. Look, it's a great question. Automation will have a very significant impact and already has a very significant impact on us. So if you start kind of the first level is autonomous operations that's already here and now. We started with the dark warehouse, then we have the almost dark gigafactory. You have the offshore oil rig that runs autonomous. And the implication on that the mine that gets operated remotely, the implication of that is reliability needs to be at a completely different level. Because in the end, yes, it's automated. In the end, you'll hear from all our peers, the rest of the 2 days about all the AI that they use. But something still is going to move coal around. Something still has to move cement, something still has to convey things around. So -- and that needs to be way more reliable because the maintenance person is now no longer at the lithium mine, they're in Santiago, Chile, and they come there once a week to do preventive maintenance or they're in Oslo and the offshore oil rig is offshore.

So that's the first dimension. Then factory automation is a big deal. We all run factories in the Western world. And for the last few years, it's been very hard to attract talent in the factories. People don't want to work shift work. They want to be flexible. They want to have a different work life balance, that's the impact of COVID and kind of like a short philosophy. So that really improves automation. And then -- so that's an immediate opportunity. All the things that you mentioned are products are very well aligned with that, whether it's our linear motion, whether it's our automatic lubrication systems, whether it's our precision drives and so on, tone drives, you name it. And not the least, also the bearings business, the base bearing business helped there.

Humanoid is the next frontier. We have our precision drives business that we've got a couple of acquisitions there. We still have the legacy Bearings business because one thing you can count on is as compute power increases, as the cameras get better, the motion is more precise, the loads that get put on these robots is higher. So that starts work, you would have had a regular bearing, now you're starting to talk about more sophisticated technology to be able to affect the motion that you need. So we'll continue to work on that. We're working with OEMs there. But I would tell you my view is -- that's still very early. And there's plenty of short-term opportunity on automation that's more significant, whether it's warehouses, whether it's gigafactories, whether it's those type of applications where there's massive investments being done today.

But certainly excited about humanoids, and we have a portfolio there. We have a play there. We will continue to look at enabling acquisitions. Other place you look at is what's the future of hydraulics versus electrification, -- how much of the hydraulics can be engineered with actuators than how do you control those, how do you fill safely stop those because ultimately, you have to have safe construction equipment, off-highway equipment and so on. So those are all growth vectors that automation is driving for us that we're so excited about. That's why when I mentioned the 3 macro trends, it was up first because it's a big driver.

Sure. Any other questions? All right. Maybe we can -- is there a question? Okay. Yes, maybe we can switch gears a little bit, dig into the initial 2026 organic sales outlook of 2% growth. So it sounds like it's pricing of about 1%. And then I guess the volume outlook would be about 1%. But yes, curious why that wouldn't be a bit higher for 2026 when you consider the recent U.S. PMI print and the order trends that you've highlighted and I think the backlog is up nicely year-over-year as well?

Yes. Look, it could be. We're not saying it couldn't. I think from where we sit today, the key word is just uncertainty and a little bit of caution on our part. What I would tell you is we're now hard to believe halfway through Q1, and we still feel good about where we're headed in the year and fairly consistent with what we said. We're now Chinese New Year, so that's always -- you have to always watch when you compare quarter-to-date year-over-year because Chinese New Year moves 1 week back and forth, and it can really mess with your comps. But all in all, I think we see a positive start to the year. I don't think we see your historical snapback that at some point you would expect.

Now my favorite question to ask a lot of the people I interact with externally, what assumption do you have in your models about the midterm election and they say, we don't have that factor in. And I'm like, okay, that seems like a pretty big event, and I think we could spend the rest of the morning debating what impact that could have on demand. But that's one that's very unknown. Are there going to be additional stimulus? Or are there going to be additional things that especially in our exposure to agriculture, exposure to construction infrastructure, what will the administration do to stimulate that? We don't know. But that's not baked in to the extent that, that happens, then we could look conservative and bearish on our forecast to the extent that doesn't happen, then we're probably going to continue with the uncertainty for 2 steps forward once the back kind of approach that we've been in, in the last 6 months.

Got it. That's helpful. And you have highlighted recent encouraging order trends. The backlog is up. And as you exit 2025 and 2026, -- can you speak to just what is driving this growth in the markets where you're seeing some positive activity?

Yes. Look, there's a number of markets. Obviously, aerospace and defense is always at the top of the class where when you forecast your sales, you're really forecasting your production because you have more demand than you have ability to fulfill in the short-term. So that's kind of at the top of the list of growth opportunities. Renewable still very strong. Our exposure is about 75-25 wind, solar. Wind is still very good, solar, not so much. So net, it still averages out as a decent story, rail is pretty strong. And then at the other end, you still have agriculture that's relatively slow and then mining and the infrastructure is somewhere in between. So that's kind of overall the picture as we see it.

Today, regionally, I would say, things are evolving in a good way because last 3 years, we kind of got used to. The net is U.S. growth rate, minus 0 decline equals final answer, and that's no longer the case. Now Europe is starting to find its footing also and starting to be a little more of a contributor than India, Central Asia, Middle East, sub-Saharan Africa are really growing nicely. And China is still a little more tepid.

And the wind business at 75% of renewables, that's pretty much all China wind, right?

It's heavily exposed to China. But in the end, if you think of the applications, it's main shaft bearings for the wind that's heavy, heavy China. But then we also sell a lot into gearboxes. And so that's that ZFs, the Europeans that make those. So that's more OEM type business and some of that is European.

Yes. And I am curious what do you think is just driving some of the green shoots that you guys are seeing in Europe?

Yes. Look, some of it, obviously, at some point, you reach a low enough level of demand, you deplete the inventories and you start selling to demand. It's partly a function of the comps that are there, but it's also partly a function of really us refocusing part is inorganic growth becoming organic growth, as the acquisitions are there. Our Industrial Motion portfolio is different by design where there's more revenue that's less cyclical, that's more services related. If you think of our lubrication portfolio. If you think about those are not necessarily all OEM CapEx, you have a little more OpEx exposure with those. So that also helps smooth out the growth.

Got it. You guys talked about being price cost positive for the year and expectation to recapture margins from tariffs as you're exiting 2026. Can you just remind us of the key buckets we should be thinking about there between cost savings, material inflation, gross tariff impacts and pricing to bridge to your full year price first?

Yes, I'll let Mike cover the complete walk with all those items. But what I would tell you is our customers, I think, appreciate that we have taken a disciplined and measured approach to this. And so we've -- and we've been very, very public and very transparent with them. So this spending last year to really try to recover the dollars and now trying to really get back to our margins. So they're working with us. I'm very encouraged that we're -- we're able to do that in a constructive way and not end up losing a bunch of share because, again, what I'm solving for is organic growth, not just the victory lap on price.

And then Mike can talk about all the actions that we've done on self-help because one of the things I'm very impressed with is our company is very good that if you look at how much business we've exited over the years, stranded cost would have killed you if you don't have a good muscle on self-help. And this company has that. And so we're continuing to leverage that. So Mike, if you want to talk about the elements of the...

Sure. Yes. So as you said, we are planning to be positive price/cost for the year. That's really driven by our pricing actions. As Lucian said, we continue to price particularly to recapture margin on tariffs, which we committed to do by the end of this year. As well as some of the cost actions that Lucian referenced. So if you can think of it in a couple of different ways on our EBITDA bridge, we talk about material logistics costs. We expect that to be a net positive for the year, even though we have modest inflation across our material portfolio, the cost actions that we started last year, really targeting material cost reduction are going to benefit us this year. So we expect to be net positive on material logistics.

And then manufacturing, call it, all else in manufacturing will be probably a slight negative on that walk as we do have some costs coming in, merit costs for wages. So -- and our cost savings actions, they are not quite enough to offset. But net-net, all of that should be a positive price/cost. Lucian referenced the stranded cost, and we did take some actions last year around closing plants, and we've done that pretty consistently. And so we will benefit this year from some of those plant closures as we have gone past the point of the stranded costs have actually gotten the cost out. So those things will contribute to us being positive price cost this year.

Great. And then are there any notable factors that are influencing your EBITDA margin outlook for the year?

Yes. A couple of others. Obviously, those being net positive there is going to help the tariff recapture margin recapture certainly helps with margins. We do have some headwinds in S&A, again, wage inflation, merit increases as well as some variable compensation increases that are going to be headwinds year-on-year. So those are call in holding or hurting the margins. But in the end, with what we're doing on tariffs and pricing, I think, like I said, net-net, we'll see the margin expansion and positive price cost.

Got it. And I would assume the recent executive order to the reduction in tariffs on India would benefit Timken just given some of your bearings manufacturing exposure there. I know this wasn't included in the 2026 guide, but can you give us some color on what that benefit could look like in '26?

Yes. Look, step back to what we know, what's been announced informally and then what's been actually announced in terms of an executive order. So if you think of India tariffs, there's a 25% tariff that will go down to 18%. There is the additional 25% tariff, which was more to discourage India from buying Russian oil. And then there's the steel tariff of 50%. So on, let's say, you import $100 from India, the steel content on that $100 worth of import is tariffs at 50%. That will continue. The 25% Russian oil punitive tariff that's gone. There is an executive order now, so that's gone. We'll see exactly when it flows through and what is -- when it is effective, but that's gone. The 25% going to 18% on the non-steel content, that's at least as of a day ago, it was not firm yet. So if all of it happens, the day it happens, it's give or take $0.01 per month when it happens. So if it's March 1, then it's a simple math or if it's April 1, so on. So that's, give or take, what the impact is. What's been announced so far is 2/3 of that is the impact, so still meaningful but not a complete game changer.

Makes sense.

Just because we import a little -- it's the footprint now is so multinational. Again, I have a hard time thinking of us anymore as a global company because we're so multinational versus just a global exporter.

Yes. Got it. I can pause there to see if there's any questions from the audience again. One over here.

So you've discussed factory automation. I'm curious in your plants and facilities, how much automation are you using your plans for increasing that? And maybe related to that, just to a bit about labor attrition rates, et cetera? Are you finding the right talent?

Yes. Thank you. Yes. So we have full spectrum of factors, if you think about bearings manufacturing, you have the extreme super high volume, low mix kind of manufacturing, which is typically for automotive, that's not our footprint. That's not our factories, which is also the reason why we're deemphasizing that business. So don't expect to see that type of manufacturing in our portfolio. Our portfolio is more bespoke, more custom. We pride ourselves on being able to prototype something for a customer, making 2 of something and then scale that up to several thousand of an item versus the millions of the same item that tends to be more commodity lower margin. But even with that mix, we rely on automation pretty heavily. In our factories because there's a lot of handling, a lot of grinding, a lot of honing, a lot of operations that you do a lot of assembly. So to the extent that you can have automation that's important.

The other part that we do, and we have a very heavy factory footprint in Asia that's new. And those truly are state-of-the-art facilities. You walk through, they're lean, they're Kaizen, they use automation. They use the latest AI because we have a very strong IT center in Bangalore that we leverage for that. So those truly are what anybody would be proud of to show you, but also in everybody else's defense in our portfolio, they're new factories. So they're built from the ground up to be that way. They're very efficient. They're very low cost, really world-class in terms of cost and automation and really overall, the management systems, the tools, all the digitalization that you can imagine because the value in a factory, automating the equipment is important, but that's distributor control systems and PLCs have been around as long as I have been on this earth, whereas automating workflows, instrumenting that, that's the next frontier.

And that's the frontier that we're on right now. How do you have a piece of equipment that goes down, send the signal to maintenance, create the work order kits, the parts, the tools and the mechanic walks up to the problem with the procedure, with instructions, with parts, with everything. It's not the age old. Well, we'll go and break, then we'll come back and then we'll see there's a problem, then we'll go look for parts, then we'll find tools. And next thing you know, Sunday became Tuesday. This is all 1 place, 1 part, and that's the kind of technology that we have in our factory. That's one of the other things I've been very impressed by in the portfolio. Now is every factory that way? No, but that's the beauty of being able to get best practices across and standardizing.

We announced earlier on changes in our organization, and we talk more about the Chief Technology Officer, Head of Marketing, was also in that announcement is we centralized operations under a center of excellence for the whole company. This is why because there's still a lot of variability in what is best-in-class in our portfolio. And what is maybe below our average. So how do you normalize that? How do you get all that at the best-in-class level.

Any other questions? All right. Maybe we can wrap up with a little Investor Day teaser. Just -- yes, I know we're still a bit away from the Investor Day, but just what can we look forward to in a few months, just from a high level, what should we expect from you and the team to cover at the Investor Day?

Yes. Look, there'll be 2 parts to Investor Day and we're still working on catchy phrases and how we're going to position that. But there is a short/medium-term transformation where you kind of elevates the current performance of the current portfolio of the current company of the current business model to another level. And so a significant portion of Investor Day will be dedicated to that, which is, I'll call it the self-help piece. And so we want to make sure everybody walks out of there with yes, these guys have a plan and they will execute this plan. And that is sufficient to carry us out in 24 months, 36 months, something like that and really improve the performance from where we sit today.

And it's the usual suspects we've already talked about. It's 80-20. It's portfolio work, it's regional penetration. Those are no big shockers, no big surprise vectors there. But really not to put too much burn on my colleague, but putting a growth walk in front of you to say -- these are the elements you should expect that will contribute to revenue, and these are the elements you should expect that will contribute to margin. And this is how this is going to play out. So that's the short-term kind of elevate the performance of the current company.

But then the second piece, which we want to introduce at that point. And again, there would be a different one is here now, one is where we're going is, okay, what is the transformation? And that's the -- what are the macro trends, what are the focus industries from that you'll hear from our new CTO, who will talk to you about how our technologies will be aligned with that. And then from there, you can start connecting dots on what other enabling M&A and so on. But that's the here and now, self-help transformation elevate the performance of what we've got and then transform to what. Those are the 2 halves. So I'm hope as you can tell, I can't wait because I'm kind of tired of saying I'll tell you at Investor Day. And if I tell you now then what am I going to tell you then. So it's not long enough for the team to prepare, but it's way too long for us to have to defer answering, but we're very excited about what we have -- the story we have to tell because we think it's a very credible one.

It's very focused on execution, which means it puts a lot of pressure on us as a leadership team, which means if it doesn't work, we just need a mirror to find the people to blame. And so -- but I welcome the challenge because I know the team we have. I know the passion we have, I know the engagement that we have, and I know the quality of the portfolio that we have. So this portfolio can and will do better. And that's what we're going to communicate.

Awesome. Good to hear. Well, Mike, Lucian, thanks for being with us today. We'll wrap it up there.

Thank you.

Thank you.

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 Fourth Quarter Earnings Release Conference Call. [Operator Instructions]

Mr. Frohnapple, you may begin your conference.

Thank you, operator, and welcome, everyone, to our Fourth Quarter 2025 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, Lucian Boldea; and Mike Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike, before we open up the call for your questions. [Operator Instructions]

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.

Finally, note that we are planning to host an Investor Day on Wednesday, May 20, in New York City, so we hope that you will join us either virtually or in person. Please stay tuned for more details.

With that, I would like to thank you for your interest in The Timken Company, and I will now turn the call over to Lucian.

Thanks, Neil, and good morning, everyone. We appreciate your interest in Timken and for joining us today.

I would like to start by thanking our Timken team for their hard work and resilience. While 2025 presented a challenging market environment, our team executed with discipline and we finished the year strong.

Turning to our results in the fourth quarter, we achieved adjusted earnings per share of $1.14, which exceeded the high end of our guidance range. Total sales in the fourth quarter were up 3.5% from last year. Organic revenue was up more than 1%. It was driven by higher pricing and volume growth in the Industrial Motion segment.

We increased free cash flow to $141 million, enabling us to return $36 million of cash to shareholders and reduce debt by more than $100 million during the fourth quarter. The company ended the year with a strong balance sheet with net leverage at only 2x, enabling us to continue our balanced approach to capital allocation.

Mike will take you through the details of our 2026 outlook, but we expect to generate organic revenue growth, strong free cash flow and higher margins. Overall we expect adjusted EPS to increase around 8% at the midpoint of the guidance range.

We see encouraging order activity across several industrial markets and our backlog at the end of 2025 was up from the prior year. These trends support our expectation that customer demand will improve compared to 2025 and our outlook for organic sales to be up 2%. This reflects higher pricing and modest volume growth given the volatility of the ongoing freight situation. Despite macro uncertainty, our team is operating with urgency to execute our strategic initiatives and fulfill our commitments to delivering stronger performance in 2026.

We're making good progress on our near-term strategic initiatives, including the 80/20 portfolio work. Over time, we expect to exit underperforming businesses and prioritize our focus and resources on actions that will have the greatest impact to company margins and growth. Based on early results from this work, we have decided to extend the 80/20 discipline across our entire enterprise. This will include simplification of the portfolio and process optimization.

While we are still early in the process, it has become clear that applying this 80/20 approach more comprehensively will be a major driver of value creation. I am very excited about the potential, but please keep in mind that it will take some time for the benefit to flow through to the bottom line.

As we shared last quarter, I see plenty of opportunity to raise Timken's organic growth trajectory by focusing on the fastest-growing verticals and regions. We will also continue to integrate acquisitions and drive synergies through global expansion of our acquired businesses.

To support this objective, we recently announced targeted strategic leadership appointments to better align the organization with our primary growth drivers and serve customers more comprehensively as one Timken. New positions include a Chief Technology Officer, Vice President of Marketing and Regional President. These additions to our leadership team directly support our growth strategy and will fuel innovation, strengthen commercial execution and position us to capture greater share in key market verticals and regions.

Together, we're energized by the many opportunities ahead to leverage Timken's strength and create new ways to drive improved performance.

With that, let me turn over the call to Mike for a more detailed review of the results and outlook. Mike?

Thanks, Lucian, and good morning, everyone. For the financial review, I'm going to start on Slide 7 of the materials with a summary of our fourth quarter results. Overall, total revenue for the quarter was $1.11 billion, which is up 3.5% from last year. Adjusted EBITDA margins came in at 16% and adjusted earnings per share for the quarter was $1.14.

Turning to Slide 8, let's take a closer look at our fourth quarter sales. Organically, sales were up 1.3% from last year. The increase was driven by higher pricing across both segments and higher volumes in the Industrial Motion segment, which more than offset lower demand in Engineered Bearings. Looking at the rest of the revenue walk, foreign currency translation contributed more than 2% growth to the top line.

