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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 2024 earnings conference call. This is Neil Frohnapple, Vice President of Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Tarak Mehta, and Philip Fracassa, our Chief Financial Officer. We will have opening comments this morning from both Tarak and Philip 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. Without express written consent, we prohibit any use, recording, or transmission of any portion of the call. With that, I would like to thank you for your interest in The Timken Company, and I will now turn the call over to Tarak.

Thanks, Neil. And good morning, everyone. Thank you for joining us. I will begin with our fourth quarter results and outlook for 2025. Then I will also share a bit more of our priorities for the year as well as perspectives from engaging with different stakeholders. Let's start with a look at the fourth quarter. Overall, revenue was down 1.6% versus last year. Organically, revenue decreased 2.5%. The main driver of weak revenue was our European demand. Asia Pacific was modestly down with China declining, moderating as the comps got easier. Americas was up slightly, India continued its growth path. Respect to profitability, adjusted EBITDA margins came in at 16.6%, down 130 basis points from last year and 30 basis points from the third quarter. Adjusted earnings per share was $1.16, down 15% from last year. Our fourth quarter margins benefited from cost actions along with a favorable mix in both segments. In addition, CGI performed very well with accretive margins in its first full quarter as part of Timken. Finally, we generated $125 million of free cash flow in the fourth quarter, taking us to about $300 million for the full year. So let's take a look at the initial outlook for 2025. Given the current level of demand and economic uncertainty, we are taking a cautious view on the outlook for 2025. We anticipate the organic sales will be slightly lower for the year, due to continued weakness in Europe. We expect industrial market conditions to remain challenging as we start the year, and our guidance assumes organic sales lower year on year in the first half. We also have incorporated the impact of China on tariffs into our current guidance. On Mexico and Canada tariffs, we have cost sourcing and price actions to mitigate the overall tariff impact like we did in 2018. Philip will go into more specifics later. Overall, we are guiding adjusted EPS to be down modestly from 2024 at the midpoint. This mainly reflects the unfavorable currency impacts and our cautious demand outlook. We expect our cost savings to partially offset some of the challenges that we see and expect to deliver around $75 million of incremental cost savings in 2025. This is accomplished by accelerating our footprint initiatives and introductions when it comes to operating headcounts, which will match our software demand. Input tactics, supply chain management actions, along with reduced discretionary spending and SG&A. Cost savings are expected to offset inflation and is driving the flattish margin outlook with this lower organic sales and a sizable currency headwind. Improvements in networking capital combined with lower CapEx should generate at least $400 million of free cash flow in 2025. In addition, we will prioritize investing in product lines and services with the highest returns and the best growth potential. We plan to continue our disciplined approach on capital allocation. We will look at accretive M&A to increase our presence in growing markets. And share buybacks also remain an attractive option in the current environment. As we look to improve Timken's performance in the future, I would like to take a few moments to provide you with a high-level summary of observations, our priorities for 2025, and the opportunities that lie ahead. I started with Timken in September, and I've had a chance to visit 30 of our locations throughout the United States, Europe, India, and China. I also met with 80 customers and channel partners. Philip and I also have meetings with some of you with us today and many other shareholders to get your perspective on our performance and expectations going forward. It has been a very informative and engaging experience. I'll share with you a short summary from those meetings along with my own personal observations. Let's start with Timken's strengths. There are many, beginning with our people who deliver quality products and services, those who help our customers solve complex technical problems. During my visits, I got very positive feedback on our team's ability to help our design better products and solutions. We also have a disciplined approach to capital allocation, which has diversified our portfolio and lifted our financial performance over the years. More importantly, what can we do better? The challenge for us is to grow faster, on improving margins and returns. We also need to reduce the impact of market cycles on our performance, especially when it comes to margins. So how shall we do this? I believe we can go faster by putting customers at the core of our own. This means being more customer-centric versus being product-centric. When I met with customers in China, Europe, and the US, it was very clear the value of our technical capabilities and they want Timken's innovation and engineering expertise to help them meet their cost and performance needs for the local markets. Given our understanding of their applications, combined with our manufacturing footprint, we need to incorporate their needs in our products. Become more local for local. We are also evaluating our entire portfolio of product lines and services, with an eye towards growth and profitability. We will prioritize R&D, capital, and resources for the higher organic growth and better return parts of our portfolio. We are also looking to reduce the level of vertical integration across our entire portfolio going forward. I recently visited our new plant expansion in Baruch, India, which will open later this year with production. It's a good investment and will support additional share gains in the Indian market for our industrial bearings business. It's a portfolio which has grown significantly over the past decade, and as I toured the facility, I was impressed with the world-class manufacturing technology and the team's enthusiasm for bringing the offering to more customers. We also have the potential to accelerate cross-selling between engineered bearings and industrial motion segments, both with channel partners and original equipment manufacturers. An example, let's take a look at the commercial marine segment, which is an attractive growth market for us. With the recent addition of LagerSmith Sealing Solutions, now we have a full package to offer marine customers with our bearings, couplings, lubrication systems, and more. The LagerSmith team shared their go-to-market together with the rest of Timken's plans during my visit to the location near Rotterdam a few weeks back. The deep customer relationships and channel partners of LagerSmith are opening doors for our broader portfolio. We see good wins for our industrial motion business already, as well as our bearings portfolio in the marine segment. LagerSmith is also benefiting from broader opportunities that they see in Asia and the US, thanks to the presence of Timken's relationship in many of the interesting segments for LagerSmith. We have many such opportunities throughout the company. The priorities for the year are to sell more of the most profitable part of the portfolio, cost savings we have in mind, the $75 million, will counter many of the headwinds that we see in the business today. And the process improvements that we have in action today will also generate a higher level of cash as we have provided in our guidance. It's still early on, and I'm continuously learning about the opportunities and challenges at Timken, but I wanted to share just a few ways that we can harness Timken's strength and improve this company. I look forward to sharing more details on this work and our plans later this year. Timken is successful because we are passionate, dedicated colleagues who have innovated for more than 125 years, delivering quality products and services that delight our customers. I firmly believe in the team, our value proposition, and our ability to win in this marketplace. Finally, I want to acknowledge the planned retirement of someone who's been instrumental in advancing that value proposition. Chris Copeland, the leader of our industrial motions business, will retire after a 41-year career at Timken. Chris has played a pivotal role in diversifying the company's business and improving profitability over the years. Organic growth initiatives, product innovation, strategic M&A, and growing of industrial motion businesses, I would personally like to thank Chris for his many contributions to Timken's success. We've launched the search process to find the most qualified and capable leader for this important job. Both internally and externally, we have good candidates. Chris will retire at the end of the year, allowing him to continue to advance the industrial motion business and to ensure that we have a seamless and stable leadership transition. With that, let me turn over the call to Philip for a more detailed review of the numbers and the outcome. Philip?