On the right, you can see fourth quarter performance in terms of organic growth by region. In the Americas, our largest region, we were flat as growth in North America was offset by lower revenue in Latin America. In Asia Pacific, we were up 4% from last year as growth in India and other parts of the region more than offset lower revenue in China. And finally, we were up 4% in EMEA, led by solid growth from the Industrial Motion segment.

Turning to Slide 9. Adjusted EBITDA of $178 million was flat with the prior year. Adjusted EBITDA margins came in at 16% of sales in the fourth quarter, compared to 16.6% of sales last year. Excluding the impact from currency, margins would have been nearly flat with the prior year.

Let me comment a little further on a few of the different drivers on the EBITDA bridge you can see on this slide. Starting with the impact from mix, it was a notable headwind as OE shipments outperformed distribution in the quarter. And you may recall, we were lapping favorable mix in our defense business in the prior year.

With respect to pricing in the quarter, it was positive $25 million and added more than 2% to the top line in the quarter as we continue to put through pricing actions to mitigate the impact from tariffs. And as you can see on the slide, tariffs were a $30 million headwind versus last year, and costs were also higher sequentially as expected.

Looking at material and logistics, costs were notably lower versus last year, driven mostly by savings tactics in the Engineered Bearings segment. Moving to the SG&A and Other line, expenses were down from last year, driven by cost reduction initiatives and lower accruals for bad debt.

Now let's move to our business segment results, starting with Engineered Bearings on Slide 10. Engineered Bearing sales were $714 million in the quarter, up 0.9% from last year. Currency translation added nearly 2%, while organic sales were down 1% as higher pricing was more than offset by lower volumes. Among market sectors, off-highway and renewable energy achieved the strongest gains versus last year. We also posted growth in aerospace and general industrial, while revenue was lower from last year across the distribution, on-highway, heavy industries and rail sectors.

Engineered Bearings' adjusted EBITDA was $115 million or 16.1% of sales in the fourth quarter, compared to $122 million or 17.2% of sales last year. Margins in the quarter were negatively impacted by unfavorable mix as well as incremental tariff costs, which continue to disproportionately impact this segment. On the positive side, cost savings and the benefit of higher pricing helped mitigate these margin headwinds.

Now let's turn to Industrial Motion on Slide 11. Industrial Motion sales were $397 million in the quarter, up 8.4% from last year. Organically, sales increased 5.6% driven by higher demand across most sectors and higher pricing, while currency translation was a benefit of 2.8%. The segment saw growth in the quarter across all product platforms and was led by strong regional gains in the Americas and Europe.

Among market sectors, automation and aerospace achieved the strongest gains versus the prior year. We also generated growth in the off-highway and heavy industry sectors, while solar and distribution sales were down. The increase in segment margins reflect solid operational execution by the team in the quarter as well as the impact of higher volumes and pricing, which more than offset incremental tariff costs and unfavorable mix.

Moving to Slide 12, you can see that we generated operating cash flow of $183 million in the fourth quarter, and after a CapEx of $43 million, free cash flow was $141 million, up from last year. This brought our free cash flow to $406 million for the full year, an increase of $100 million from the prior year.

Looking at the balance sheet, we reduced net debt by over $130 million during 2025 and ended the fourth quarter with net debt to adjusted EBITDA at 2x, which is at the middle of our targeted range.

Now let's turn to the outlook for full year 2026 with a summary on Slide 14. Starting on the sales outlook, we're planning for full year revenue to increase 2% to 4% in total. We're planning for currency to contribute around 1% to our revenue for the year, which reflects the weaker U.S. dollar. Organically, we expect revenue to be up 2% at the midpoint, driven by higher volumes and pricing in both segments.

On the bottom line, we expect adjusted earnings per share in the range of $5.50 to $6, up 8% at the midpoint versus 2025. For modeling purposes, think of the full year adjusted EPS outlook to be split roughly 54% in the first half and 46% in the second half. And the outlook assumes year-over-year earnings growth every quarter this year.

This earnings outlook implies that our 2026 consolidated adjusted EBITDA margin will be in the high-17% range at the midpoint, up from 17.4% in 2025. Note that the midpoint of the range implies an incremental margin of approximately 30% for the full year. For the first quarter, currency is estimated to add around 3% to the top line, while we expect organic sales and adjusted EBITDA margins to be relatively flat with last year.

Moving to free cash flow, we expect to generate around $350 million for the full year or approximately 105% conversion on GAAP net income at the midpoint.

On Slide 15, we provide an initial view on our 2026 organic sales outlook by market and sector, which includes the impact of both volumes and pricing. As Lucian indicated, we are seeing increasing order activity across several of these industrial markets, which supports our outlook for organic sales to be up 2% at the midpoint.

Moving to Slide 16, here we provide a bridge of the key drivers that walk our 2025 adjusted EPS to the 2026 outlook midpoint of $5.75. You can see the $0.25 positive impact from the organic sales change net of inflation, while currency is expected to add $0.05.

And finally, we're estimating a year-on-year positive impact from tariffs of approximately $0.10 to $0.15 per share. The trade situation continues to evolve, but we expect that our mitigation tactics will enable us to recapture the margin as we exit 2026. Please note that this estimate does not include the potential impact from the announcement earlier this week related to the new tariff agreement with India.

In summary, the company delivered better-than-expected fourth quarter results and the team is focused on generating stronger top and bottom line performance in 2026. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian?

Thanks, Mike. Our team is executing with urgency to position Timken for stronger growth and higher margins in 2026, and we see significant opportunities to improve both our top line and bottom line performance. I look forward to sharing more details with you soon at our Investor Day event in May.

Thanks, Lucian. This concludes our formal remarks and will now open up the line for questions.

[Operator Instructions] Our first question today comes from Bryan Blair with Oppenheimer.

To, I guess, level-set a bit on demand trends, it would be great to hear how orders progressed through Q4, whether there was any kind of a lull in December shipments, you somewhat guarded against that with guidance. Perhaps some of that hit took place in Bearings. And then more importantly, how orders progressed into January and what your team is seeing on, I guess, more of a real-time basis?

Yes, Bryan. So look, I think it's important to put this in context where we've come from. So you look at 8 quarters of negative growth, then Q3 we started seeing signs of life and green shoots, but we said we don't know what to extrapolate on that. Q4, I would say, went a little better than expected, but I'll also remind you that the comp was a little bit easier for Q4 when you compare it to year-over-year.

But I think if we look at your specific question inside and what gives us hope for 2026, is really the order book. So the order book, when you look at where we ended the year, we ended the year up high single digits. Off-highway, general industrial, wind and aero were the big contributors. And then even the sequential order movement from Q3 to Q4, there was some decline because there's seasonality, but really very, very low. You could almost call it flat. So from that standpoint, I think we feel good about it overall.

As to how it progressed inside, I would say the difference was that we had a very weak December a year ago. We had a more normal December this time as far as revenue, and I think the pacing of the orders was more steady throughout the quarter. As Mike mentioned earlier, there was a bit of a downturn in distribution, but that's -- we view that more as timing. It was low single-digit kind of movement, and so that's not a -- definitely I wouldn't call that a trend. And then general industrial was up.

So overall I think in the quarter, it was little better than expected and it was fairly broad-based regionally. We already commented that it was really Latin America and China were the only minuses; everything else around the world was positive. And so that's why we feel good going into Q1.

I think to your question on January, we're giving a guide on Q1 based on what we see today. There is still a lot of uncertainty. We read all the announcements that came out a couple of days ago on India tariff, we haven't seen anything more specific on that yet. But it just illustrates that we still live in a pretty uncertain time. The guide that we gave, we looked at that carefully for Q1 and for where volumes sit versus orders. And I will tell you that January, at least up to this point, is very consistent with that guide. So that's where we are, Bryan.

Okay. Appreciate the color. And understood in terms of the maybe uncertainty of the global backdrop, but it seems trends are pretty encouraging. If we think about your full year guide, maybe offer a little more color on segment contribution top line and margin, netting to the consolidated outlook. In Q4, there was a bit more divergent performance between Engineered Bearings and Industrial Motion than we anticipated, in a good sense on the IM side. Just curious how your team is thinking about contemplating the moving parts going forward.

Yes. So let me -- maybe I'll start with the margins, Bryan, and then I'll let Lucian comment more on the revenue outlook, if he'd like. Just margins, so fourth quarter margins roughly in line with our expectations, and you noted the difference between Industrial Motion and Engineered Bearings. And I would say that was largely a mix issue inside of Engineered Bearings.

Where that revenue came in was a little more on the original equipment side, particularly on-highway a little stronger than we expected. And that contributed to the mix issue for us in the fourth quarter. And that combined with the strength we saw on the Industrial Motion revenue side, volume benefit plus the mix of the portfolio there. So that's what kind of created that fourth quarter differential.

As we look forward to margins, first, I want to note that we are taking margins up year-on-year. And we're looking at, call it, a 30% incremental on our volume growth. So I would say, a fairly typical incremental -- organic incremental for us. Just a reminder, when things turn on us and we start to see growth, we do tend to see incrementals at the lower end of our incremental range as we have headwinds like variable compensation, et cetera.

So as we look forward to next year, I think we've still got pricing actions that will benefit us. We are seeing the benefit of the cost savings tactics we implemented throughout the year, which we're a little bit more heavily weighted to the end of 2025. So we benefit from those. And then we do see some favorable mix as we look forward to next year as well. So that's what's leading to our high 17s guide on the margin range. And with the actions we've put in place, feel pretty comfortable that we'll be able to improve margins year-over-year.

And maybe I'll ask Lucian to comment on the market trends.

Yes. I think we talked about it by market here in your first question, but I think where we expect organic sales is at plus 2% midpoint. It's both price and volume to get to that midpoint. But we are cautiously optimistic that demand will continue to improve. Again, the early signs are that would be the case. But at this point, this outlook only reflects modest volume growth just given all the uncertainty and the volatility that we're still seeing today in the trade situation.

Our next question comes from Rob Wertheimer with Melius Research.

Just a couple of clarifications. So off-highway was strong. There's some mixed signals in trucks, but it seems like that market is recovering. And then maybe I'll just lump in there accounting, for some of the less positivity on the outlook. So I wonder if you could just talk to what you're seeing there. I think you touched on distribution a minute ago, but any headwinds from distribution inventories or anything else? Or should we expect to see that follow along if various cycles recover?

Sure. So let's start with where you started. So the heavy truck market, I would say we're not seeing a lot of life there. But as you know, combined with the automotive, so the whole on-highway sector, not really a sign of strength for us there.

On the off-highway side, it's a little bit -- we are seeing strength in the order book, Lucian -- we're strengthening, I should say, improvement, as Lucian referenced. But really, if we look inside of there, it's not entirely broad-based. We still see agriculture, which is part of our off-highway segment, as being down. So while we're seeing some positive signs in mining and construction, agriculture still is a weight in that segment.

And then lastly, on distribution, we feel pretty good about where distribution inventories are. So we don't see an issue, so really selling through at the market rate there. Where we have visibility -- again, we don't have visibility across the entire distribution network -- but where we do have visibility, feel pretty comfortable with the inventory levels. And so again, see that being a -- some growth next year, I'll say, low single digit, close to neutral growth, but comfortable with where the inventory is, so it should be a contributor next year.

The next question comes from David Raso with Evercore ISI.

Quick clarification of it in here. Volume growth in '26, do you expect volumes to turn positive in the first quarter? I know for the whole company, they were still down slightly in the fourth quarter. Just making sure that's the starting point. And then I have a follow-up -- yes.

So let me address the Q1 organic sales. We said that we expect those to be flattish year-over-year. And what that means, obviously, with pricing coming in up, that means volumes would be slightly lower. Again, there is a function of just the comp that we're talking about. We had a pretty strong volume in Q1 a year ago. There was some timing on a couple of market segments, renewable being one of them, that drove that comp to be a little more challenging.

So a down volume, up pricing and then flat year-over-year organic growth. And then from an EBITDA standpoint, also flat year-over-year, from a margin standpoint.

Okay. So my real question, you made the comment about 80/20 across the portfolio, exiting some underperforming businesses. But you made the comment, "But remember, it could take some time." When I look at the bridge for '26, you pull out the tariff relief separately, you pull off -- you pull out the currency, it seems like you're implying only mid-20% incrementals on the organic piece, right, the $0.25 in the bridge on Slide 16.

Are there costs embedded into your actions that are weighing on those margins? And just give us a sense of what you meant by take some time. I'm just trying to make sure I understand, is '26 a year of cost and we don't see benefits until '27? I'm just trying to get a sense of the cadence of what you were implying.

Yes. I appreciate the question. And so we introduced 80/20 in the last conference call as really being directed at the portfolio. And the idea there was let's critically examine the portfolio and look at where do we want to double down on investment. Again, the intent is invest more in growth. But with a finite set of resources, that also means walk away from certain things.

And so that process is well underway. We've identified the parts of the portfolio that we want to deemphasize. Obviously, to deemphasize those, there's really 2 ways of doing that. You're either having to extract yourself or exit a piece of business or you have to go through an M&A transaction. In any event, those need to be handled confidentially. And obviously, when we have something to announce publicly, then we will.

What we've also communicated this morning was that we're expanding that 80/20 discipline now to the entire enterprise. And so what that means is really now looking at our operation. So looking at not only our customer and product mix and how do we simplify that, looking at our supply chain, our asset footprint and how do we simplify that.

The latter part, so this broader 80/20 naturally has an upfront investment and then has a benefit. And if you look at companies typically who have done this, I would say there's a couple of quarters of cost, then the benefits start. And so you kind of have a couple of quarters of costs, a couple of quarters where the cost and the benefit maybe neutralize each other and then you get into net benefit. That's usually what happens.

Now we're very, very early in this process. We're just using the experience of our partners that we work with. We have an external firm that we're working with, and their experience is very aligned with what I'm saying in terms of the timing. But at this point, what I would say is there's not a significant amount of cost or a significant amount of benefit baked into what we're giving you today.

Between now and Investor Day, we plan to have all this fleshed out. And so that's one of the things that we do plan to communicate at that point, is really a road map not only on the portfolio, but also road map on the cost actions that we're taking and really the simplification. And again, the motivation for the simplification is twofold. One is we think there's opportunity for margin, but two really is to free up resources for growth.

And at the meeting, would we expect, or maybe you haven't decided, to get multiyear targets when it comes to sales and earnings and, I assume, obviously, some quantification around the savings you just discussed?

Yes. I can maybe foreshadow a little bit the table of contents because that much we know. I think we're still working on the content. But we're clearly now laying out a very disciplined transformation for the 0 to 36-month time frame. And that involves the portfolio 80/20, that involves the simplification, that involves the doubling down regionally to grow our acquisitions that we already have.

So that transformation road map will be very clearly laid out with the time line, with what the objectives are. And then obviously, that's the bridge to something, and then we also will share with you what that something is and how we envision the company transforming as we move forward. So that second piece is a little more forward-looking. But the first piece, the 36 months, certainly will have not only gross algorithms or top line for bottom line, but then, obviously, financial targets for ourselves. But as much visibility and transparency as we can, we will give you so that you can follow along with us and obviously hold us accountable to delivering what we tell you.

Our next question comes from Stephen Volkmann with Jefferies.

Maybe I'll just run with that for a second, Lucian. I don't know if you're willing to comment on this. But a lot of 80/20 and sort of simplification does involve exiting certain products and maybe even certain businesses, and the PLS impact of 80/20 is kind of usually the first step. And you talked about the cost. But I'm just wondering, is there a scenario where there's a significant portion of revenue that gets exited as part of this process before we go forward?

Yes. Thanks for the question. Look, if we look at sizing even what's in scope, so if you start with the portfolio itself, we're talking about a single-digit percentage of the company that we're considering some of the product lines that we're talking about. We've communicated before our intent to look at our auto OEM business. So that would be part of that total.

So in the end, we're not looking to shrink to the perfect company, that, for sure, we're looking to grow the company. So the entire objective of 80/20 is to reposition ourselves, simplify ourselves, lean ourselves out, have really robust processes for growth. If you look at the organizational announcements that we've made, first thing we put in place was a Chief Technology Officer, a Head of Marketing, to really look at macro trends, what happens in the industry and how do we align our portfolio for growth, how do we align ourselves with higher growth verticals than maybe where we've been historically, that ultimately will align our M&A portfolio as well with that.

But the answer to the question is, no, we don't intend to shrink significantly. And we intend to also work very hard on these regional growth opportunities that we have in the short term to offset some of those exits, to the extent that it's possible. Again, we'll have to get the timing just right, and sometimes you don't control that. But in the end, it's not the intent to shrink.

Got it. That's helpful. And then just to pivot, as you're thinking about 2026, I mean, it sounds like you're fairly optimistic and your Slide 15 shows a fair amount of growth end markets there. But you have this 2% organic growth target. I would think you could do, frankly, better than 2% just on pricing. So I guess I'm a little surprised. Are you -- do you think about this as conservative? Is there some reason that pricing would be this low as you start to capture things like steel costs and tariffs and so forth? It just feels like I would have expected more than that.

Yes. Look, I'll let Mike walk you through the waterfall in a minute, but let me maybe make a few high-level comments. So I think if you look at the price and what we've said with price around tariff costs, we said that we will recapture the margin by the end of the year. So when you're looking at a whole year versus a whole year, that obviously doesn't show you the true run rate picture of where we're going to end 2026. It just gives you the area under the curve. And so there's that comment I would have on pricing.

And certainly, we're all awaiting or where the Supreme Court decision comes on tariffs. And so all those things certainly have an impact in what additional pricing is warranted or not, depending on where we end up with pricing as the year progresses.

On volumes themselves, where we sit today, I would say, is what we see as we look out as far out as we can see. The visibility into the back half of the year, obviously, is way more limited. And we can all speculate on scenarios or look at history where recovery would have been better. But this we view as realistic based on what we see today.

I'll also remind you that there is a limit to how fast, whether it's ourselves or the entire supply chain, can ramp up with increased demand because everybody has kind of rightsized their operations to the demand. So if you see a big snapback, then that certainly will result in some growth on -- more growth on the order book, but the translation into revenue will also take a little bit of time and ramp-up.

So that's where it sits. Is it conservative? Is it not? I would say we've done our best to try to be realistic, but we're also cautious here given the dynamic environment. So Mike, if you want to comment on the margin maybe?

Yes. Well, just maybe elaborating a little more on price/volume. I think we say 1%, I would say, 1% plus pricing. And I think the important thing to know is that we have consistently over time achieved solid pricing, and we expect another year of solid pricing, and we'll continue to push price higher where and when we have the opportunity.