Okay. Thank you, Tarak. And good morning, everyone. For the financial review, I'm going to start on slide twelve of the presentation materials with a summary of our fourth quarter results. Revenue for the quarter came in at $1.07 billion, down 1.6% from last year. Adjusted EBITDA margins were 16.6% and adjusted earnings per share for the quarter came in at $1.16. Turning to slide thirteen, let's take a closer look at our fourth quarter sales performance. Organically, sales were down 2.6%. Volumes were lower, while pricing remained positive. Looking at the rest of the revenue walk, recent acquisitions, namely CGI and LagerSmith, contributed 1.9% of net growth in the quarter, while foreign currency translation was a modest headwind to the top line. On the right-hand side of the slide, you can see organic growth by region, excluding currency and net acquisition impacts. Let me comment briefly on each region. The Americas, our largest region, continued to show good resiliency in the quarter, as we were up about 2% from last year. We saw solid growth in marine, distribution, and rail, while the off-highway sector was lower, as we expected. In Asia Pacific, we were down 3%. China was down again, due mainly to lower renewable energy demand, but the rate of decline has moderated. India and the rest of the region continued to post solid growth with higher revenue in the distribution and rail sectors. And finally, we were down 11% in EMEA due to the continued industrial slowdown in Western Europe. Most sectors were lower, led by general and heavy industrial, automation, and off-highway. Europe remains our weakest region heading into 2025. Turning to slide fourteen, adjusted EBITDA in the fourth quarter was $178 million or 16.6% of sales, compared to $195 million or 17.9% of sales last year. While down year on year, margins in the quarter came in better than expected due to favorable mix and improved cost performance. Looking more closely at the change in adjusted EBITDA dollars for the quarter, you can see that the decrease versus last year was driven mainly by the impact of lower sales volume and higher manufacturing and logistics costs, offset partially by favorable price mix, benefit of acquisitions and currency, and lower SG&A expense. Let me comment a little further on some of the key drivers. With respect to price mix, net pricing was positive in both segments in the quarter, as pricing continues to hold up well in this environment. Mix was also positive in both segments, as distribution generally outperformed OE sectors again in the fourth quarter. In addition, we benefited from a sizable marine project in the quarter which drove higher revenue at favorable mix. Looking at material and logistics costs, logistics costs were higher versus last year as we expected, while material costs were unfavorable in the quarter driven by the continued year-over-year impact of inflation and ramp costs associated with our new belt capacity in Mexico. In addition, note that we had a favorable supplier recovery and a favorable warranty settlement last year that did not repeat. Collectively, these items more than offset the impact of cost reduction initiatives in the quarter. Looking at the SG&A other line, expenses were down from last year, as cost actions and other tactics more than offset year-on-year wage inflation. Currency was positive $4 million as the prior period had some transaction losses that did not repeat. And finally, our recent acquisitions continue to perform well, contributing $6 million of adjusted EBITDA in the quarter, which was accretive to company margins. Moving to slide fifteen, we posted net income of $71 million or $1 per diluted share for the quarter on a GAAP basis. The current period includes $0.15 of net expense from special items, which is comprised of acquisition, amortization, and other net charges. On an adjusted basis, we earned $1.16 per share, down 15% from last year, but above our expectations. With respect to some below-the-line items, interest expense in the fourth quarter was $3 million lower year over year reflecting the benefit of debt paydown from cash flow. Our adjusted tax rate for the quarter came in at 27%, in line with expectations but up from last year, based on our geographic mix of earnings. And finally, non-controlling interest and diluted shares were roughly flat while depreciation expense was up slightly in the quarter. Now let's move to business segment results, starting with engineered bearings on slide sixteen. In the fourth quarter, Engineered Bearing sales were $708 million, down 2.3% from last year. Organically, sales were down 1.1%, driven by lower end market demand in Europe, partially offset by slightly higher sales across the rest of the world. Among market sectors, off-highway, renewable energy, general and heavy industrial, and auto and truck were lower versus last year, but more or less along the lines of what we were expecting. On the positive side, we delivered strong growth in the distribution sector in the quarter, which is the industrial aftermarket. Rail and aerospace were also up year over year. Currency was a headwind to revenue of more than 1% while the net impact of acquisitions and divestitures was slightly favorable. Engineered bearings adjusted EBITDA in the quarter was $121 million or 17.2% of sales, compared to $133 million or 18.3% of sales last year. Our segment margin reflects the impact of lower volume, and higher logistics and manufacturing costs, partially offset by favorable price mix. Now let's turn to industrial motion on slide seventeen. In the fourth quarter, Industrial Motion sales were $366 million, down slightly from last year. Organically, sales declined 5.6%, as lower demand was partially offset by slightly higher