So as Lucian said, starting the year maybe with what we have visibility to both on the volume and pricing side, but it doesn't mean that we're not going to continue to look for opportunities throughout the year. So I thought I'd characterize that, cautious with what we can see and continuing to look for opportunities as we move forward.

Our next question comes from Angel Castillo with Morgan Stanley.

Just maybe wanted to continue on the price/cost conversation a little bit. Obviously, you talked a lot about uncertainty with tariffs and a lot of moving pieces there that we won't know for a little bit. But just can you talk about the other buckets, whether it's labor or materials, and just your general kind of strategy in terms of how we should be thinking about any kind of material headwinds, again, outside of tariffs?

Sure. Thanks, Angel, for the question. So maybe I'll just -- answering that last part first, the material. We look for -- there will be material inflation. So it is an inflationary environment. But we talked about cost savings in 2025. And some of those cost savings were absolutely built around material cost savings tactics. And so we'd look for those to continue. And while we expect some logistics headwinds, I would say material and logistics costs should be a positive for us heading into next year.

We do have labor inflation across both our manufacturing and SG&A footprint. So labor inflation will be a headwind next year, as well as variable compensation, I referenced in an earlier comment. Variable compensation is a headwind for us as well. As we inflect to a year where we're projecting growth, that's typically what happens for us.

So we do have inflationary pressure. We have cost savings tactics. Net-net will be positive price/cost. And as you saw on the walk, tariffs will be a positive for us. And then on the overall price/cost, we see a net positive. So overall, contributing to that 30% incremental is cost savings tactics to offset the inflation combined with pricing, and that's how we get there.

That's helpful. And then maybe just switching over to industrial automation, I think you talked about strong growth there in the fourth quarter. Can you just talk about what your order books are showing kind of exiting the year or, I guess, into January, in terms of the growth in automation and how that kind of compares to maybe the mid-single-digit outlook that you provided for the full year?

And then, Lucian, if you don't mind just maybe commenting maybe bigger picture, given your background, I guess, how you kind of see the longer-term strategic role of automation within the business as we think about accelerating growth, your overall kind of portfolio strategy, M&A, et cetera?

Yes. I appreciate the question. And I made a comment earlier that we're certainly very interested in aligning our portfolio a little bit better. And that's why we have a new CTO, that's why we have a new Head of Marketing, with macro trends and then markets that really are driven by those macro trends. And if you think about that, electrification, automation are kind of the top of the list of macro trends that we are already aligned with and need to further align with.

So to answer the first part of your question, certainly, automation was a driver for us in terms of increases. We see especially our exposure there on the Industrial Motion, on linear motion in particular, where we've benefited from that. That's actually a big driver. And one of the things we talked about is taking these acquisitions.

So I'll remind you that our linear motion business is primarily our European business historically. We've invested significantly in resources in the Americas to grow that. And we're up 20% in that business. It's off of a smaller base, but we're up 20% in the Americas in that business as a result of that effort and investment. So it certainly shows that there is opportunity, and a lot of that is in automation.

As to your bigger question on the automation, on the market itself, look, I think humanoid has gotten a disproportionate amount of press because it's obviously exciting. At some point, it will be part of our future. We are participating in that as well. We share in that excitement. We're working with OEMs on key programs. And we're certainly looking forward to success in that market.

But I would say that's still early. It's still at a prototyping and the designing phase. But what is not at the prototyping and designing phase is industrial automation overall. And I think when you look at how we participate there, there's a lot of product lines where we participate.

So you think about our automated lubrication systems that we have in our Industrial Motion portfolio. If you think about where we participate with drives, with harmonics, with our linear actuators, in factory robots. Think about our medical robots through our CGI acquisition, our Cone Drives go into autonomous guided vehicles. And then last but not least, humanoid. So really a broad product portfolio here across the enterprise that positions us very nicely.

So you might see this as a topic at Investor Day where we would cover this in a little more detail. But we're certainly overall excited. This is a trend -- this trend and then electrification, utilities, power gen, are certainly 2 that early look says that there's opportunity here for us to align ourselves better and to have a more comprehensive offering. Because we just have so much content, and bringing that together into a customer solution, into an engineered solution is really the way forward.

Maybe if I could just add a reminder, and Lucian referenced CGI. But for most of 2025, CGI would have been in our acquisitions or inorganic bucket. That flipped at the end of the year and now is part of our automation segment. And we've seen very strong growth from that acquisition and very happy with where it is. So Lucian referred to it, but I just wanted to, from a modeling perspective, remind you that it's now part of automation.

The next question comes from Steve Barger with KeyBanc Capital Markets.

This is Christian Zyla on for Steve Barger. You mentioned a few times on this call about the CTO and executive appointments. So maybe just as a follow-up to that previous answer, but can you just talk more specifically about how those new appointments will translate to innovation and sales growth? Like what specifically will you be doing differently with these new appointments? And what parts of your business are you focusing on initially? Is that inward-facing or is that more market-facing?

Yes, absolutely market-facing. So first thing we're trying to do is create the appropriate ecosystem and the framework and the processes and the discipline to be able to invest more. So if you look at what we invest today in R&D, there is room for increasing that potentially. But what you have to have for that is really clear, really good alignment on what are the focus areas. Be very clear with you as to what macro trends are we following, what are our focus industries where we try to bring these solutions. And then that drives our innovation portfolio and it also drives our M&A portfolio.

And so really the early days of both the CTO and the Head of Marketing is really to establish the growth processes, establish the growth framework and really clarify those across the company so that we have one set of metrics, one set of language. We can compare apples-to-apples, we can track time lines, we can execute. And like with all innovation, we can fail fast and pivot and move to success.

So that's the intent of the early days. By Investor Day, we hope to share with you what those focus areas are, what the macro trends are. And then obviously, as we give you our multiyear outlook, then we'll also be able to give you some glimpse into what the investment and what the outcome can be from that effort.

But we're -- I'll remind you, this is not a new muscle. This is a 125-year company that's built on technology, that's built on innovation, that's built on patents. So this is really doubling down on our roots, just focusing a little better on macro trends and recognizing that we need to align our growth a little better with high-growth verticals as we do the portfolio work and exit some of the more challenging verticals.

Fair enough. And then just my second question, kind of on M&A. M&A backdrop looks favorable. Interest rate environment is positive. Yet you guys haven't really added anything to your portfolio, which seems uncharacteristic for Timken. Do you feel your portfolio is in a good spot? Or is debt leverage the greater priority, or 80/20? Just has this fallen down the priority list? Just any thoughts there.

Yes. I would say it's not down on the priority list, but maybe a couple of comments. So definitely, it's not because we were solely focused on delevering. I think that was certainly just the effect of good cash generation and good discipline and the opportunities that we had. What we do want to do, and maybe the reason there was a little bit of a pause on M&A, is really roll out a strategy very clearly, and doing that at Investor Day, and then really rolling out that road map of what's in play, what's not and then how we look, what is our philosophy, how do we look at M&A.

And I think I shared this in a prior call, we look at this universe of good businesses. Then inside of that, what businesses are transactable. And then inside of those 2 circles is: where are we the natural owner? So how do we define that for you so that when we explain an M&A transaction or we announce an M&A transaction, it's very clear that we're the natural owner here?

I think there is still a very active pipeline that we have. We're working on that pipeline. There is a -- there are new areas that we're looking to focus as we flesh out our strategy. So that exists. And then there's always the list of acquisitions that will fill our portfolio very nicely that we've had for some time. Those are more, I would characterize those opportunistic, because we know they fit, but it's a matter of when are they available, when are they transactable. So in that case, call that a little more opportunistic.

But activity is not down on M&A, but I think there is more now on defining what it needs to be, defining what we want. And then also, frankly, some focus on the portfolio 80/20, what are the pieces that maybe are on the other side of the ledger, not on the acquisition, but maybe on the divestiture.

The next question comes from Kyle Menges with Citi.

I was hoping if you could just provide a little more color on the auto and truck outlook just in terms of what you're seeing in the end markets for 2026. And then how is the auto OE pruning factoring into that outlook?

Yes. So I think let me start with Q4. So I think if you look at Q4, auto and truck was down. And it was, as Mike said earlier, both heavy truck and automotive OE was down. Aftermarket was more flattish. We don't see big changes to that as we head into Q1 at this point and no reason to call that very different.

I think as to the pruning of auto, a lot of progress, I would say, in the last 90 days. To give you a little bit of color of where we are, so these are long-standing customer relationships with customers that we've done business with for quite some time. And so we had to work with them to find appropriate outcomes that work for both as we do this exit. And so those conversations are mostly complete, some still ongoing, but mostly complete. And I really have to express my appreciation to our customers because they work with us, and I think we're headed to some outcomes that work for both.

By Investor Day, we hope to have those finalized so that we can communicate with you a specific time line, but I can give you a little bit of color now. The arrangements that we're looking at will have us see more significant revenue decline in 2027. But both in '26 and in '27, we expect to have some margin uplift from these negotiations. So again, I think that's a good outcome for all the parties involved. And it will position us to give you visibility in a way that you can track our progress on how we're doing with that pruning.

Helpful. And it would be helpful to hear a little bit more color on expanding the 80/20 philosophy across the entire enterprise and maybe the impetus for that as you look more now at the operations and supply chain footprint. I guess is that because you see some low-hanging fruit there to go after? And yes, maybe just talk a little bit about what you could execute on as you look to implement 80/20 across the entire enterprise and how maybe the timing would look as well.

Yes. I mean, look, what I can tell you at this point is we're a few weeks, maybe a month into this, in broadening the effort away from just the portfolio to the to the overall operations. So you can more refer to what is typical for a company our size and what you can expect.

And I mentioned in terms of timing, a couple of quarters of heavy analysis, heavy training, the organization on the discipline. Picture big training, a little bit like lean where you really go through a pretty extensive training, you collect a lot of data, it has very specific metrics. We have done some of that. We're starting pretty broad training here in another week, and that's global, around the world. So we're -- that is the early phases of it.

The early insights from the analysis would tell you, no surprise, when you apply to a portfolio this big, that the product complexity is quite high and a disproportionate amount of revenue rests on very few customers or very few product lines. And then you have to ask yourself a couple of questions, which is, do you really need to spend a lot of energy on a very fragmented tail in the market? Or is that really valuable to customers? And can you collect more price on that? Is there another way to create value?

But in the end, it is about simplifying. And the reason to simplify is to get a little more margin, but also to free resources for growth. Because in the end, not only theory, but vast experience of firms that have done 80/20, firms like Strategex, who we're working with, who are very versed at this, is as you double down on that focus on your top customers, top products, top markets, you can actually create offerings for them where you can grow way more there than you would lose on the other side by shedding some more fragmented business that really has a higher cost to serve than maybe your accounting ledger would say.

So that's where we are. Again, early in the days for me to give you anything definitive. I'm just trying to provide color more on what is our process and where we are and what is typical in 80/20. And so far, our data says that there's no reason to believe we would be vastly different from what is typical. And so we're very, very excited about it, which is why we're making this investment right now.

The next question comes from Joe Ritchie with Goldman Sachs.

I wanted to -- yes, I just want to get a clarification on the 2026 outlook bridge. The $0.10 to $0.15 that you have in there for tariffs, I'm assuming that includes the pricing that you put through for those tariffs already. And then also because you've kind of had this 2 to 3 quarters of a headwind, is the expectation that you'll see most of this benefit in the first half of the year as well?

Yes, sure. Thanks for the question. Yes, the answer is, in that $0.10 to $0.15, it does include the price benefit of that. And we are, as you noted, putting in price actions which were more heavily weighted in the second half. So on a year-over-year comp basis, that will look a little more favorable in the first half than the second half.

Having said that, we are going to continue to put pricing in throughout the year. And as we've committed to previously, we will recapture the margin on the tariffs, but we don't expect to do that until we're exiting 2026. So for modeling the pricing benefit, because we're getting that towards the second half, will come in stronger in the first half. And then exiting the year, we'll be at, call it, margin-neutral on price tariff.

Okay. Great. And then the question -- the other question I have is solution. I know that the business is short cycle. I also know that you don't have a lot of volume growth baked into your expectations. But look, it was interesting to see the ISM print over 50 just this past week. I'm just curious, just like as you're looking at kind of like leading indicators across your business on where you could potentially see an inflection, like what are you looking at really closely? And like where do you see maybe some potential sources of optimism given the backdrop seems to be getting a little bit better?

Yes. I think when you look at the order book in general, off-highway, general industrial, renewables -- wind, not solar -- but wind and aerospace, those are certainly areas that would tell us to be to be optimistic. General industrial, we expect the sector to be up mid-single digits versus 2025. So that's still strong.

I think where you still see is these later-in-the-cycle businesses. Oil and gas is kind of the poster child of that, that tends to be the last one that rebounds. So those are businesses that are still slower. I think, as I said, heavy industries, power gen strong, aggregates strong, but oil and gas and metals are still slow, and that weighs down that entire sector. So that's the kind of overall if you step back and look at the segments.

And then by region, as we mentioned, Europe was actually the pleasant surprise in Q3. And we almost didn't believe it. In Q4, it continued to do well. And U.S. is doing okay. LatAm is down and China still continues to be down, and solar is a big contributor to China being down. But India is more than making up for it, so we're certainly excited about that.

The next question comes from Tomo Sano with JPMorgan.

A question to Lucian. While we understand that the more details will be shared at the May Investor Day, but could you share how you have spent your first 100-plus days as CEO? Especially like on the process side, what approaches or activities have you undertaken to identify opportunities for organizational transformation? And in what areas do you see the greatest potential for improvement, please?

Yes, Tomo. So if I just look back at the last 100 days, the first thing I usually do when I try to learn a new business is visit the factories. And so I spent a lot of time trying to see how we operate, how we make -- it teaches you a lot about the business. It teaches you about the sources of differentiation. It teaches you about how unique you are, how easy is it for somebody to do what you're doing. Because ultimately, strategy has to do with your competitive advantage. So I would say I overinvested there, to try to understand our operations.

Likewise, you alluded to it, understand the business processes. And what I would say is both on the operations side and on the business processes side, I found opportunities. And what I found opportunities is not to invent something new, but to really do a better job at translating best practices across the enterprise. So this company has gone through a lot of acquisitions over the last few years and really almost anything you think about, somebody in Timken is doing it very well, but how do we institutionalize that across the enterprise? And I would say that was probably the first 60, 80 days.

And then the last 30 to 60 was, okay, so what? So now what do we do? And what we are working on now is really a very disciplined operating model that's based on a single version of the truth, transparency, accountability, metrics that are simple enough, leaned out enough that they're not burdensome and they're reflective of the size company we are. But at the same time, really rigid enough that you can operate a business of this complexity at scale and operate it efficiently.

So a lot of work going on right now on the operating model, at the same time, work on 80/20, as I said, on simplifying the operations, simplifying the supply chain. So really tackling the entire operation, tackling it so that it's nimble, it's lean, it's quick. And then as we do the 80/20 and we focus our growth into our macro trends, into our growth areas, then we can operate with agility and speed. But that's really been the first 120 days.

And I can tell you, I'm very, very excited about what I found because rarely do you find the combination of a very strong balance sheet, very strong cash generation, tremendous heritage in terms of technology, excellent customer reputation and relationships, a very willing and engaged team that I'm working with, a very willing and engaged workforce overall that's very proud and very ready to take this to the next level. So we're really excited about May 20 to share with you what we have so far and where we're headed. And so yes, can't wait to be able to share that.

Just one follow-up. Free cash flow generation was pretty strong in Q4. And what are the major drivers behind this performance? And as we look forward to 2026 with the $350 million free cash flow target, which areas will we focus on to achieve this? And do you see any potential upside?

Yes, sure. Tomo, this is Mike. So really, in the fourth quarter, fourth quarter is typically a strong free cash quarter for us anyway. And across the board, excellent performance in working capital. The teams brought in AR reduced days. So really it was working capital management on top of the earnings that contributed to the fourth quarter.

Looking forward to next year, it's another year of -- with improved earnings. And then we are expecting CapEx in the, call it, 3.5% range, which is on the low end of our typical range. So that doesn't help with cash flow, but obviously, spending on the lower end, taking less free cash flow -- or less operating cash flow. So that's what we're looking for, for next year, is just, I'll say, continued working capital performance and leveraging the earnings.

We have time for one more question, and so our final question today comes from Chris Dankert with Loop Capital Markets.

I guess, Lucian, as you've been looking around the enterprise, the manufacturing footprint has been on kind of a long-term move to cost-optimized regions, I'm thinking Mexico, U.K., what have you. As 80/20 kind of really kicks in, are you seeing further opportunity on the manufacturing footprint? How impactful are tariffs in terms of thinking about that realignment? Maybe just what the opportunity is on manufacturing footprint would be helpful.

Yes. So the one-word answer to your question is yes. We see opportunity. The manufacturing footprint of the future, or at least of the present, is very different from what it's been in the past. Not too many years ago was put it in one place, have a lot of scale and stay there forever. And the name of the game now is agile and nimble, and because of tariffs primarily, because of geopolitics, because of supply chain -- potential supply chain disruptions.

And so we're very fortunate to have that nimble footprint right now, very nicely globally spread. As you said, if you look at our flagship factories, there's one in every region that is very strong, or more than one, frankly, in every region. We have a very strong footprint in India, we have a strong footprint in China, a good one in Eastern Europe, a good one in North America. And that's both across Engineered Bearings and Industrial Motion.

But in the end, it is also about efficiency. So what that means is as we look at certain markets, and these are not general purpose factories necessarily, they're more aligned with certain industries, so as we look at doubling down in certain industries and then pulling away in others, then that also creates some opportunity.

But what I want to also tell you is another way we look at this is to say what export opportunities within that macro region does our footprint create. So our India footprint has certainly been instrumental in us gaining share in India. What does it do as a base for exports in emerging regions, whether that's in sub-Saharan Africa, whether that's in Central Asia, whether that's in the Middle East, whether that's in Southeast Asia? Likewise, our China footprint.

So really thinking about those businesses. That's why we appointed those regional leaders too, thinking about those almost like a local business that's looking at the regional export markets and trying to leverage that footprint, that cost position. So it's an exciting opportunity. Our regional leaders are certainly very excited about that, to have a little more of that entrepreneurial spirit.

But to do that, you really have to have, back to the earlier question, you have to have that global framework. You have to have the processes. You have to have the operating model in place so that you can allow that, call it, global systems, regional autonomy and decisions and empowerment, and allow that balance to happen. So that's what has me most excited, is how do we leverage the footprint, but we also have room to simplify what we have, and really that will help us with our margins.

Yes. I mean it sounds like you're really thinking about things holistically. So looking forward to hear more about that at the Analyst Day. And I'll leave it there, but best luck on '26, guys.

Thank you. We appreciate it. Thank you very much.

This concludes the Q&A session. Sir, do you have any final comments or remarks?

Thanks, operator, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call.

Thank you for participating in Timken's Fourth Quarter Earnings Release Conference Call. You may now disconnect.

[Audio Gap] second session. With me today Lucian Boldea, President and CEO; and Mike Discenza, who's the CFO. Neil is in the crowd hiding. I mean we have an extra chair up here and he said it's to hang on the crowd.

But -- so it's going to be a joint hybrid, give some formal remarks, but then also have a lot of time for Q&A. So if you have any questions, please raise your hand, I'll call on you, send me an e-mail through the -- it should be somewhere when it comes up and it will come to my iPad. But either which way, if you got any questions, we'll make sure to incorporate that.

So please, floor is yours. Thank you for your time.

Thank you, and thanks, Mike, and thanks to all of you for your interest in The Timken Company. I wanted to start by giving you just a brief overview of the company to kind of set the stage. Hopefully, it won't take more than 5 minutes, and then we can get into your questions. We have a very strong franchise. You see the slide here behind me, hopefully. So we have a very strong franchise we've built over 125 years that's recognized in the global industrial market. We're recognized for our technical leadership, our robust product portfolio and just our deep customer commitment.

We have a highly Engineered Bearings portfolio that's about 2/3 of the company and an Industrial Motion portfolio that's 1/3. Both segments are high performing. You see the margins there close to 20% for 2024. We serve leading OEMs, but we also have an extensive network of distributors that support the aftermarket. And that's an important component for our business because more than 40% of the revenue stream is generated in the aftermarket. That is recurring revenue. That's really why we do what we do is create that installed base because that creates a lasting revenue stream that lasts really for decades in that aftermarket space.

We also have a global manufacturing footprint, and that's been extremely handy to have at this time when we really need to have nimble supply chains to navigate tariff issues. The majority of our manufacturing is region for region. So that really allows us not only to navigate the tariff environment, but also to be flexible as different growth rates are experienced in different regions of the world to flex that manufacturing footprint.

We've added a lot of complementary products to our bearings offering in the last few years. And we're now in a position where we can successfully add value to customers in those engineered-to-order mission-critical applications for quality, performance and reliability make a big difference. We can create a lot of value add through this, and we really do our best work in that selling process where an engineer-to-engineer specification happens. That's really what we prefer. That's really the markets that we seek. That's the engagement that we seek, it's the relationships that we seek with customers. We find applications where the cost of failure is very high and a premium offering is really the only option. Examples you can think about wind turbines, mining trucks or an aircraft landing bearing, for example.

This is true on our complementary product portfolio that's serving customers. It's also true in applications that have very similar requirements and very similar sales channels. If you think of end markets where we participate, we have strong positions in essential industries. Examples of that would be rail, aerospace and defense, heavy industries and wind energy. We're targeting further growth in markets that are newer to Timken. Examples of those would be food and beverage and then also industrial automation.

If you step back and look at our recent history, interesting fact about the company is we've posted double-digit sales growth over the last 10 years across new markets and those new markets where we've had double-digit sales growth now represent 1/3 of the company. So that's really a good indication of what is possible when focusing in good -- in new markets in our portfolio. We generate significant cash flow, and we have, as a result, a very solid balance sheet. We've generated $3 billion of cash flow over the last 10 years, and we're on track to generate another $375 million in 2025. We've also returned a significant portion of that capital to shareholders, including the fact that we've repurchased basically 25% of the company's stock in the time horizon that you see in front of you. 2025 also marks our 12th year of our consecutive dividend increases.

If you look at what our near-term priorities are, the strong foundation, we certainly have a lot of opportunities to improve top line and bottom line performance. To start, we've communicated in our most recent conference call that we intend to approach the portfolio with an 80/20 mindset to structure to improve margins to grow faster in the most profitable verticals and also create significant value for our shareholders by focusing on the actions that will have the most impact. Margin expansion remains a key focus. We've committed to a 20% margin. So we certainly are taking a lot of actions to make sure that we leave no stone unturned as we review the business for margin potential.

There's also opportunity to expand organic growth in a couple of dimensions. So one, expanding our market focus in fast-growing regions and verticals and also launching new products and services. As we look at the strength of our brand, we look to capitalize on that by using our global footprint and we have several of the acquired businesses that don't have the same global footprint that the rest of the company has. So really taking those businesses globally affords another growth vector.

We also see additional continued synergies that can be delivered from further acquisition integration across the portfolio, leveraging our strong market positions and also aftermarket presence will allow that to continue. And really, when you look at it, these are just a few of the opportunities that we see for growth. Again, I look forward to getting into the Q&A and discussing more of this. But in the meantime, I want to assure you our team, Mike is here beside me, but also the team not present here is laser-focused on delivering. We had a good Q3. So that's one data point in the right direction on the organic growth. It doesn't make a trend by itself. So we certainly are looking to continue and turn that into a trend.

So with that, I look forward to the conversation and to the questions.

Great. Thanks, Lucian. Again, as a reminder, if you have any questions, just let me know, we'll weave it in. A little bit of a unique situation. We've got both of you that are somewhat new to the organization. So maybe, Lucian, we'll start with you, and then we'll dovetail over to you, Mike. Why Timken? Early observations? And what do you think you can do organizationally to really make an impact and get this to where I think you believe it can go.

Yes. Yes. Look, I'm more excited today than I was the day I joined. And I joined with pretty high expectations. I knew this company as a supplier to Honeywell being at Honeywell, and I knew its reputation that it had for technology, for delivering for its customers and the trust that Honeywell had in The Timken Company. But joining here, I'm even more bullish on the upside that exists. And the reason is that the foundation is just extremely strong. I think there was a lot of heavy lifting that had to be done by the previous management team and the team before that to shift the market footprint of this company. It was very heavily leveraged more towards automotive and then really diversifying that away to other industries that have higher growth potentials.

There's been a number of acquisitions that have been done that have some very unique product offerings that are complementary to the historical bearings portfolio. So integrating that further, taking some of those acquisitions globally really can make a big difference in the growth trajectory of the company.

Maybe same thought process or conversation for you...

Yes, sure. So a little bit different than Lucian. I've actually been with Timken for 25 years. So only new to the role, and I beat him by about 2 weeks into my job. So new to the role, not new to the company. And while Lucian is more excited than the day he joined, I'm also more excited than the day he joined. We have a lot of opportunities.

I thought you're going to say the day you joined, I was -- I hope so. I don't know...

Remember that day. But I certainly -- I've seen quite a bit of change in Timken over those 25 years, quite a transformation, but we're poised today in a really good place and with a really a new team who's excited to get going and make an impact, create value like Lucian said, we're laser-focused on it. So I'm excited like Lucian is more today than I was even 60 days ago.

So one of the things you've talked recently about is putting a simplification 80/20 framework to bear on Timken. A handful of questions here. Let's just start with a real simple one. What do you think that methodology and discipline can bring to the organization?

Yes. Look, I came in and I looked at the portfolio, and I'm very excited and very impressed about the number of options that we have. So if you look underlying, there's a strong balance sheet. I get a lot of questions about, well, what about capital allocation? And that's a first world order problem that you have a balance sheet that you have options and that people want to understand how you're going to allocate the capital versus not having it. So that's a position of strength, cash flow continues to generate.

In looking at the portfolio, when we say 80/20, I had to find myself having to make sure that we ground everybody in what it means because we had some misunderstanding, it means you get rid of 20%, and that's absolutely not the case. This is applying the Pareto principle to the portfolio. And the primary driver is not what are we going to get rid of. The primary driver is where can we invest to get the highest return the quickest. That's the primary driver. That's -- for us, it's how do we put some points on the board quickly, how do we start turning the organic growth into more of a trend than the one data point that we had in Q3 and using our portfolio to do that. So really, we're going to look very critically with an open mind to the portfolio and say, what are the pieces where we say, okay, there's immediate opportunity. These are the markets we want to win in. These are the markets we're entitled to win in. These are the regions where we can do it, double down there.

And then as a result, also, we have to do the opposite because the books have to balance, where do we deemphasize. And then are there any pieces of the portfolio where it's time to admit, this is not us. This is not -- doesn't belong to us. It's not part of our future, and we have the discipline to walk away even if we think that if we spent enough time and enough energy, we'd have the wherewithal to make it better. Is that really consistent with our strategy or not? That's the discipline we're trying to bring to the portfolio.

And do you have the data currently to be able to make those decisions? Or do you need to do more internally to get to the point where you've got enough of the segmentation work done to be able to make those decisions?

Yes. So we're about a month into that work internally. So that is the work that's going on right now, which is why we're not trying to be cagey about the answers, but we're also being very disciplined to let the data lead us to the answer rather than our intuition or our collective opinions. So that exact analysis, where are we winning, why? And then we have it already at a macro level. So we know kind of the tagline, but getting down to, okay, now by market, now by region. Now how far down can you go because you're going to find those disconnects where we may be very successful in winning in one region and not in the other in the market, understanding why that is. Is that an investment issue? Is that a market issue?

And really, those are the low-hanging fruit. Those are the quick wins. And then once we have the data where we're winning, doubling down where we have market momentum is always going to get the results quicker than trying to reverse market momentum somewhere and then start growing from there.

So a lot of the 80/20 that you're referencing here seems to be tied to essentially portfolio constitution and then how to leverage your capital to the highest efficiency. Is there a margin component beyond just mixing to the right areas and things like that internally? Or do you think Timken from a foundational perspective is already in a good spot, more continuous improvement perspective?

Yes. Look, we'll never ever say we're in a good spot with margin. I think you always try to optimize that. You always try to stay humble. At the same time, I think we have to recognize that in an industry where you have fixed cost, leverage like we do, growing the top line is the best way to address the margin issue, especially where we have capacity that we can leverage -- that existing capacity that we can leverage. So that's kind of job one. How do we turn the organic engine -- organic growth engine on. So that's focus number one.

And then after that, of course, you look at mixing up, but that somewhat takes care of itself because we have acquired a lot of these businesses with the intention of mixing up. So -- and they already have higher margins that are accretive to the portfolio. So that will happen. And then trimming on the other side of the ledger where you have businesses that really are dilutive to the margin is also going to mix you up. So I think there is a short-term opportunity to improve the margin just by doing that.

And then longer term, as you step away, you look at our margins in Engineered Bearings, you look at Industrial Motion, there is more opportunity on the cost to serve side. So there's more opportunity on further integration on making sure that we achieve not only that revenue synergy, but the economy of scope between the 2 businesses as we go in front of customers. But that's a Phase 2. I think for Phase 1, there is gas in the tank on improving margin just from fixed cost leverage and from mixing up.

Maybe if I can just add to that. You talked about the data and the work and Lucian said we're 30 days into the work. We're really approaching everything with an open mind, which is one of the benefits of bringing Lucian in. We're looking at things with a fresh perspective. And we're really targeting -- we've announced in second quarter next year, we'll have an Investor Day. And so between now and then, a lot of work going on to lay out that growth algorithm, just as you said, and maybe put some more structure around what that margin profile looks like.

How do you balance all of that work with the capital allocation aspirations. You mentioned kind of at the outset, high-quality problem to have a lot of options, right? Are you able to move forward on the M&A side as you're doing this work? And if so, what types of things are you targeting that make you comfortable enough to say this will fit our prioritization over time?

Yes. And look, I appreciate the question because I think we do have to be realistic and say how many things can we do at the same time. The good news is I'm very, very excited about what more we can do with what we already have. And there's a lot of value that can be created from what we already have. So it's not that the cover is empty and we need to run out and buy something and then figure out what to do with it. We already have done that past 10. So now what can we do with that? How can we create value from that is job one.

Now we've done a lot of strategic looking, a lot of effort has been put to understand what M&A targets we would like. And I would describe between now and Investor Day, our posture is opportunistic. So if one of those targets that we've been dreaming of, but it wasn't available, it wasn't actionable, becomes actionable, then definitely, we will not let that opportunity passes by. But realistically, what we would be looking at is between now and Investor Day, have that more reactive posture. And then as we get into Investor Day, we communicate our strategy and then we execute from there on our M&A.

So maybe let's talk end markets for a little bit here. How are you -- just as a high-level generic thought process, how are you seeing the trajectory of the end markets play out as we exit into '26? Did you see a lot of sequential change in the quarter or more kind of business as usual and sequential normality? What are the puts and takes and anything accelerating, decelerating as a starting point, and then we can dive off that.

Yes. So I'll start and then turn it over to Mike to add. But I think when we look at the year, one of the things you always try to call is we've been down longer than in other downturns. So previous downturns have been 6 quarters, 7 quarters were longer ones, and now it's 9. And so it is time for things to come back if history is a guide. And we're seeing signs of that. We're seeing signs of book-to-bills being more than 1 in several of our key markets. We're seeing signs in different regions. And then when you watch the inventories, when you see spikes in orders, you don't see spikes in inventory. So that tells you people are now buying to demand. And so Mike, maybe you want to add specific markets.

Yes, sure. So some of the encouraging things we saw in the third quarter, our order book was actually up year-over-year. And the area of that order book where we saw some growth was around off-highway, so our off-highway markets, general industrial, rail, aerospace, aerospace is probably not surprising, but those other markets where we saw growth year-over-year. So a little bit early to be calling any upturn, but certainly positive signs in our order book.

So the trajectory from here, what do you think kind of -- well, maybe start with this before I ask a follow-up question. What do you consider normal? So what's the growth algorithm for the portfolio in a normal landscape?

Yes. So...

If we ever see normal again?

Yes. From where we are in the cycle, it's going to be on the higher end of normal. We have our growth targets out there.

And those growth targets are?

From our last Investor Day, 4% to 5% top line growth, targeting 20% to roughly 20% EBITDA margin. So still committed to those targets. But again, from where we are in the cycle, we'd be on the higher end over the next few years, you'd expect to get to that average 4% to 5%. So we're sitting in a good place from an opportunity standpoint, but still look at our long-term growth is 4% to 5%. And again, we're doing the work inside the portfolio now. I'd expect to come back with a new growth algorithm, whether that's comes back to 4% to 5% or whatever, but that's the work we're doing now to kind of redefine what that looks like and how we're going to get there.

So maybe ask it a little differently, right? One of the questions I've gotten for the last 3 years from investors is why this year, right? Because last year, we thought maybe and then the year before, you thought maybe. So I don't get too much pushback on the idea that a lot of your types of businesses could be mid-single-digit-ish type growth. I think the question always becomes what does it take to get there, right? What does it take from a market perspective to enable that growth be unlocked. And so anything you do to help with that question would be great as well.

Yes. And look, I think when you look in the aggregate, and we've all been around businesses for many, many years, when a business delivers 4% or doesn't, nothing in the business delivers exactly 4%. There's a bunch of components that deliver double digit, and there's something that wipes it all out or a few some things, whether it's a region, whether it's a country, whether it's a market and where I feel more encouraged and more bullish is we're sitting here in Q4, and I don't see that something at this point in 2026 that's going to be the big negative.

And so what that means is the fruits of our labor that we've put in place, whether it's the extra pricing that's going to drive some revenue growth, whether it's the new wins that we've had with customers, we should be able to have those points be actually additive on the board versus being offset by something else. Now again, we live in a very uncertain time right now. So this is in a stable demand environment, but we're in a good place. I think we've taken a lot of what I said earlier, the difficult decisions, a lot of them have been made. We've still got a little bit of pruning left on the portfolio to do, but there's not a substantial amount of that left to do. It's really around the edges at this point.

So if we're building a '26 is a thought process. You have a little bit of price, you have some, call it, internal initiatives that are market outgrowers. And comps are probably relatively easy. Book-to-bill, if you go on the right trajectory, that can add a little bit. And then -- so the foundation here is planning for some level of growth and then the question becomes how much growth based on what the market gives you?

That's right. And again, if history is a guide, you would say that a rebound in demand should come. Now calling it, is that in Q1 or in Q3, but -- and it probably varies by market, but we are seeing enough positive signs of light in multiple markets that it gives you some reason to actually be more hopeful.

So do you have any businesses internally that you particularly track closely for as leading indicators in the general industrial space or maybe it's an inventory level at the off-highway or the on-highway, however you want to put it. I mean any particular things that you key on internally that would be a good indicator?

We track very closely. And obviously, our distribution business, our channel partners are a very important component of that because we have some visibility into what that inventory is in the channel. So that's where when you see buying patterns actually not result in changes in inventory, but result in demand that tells you that you're actually servicing that actual demand in the market. So that's encouraging. Good relationships with our OEMs where we get good visibility into what their production schedules are and they -- but I think in those conversations, you still hear the word uncertainty. They're still trying to be very cautious.

And that's why we're a little more cautious on our Q4 guide because the word caution, the word uncertainty is there and Q4 is seasonally always one that's a little less easy to predict because customers might make year-end inventory decisions, and you never know how many weeks December actually has. And you know that in December.

Everyone likes a little break between Christmas and New Year, right? How do you think about the tariff side of things today? And let's take it from the lens of the conversation we just had where do you think this is a delaying point still for your customers? And then take it from the other side, which is just how is that price cost dynamic working out? And how are you managing through that piece?

Yes. And look, I'm glad you separated the 2 because the answers are quite different. So to me, the biggest thing we need on tariffs is certainty. Whatever that number is, 5, 10, 15, 25, 30, once we know what it is and it stays there, the market will adjust. We have demonstrated over a long period of time that inflationary pressures do get passed through. They get passed through successfully. If you look at what we've had to deal with since 2021, '22 until today, it's pretty dramatic as an industrial sector, but we've dealt with it. And we're going to deal with whatever other pressure.

But that uncertainty is what pauses demand and what causes our customers to really delay their investments. That's the key issue. In terms of offsetting the tariffs, we've now dollar for dollar, we're going to be on a run rate basis, recovered in 2025 for the tariffs as we've committed. And so in 2026, we've also committed by the end of '26 to really on a run rate basis, cover the margin as well in the tariffs. And that's -- if tariffs stay flat or they keep moving up, if they go down, then obviously, prices are sticky and then we'll be very likely ahead a little quicker.

I was looking at your organic growth chart that you laid out in the third quarter. And I think a lot of the pieces make a lot of sense in the context of what I hear from all my companies I look at. I think the one that stands out is the renewable energy piece up as much as it is. Now some people definitionally talk about renewable energy and has a gas component. Some of those are the gas pieces that are doing so well. I'd be curious what you're seeing on the renewable energy side. And does that include your wind offering and just a generic thought process?