pricing. Most of our platforms saw lower revenue year over year. Lubrication and Linear Motion were down, continued weak in Western Europe. Services was also lower but that business ended the year with a backlog at multiyear highs and belt and chain was impacted by lower ag demand in North America. On the positive side, our drive system platform was up significantly on higher military marine revenue in the quarter. Acquisitions contributed 5.6% of the top line, completely offsetting the lower organic sales, while currency was slightly negative. Industrial Motion adjusted EBITDA for the quarter was $71 million or 19.3% of sales, compared to $82 million or 22.2% of sales last year, a tough comp. Our segment margin was impacted by lower volume, and higher manufacturing costs, including the impact of higher capitalized variances last year, ramp costs related to our new bulk capacity in Mexico. On the positive side, recent acquisitions were accretive to margins in the quarter and we benefited from price mix, including the favorable mix from marine that I mentioned earlier. SG&A expense was also lower. Moving to slide eighteen, we generated strong operating cash flow of $179 million in the fourth quarter. And after CapEx of $54 million, free cash flow was $125 million, about $50 million higher than last year, driven by favorable working capital performance. This brought our free cash flow to $306 million for the full year, in line with our most recent guidance. From a capital allocation standpoint, we returned $33 million to shareholders during the quarter, through share buybacks and the payment of our 410th consecutive quarterly dividend. And looking at the balance sheet, we reduced net debt by nearly $300 million during the year and ended the fourth quarter with net debt to adjusted EBITDA at two times, right in the middle of our targeted range. Now let's turn to our initial outlook for 2025, the summary on slide nineteen. As Tarak mentioned, we're taking a cautious view on the outlook, given continued market softness in Europe, overall global economic uncertainty, and our limited visibility. Starting on the sales outlook, we're planning for full-year revenue to be in the range of down 1% to down 4% in total, or down 2.5% at the midpoint, versus 2024. The CGI acquisition completed this past September should contribute just under 1% to our revenue for the year. And we're planning for currency to be a headwind of over 2% for the full year, based on current exchange rates, which reflect a stronger US dollar. Excluding acquisitions and currency, we're planning for revenue to be down about 1% organically for the full year at the midpoint. This reflects lower volumes in Europe, with slightly higher pricing across the portfolio. And our guidance assumes that organic sales will be lower year over year in the first half. On the bottom line, we expect adjusted earnings per share in the range of $5.30 to $5.80. For modeling purposes, think of the full-year adjusted EPS outlook to be split roughly 52% to 53% in the first half, and 47% to 48% in the second half. This earnings outlook implies that our 2025 consolidated adjusted EBITDA margin will be around 18.5% at the midpoint, flat with 2024. Despite lower organic sales and a sizable headwind from currency, our margin outlook reflects the benefit of the $75 million in total cost savings that Tarak highlighted earlier, which are more than offsetting continued inflation in labor and other input costs. We also expect CGI to be accretive to margins. Note that the midpoint of our guidance assumes that margins will be down year on year in the first half on tough comps and then up year on year in the second half, as our cost actions ramp through the year. Moving to free cash flow, we expect to generate at least $400 million for the full year, over 120% conversion on GAAP net income. This is a significant step up from 2024 and reflects favorable working capital performance, reduced CapEx, and lower taxes, which are expected to more than offset the impact of lower earnings. We're planning for CapEx of around 3.5% of sales. This is less than recent years, as some larger projects are winding down now. We will continue to focus our CapEx dollars on optimizing our manufacturing footprint and supporting our margin and long-term growth objectives. Finally, we anticipate full-year net interest expense to be around $105 million in 2025, and for the adjusted tax rate to remain at 27%. And as a reference, we included slide twenty in the deck to provide a high-level illustration of the net impact of the various drivers on our 2025 adjusted EPS outlook. Here, you'll see a large expected impact from currency. With respect to tariffs, please note that our guidance does not include any impact from potential tariffs related to Canada and Mexico, as we continue to monitor and evaluate that situation. However, our guidance does include the incremental 10% tariff on China. I note that we expect the China impact to be fairly immaterial after mitigation. And as we did back in 2018, we would expect to mitigate the impact of additional tariffs over time through pricing and surcharges, sourcing and supply chain initiatives, and other tactics. We will update our guidance as needed as we gain a clearer view on the overall tariff situation. To summarize, Timken posted a solid finish to the year, and 2024 stands as the third-best year for revenue and EPS in the 125-year history of the company. I'd like to thank our entire team for their strong execution in a tough environment. In 2025, we're focused on delivering our margin and earnings guidance and we'll be ready to capitalize on an industrial recovery when it occurs. This concludes our formal remarks. And we'll now open the line for questions. Operator?