Yes, it is, and it is the main driver in there is wind and the main driver there is wind China. And so that also should explain a little bit why we didn't take that one data point and extrapolate it too far out into Q4 or beyond. But there is a very logical and sensible explanation to why we're performing in that market. And if you look at what we like about wind energy as an application inherently, yes, there's some cyclicality to it. But what is true about it is the application is getting increasingly more challenging, increasingly more demanding. So the wind turbines only get bigger, the loads get bigger, they go offshore, the cost of failure is only higher.

So as a result, taking a chance with a product that's not as high performance as maybe you could on a 2-wheeler, you could on a bicycle, you could even on a car, you wouldn't do that on a wind turbine. And we've had to go through that growing pain as an industry, and there have been a few attempts to look at lesser solutions. But I think as the turbines get bigger, as the technology is getting more demanding, we see us winning again. And so we're forecasting to keep that double-digit outlook going into next year as well on wind. It's just the quarter-to-quarter timing is a little harder to call. But that's -- to answer your question, that's wind and a lot of it is China.

So a couple more here. First one, how are you specifically implementing AI in your organization? Anything interesting that you're doing, any learnings? And how do you think about that from a return perspective?

Yes. Look, it's a very exciting opportunity. And obviously, coming from Honeywell, that's a company that's a full embrace adopter of AI and also provider of AI solutions to customers. This is second nature to me at this point. And I think there's a lot of productivity that can be enabled with AI in a heavily engineered space like we do because you don't have to reinvent the wheel every time when you have a customer problem. When you have a customer complaint somewhere in the organization, there is a report, there is a documentation. It's just not always neatly filed. It might be in an e-mail, it might be somewhere. So being able to retrieve that knowledge quickly and then being able to respond to a customer quickly, being able to prepare a proposal quickly. All those aspects are useful for AI.

We're in the earlier stages of adopting that. And then on the engineering, on the technology, on the new product development, there's also the ability. Then you take it to the e-commerce portal where how do you get our customers to do -- be easier to do business is another aspect.

Next frontier, where we're looking at how do you use AI, for example, for contracts. If you have -- hypothetically speaking, we have tariffs that come in, and we need to figure out which contract has what clause in it. We can have the legal department read a lot of contracts for a long time where you can use AI tools and very quickly be able to understand what your addressable potential is. So those are all areas where AI is here ready now to be able to be used to really make life more productive and really allow people then to focus on higher-value activities than what they have so far.

And you referenced earlier that you've got some kind of growth product initiatives going into next year, kind of alluded to in the AI conversation as well. What are those types of products? What would you speak to as far as what those growth initiatives are that specifically can help growth for '26?

Yes. Really a couple of places that come to mind just to use as examples. I mean it's a broad answer. We have new products across the portfolio, but a couple that we're very excited about. Automation and humanoids, robotics, this is a new area. We've made a couple of acquisitions on Precision Motion. This is our CGI acquisition, our Spinea acquisition. Using that same technology on humanoids, we're doing work there with prototypes. We're doing work with key OEMs to really establish those new applications. That's certainly a very, very exciting area. Linear motion, applying that to humanoids, applying that to industrial robotics, industrial automation is also another growth area.

Utility power gen is another one really enabling more reliability in the power generation area, whether it's gas turbines, whether it's nuclear, that's another area where not only the legacy bearings portfolio, but the newly acquired businesses all come together to serve that customer. And these are all needs that have increasing technical requirements, which is what we love.

Great. Well, please join me in thanking Lucian and Mike and...

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 Third Quarter Earnings Release Conference Call. [Operator Instructions]

Mr. Frohnapple, you may begin your conference.

Thank you, operator, and welcome, everyone, to our third quarter 2025 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, Lucian Boldea, and Mike Vicenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike 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 in 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 expressed 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 Lucian.

Thanks, Neil, and good morning, everyone. Thank you for your interest in Timken and for joining our call today. I'm excited to lead Timken into the future, and I strongly believe there is opportunity here to create significant value for shareholders. Since this is my first earnings call, I would like to thank Rich Kyle for his leadership as CEO, along with members of the Timken Board for their support. I've also enjoyed meeting many of our employees, and I'm impressed with their clear sense of purpose and commitment to our customers. I have covered a lot of ground during my first 60 days on the job, and today, I'll share with you some of my early observations where I see potential going forward. But first, let me emphasize that our management team's top priority is finishing the year strong. Mike will cover the details.

But in the third quarter, we increased revenue, expanded operating margins and grew adjusted earnings per share double digits versus last year. We also generated significant cash flow, and we strengthened the balance sheet. We are moving with urgency to position the company for earnings growth in 2026. The Timken franchise is very strong, been built over 125 years and recognized in global industrial markets for our technical leadership, robust product portfolio and deep customer commitment.

From this foundation, I believe we have tremendous potential to expand positions in key markets drive profitable growth and create significant value. This is what attracted me to Timken. Prior to joining, I was impressed with the company's focus on innovation and how well Timken collaborates with customers. Now from the inside, I can see the team's unwavering integrity and commitment to quality, excellent process and world-class engineering talent that makes it all possible.

A significant part of my time has been spent reviewing the portfolio, the operating model, our products and services and also collaborating with our leadership team to better understand our customers' needs. It's clear that the company is successful at adding value for customers in engineered to order mission-critical applications for quality, performance and reliability matter. This is true across our portfolio of closely adjacent products within Engineering bearings and also industrial motion solutions.

Our complementary product portfolio serves common customers and applications through similar sales channels. We also have strong positions in essential industries, such as rail, aerospace and defense, heavy industries and wind energy. And we're targeting further growth in newer end markets with Timken, like automation and food and beverage. The company has operating discipline across its manufacturing footprint generates significant cash flow and has a solid balance sheet.

With this strong foundation, I see many opportunities to improve top line and also bottom line performance. To start, we intend to approach the portfolio with an 80/20 mindset to structurally improve margins, grow faster in the most profitable verticals and create significant value for shareholders by focusing on the actions that will have the most impact. Margin expansion is a key focus for our team and will leave no stone unturned as we review the business for margin potential. I also believe there is opportunity to raise Temkin's organic growth algorithm by expanding our market focus in fast-growing regions and verticals and launching new products and services.

Capitalizing on the strength of the Timken brand and utilizing our global footprint can help us further grow revenue at many of our acquired businesses, taking them into new regions of the world. In addition, I see how continued integration of our acquisitions can deliver synergy across the entire portfolio, a greater focus on leveraging our strong market position and aftermarket presence will drive increased cross-selling of our broad product offering.

By leveraging strengths across our portfolio more holistically, innovating new products and delivering best-in-class service we believe we can outgrow our underlying markets. These are a few of the opportunities that I believe will increase Timken's earnings power based on my review over the past 2 months, but there is much more work to be on. Our team is focused on operating with urgency and rigor as we work to position Timken for stronger growth and higher margins.

With that, let me turn over the call to Mike for a more detailed review of the results and outlook. Mike?

Thanks, Lucian, and good morning, everyone. I'm excited to be here on my first call as CFO and for the opportunity to partner with Lucian and the rest of the Timken team to accelerate value creation for our stakeholders.

For the financial review, I'm going to start on Slide 6 of the materials with a summary of third quarter results. Overall, revenue for the quarter was $1.16 billion, which is up 2.7% from last year. Adjusted EBITDA margins came in at 17.4%, a 50 basis point increase. And adjusted earnings per share for the quarter was $1.37, up 11% from last year.

Turning to Slide 7. Let's take a closer look at our third quarter sales. Organically, sales were up 0.6% from last year. The increase was driven by higher pricing across both segments and modest volume growth in engineered bearings which more than offset lower demand in the Industrial Motion segment. Looking at the rest of the revenue walk, the CGI acquisition and foreign currency translation each contributed approximately 1% of growth to the top line.

On the right, you can see third quarter performance in terms of organic growth by region. This excludes both currency and acquisitions. Let me give you some color on each region. In the Americas, our largest region, we were down 1%, with growth in North America, slightly more than offset by lower revenue in Latin America. By sector, revenue was higher in general industrial and aerospace while we had lower shipments in the rail, renewable energy and on-highway markets.

In Asia Pacific, we were up 2% from last year, led by growth in China with a significant increase again in wind energy shipments. India was up slightly in the quarter, while the rest of the region was lower. And finally, we were up 2% in EMEA, led by growth across the off-highway, rail and heavy industry sectors, partially offset by lower on-highway revenue. Note that this is the first time the region posted growth in more than 2 years, which is great to see.

Turning to Slide 8, adjusted EBITDA was $202 million or 17.4% of sales in the third quarter, compared to $190 million or 16.9% of sales last year. We achieved nearly 40% incremental margins in the quarter, driven by improved operating performance more than offsetting the dilutive impact of tariffs.

Looking at the year-over-year change in adjusted EBITDA dollars, you can see the increase was driven collectively by several factors, which more than offset the impact of lower volume and incremental gross tariff costs. Let me comment a little further on the different drivers. On price/mix, pricing was positive in the quarter, while mix was negative. Pricing was also up sequentially from the second quarter as we continue to put through pricing actions to mitigate the impact from tariffs. And as you can see on the slide, tariffs were a $20 million headwind versus last year and costs were also higher sequentially.

Looking at material and logistics. Costs were notably lower versus last year, driven mostly by savings tactics in the engineered bearings segment. Moving to the SG&A other line. Expenses were down from last year, driven by cost reduction initiatives and lower accruals for bad debt. Currency added $4 million to adjusted EBITDA while our CGI acquisition contributed $3 million and was accretive to company margins again in the third quarter. Keep in mind that CGI was included in the acquisitions line for only about 2 months this quarter as we pass the 1-year ownership mark in early September.

Now let's move to our business segment results, starting with Engineered Bearings on Slide 9. Engineered Bearing sales were $766 million in the quarter, up 3.4% from last year. Organically, sales were up 2.7%, driven by higher pricing and higher volumes, with growth across all geographic regions during the quarter. Among market sectors, renewable energy, aerospace and general industrial achieved the strongest gains versus last year. We also posted growth in off-highway and rail while auto truck declined from last year.

Engineered Bearings adjusted EBITDA was $144 million, or 18.8% of sales in the third quarter, compared to $138 million, or 18.7% of sales last year. Margins came in above expectations as higher-than-anticipated sales volumes and strong operating performance by our team more than offset the unfavorable margin impact from tariffs. And note that currency was a headwind to margins in the quarter. and excluding FX, organic incremental margins were nearly 40%.

Now let's turn to Industrial Motion on Slide 10. Industrial Motion sales were $391 million in the quarter, up 1.3% from last year. The CGI acquisition contributed 2.9% to the top line, while currency translation was a benefit of 1.9%. Organically, sales declined 3.5% as lower demand was partially offset by higher pricing. The organic volume decline was mostly driven by lower solar demand and a decrease in services revenue. Our services business was down against a tough comp last year, and we continue to see some customers delaying maintenance spend.

And as expected, the Belt and Chain platform was down from last year, as it continues to be impacted by lower agriculture demand in North America. On the positive side, our Couplings platform was up in the quarter, while Lubrication Systems and Linear Motion were relatively flat. Industrial Motion adjusted EBITDA was $75 million, or 19% of sales in the third quarter, compared to $74 million, or 19.2% of sales last year. The slight decline in segment margins primarily reflects the impact of lower volume and incremental gross tariff costs, offset by favorable pricing, lower SG&A expense and the benefit of the CGI acquisition to margins in the quarter.

Moving to Slide 11. You can see that we generated operating cash flow of $201 million in the third quarter. And after CapEx of $37 million, free cash flow was $164 million up significantly from last year, and we expect to generate more than $100 million of free cash flow in the fourth quarter. Looking at the balance sheet. We ended the third quarter with net debt to adjusted EBITDA at 2.1x and which is near the middle of our targeted range. Note that we strengthened the balance sheet from last quarter as we reduced net debt by $115 million, and you can see that our net leverage improved compared to June 30.

Now let's turn to the updated outlook for full year 2025 with a summary on Slide 13. Overall, we are reaffirming the midpoint of our earnings guidance range of $5.25 as the better-than-expected third quarter results are offsetting an incremental $0.05 per share headwind from tariffs and a lower outlook for the fourth quarter. With respect to net sales, we raised the full year outlook by 50 basis points versus the midpoint of the prior guide. Specifically, we are now planning for 2025 sales to be down approximately 0.75% in total at the midpoint.

Organically, we expect sales to be down around 1.75% and which is slightly better than our prior guide driven by the stronger-than-expected volumes in the third quarter. Currency is now expected to be slightly positive to the top line for the full year versus flat in the prior outlook while there is no change to our M&A assumption.

Now let me provide a little more color on the updated organic revenue outlook. The implied outlook for the fourth quarter is for a 2% year-over-year decline. Note that this factors in a greater-than-normal seasonal sequential decline. The evolving trade situation continues to weigh on industrial market activity, and we are planning for customers to be cautious through year-end. And recall that last year's fourth quarter benefited from a sizable military marine project, which is impacting the Industrial Motion segment organic sales comparison.

Moving to margins. Our full year consolidated adjusted EBITDA margins are now expected to be in the low to mid-17% range. This implies that fourth quarter margins will be down around 100 basis points from last year, driven by higher corporate expense, a dilutive impact from tariffs and lower profitability in the Industrial Motion segment driven by the absence of last year's favorable military marine project.

With respect to cash flow, we're reaffirming our outlook to generate $375 million of free cash flow at the midpoint, which would be more than 130% conversion on GAAP net income. On Slide 14, we provide an updated view on our 2025 organic sales by market and sector. Relative to the prior guide, we increased the outlook for renewable energy, driven by higher wind shipments. Overall, the net change among all the market sectors you see in the chart supports the slightly improved full year organic sales outlook.

Moving to Slide 15. Here, we provide an overview and update on the direct impact of tariffs on Timken. We covered most of this on previous earnings calls, so let me just hit the changes. We're currently estimating a full year net negative impact from tariffs of approximately $15 million, or $0.15 per share. This was more of a headwind than our prior estimate of $10 million, or $0.10 per share driven by the increase in the tariff rate on India and the expansion of Section 232 tariffs. The situation continues to evolve, but we still expect that our mitigation tactics will enable us to recapture the margin in 2026.

In summary, the company delivered better-than-expected third quarter results, and the team is focused on finishing the year strong. While still early, we are cautiously optimistic on the outlook as we head into next year based on some encouraging order trends in a few of our markets and considering how long our industrial markets have been down. Timken remains well positioned to leverage our recovery in market volumes into higher profitability, and we expect to benefit from the strategic priorities that Lucian highlighted.

Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian?

Thank you, Mike. I hope you come away from today's call with a sense that the Timken team is focused on taking the company's financial performance to the next level. We're approaching things with an open mind, and I look forward to continuing to hear your thoughts and ideas. Your perspective is critical as we work to position the company for the future. We will have much more to share in the coming months. To that end, we plan to host an Investor Day in the second quarter of next year where we will outline our strategic vision and priorities in more detail.

Thanks, Lucian. This concludes our formal remarks, and we'll now open up the line for questions. Operator?

[Operator Instructions] Our first question today comes from Bryan Blair with Oppenheimer.

To level set on the near-term outlook, are you already seeing the kind of sequential weakness or incremental weakness that you've baked into the guide? Or is that simply the assumption of your team, given the backdrop to mosaic as it is that a sequential decline in order rates is going to occur as Q4 moves forward.

So thanks for the question, Brian. Let me just say that our outlook includes the latest order trends. And we did see in the third quarter some seasonally declining order book, but yet year-over-year order book was up. So as I think about it, overall, the patterns we're seeing are supportive of the fourth quarter guide. I wouldn't say that we're losing share or anything, nothing notable like that. So really more, I would say, cautious given the tariff situation, the uncertain trade environment. but the guide incorporates kind of our latest thinking and what we've seen.

Okay. Understood. And Mike, you stressed cautious optimism on 2026 in prepared remarks. I realize that we're not going to have '26 guidance for a bit, but at a higher level, maybe offer what your team sees as the puts and takes given current visibility, looking to the new year? And if we are in a healthier demand environment, given the carryover of restructuring savings, other work that the team has done through 2025. What kind of incrementals should we anticipate next year?

Yes, right. So as you say, a little early on 2026, but what I can say is we're moving with urgency. And you heard Lucian say that. We're moving with urgency really to position the company for earnings growth next year. We're focused on executing what we can control and looking to accelerate value creation for shareholders. So as we sit here today, we're cautiously optimistic on next year.

Based on some of the encouraging order trends that I referenced really across a few of our key markets. And I think as we've said on prior earnings calls, we are at the -- we've been an extended or year-over-year decline for quite some time. We'd like to think we're approaching the end of that. So when we combine all that, we remain cautiously optimistic for next year. We're well positioned to leverage recovery and volumes when they come, and we'll leverage those into higher profitability. And then we do also expect to benefit from the strategic priorities that Lucian highlighted.

So as we sit here today, early to call, but feeling cautiously optimistic and we do have a few tailwinds that would -- that would be behind us relative to the profitability. So looking to take the margins up next year and off of that higher volume if or when it comes through.

Our next question comes from Angel Castillo with Morgan Stanley.

Lucian and Michael, congrats on the strong quarter, and I look forward to working with both of you. Maybe just to go back on the just wanted to go back on the organic growth implication for the fourth quarter here. Do you think that there was, I guess, a pull forward in the third quarter? Or could you just kind of expand a little bit more, maybe what you see or what you kind of saw in toward the kind of cadence you're guiding to in the fourth quarter by end market? And if you could talk about it on a monthly basis, too, I guess, what's the magnitude of declines that you've maybe seen in October? And what end markets is that may be more pronounced?

Yes. So let me answer maybe the first part of that question. There's nothing we can point to, to say that we saw a pull forward into the third quarter. So nothing there that would give us an indication. Again, probably cautious on the fourth quarter. Nothing clearly in order patterns, customer behavior that says, we would see a deceleration just cautious as we have been on that outlook given the trade uncertainty. So really nothing specific to speak of and nothing indicative of a pull forward in the third quarter.

That's helpful. And then, I guess, just in terms of -- as we think about the headwind from tariffs here, I assume with things kind of kicking in for some of these on kind of November 1, there's maybe still a little bit of an incremental impact in 1Q. But can you talk about just your ability to recapture or start to really offset tariffs, should we assume that 1Q would be kind of incrementally worse or your mitigation strategies really start to kick in, whether it's price or cost and therefore, we should assume that this is probably more of a trough, all else equal from a volume standpoint?

Yes. So a couple of things. Obviously, we can -- focused on controlling what we can control around tariffs. So as you said, November 1 is a stated deadline and I can't control that. Just to be clear, though, that significant step-up in the China tariffs is not in our guide. So if that does occur, it would be an incremental headwind to where we are. .

As far as mitigation and recovery, we continue to put pricing through in the markets. We put more pricing through in the third quarter. Other actions at our disposal around supply chain changes, et cetera. So we do expect to fully offset the tariff impact exiting this year and look to recapture those margins next year. So thinking about the first quarter next year and tariff offset, we are exiting the year at a higher pricing rate than the full year average. If you think 1.5% pricing for the year, exiting the second half at greater than 2%. So think about that incremental is benefiting us in the first half of next year. So we do have some headwinds related to pricing to help offset that tariff impact and then other actions as well. So look to recapture those margins in 2026.

Our next question comes from David Raso with Evercore.

I'll be quick. And if I missed it, I apologize, a lot of companies this morning. The fourth quarter organic decline, did you give some color on the mix of that between the divisions and particularly, I also wanted to see how trends are going with the industrial distribution business. I noticed you maintain that guide for the end market. The only one you bumped up was renewable. I'm just trying to get a sense of the mix in the '26. I think renewables is a pretty solid incremental margin business. So that picking up is interesting.

But the industrial distribution, I see did not pick that up. So again, organic split on the segment for the fourth quarter and then color on those markets.

Sure. Thank you, David. So thinking about the segment split for the fourth quarter, we are expecting organic sales to be down in both segments. I would say, maybe a little more in Industrial Motion. We called out particularly on a year-on-year, we had a sizable marine -- military marine project last year that doesn't repeat. So -- but we are looking for organic revenue to be down in both segments.

As far as distribution goes, yes, we did not move it. I would say it's moving inside of the range, if you will. So not enough to move us to move anything up or down. So nothing changing there. We are encouraged -- as we look forward, obviously, that is a channel that we're ready to serve. And if there's a market recovery, one that we would prioritize to serve. So we're well positioned for that to continue to go up. But relative to the fourth quarter, we're kind of keeping it where it was as we're not seeing anything that would indicate otherwise.

And on the renewable side?

Yes, sorry, renewables, right. So, we continue to see strength in really driven by kind of wind and renewables, as you know, split for us between wind and solar. And the strength really is on wind. Solar continues to be challenged for us. But on the renewables, we saw strength in the second quarter, and we know there were some legislation incentives in China that went away at the end of the second quarter. So we were maybe expecting more of a step down than we saw. So the strength there really was a bit of a happy surprise for us.

But in terms of of growth, I would still -- I would expect that to continue to be a growth opportunity for us, but nothing in terms of significant trends. We moved it -- we did move it to the right on that strength that we saw in the third quarter. So I'd expect renewables to continue to be part of our growth story and really driven by wind.

And lastly, I'll be quick. The organic growth turning back positive. As we think about it going into '26. Of your 2 businesses, which segment would you expect to see it first?

Yes. I don't know if that's all really hard to pinpoint that. Obviously, the markets are going to drive where that goes. And as we're sitting here today, really hard to call next year's markets. So I can't say for sure where that would come from. So probably too early to call. We'll have a lot more information on that, obviously, in our next quarterly call.

I appreciate that. I'm just trying to back into the industrial distribution, obviously a big slug of engineered bearings and it's pretty profitable. And I was just trying to get a sense, is that where we feel a little bit better about going to 26 in term of EB positive before maybe the automation side of Industrial Motion. Just trying to feel out on -- is there any hint of a restock on the distribution piece for EB, some of the off-highway businesses that were obviously significant drags so they're starting to turn a little bit year-over-year, but it sounds like you're not willing to say EB the first 1 up compared to IM. Is that fair? .

Yes, Angel, this is Lucian. So we're trying to use all the data at our disposal to try to sense this. So short answer is I don't think we know yet, as Mike said. But one of the things we do look at is distribution inventory. So you look at sales in, you look at sales out and you try to see a disconnect to predict an upturn or a downturn. And I would say, there is no data at that point in either direction. Inventories are not elevated. So that's the good news. They're kind of stable and then sales in and sales out are still reasonably matched. So there is nothing in there that says that a big change is imminent. But that's the type of same thing we're doing to prepare for foreign upturn.

Our next question comes from Stephen Volkmann with Jefferies.

Great. Welcome. Maybe I'll switch to some kind of a longer-term, bigger-picture questions. First and foremost, I guess, Lucian, your comments around 80/20 being a big focus for you. I'm just curious to see if companies are willing to do the PLS portion of 80/20. So I know you guys have talked about maybe deemphasizing some auto business next year. Any update on that? And any other areas where you think there's an opportunity to exit less profitable, whatever, businesses, processes, customers, any of that.

Yes. I mean -- appreciate the question. And we announced on purposes 80/20 approach to the portfolio and really narrowed it down to looking at the portfolio. And the reason is we think it's essential to unlocking value in the company. So if you think about what the outcomes would be, obviously, structurally improve margins and then grow faster in the most profitable verticals. So we want to approach this portfolio with a completely open mind and really come back to what we did announce in the prepared remarks that we're going to have an Investor Day in Q2. So by that time, really have a lot of clarity.

But to step back and maybe share some of the thinking, some of the framework we do want every business in the portfolio to be contributing to the 20% EBITDA margin target. So that's kind of table stakes. And then once you do that analysis, you very quickly come out with the great businesses that we have, and there's plenty of them and then making choices in there to say, where do we double down, where do you invest to grow faster. There are fixed opportunities. And there, I think we're going to be very disciplined to not start long-term projects and really look at what are those businesses that can be turned around.

And then there's the third category, and you alluded to some of that in your question, which is -- is there a business that's just not us. And in the end, what is not us, it might be a numerical number that it doesn't fit a margin target. But frankly, it might be something different. It might be a good business where we are just not the natural owner. It just doesn't fit who we want to be. We are an engineer to engineer product development kind of work. We're not an RFQ to procurement type of business or not a high-volume business with a very low mix. That's not what's good for us. So what fits us best is those types of highly engineered solutions. And so we'll look at the portfolio with that angle.

To get to your question about automotive, we have to put this in context and recognize we've gone from $1 billion of automotive business. So now we're talking about 8% of the portfolio to saying we're going to deal with half of the 8, which is now a little over $100 million of the $1 billion that we once had. That activity is underway. Those conversations are underway in the marketplace that's not an internal Timken paper exercise. And we are moving in that direction we've communicated with our customers, we've communicated with partners. And so we're very clear about that. in the marketplace. Having said that, these are customers with multi-decade relationships that have platforms depending on us. So we also have to work with them on the timing.

However, any arrangement has to be good for both parties. And so in the end, I think it's reasonable for you to expect that we will improve even that business going into 2026. In terms of what timing we have to make an announcement on that remaining 4%. We'll we can't commit to that today. We'll come to you when we have it. But the commitment that you do have is that is a business we are going to deal with as part of this 80/20 effort.

Great. That's very helpful. And then maybe just semi-related, you guys have done quite a bit on the M&A front prior to your arrival. And now you talked about your leverage being about where you want it, you have a good cash flow year here. Just any change listen, in your view of the right way to allocate capital?

Yes. No immediate changes, obviously, we'll provide you more color when we talk about our strategy and the complete context of this. But no immediate change. It's really continuing that balanced capital allocation and continue to be disciplined is what you should expect to see from us. But I do want to say that, to your point that we've made acquisitions in the best. We have a tremendous portfolio of acquired businesses, and that's what I'm excited about when we do this 80/20 is really finding those opportunities.

And frankly, we have some pretty good ideas of what they are where are the growth opportunities where we can double down. And I'll give you a couple of just teasers right now. We have several of the acquired businesses that are really almost a single region business. And there's no reason they should be that way. We're a global company with a 125-year history. And so taking those businesses globally, is easier growth factor than entering a new market, a new application. And so that's one we plan to do. If you look at margin opportunities, the businesses that we've acquired and the legacy businesses serve the same end markets, the same end customers. So we can bring better solutions, more engineered solutions to our customers and, at the same time, reduce our cost to serve.

The IM businesses do have, at least today, as evidenced in the P&L a slightly higher cost to serve. The good news is it's the same cost to serve that we are already spending on the EB side. So now how can we continue that integration. The integration has been done in some of the businesses that we've acquired a while back, and we have efforts there, but the businesses that are newly acquired, they're not in the same place. And so we'll continue that integration. We'll accelerate it. We'll be more deliberate and then really targeting those end markets that go across EB and IM, where 1 plus 1 is more than 2. That's what this portfolio is going to drive. And that's 1 of the portfolio that we have. Obviously, to the extent that their gaps, then that's what more M&A is going to do. So we expect that, that effort will continue in a very targeted way, but we also expect to be able to at Investor Day, give you a lot more clarity to where any future M&A will be relatively straightforward to explain because we will have explained the strategy.

Our next question comes from Rob Wertheimer with Melius Research.

[indiscernible] Lucian, your comments around 80/20 have been interesting. I wanted to follow up -- just a little bit more. I mean when you came in and you were able to get a deeper look at the portfolio, I mean, is the idea that there was a wider dispersion in margin and growth than you might have expected? Or is it -- some of it's maybe obvious when you talked about engineer to engineer and not wanting to be an RFP business on volume scale, I'm just curious when you glanced the portfolio, did 80/20 leap out because there was a bigger spread than you would have expected? And what were your other impressions? .

Yes. No, thank you for the question. I'd say the bigger thing that leaps out is the degree of opportunity that exists in different regions market, business combinations. And so you have to get a little deeper to spot these. But as I said, one of the opportunities most obvious is just regional penetration for some of these businesses. And so there's a lot of growth opportunity. I mean, there are a lot of jewels in that portfolio. And so 80/20 sometimes we focus on what are we going to stop, and we definitely will do that rest assured. But I'm equally excited about what are we going to double down on, actually more excited on what we're going to double down on. And that's what really got me going on 80/20 when I look at the portfolio because there are several businesses out there that are doing very well. And where we can double down and do even better. And when you have businesses like that, you win twice you accelerate your top line, but you also mix up. So that was more of the drivers to the extent that there are businesses in that portfolio that don't meet margin targets, then that's another lever that we definitely intend to exercise.

All right. That was a great answer. And then -- maybe this is one level too deep and you can tell me if so. But when you look at those opportunities to go global that hadn't been taken, was it your impression that there was a block. The study was done their competitive threat was deemed too big or whatever. Is it more just Timken has been a successful buyer and has not had a chance to fully elaborate? And I'll stop there. .

Yes. You have to recognize that this is with 2 months in there also, it's easy for me to maybe make assumptions. But at least my hypothesis just in the spirit of transparency, its prioritization, it's just how many things can it do at once, and that's why really another reason for 80/20 because this is all about parading and saying, where are -- what are the largest opportunities -- and so that was part of the reason.

The other part is historical. These businesses are entrenched. And this is not necessarily a new discovery that we're going to take a business that's regional into a new region. This was already underway. But really, choosing a few of them where you say, okay, we're going to actually double down, do it in a more deliberate market back way versus product forward. And so that's really more of a change in the approach. But I don't want you to walk away with. This is a brand-new idea that was not considered or not underway. It's just really accelerating it, doubling down on it in a few of the businesses that matter.

Our next question comes from Carl Menges with Citigroup.

Great. So it sounded like EMEA, up 2%. First time it saw growth in 2 years. So would love to hear a little bit more about what drove the return to growth in EMEA and just your level of confidence in growth sustaining in that region? .

Thanks for the question, Kyle. Yes, so just maybe the first thing about EMEA is it's been down so long that the comps continue to get easier. So I do think that there's an element of just reaching the bottom. So that's -- that would be part of it. We do have a strong European presence, excuse in some of our Industrial Motion businesses and we pointed to those as having good quarters as well. And then -- it's really 3 markets, if I can highlight those that drove that growth. Off-highway was up, rail where we're winning, particularly in new platforms outside of freight rail, which has been our typical stronghold. We're winning in new applications there.

And then heavy industries would be the third market. So really a combination of finally maybe reaching the bottom a little earlier to call again, but being down for so long and then strengthen some of these markets and new business wins.

Got it. And then on margins, just how should we maybe be thinking about the fourth quarter exit rate on margins? And it sounds like there could be some good momentum into 2026 with pricing and then maybe you see some of these auto OE actions start to come through in the first quarter of '26. I know you're not wanting to give 2026 guidance. But I mean you do normally see a step-up in margins from the fourth quarter to the first quarter into the next year. Fair to assume that we would maybe see a bigger sequential step-up in margins into the first quarter of next year?

Yes. Well, again, great question and good point. And I want to highlight, first of all, that fourth quarter for us is typically our seasonally low quarter, and we do see a significant step-up from fourth quarter to first quarter. So you can expect that to happen. With that volume uplift, there's generally margin uplift and then the self-help we've done this year between pricing actions which, again, I mentioned earlier, we're exiting the year at a higher run rate than the full year. So you'd expect that to be some uplift in the first half and then our cost savings tactics, which we've talked about on prior calls and said would be second half weighted, that would also be a help to the first quarter margins as well.

So as you said, too early to comment. I'm really not going to get into numbers at this point, but I think it's safe to assume that a significant step-up in both top and bottom line going from fourth to first quarter.

Our next question comes from Evan Coyle with JPMorgan.

This is Ethan on for [indiscernible]. On pricing, how successful have you been through passing pricing to offset tariffs? And then on the increase in tariffs, do you expect further pricing in Q4 or maybe Q1 in 2026.

Yes. Thanks for the question. So we've talked about pricing this year, and I've said it a couple of times, we're looking at pricing above 1.5% for the full year. So I'd say we've been largely successful passing through pricing. Just a reminder about how our pricing works. We have good pricing in the industrial distribution channel where we can get through pricing and, call it, with 60 days notice, a little bit longer in our OEM businesses depending on where they sit, that can be a couple of months to a couple of quarter lag. So I would expect that we will continue to push pricing and then too early to comment on what additional pricing we will do next year, but now that we're ending the year with positive pricing momentum and are committed to recapturing the margins on that tariff impact next year through all of our mitigation tactics, including pricing.

And then on Industrial Motion with organic declines in this quarter and then difficult comps in Q4. Do you see that inflecting possibly any time in the first half of 2026?

Yes. Again, really early to be commenting on 2026. The only thing I reiterate is that fourth quarter to first quarter is a significant step up. So you can't expect Industrial Motion to step up from the fourth to first quarter. But again, really early to be coming on anything specific for '26.

Our next question comes from Tim Thein with Raymond James.

Great. Just on the margin driver -- one of the margin drivers we've talked about for '26, specifically on the cost saves and all that the footprint realignments that have been made over the last year plus. Can you maybe help us quantify that? I think that from memory, the number coming into this year was like circa $75 million or $80 million. Is there a way to kind of help us as to and frame that as to what that could mean in '26?

Yes, sure. Thanks for the question, Tim. Yes, you're right, referencing back to the $75 million of savings. We did announce that and I would just reiterate, we're on track to deliver that $75 million of savings. Maybe just one thing to point out on that, probably a little more a little ahead of plan in Engineered Bearings will behind plan and Industrial Motion. That's part of the margin story in Industrial Motion.

But the way to think about that, I think I said it would be roughly -- it would be second half weighted, call it, 60-40 second half, first half. So if you do the math on that 60-40, $75 million, you should get to somewhere around $15 million of incremental cost saves in the first half of next year.

Got it. Okay. And again, I get it, we're limited as to what we want to talk about for '26, but just thinking about the quarter 1 beyond where we are today and that as you -- normally, I think that you see about a, call it, 10-ish percent organic step-up 4Q to 1Q. But just based on what you're hearing from the channel and customers. I mean do you think the pieces are in place for that kind of normal sequential step-up as we sit here today in the first quarter?

Yes. Again, I appreciate the acknowledging that we're not going to talk much about next year. But I don't think there's any reason to believe differently than a typical step up from fourth quarter to first quarter. Again, we'll have a lot more information next time, but there's nothing in what we're seeing in current order patterns or otherwise that would indicate we'd expect anything other than a typical seasonal step up.

There are no remaining questions at this time. Sir, do you have any final comments or remarks.

Yes. Thanks, Emily, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call. .

Thank you for participating in Timken's Third Quarter Earnings Release Conference Call. You may now disconnect.

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 Second Quarter Earnings Release Conference Call. [Operator Instructions]

Thank you. Mr. Frohnapple, you may begin your conference.

Thank you, operator, and welcome, everyone, to our second quarter 2025 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, Rich Kyle; and Phil Fracassa, 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. [Operator Instructions]

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 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 expressed 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. Overall, second quarter results were in line with our expectations as the team is managing well through this period of uncertainty and continued soft market environment.

Total sales in the quarter were down less than 1% from last year and organic sales were down 2.5%, driven by lower demand in both segments, partially offset by higher pricing. Our total backlog at the end of June was up mid-single digits compared to the first quarter, which is a positive indicator for 2026. Adjusted EBITDA margins came in at 17.7% and adjusted EPS was $1.42, both below prior year, driven by lower volumes, higher tariff costs and unfavorable currency. In the quarter, we generated $78 million of free cash flow, raised our quarterly dividend by 3% and purchased 340,000 shares of stock. Timken continues to create shareholder value through the compounding impact of our disciplined capital allocation actions.

Turning to the outlook. We are focused on finishing the year strong while positioning the company for industrial expansion in '26. Phil will take you through the updated 2025 outlook and assumptions in detail, but we expect the operating environment to remain challenging over the rest of the year, primarily due to the uncertainty surrounding trade and its impact on costs, demand and other macros. Customer demand has been relatively stable year-to-date at low levels. However, we are reducing the high end of our full year earnings outlook to reflect a more cautious view second half, primarily due to the volatile trade situation. The team remains focused on managing our costs to the current market demand as well as driving structural cost actions that will contribute to margin expansion over time. The Mexico plant will continue to ramp up and productivity will improve through the end of the year. We are also on track to complete 3 plant closures in the second half of the year.

These actions will mitigate the planned volume declines in the second half and positively impact margins in '26. The tariff situation remains volatile, but our large U.S. manufacturing footprint will serve us well to adapt to the changes, and we remain confident in our ability to mitigate the direct impact from tariffs. We continue to actively pass the cost into the market through repricing the portfolio, albeit with some expected lag in timing. Pricing was up sequentially compared to the first quarter and we expect further price realization as we move through the second half.