Thank you. Star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to withdraw yourself from the queue. Our first question comes from the line of Steve Volkmann with Jeffries. Please go ahead.

Great. Good morning, everybody here.

Yes. Good morning.

So maybe just starting off with the sort of outlook for 2025 big picture. You know, we've seen the ISM now kind of inflect and I guess...

Hey, Steve. Could you speak up a little bit? We're having difficulty hearing you in the room.

Sure. Hold on one second. Is this better? Sorry about that.

Little bit better.

Go ahead. You can come back to me if you want.

No. Go ahead. We can hear you.

Okay. Sorry. So I wanted to just big picture on the outlook for 2025 because we've seen the ISM has been inflected a bit. And obviously, some better activity at your distributors. Both of those things are usually pretty good leading indicators for you, but you seem to be fairly conservative. I'm wondering if there's anything specifically that kind of holding you back as we think about the shorter cycle nature of your business.

Thanks, Steve. I mean, as we said, we have a cautious outlook on the market primarily driven by Europe, where we see for most sectors we are down. And that's the main reason for us. And given the demand uncertainty, we are being a bit cautious when it comes to the overall market. And maybe Philip, you can give a perspective on the specific segments.

Yeah. No. I think that's right, Steve. You know, obviously, the ISM turning positive is certainly nice to see, but we did decide to take a cautious view on the outlook for the reasons Tarak mentioned. So, you know, think of it as, you know, Europe down slightly, the rest of the world sort of flat to slightly up, which gets to that minus one. And then across sectors, you know, we highlighted positive sectors being aerospace and services, you know, the negative sectors being what you might expect off-highway, heavy industries, which tends to be one of the later cycle markets for us, being down. And rail, given the strong year we had last year, we did factor in a little bit of, you know, the tough comp a little bit down year on year. But overall, I think the theme is stability, net-net, but we're not, you know, we're not going to factor in the recovery until we see it. And at this point, we were hesitant to do it, so we took the view on the outlook that you see.

Okay. Alright. Fair enough. Maybe a follow-up then on the tariffs, Philip. It sounds like you've kind of got China covered, but can you just give us order magnitude, sort of what part of your COGS might be exposed to Mexico so we can just think about how that might play through if it does happen?