While still early, we are optimistic on the outlook for '26, backlog is inflected despite the trade situation as trade stabilizes and end-user confidence improves, we expect industrial markets to expand. Additionally, Timken will benefit next year from wins in the marketplace as well as the carryover of pricing and cost savings. Both our portfolio and our operating capabilities are better positioned to capitalize on industrial strength. We also expect a positive impact in '26 from portfolio moves, including the automotive OE business we highlighted last quarter. Discussions with affected customers are ongoing, and we expect the outcome to have a positive impact on our margins in '26 and beyond.

We also continue to invest in the parts of our portfolio with the highest returns and best growth potential. An example of this is Timken's position in the automation sector. We are focused on scaling and high-growth applications that include industrial robotics, factory automation, medical robotics and humanoid. With Rollon, Cone Drive, Spinea and CGI added to the Timken branded products, we have built a broad product offering to serve these applications, and we will continue to invest to support future growth. The company's customer-focused innovation, application engineering expertise and advanced manufacturing capabilities are competitive strengths as the automation megatrend accelerates.

With respect to the CEO search, the Board is working diligently to advance the process and bring it to a successful closure. Interest in the role is strong and members of the search committee are confident that we will soon identify the next leader to take Timken to new levels of performance. In the meantime, we continue to advance the company along the same strategic path. The Timken management team is strong, experienced and focused on executing our strategy. We're confident in the company's ability to deliver higher levels of performance, and create shareholder value as we advance Timken as a global technology leader across diverse industrial markets.

With that, let me turn over the call to Phil for a more detailed review of the numbers and outlook.

Okay. Thanks, Rich, and good morning, everyone. For the financial review, I'm going to start on Slide 12 of the materials with a summary of our second quarter results.

Overall, revenue for the quarter was $1.17 billion, down less than 1% from last year. Adjusted EBITDA margins were 17.7% and adjusted EPS for the quarter was $1.42. Turning to Slide 13. Let's take a closer look at our second quarter sales. Organically, sales were down 2.5% from last year, with volumes lower but pricing higher across both segments. And the rate of organic decline improved modestly as compared to the first quarter.

Looking at the rest of the revenue walk, the CGI acquisition contributed just over 1% of growth to the top line and foreign currency translation contributed modestly as well. On the right, you can see how the second quarter fared in terms of organic growth by region. This excludes both currency and acquisitions. Let me provide a little color on each region. In Asia Pacific, we were up 2% from last year, led by growth in China with a significant improvement in wind energy shipments. India was flat in the quarter at a good run rate, while the rest of the region was lower.

In the Americas, our largest region, we were down 3%. While the region continues to be relatively stable overall, we did see lower revenue in the distribution, off-highway and auto truck sectors. On the positive side, revenue in the general industrial sector was up. And finally, we were down 5% in EMEA on continued industrial softness in that region. But I would point out that the year-on-year rate of decline has improved considerably as compared to the last several quarters, and we saw revenue growth in distribution during the quarter, both of which are good signs.

Turning to Slide 14. Adjusted EBITDA was $208 million or 17.7% of sales in the second quarter compared to $230 million or 19.5% of sales last year. Looking at the year-over-year change in adjusted EBITDA dollars. The decrease was driven by the impact of lower volume, incremental gross tariff costs, I'll come back to tariffs in a moment, unfavorable manufacturing, mix and currency. These headwinds were partially offset by higher pricing, including tariff-related pricing, lower material and logistics costs and the benefit of the CGI acquisition.

Let me comment a little further on these drivers. On price/mix, pricing was positive in the quarter, while mix was negative, and pricing was also up sequentially from the first quarter due to the initial tariff-related pricing actions we've put through. So the net impact from tariffs was just slightly unfavorable in the quarter as pricing actions almost fully offset the incremental tariff costs. Looking at material and logistics, material was notably lower versus last year due in part to cost savings statics and logistics was also slightly down. On the manufacturing line, performance was negatively impacted by a reduction in inventory levels versus last year, which drove unfavorable cost absorption.

In addition, we continue to experience high ramp costs associated with our new belt facility in Mexico. Collectively, these items plus normal inflation more than offset the positive impact of savings from cost reduction actions in the quarter. Currency was negative $5 million, driven by the weaker U.S. dollar, which caused some transactional losses in the period. And finally, our CGI acquisition continues to perform well, contributing $4 million of adjusted EBITDA, which was accretive to company margins in the quarter.

Moving to Slide 15. We posted second quarter net income of $79 million or $1.12 per diluted share on a GAAP basis. The quarter includes $0.30 of net expense from special items, which is comprised of acquisition amortization, restructuring and other charges. On an adjusted basis, we earned $1.42 per share, down from $1.63 last year but largely in line with our expectations. Interest expense in the second quarter was about $3 million lower than last year. Our adjusted tax rate was 27% as expected. And diluted shares were down slightly, reflecting net share buybacks over the past 12 months.

Now let's move to our business segment results, starting with Engineered Bearings on Slide 16. Engineered Bearings sales were $777 million in the quarter, down 0.8% from last year, with the change essentially all organic as the business continues to stabilize. Across regions, we saw lower end market demand in Europe and the Americas, mostly offset by higher revenue in Asia. Among market sectors, auto truck, off-highway and heavy industries were down from last year as we expected.

On the positive side, renewable energy and general industrial were both solidly higher versus last year. Engineered Bearings adjusted EBITDA was $153 million, or 19.7% of sales in the quarter compared to $166 million or 21.2% of sales last year. The decline in segment margins reflects the impact of lower production volume incremental gross tariff costs, unfavorable mix and currency, partially offset by higher pricing and the benefit of cost reduction actions, along with lower material and logistics costs.

Now let's turn to Industrial Motion on Slide 17. Industrial Motion sales were $396 million in the quarter, down 0.7% from last year. Organically, sales declined 5.9% as lower demand was partially offset by higher pricing. Most platforms posted lower revenue year-over-year. Belts and chain saw the largest decline as it continues to be impacted by lower ag demand in North America. Lubrication Systems was lower on demand in Europe, including our end-user retrofit business. And the Drive Systems and Services platform was also down. Drive Systems was impacted by lower solar demand and marine timing, while services was impacted by tough comps last year and some project pushouts. Our backlog and services remains relatively strong.

On the positive side, our linear motion platform was up in the quarter, driven by higher sales in North America, including the benefit of some new business wins in the warehousing logistics sector. And finally, the CGI acquisition contributed 3.6% to the top line, while currency translation was a benefit of 1.6%. Industrial Motion adjusted EBITDA was $73 million or 18.3% of sales in the quarter compared to $80 million or 20% of sales last year. The decline in segment margins reflects the impact of lower volume, incremental gross tariff costs, belt plant ramp inefficiencies and higher SG&A expense in the quarter, driven by a discrete accrual for potential bad debt.

On the positive side, pricing was favorable and the CGI acquisition was accretive to margins in the quarter. Moving to Slide 18. You can see that we generated operating cash flow of $111 million in the second quarter and after CapEx of $33 million, free cash flow was $78 million. We expect stronger cash flow in the back half of the year, driven by normal seasonality and lower cash taxes. From a capital allocation standpoint, we returned $47 million to shareholders through dividends and share repurchases during the quarter. We raised our dividend in May, setting 2025 up to be the 12th straight year of annual dividend increases, and we bought back more than 340,000 shares of Timken stock.

Looking at the balance sheet. We ended the second quarter with net debt to adjusted EBITDA at 2.3x, which is within our targeted range. With expected free cash flow in the second half and our longer-term outlook for EBITDA growth, we remain in great position to deploy capital to create value for shareholders.

Now let's turn to the updated outlook for full year 2025 with a summary on Slide 19. You'll note that we reduced the top end of our prior earnings guidance range as we are taking a cautious view on the second half. So let's go through it in detail, starting with sales. Overall, we are maintaining the midpoint of our revenue guide at down just over 1%, but the components have changed. Organically, we now expect sales to be down around 2% at the midpoint, which is 1 percentage point lower than our prior guide. This is being offset by a 1 point improvement from currency, which takes currency neutral to the top line for the full year. Acquisitions are unchanged as we still expect CGI to contribute just under 1% to our revenue for the year. And note that revenue in that business is up over 10% since we bought it.

Now let me provide a little more color on the updated organic revenue outlook. First, there is no change to our pricing assumption for the full year. We are successfully passing through higher tariff cost into the marketplace through pricing. So the change is entirely volume, which reflects a cautious view on second half demand, given the continued trade-related economic uncertainty. Year-to-date, our order intake rates have been improving, and our backlog is up versus the end of the first quarter, both of which are good signs as we begin to look ahead to 2026.

On the bottom line, we now expect adjusted earnings per share in the range of $5.10 to $5.40 per share. Note that we held the low end of our prior outlook but reduced the top end by $0.20. You'll see a walk of the various puts and takes on a later slide, which I'll hit in a moment. Our revised outlook implies that our full year consolidated adjusted EBITDA margin will be in the mid-17% range. And finally, we anticipate an adjusted tax rate of 27% and net interest expense of $95 million to $100 million for the year, both unchanged from our prior guide.

Moving to cash flow. We're affirming our prior outlook to generate $375 million of free cash flow at the midpoint, which is more than 130% conversion on GAAP net income. Moving to Slide 20. Here, we provide an overview and update on the direct impact of tariffs on Timken. We covered most of this on last quarter's call, so let me just hit the changes. We're currently estimating a full year net negative impact from tariffs of approximately $10 million or $0.10 per share. This is an improvement from our prior estimate of $25 million or $0.25 per share, driven by the reduction in tariff rates between the U.S. and China, partially offset by higher assumed rates for other countries.

Situation remains fluid, but our team is on track to fully mitigate this impact through pricing and other actions on a run rate basis by the end of the year and recapture margins in 2026. On Slide 21, and you'll also see a net favorable $0.10 impact from currency. These items are more than offset by a negative change of $0.35 from organic which reflects the lower volume assumption as well as unfavorable mix. and our expectation for lower margins in the back half of the year due to the belt ramp and other incremental cost headwinds. With that said, we are still targeting significant cost savings for the full year, which will offset inflation in labor and other input costs.

In summary, Timken is managing well through this period of elevated uncertainty and remains focused on finishing the year strong while positioning the company to capitalize on an industrial market recovery. We are increasingly optimistic about 2026, and are confident in the company's ability to deliver higher levels of performance next year and beyond.

This concludes our formal remarks, and we'll now open the line for questions. Operator?

[Operator Instructions] Our first question today comes from Kyle Menges with Citigroup.

I was hoping if you could just unpack the trim to the organic volume guide a little bit more. I mean it sounds like based on your prepared remarks, trends in the quarter have been pretty stable, really year-to-date, and then you've seen backlog growth in both the first quarter and second quarter. So could you just help me understand what you're seeing and hearing in the markets and customers that's leading you to take down the second half organic growth guide? Or is it just you guys being cautious on tariff uncertainty?

Kyle, it's Phil. Thanks for the question. So I would put it more in the category of just wanting to be cautious on the second half of the year. We're not seeing acceleration per se. We're certainly not seeing any deceleration markets remain stable. So we wanted to be a little cautious on back half demand, just given the uncertainty around trade, which filters into the markets, as you know. And we do believe that as we get more certainty around trade, you couple that with a taxability, you couple that with maybe a rate cut as we move through the year. We do think all those things likely impact '26 in a positive way, but it's usually atypical for our markets to accelerate in the second half.

So we just -- at this point in the year, given where we're at, we just thought it was prudent to be a little bit more cautious on the outlook.

Got you. Helpful color. And then starting to get more questions on humanoid robots from investors. I would love to hear from you guys, just your thoughts on Timken's applications for humanoid robots and just in general, the size and potential that you see in robotics, I guess, for Timken.

Yes. So I'll take that. The last part, robotics, if you open it up to automation, obviously, already a sizable market for us and one that I think we're well positioned to grow in significantly the CD acquisition, which Phil talked about is off to a good start as almost predominantly focused on medical robotics, but has an industrial play as well. Cone and Spinea and Timken have significant plays in factory automation and roll on with some specialty in warehouse automation, but also some of the other parts of factory automation.

The humanoid market itself, we do -- we are working on applications today. We have a small amount of revenue. We expect a good CAGR off that small amount of revenue, but it takes a few years of a good CAGR to even get up to $10 million. So I think it's going to be a relatively small number of the next couple of years. We're working with multiple OEMs on future designs. But I think it's a longer-term play for sure, still on the humanoid side. The other part is the automation mark that are here today and growing.

Our next question comes from Bryan Blair with Oppenheimer.

To follow up on the question on the relative conservatism of the revised guide or to ask in a different way. What were month-by-month orders through Q2? And how does July look relative to the second quarter level?

Yes. I would say on the second part of the question around July, look, we'll close the books on July next week, but the sales rates we're running would be in line to maybe slightly ahead of the midpoint of our guide. I think July, we're off to a pretty good start relative to July. As far as the order intake rates go, I mean, we don't typically comment on the month by month. But suffice it to say, I think the order intake rates have been improving as we move through the year. The order book was up or the backlog was up sequentially from the first quarter, kind of -- still sort of, I think, flattish year-end.

But what we're seeing from an order intake standpoint, from a backlog standpoint, obviously gives us confidence. But I think the word on the second half would be more cautiousness than conservatism. Obviously, we moved some markets to the left on our market chart, heavy industries just because the project spend was coming a little bit lower than we anticipated. Services is one where it's generally, it can be a discretionary spend. So that's one where we've been seeing some pushouts there. Backlog remains high and I think that revenue will come at some point, but we wanted to be a little bit more cautious there.

And then with distribution, distribution can kind of bounce month-to-month. It's been relatively stable, were relatively flat in the quarter. North America was down a little bit. Europe was up a little bit, but we did kind of move distribution to the neutral column as well as sort of the basis for the more cautious guide, if you will. And then rail -- on the flip side, rail continues to perform well. We moved it over to be neutral despite freight car build is expected to be down significantly in North America this year. We're seeing some good business activity and wins outside the United States and really protecting or expanding share even in our core market as well. So just to give you a little bit of extra color, but we do feel confident that as we look ahead to '26, we do feel that with some help on the trade front and some -- a reasonable resolution there in the remaining countries that are sort of up for debate. I do think we should be pretty good heading into '26.

Okay. Makes sense. I appreciate the color. Maybe offer a little more of an update on your discussions with auto OEMs. What's the realistic time frame to finalize those discussions and negotiations? Is the expectation that you'll still impact a little more than half of auto OE revenue? And when you get to that point, are you willing to quantify or otherwise frame the margin lift as mix [ restaff ]?

Yes, on the -- a little more than half, I would say that's still what we're focusing on right now. Too early to say how the discussions are going to play out. They're active. I would expect that we would be able -- when we get to the '26 guidance, we would be able to estimate what the impact will be through the course of the year. I really don't expect much impact at all to the first quarter of next year, but certainly would expect some positive uplift by the time you get to the second half of next year.

And the outcome is uncertain. We'd expect some combination of exiting some parts of the portfolio and repricing some parts of the portfolio. And then in the repricing, some of it temporary between now and when we exit and some of it that would extend into multiple years. So TBD, but we definitely expect some margin uplift from it in the second half of 2026.

Our next question comes from Rob Wertheimer with Melius Research.

My question, Bill, you just kind of walked through some of those markets have changed. I guess when I looked at it, I was slightly surprised, not shocked on any of it, but slightly surprised us on distribution. I wonder if you could characterize where inventory levels are or whether there's anything that drove that, maybe just hesitancy around tariff. I wonder if you could describe in a little bit more detail the services, what that constitutes and what the decision-making around that is.

And I'll ask my last one here. It's nice to see the recovery in renewables and wind [ dispos ]. I wonder if you could just give some sort of description of the strength there, threat from Chinese OEMs and just where you stand in that market?

Sure, Rob. Thanks for the question. So relative to distribution, obviously, it's a short cycle part of our business. It -- we had moved it to be up kind of mid-singles, call it, 3% to 4% and then we moved it back to neutral sort of leaning right. So I wouldn't call it a 5 -- point change. It was more of a kind of a low single-digit point change in the outlook. And from a -- and again, that was just really being cautious just given the short cycle nature of that market. Inventories where we see -- where we have visibility would suggest that inventories are at good levels for this level of demand. But that can obviously change quickly if the market weakens, but where we see inventory, which is mainly North America and then maybe to a lesser degree, in Europe would suggest inventories are in a pretty good spot.

And I would say that's even true if we go -- move into the OEM part of our business. There is always -- it can vary by market, by customer around the world, but the larger markets that we serve off-highway and industrial markets, which suggests a lot of the destock that we had been anticipating is kind of behind us now. So we feel inventories are at good levels. We're going to take a little bit of our own inventory out in the second half just with normal seasonality and then I think sets us up pretty well heading into next year.

On the services, so if you think a Timken service business, it's mainly industrial services. So I think high-speed gearbox, reconditioning, bearing reconditioning. We also do motor repair typically tied to gearbox repair, if you will. And that can be -- if you think some customers will have spares. And oftentimes, if you have a -- if something is broken on the line, it's got to be fixed immediately, that obviously gets done. Sometimes there's a spare, so you put the spare in and then it becomes a question of when you recondition the spare, and you can push that out for a little bit of time. And we do believe with the tariff uncertainty, it is causing some of that discretionary spend, whether it's in services, whether it's in automatic lubrication in the retrofit business, which is where we can retrofit older equipment with our automatic lubrication systems to eliminate the need for manual re-greasing that type of spend can get pushed out in an uncertain environment like this, which is kind of what we're seeing.

But overall, the backlog remains in that business has been very consistent, very consistent, high-margin business for us over time. So no concerns there other than we got to get a little bit of this uncertainty behind us. And then last point on wind energy. We did see a really nice step-up in demand in wind energy in the first half, and that was mainly driven by Asia or China more specifically. So it was nice to see off of last year's soft market conditions. I would tell you, as we looked at the numbers coming in, there was probably a little bit of pull ahead from second half to first half because there were some regulatory changes in China that went into effect June 1 that did provide a little bit of incentive to pull ahead some spend where that was possible. But we do think the market continues to improve. We don't -- we think the growth will be a little more muted in the second half given that pull ahead, but we do believe the market is on its way to recovery.

Obviously, it will be several years before we get back to where we were. But we're confident with what we see. And then obviously, we did see some share shifts last year with the market being down so much as you typically might see in that kind of situation. But we did get some of that business back and where we're focused in terms of the gearbox and then being very thoughtful about where we play on the main shaft applications. We feel there's enough market there for us to compete, win and achieve our growth objectives.

Rob, the only point I'd add is going back to the distribution comment. The -- when we experienced unexpected cost pressures, back on inflation was hitting a few years back. And now with tariffs, we do realize price faster in distribution than we do in OEM. So that is positively impacting the revenue numbers and OEM pricing, we'll catch up to that in time.

Our next question comes from Angel Castillo with Morgan Stanley.

Sorry to beat a dead horse here, but I just wanted to clarify kind of understanding everything we're interpreting it correctly, but it sounds like your orders at this point are suggesting kind of end of the year results would be above the midpoint or at the top end of your guide. So if we do get an atypical recovery, whether it's because of the one big beautiful bill or some other factors, am I understanding that correctly that, that would put results then above the [ 540 ] and it's just something that given the kind of abnormal nature of that, you're just not underwriting at this point? But and if so, if that's correct, I guess, anything to consider in terms of potential pull forward of demand or push outs, I think you mentioned some in services that maybe impacts your ability to see that if you do see any typical recovery?

Yes. So thanks for the question, Angel. I would say for us to exceed the high end of the guide would really require an acceleration in demand in the back half of the year. And right now, our guidance would assume that year-over-year organic revenue is down year-on-year in the second half. Headline will look a little better than the first half. But when you take pricing out, it's probably very consistent period to period.

So if we were to see actually revenue growth in the second half, that would be what we would need to see in order to move to the high end -- above the high end of the guide. But I mean we're -- we put the range out there because we feel that it's a range that we're confident in, we're comfortable with. And the high end of the guide would assume kind of flattish organic in the second half there roughly with pricing positive and then just a slight negative on the volume. So that would give you some sense and that was one of the reasons, frankly, we trimmed did is we didn't want to assume an acceleration in demand in the second half, just given where we're at, we felt it was just more prudent to frame the guide around flat organic second half would get you sort of at the high end and then a little bit lower than where we -- than the midpoint will give you the low end, and that's just sort of where we pegged it.

That's very helpful. And then maybe just on -- back to some of the commentary around automation or robotics. Two questions, I guess, on that. One, any particular aspects of your portfolio that you think you still need in terms of going out there and getting some potential bolt-ons to be able to participate in that world kind of in the future as it pertains to, again, robotics or humanoids? And as we think about the CEO ongoing transition, what's kind of the appetite to potentially do M&A while that's ongoing? Or should we assume that, that's kind of M&A is on pause until we get a CEO announcement?

I'll take the second one first. I would say we continue to pursue M&A. We haven't done any since the CGI acquisition, but I think if we were to do something in -- with the CEO search is going on, we're in the early days of a new CEO, it's going to be something that's probably bolt-on and very close and similar to what we've been doing and that's the pipeline that we've been working, will continue to work. So I would certainly not say that an acquisition is out of the question during the CEO transition.

Yes. And then the only thing I would add on the first part, Angel, on the robots, I mean, certainly, I would tell you, we're approaching it much like we do other high-growth markets is let's form a cross-functional team within the company, let's look at technology we have in the portfolio and what we think it's going to take to compete and win and then whether we're going to do that organically or if there's gaps in the portfolio, certainly, M&A would come into play along the lines of what Rich talked about.

But I'd tell you, in the area of robotics, again, humanoids very early innings. But in the broad area of robotics, we've got very good capabilities and drive systems certainly our precision bearings, if you will, as well as some other products. And I do think as we move forward, you'll see us continue to continue to improve fully in our capabilities to be able to compete and win that market grows.

Yes. I'd say we don't need anything else in our portfolio today to win with the portfolio we have. So we don't have to have something to bundle with it, but there are certainly other technologies that could supplement what we have today and some potential things that we can do both organically and inorganically. But it's not a necessity for what we -- for the portfolio we have to win in the coming years.

Our next question comes from Stephen Volkmann with Jefferies.

I wanted to go back to the kind of auto contract project, whatever we're calling that. I remember the last time you guys went through this, I think you ended up sort of exiting about 1/3 and repricing maybe 2/3. Is that a reasonable way to think about this exercise? Or is there something different about it this time?

Well, I think it's a little different this time. I mean that time we went in with a slightly different approach, and we had automotive plants back then, et cetera that required a lot of restructuring. We do not have an automotive plant in our portfolio today. We make automotive products in mixed into plants. So I'd say it's fairly different, both in scale and complexity. And I would say it's too early to know what the mix is going to be probably also different than then. I mean, where we're at today has been -- it's a niche for us that we've narrowed down to over the last 10 years that we're pretty sizable in. We're pretty good at. We have a sizable U.S. footprint. So there's some value there in what we do that -- but again, it's too early to see if we're going to be able to successfully improve what we get paid for that value that we bring.

Okay. All right. That's good color. And then I just wanted to think a little bit about '26 and who knows where the markets will be for God's sake. But it seems like you'll have some tailwinds. You'll have something from this auto project and I guess you have some plant closures as well. You'll probably have a little bit of price cost as you get that fully implemented. Is it possible to kind of -- first of all, is that like -- is that a good list? Is there anything I'm missing? And then second of all, any -- can any of that have numbers put around it yet?

It's too early to put numbers. I think it's a good list. I wouldn't say it's a conclusive list. But to your point, I think there's a lot of factors pointing to -- and first, your point of who knows. And certainly, we don't know and we don't have that level of visibility, as you know, to most of our portfolio out the past 6 months but there's a lot of factors pointing to that it could be an upturn next year. And then a lot of factors that we have a lot of self-help.

So a few comments on your list first. I mean just the duration of the downturn that we've been in, it's been quite a few quarters. Short cycle, usually 8 quarters, 10 quarters is pretty long for us. As you know, we -- because of the multiple points of our inventory in our own facilities and our OEMs and their dealers, our distributors and then end users, we swing more in both directions. And then I think the trend line you're looking at, as Phil said, I mean even if -- even with the outlook we have today, we're approaching 0 sales with that outlook in the second half and -- which typically means you're going to be heading to positive shortly thereafter versus -- I mean, we typically, once we start in the direction, we go that way for several quarters.

So I think there's a lot of factors pointing to that needs to be happening sooner rather than later, whether it's the third quarter of this year or the first or second of next year. But at some point, that should invert and also some trends within our orders as we implied. Phil talked about moving from a more uncertain environment to a more certain environment. We took some steps with that recently with the Japanese and European Union trade agreements. There's the tax certainty environment that we're in now, which is also a positive. So I think those certainly are pointing to that as well. And then from a self-help perspective, I think we've got self-help on the -- put the auto OEM side, which could be a negative on the top line next year.

But I think either way, it would be a positive on the bottom line. But we've got some positives from a mix perspective. Our portfolio is better than the last market that we went into, our mix is better. And then we also have -- we will have a fair amount of carryover price next year as well as new price and some of the things that we have not been able to pass pricing through yet because of agreements as of the tariffs of it. So we'll have some positive price heading into next year. And then also a really good self-help story from a cost perspective. The 3 plants you talked about, some of the other productivity tools -- productivity measures that we've implemented, both from an SG&A standpoint as well as from a manufacturing standpoint. I would expect to leverage those as volume improves. So I think we've got a good self-help story and with some market help could be a good year next year.

Yes. No, I think Rich said it all, Steve. The only thing I would add is, certainly, with the cost savings actions being second half weighted and our belts. Our plant ramps, which would be -- belts is in the thick of it now, but we've also got the India plant ramping as those plants ramp think that helps '26. So I think we're going to start the year in a pretty good spot from a price cost standpoint and too early to talk about incrementals, as Rich said, but I do think it will put us in a good position that if we've got some volume to work with, we've got some demand to work with, to print good incrementals relative to what we would historically do at that point in the cycle. So I do think we're in a pretty good spot there.

And finally, in that another year of capital allocation, and we will have -- we bought a few shares this year, not a lot, but we'll have reduced debt through the course of the year if we do not do another acquisition and then throw in next year's cash flow as well, would expect some benefit next year from capital allocation as well.

Super. All right. There's a lot there. I appreciate it, but you forgot the humanoid robot inflection.

We'll put that into the '27 bucket.

Our next question comes from Steve Barger with KeyBanc Capital Markets.

Okay, great. Rich addressed some of the Timken specific dynamics around the back half guide. But we have seen a couple of other short-cycle bearing companies return to modest but still positive organic growth. So I just want to ask about market share issues anywhere in the portfolio or any areas where pricing is getting more competitive and disadvantaging you? Anything like that going on?

No, I don't think -- if we're not comparing well to a peer right now, I would say it's a mix issue. We don't think we're losing. Well, we know we're not losing any share. anywhere except with the automotive actions, and that hasn't kicked in yet, but we -- it's likely for next year that we will lose some concepts of share there by design, but we're definitely not losing any share. And pricing is going up, it's been going up, and I think it will go up again next year. It just needs to go up at least as much or more than what costs do, which, again, we've got a little bit of lag. But I would say the -- both during the inflationary time as well as tariff time, the bearing industry has shown that we will recover those costs, and I'm confident that Timken will do so.

Yes. And maybe I would add, Steve, to that would be on the tariffs. While we do import product from several countries around the world, obviously, are U.S. local for local content is pretty high relative to the main folks that we compete with. So I do think as these trade deals get concluded and that we end up with maybe smaller tariff regime around the world. I do think that will naturally benefit us here in the United States just given our relatively higher local for local content.

Understood. And for automation, how integrated are the sales teams across lubrication, drive systems and linear motion? Are you optimized for selling the entire product line with one voice, so you're making sure you can kind of take share and what should be an expanding market?

I would say we do both today. We have product specialists. We have market specialists. And that's fairly common for us, but we're definitely getting cross-selling benefits. But as an example, with the CGI acquisition, that was really our first step into medical robotics. They sell more into that space. We actually sold them bearing. So we were in that space as well with -- from a bearing perspective. And Cone and Spinea did a little bit in there, but we have not -- we don't do a full integration there. We take the best of all parts and most of our sales base typically is a little bit of market, some geography and some product. And again, it's -- most of what we do is a very technical sale, so you need a lot of product expertise within linear within our [indiscernible] Drive, within a cyclomal drive, within a bearing, et cetera.

Understood. And just as a follow-on, if I look at your automation sector sales on Slide 8, it's obviously been flat to a little down for a couple of years. Do you have enough visibility to assume that outgrows whatever the portfolio does in 2026?

Yes, I'd say the decline has been really in the factory automation space, and that market has certainly been down. It's too early to call whether that's going to be up next year. But our order trend and backlog and customer sentiment, I would say, would indicate that better times are ahead.

Yes. And the only thing there, Steve, to keep in mind, too, is the automatic lubrication systems business that we have, which is an automation play, if you will, not robotics, but an automation play is heavily exposed to the off-highway market. So that market is come down, it's been impacted as well. So I think we're in a good -- I think, in a good spot there to return to growth next year, but I just want to point out as well.

Our next question comes from Tim Thein with Raymond James.

Apologies in advance if these were asked. I was just bouncing between calls here. And I'll pack in together. The first is on the China wind business, I'm curious if you saw or perceive there to be any sort of pull forward or I guess, prebuy in the first half, that was something that one of your peers had called out that potentially the first quarter was flattered by some pull forward ahead of some policy catalysts. So that's question one.

And then on the second, I'm curious with respect to the distribution segment and that kind of tweaked down. And maybe, Rich, just from your historical lens, how is that business historically -- what has that told you about and around cycle inflections? I'm just curious if that business directionally is lower, is that been acted as sort of a lead indicator and inflection points historically or not? I'm just curious what you would make, if anything, of that.

Tim, this is Phil. I'll take the first part. On the wind. We did -- as we look at the results come in, in Q2 and then obviously in Q1 as well, we do believe there's been some pull ahead of the regulatory change that went into effect June 1. So it will cause, I think, a more muted growth profile in the second half. So we still expect to be up for the year certainly in wind, but it will be a little bit more muted in the second half because of that pull ahead.

Yes. And the second question, Tim, our distribution partners, particularly when you look globally, both sell to smaller OEMs as well as the maintenance cycle. So I mean, we would tend to see more of an inventory impact through that channel at the end user reduces inventory when the distributor does, but less of a peak-to-peak, trough-to-trough decline or increase as well because the maintenance cycle, as equipments run longer, et cetera, is significantly less cyclical than the new equipment capital part of it. So I wouldn't read too much into what we're seeing, it's a pretty small number overall at this point.

Our next question comes from Mike Shlisky with D.A. Davidson Companies.

You had mentioned backlog being up sequentially. Any idea which end markets or groups were driving that? It sounds like they're more positive on 2026, there's some long cycle stuff in there. But just curious as to what's the kind of getting edge here of the operating question.

Yes. Thanks, Mike. This is Phil. So you're right, backlog was up sequentially. I would say pretty broad, and we're seeing it in where we needed to see it in terms of the industrial sectors, whether it be off-highway, we've seen renewable go up. A lot of general industrial probably not so much in heavy industries quite yet because that tends to be later cycle. But it's been pretty broad across the portfolio. We don't typically go into too much detail kind of market by market. But it wasn't -- it certainly wasn't like idiosyncratic to one market or anything like that.

Okay. Great. And then I also wanted to ask about just the 2 most recent kind of broad policy initiatives that came out, the big, beautiful bill and then the agreement with Europe on the tariffs. Just curious in the days following both of those announcements, and I think one was just the last couple of days. Have you gotten any new quote requests or call some customers that were kind of on the sidelines waiting to get this kind of news? Did you get a kind of sudden influx of some interest that you're kind of hoping for or kind of waiting on just the last couple of weeks here?

So I'll take the last part, and I would say no, there's nothing that sudden. And then I'll take the generally and then what Phil maybe comment on some of the specifics once to go there. But I think in both cases, again, coming back to just certainty and knowing where the tariffs are going to be for a period with Europe. We can all -- between customers, et cetera, now all start operating to that, gives you more confidence to invest, which, again, drives a lot of our demand when investment is made. Net weather, how successful impactful it is. And in increasing capital investment in the United States to the degree you believe that is going to happen. And I think the Timken Company is going to be a significant beneficiary of that, that will be relatively -- I think, I wouldn't say slow to play out, but it's not a sudden thing that's going to happen in the next week or month.

Yes. Maybe one thing to add there, Mike. This is Phil. So Rich is right. I mean, typically, we would see it would take at least a couple of quarters for things like that to work its way into the top line, if you will. But on tariffs, just one point. So the $0.10 headwind we have in the guide, we -- in that guide, we have contemplated some escalation of tariff rates as we move forward. So certainly, if China goes back to [ $145 million ], that would probably require a relook at that number. But the movement in Europe, up 5%, if there's movements like that in other countries, we have tried to contemplate that in the guide where I feel like we would have it covered provided it's not like what we had in China at the beginning of August.

Our next question comes from Chris Dankert with Loop Capital Markets.

I guess just on pricing. I want to make sure I'm understanding things correctly there. Phil, I think you said pricing in the quarter, slightly less than the tariff impact. So maybe a little bit more than 1 point benefit in 2Q here. It sounds like the full year guidance changed less than 2% price for the full year. Things are stepping up sequentially correct, but just it sounds like they're fairly de minimis in terms of what we're getting from the first quarter to the second and then second into the back half years. Is that the right way to think about it?

Yes. So we certainly had positive price in the quarter, Chris. We came into the year talking about pre-tariffs less than -- we said less than 50 bps of base pricing pre-tariffs, and then we did talk about specifically $60 million of pricing that we're contemplating so far. So all in, we will be well above 150 bps for the year. And I do think that will be more back half weighted because we did do some mid-Q2 pricing. And then we've got some mid-Q3 pricing coming in as well. So I would expect pricing to step up year-over-year as we move through the back half of the year and then for the full year to be in that -- to be sort of in that 150 to 200 range for the full year.

Got it. That's helpful. And then I guess just on the factory loading for the bolts in Mexico. I guess, if belt and ag are so weak right now, is that causing the factory loading to be a little bit weaker and then the margin to be lower than you would have expected there? I mean, is that $4 million EBITDA headwind you called out the deck. Is the majority of that tied to the belt plant -- the belts plant? Just any color you can give on that. Kind of we could get that program up and running.

Our belt business is down. It's -- ag is a significant market for us and that market is down. So it's -- that's contributing, but it's also a factor of we still have the plant in the U.S. that will be closed at the end of August that -- we still have a training costs, ramp-up costs and some inefficiencies in the Mexico facility. But again, you should see -- we'll see certainly the 3 plant costs that we have within the operation come out within the next couple of months. And nothing we're seeing is all that atypical. It takes a little time to replicate the capabilities in the other facility.

Yes. I mean, big picture, Chris, that negative $4 million in the [ lockage ]. The inventory change is a big piece because we liquidated some inventory this quarter. We actually built some last quarter that had a cost absorption impact. the belts would be negative as well. And then offsetting that would be the cost savings actions that we're implementing. So those would be sort of the 3 big buckets in there that are all in that single-digit millions that would get us to that number.

Our final question today comes from Michael Feniger with Bank of America.

I promise I'll keep it short. Just on the margin guidance, the mid-17, I think prior was mid- to high 17%. I might have missed this -- it sounds like it's purely just your organic growth coming down a little bit? And is it the decremental you're kind of assuming on that? Is that similar? Has your view on that decremental change a little bit as -- I know you're trying to take some inventory out. Just kind of trying to understand just the change in the margin guidance and around that decremental in the back half.

Yes, got it. No, thanks, Mike. And we always have time for you. But on the on the decremental, so you're right. The drop in the margins for the full year, really 3 things. Tariffs would have gotten better, that would have been a favorable item in that walk. And then the 2 unfavorables would be the volume -- taking the volume outlook down 1 point at the volume leverage, if you will, would have been quite high. And then we are planning on next to be, call it, more unfavorable than we have been previously contemplating, which again is additive to that.

And then we also did assume some cost -- incremental cost headwinds with the belt ramp taking a little bit longer than we anticipated as well as some of the other impacts we were seeing. So there's sort of a variety of things that then driving a higher overall decremental -- slightly higher overall decremental, which kind of pushed the margins down that 50 bps or close to 50 bps from where we were before.

There are no remaining questions at this time. Sir, do you have any final comments or remarks?

Yes. Thanks, Emily, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call.

Thank you for participating in Timken's Second Quarter Earnings Release Conference Call.