Yeah. Sure. So I think the theme, you know, really, the point on tariffs is, you know, we've got a global footprint as you know, but our largest manufacturing is in the US. So I think relatively speaking, it's been a strength. It'll continue to be a strength. You know, relative to the tariffs, we do have stuff, you know, obviously, goods flowing all over the world. Canada, Mexico would be a short-term headwind. You know, it can take time for the mitigation tactics to take effect. So if we had all three countries with, you know, tariffs, if you will, 25% tariffs, it would be a near-term headwind to the tune of, you know, not huge, call it mid-single-digit millions per month, but as we did back in 2018, 2019, we would expect to mitigate that over a relatively short amount of time through pricing surcharges, source plant changes, or supply chain or other tactics that we might employ. And obviously, we're hopeful that the situation resolves itself, but that's the gist of it. And we're also, you know, modeling impacts across the rest of the world. Still premature to talk about those, but that's kind of the gist of it. And then relative to China, the percent wasn't a big impact. We don't import a lot from China, but so after mitigation, it was fairly immaterial on the overall guide.

Super helpful. Thank you.

Thanks, Steve.

Our next question comes from David Raso with Evercore ISI. Please go ahead, David.

Hi. Thank you. I was wondering if you could help us with maybe the book to bill on the fourth quarter of the size of the backlog. Sort of dovetailing into, do you see the first half of 2025 the organic sales decline being less than the last couple quarters, you know, less than that 2.5% to 3% we've seen recently, or at a similar level? And then I have a follow-up on a little bigger picture question.

Yes. Maybe I'll start and Tarak can jump in. So, David, I would tell you the order book in terms of where it is today versus where it was last year, it is down year over year. Some of that being attributable to shorter lead times today than maybe what we were quoting a year ago. But, you know, we feel like the order book where it is today is certainly supportive of the full-year guide. As to your second question in terms of the order of magnitude of the decline, I think the best way to think about the first half, we would have an organic decline kind of on the order of what we saw in the fourth quarter. With a little bit more than that in Q1, a little bit less than that in Q2, and then in the second half, look for revenue to be flat and then slightly up as we move through the second half of the year.

Alright. That's helpful. And my follow-up, just to get a sense of the actions that you're thinking of taking, how should we think about them? At least the things that you're considering now that you've obviously, you know, seen a lot of the factories, talked to a lot of customers, obviously, we've had some headcount reduction already. But can you just give us a sense when we look at the $75 million of gross savings, of actions already taken, just order of magnitude just to should it be similar size, larger size, just trying to get a sense of the magnitude of actions you're thinking of taking.

Just as a clarification, I mean, we have been clear on the $75 million. Where are the key buckets? Are you talking about in addition in case we see something more challenging, or is it specifically the details on the $75 million?

Not the $75 million. Moving forward, some of the large actions that you're thinking about, that you mentioned we'll might hear about later this year. Just curious some of the other actions you're thinking about. Might not all be cost savings or could be portfolio thoughts. Just trying to get a sense of from here, what should we expect of some further activity.

I think, when it comes to 2025, you've been quite clear of what we are planning to do, and then at the appropriate time, we'll come back with more specifics whether it's portfolio, whether it's cost, whether it is other actions that we believe the team will need to take in order to move the business to the next level of performance. We'll come back with the details later in the year, as I said.

And if I could just maybe add, David, you know, we're very focused on margin this year and really focused on delivering the margin guide that we put out there. So the $75 million was really designed to help protect margins and maybe just a little more color on it. It's going to ramp as we move through the year. So we started in the fourth quarter. It's going to continue to ramp. Think of it as around 40% of that number being in the first half, probably 60% in the second half. And where we'll end the year in terms of a run rate, all else equal, probably implies on the order of a $20 million carryover into 2026, mainly in the first half of 2026. All else equal, you know, just based on the run rate we'd expect to exit the year end, if that's helpful.

That is helpful. Okay. Thank you so much.

Thanks, Dave.

The next question comes from Bryan Blair with Oppenheimer and Co. Please go ahead, Bryan.

Thank you. Morning.

Yes? Hey, Bryan.

To stay on the $75 million for a minute, you know, helpful detail in terms of phasing there. Can you break out or split the benefits to COGS and SG&A, respectively, and then maybe approximate breakout across bearings, industrial motion, and corporate?

Sure, Bryan. Happy to do it. So with respect to bearings and industrial, think of it as around two-thirds bearing, around one-third industrial motion, and maybe I'll dive in a little bit deeper on that. So on industrial motion, it's probably not surprising. Some of the items are what we've talked about with you before. So the new belt capacity we've got coming online in Mexico, consolidating some lubrication facilities in Europe. Those are some of the larger projects behind it. I would tell you it's probably a lot more a lot of individual projects. I mean, like, your operative headcount reduction would be the biggest thing, but also material tactics, other supply chain tactics, labor efficiencies, and the like. Then to your last point, we do have a big component of SG&A in there as well. And it's certainly more COGS than SG&A. If I had to estimate, it's probably 80/20, 80/20-ish COGS. The right way to think about it?

But also, I mean, just to add to what Philip said, the operational continuous improvement component is one of the biggest overall. So we saw good progress in 2024, and we are increasing the emphasis and focus with support from the employees to improve.

Understood. Appreciate the detail. And Tarak, you've had the range at Timken for a few more months now. Perhaps you can offer a bit more detail on where you see the most attractive profitable growth opportunities across the portfolio. And, you know, how those insights may influence, you know, organic strategy and inorganic capital deployment going forward.

Yeah. I mean, absolutely an area where we are already starting to take a look. I will not go into the specifics of very concrete details about product lines, which are the most profitable for obvious reasons. But we see opportunities there, and the team is focusing on how to take it forward. Both from a growth point of view, but also new customer and new segments point of view. So that's one of the first areas of focus. And then we start to see some good results already. And we will continue to push that forward when it comes to the portfolio side. The assessment will be based on growth and profitability, as well as the end market exposure when it comes to the portfolio component. Are we exposed to higher-end growth markets? And then we did mention it, and I would like to highlight it. The level of vertical integration of our portfolio will be a specific focus for us going forward as well. In terms of making decisions and taking action.

Understood. Thanks again.

Thanks, Bryan.

The next question comes from Kyle Menendez with Citi. Please go ahead, Kyle.

Thank you. I wanted to follow-up on that last question. So Tarak, I saw in the press release you said there were many opportunities you see to strengthen the product portfolio. So I guess as you've toured around the globe, just is there any kind of low-hanging fruit you see to strengthen the product portfolio and then maybe longer term where you could see the portfolio going, any sort of product gaps?

Thanks, Kyle. In the travels, it became more and more clear, and I mentioned it also, we need to become more customer-centric. We are a very product-focused company. We need to become more customer-centric. Specifically in the travels in the United States, China, and India. Making sure our products are tailored for the local needs is an opportunity that we can really push in the next in the upcoming short and mid-term, which will make us even more relevant and contribute to our customers' performance. That's what I see as a very important part of what we can do. And then on the mid to long term, I mean, as I said, we are going to take a very thorough view both of the existing portfolio, but also where the new opportunities set to deploy capital would be. Given our core strength and the way we go to market as well as the overall economic and the demand environment. So that's the perspective we're going to take on the portfolio.

Helpful. Thank you. And then I noticed that so the guide reflects slightly higher pricing year over year. Any sort of difference in how we should think about pricing in the first half or second half? And then just how you're prepared, I guess, to pass through any sort of tariffs and then cost increases on through pricing maybe give us, you know, maybe help us recall kind of the actions that were taken in 2018 and those impacts and I think there was some delay in 2018 from responding to tariffs and then those pricing actions to go into effect. Thank you.

So let's take the first part of your question. Yeah. We do with the current guide out there and the current assumptions, we do expect a slight increase in price going into 2025. And so far, what we've seen with the actions we've taken, it seems to be holding up. When it comes to the tariff and the specifics of the tariff, yes, there is a gap typically between the time we see a cost increase and the time we recover. In 2018, we did a pretty good job. Overall, it didn't necessarily impact our profitability. But given the size and the magnitude of this, we are taking a hard look with our teams. Maybe Philip can give a bit more specifics.

Sure. Happy to do it, and thanks for the question, Kyle. And on the pricing, I think Tarak got it right. I would say it's when we say slightly higher pricing, think of it as kind of less than less than less than 50 bps. And in terms of across the year, it's pretty even across the year just given how the pricing hit last year, so no real first half, second half delta of note, I would say. And then on the tariffs, so where we price or put surcharges through, you know, there can be lags. So the main mitigation tactic will be pricing and surcharges. In distribution, it can typically be pretty quick. You know, think of it as less than a quarter or a quarter or less. OEMs tend to be contract by contract. So where surcharges are involved, there it can be a quarter or so where it's contract renegotiations. It can take maybe a little bit longer than that. But I would say we got the lion's share of the tariffs covered within a couple quarters. Call it, you know, two, three quarters last time, which was mainly a China situation as you recall. So feel very confident we can offset it. And we will offset it. And, obviously, the bigger concern would be what it does to the overall demand picture, which is tough to predict. But we'll keep an eye on that as we move forward.

Great. Thank you, guys.

Thanks, Kyle.

Our next question comes from Angel Castillo with Morgan Stanley. Please go ahead.

Morning, and thanks for taking my question.

Hey, Angel. How's it going?

Just wanted to go back to, I guess, the comment you made that you want to be cautious until you see demand improving. I was wondering if you could comment on maybe what kind of order trends you're seeing thus far in January, any step change in either direction, you know, and if you could comment on that. In particular across the key end markets or verticals?

I mean, as far as January goes, coming pretty much in line with what our guide and our plan is. So no real change relative to what we have said so far. And then as we said, let's see what the actual demand situation looks like. But that's a short summary on January is pretty much going to plan.

And I would maybe add, Angel. You know, obviously, we have decent visibility one quarter out. It was really more across the rest of the year. So if I could just maybe comment on Q1, we do expect revenues to step up sequentially from the fourth quarter to the first quarter as it normally does. Although we are expecting a little less than normal increase just given the weakness we had in Europe to end the year as well as we got a tough comp in marine just given the strength we saw there in the fourth quarter. So year over year, we'd imply organic revenue being down sort of low to mid-single digits and then all in with currency probably down in the mid-single-digit range. And then from a margin standpoint, similar story. Expect margins to step up nicely from Q4 on the higher revenue. But for margins to be down year over year just because last year was a real difficult comp. It was the high point for the year in margins. And I think when you think about it, year over year, you think about it as sort of looking to be probably a couple hundred basis points lower in the first quarter and then for margins the year on year on margins to improve as we move through the year, main reason being is the cost savings ramp we'll see some improvement beyond our normal sequential pattern just from the cost actions.

And as Philip said, look, our short-term focus right now is very much on cost given the uncertainty that we see. So we want to do the team is fully focused to see if we can manage the same similar levels of profitability as we did in a more challenging environment, which we see in 2025 versus 2024.

Very helpful. Thank you. And maybe I just wanted to go back on the asset footprint. I think a lot of it has been talked about maybe in terms of vertical integration or just getting into advance, you know, your growth. Was wondering how do you kind of overlay the dynamic around trade policy and just uncertainty from the US as you consider whether it's, you know, accelerating footprint initiatives or some of the growth? Any implications on your kind of desire or willingness to kind of invest in certain markets, in particular, Mexico, where you have your new build investment just you could kind of help us understand that it wasn't really one that was flagged, I guess, as your kind of ways to deal with the tariffs in terms of the footprint, but just how are you thinking about the investments?

Let's start with the bigger overview. You know, we want to be in region for region. That's our number one priority. And when it comes to the belt initiative, that was a longer-term perspective where we still believe that the Mexico footprint and its productivity provides a very compelling value proposition for the customer. Obviously, we have to take a look into the tariffs and how long-term and sustained they are. But our mid to long-term strategy is based on serving local customers in the local markets. Take the United States, for example. It's one of the biggest markets. If not, it is the biggest market for us today in terms of turnover. And we have over 30 locations already to serve customers there. So that's helping us be in country, for country, quote unquote. And the vast majority of our turnover in the US is served by operations in the US. That's how we are thinking overall on the strategic side and then given the uncertainty, we have to deal with the reality, and that's what we will do. But that's hopefully, that gives you a bit of perspective of how we're seeing the overall market.

It does. Thank you.

Thanks, Angel.

Our next question comes from Mike Shlisky with DA Davidson. Please go ahead.

Yes. Hi. Good morning. Thanks for taking my question too.

Hey, Mike.

I wanted to dive a little deeper into some of your comments on cross-selling. I think you mentioned LagerSmith as one example. I guess can you really give us kind of a broad number as to what you think the untapped potential is from cross-selling and maybe how long it might take to realize a good amount of that opportunity?

Thanks, Mike. I mean, I'm just giving you a few examples. We see a few examples and what are the areas we are going to focus on is exactly as you say, what can we do on a more institutional basis? What can we do across the entire sales organization? So we have some very specific incentive schemes set up with our sales organization to ensure that we see leads, we're passing them on to parts of the organization where the relevance is extremely high. And just as an example, we have close to 9,000 customers who come visit our site to design bearings. And then we have, obviously, next to bearings are seals and lubrication. We're looking to connect the two with a potential customer who's looking to find a technical solution on bearings. Now when it comes to the numbers, it's hard to put the numbers on it. But an area where we will probably dive deeper, and we'll come back when we have a more comprehensive plan later in the year with what these numbers could look like. Which at this point, we're just going into the details to see what they could be. Later in the year, we might have more specifics.

Great. Thanks for that. Maybe secondly, we're about fifty minutes into the call here and no one's asked about it yet, so I will bring it up. Renewable energy projects in Asia. Curious to pick up to this and what's happening there. Something might have been down in this particular quarter, but any light in the tunnel that you might be seeing during 2025 perhaps or just not any update till that's going and the timing of how that might work out as we go through the next couple quarters here.

Yeah. As we said, you know, we expect the overall renewable energy sales to be flattish in 2025. Overall. We think the market seems to have found a low level about I will not say low levels. Running at a lower level. It's a function of projects and policy. So I wouldn't want to call anything when it comes to the market, but this running at a lower level. And we have gone through most of our order and that's subsequent revenue decline when it comes to the vast majority of that when it comes to the renewables, specifically on the wind. And the solar continues to be performing at the levels of expectations. So we don't see the same dynamics in solar as we have seen in wind so far.

Yeah. And I would say, Mike, we did see the rate of decline in renewable moderate in the fourth quarter as we had expected and as we had hoped. And as Tarak said, it is nice to see stability there. So last quarter, we talked about we didn't see growth in 2025. We saw more stability and sort of flattish revenue, and I think it's, you know, between then and now, I think it's only kind of reaffirmed that. So we do expect that flattish growth as Tarak talked about, but I do think the stability in that market is encouraging.

Thank you.

Thanks, Mike.

The next question comes from Tim Thein with Raymond James. Please go ahead.

Yeah. Thanks. Good morning. Excuse me. The first question I had was just on distribution. And specifically in North America. And, you know, I think this maybe two or three quarters in a row where you noted growth there. And it's obviously one of many metrics. It's probably not the best one, but if you look at the results of some of the public industrial distributors that you're close to, you know, they're still reporting fairly, you know, not immaterial year over year daily sales declines and obviously, your sales don't have to line up perfectly with that. But I'm just wondering if that's a function of stocking levels or changes in stocking levels or perhaps maybe gaining a little share of wallet there or neither. I'm just curious maybe if you can talk about what you've seen there and what the assumptions for 2025 include on distribution. Maybe just more broadly, not just North America. Thank you.

Thanks, Tim. Just give you a quick update. Yes. It has been performing well for us as we said. We believe our share of wallet with distributors might be increasing. You remember, we have diversified our portfolio quite broadly in the last years. And while I cannot be very precise, as you said, when we look at their performance versus our performance, we're quite happy with our performance, and we seem to be increasing a bit the share of the wallet, is what I would say. When it comes to distribution, more broadly, still expect the distribution to be about moderate when it comes to performance year on year. So that means flattish in 2025 relative to the growth we saw in 2024, especially the acceleration of a bit we saw in the fourth quarter, as we said. So again being a bit cautious. Given their performance, we don't want to be over-optimistic in terms of distribution.

Yeah. I would maybe add, Tim, here. We feel like inventories where we have visibility are at pretty good levels, particularly in North America and Europe may have a little bit of destocking still going on. But as Tarak said, given the strength that we saw last year, the outlook this year is for sort of flattish just assuming, you know, consistent with the overall cautious guide.

Got it. And then, Tarak, one of the things you mentioned in your earlier remarks was something about reducing vertical integration, which maybe would have been a topic ten years ago, however many years ago when you had the steel business, but what maybe I know for competitive reasons, it's not something you want to divulge everything. But can you maybe just expand on that in terms of where and what that may be entailing in terms of, you know, a more capital-light model? I don't know if that's something I would have thought of in terms of an opportunity for Timken, but maybe you could speak to that. Thanks.

Yeah. Thanks. You know, traveling around and looking at the good work done by the operations team across the different parts of the world, we have seen, at least I have seen good pockets of less vertical integration when it comes to our performance and delivery. And these are opportunities that I think or we are looking to accelerate across a more broader part of the portfolio. And, yes, I wouldn't say we would go to an asset-light model, but can we reduce our CapEx intensity? And can we increase our flexibility to fluctuations in demand using a bit more aggressive vertical integration model versus what we have today? That's the area where we are focused. So take us some time. It's not going to happen overnight. But it's an area where we see opportunities based on at least the team has done and what we've seen in terms of results.

Got it. Alright. Thanks a lot.

Thanks, Tim. It's also, by the way, it's also reflected in our CapEx already in 2025. It is a bit lighter than before.

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

Thanks. And, Tarak, maybe this is related to the last question somewhat. You talked about being more customer-centric or being more relevant contributing to customer performance. Does that mean embedding engineers with customers or doing some outsource design work? Just what does that look like in practice?

Well, thanks, Steve. Look, in the travels, it became very, very clear that we are and our team is very valued in terms of the technical competence and capabilities. What I mean by customer-centric is involving the customers in our product design even more than we are today. So that means looking at if you think about China, think about India, think about the US, being more specific with our product design portfolio based on the need of these specific markets and customers in these specific market segments. And they tend to be quite different both from the value, price points as well as performance. So to ensure that our products are tailored more than they are today for the customers in these markets. So that's the primary focus when it comes to being more customer-centric. And then the other part is a broader portfolio, we do have an opportunity, as I discussed before, for somebody who's doing bearings. They certainly have a lubrication need almost every bearing. Now can we selectively take a look at our lubrication portfolio and talk to the customers who we have relationships with for many years? And obviously, they have a lubrication need. And given our technical competence and the brand, we can and see examples of pulling through and creating opportunities for our lubrication business and our seals business. So these are areas where we can become a bit more customer-focused in terms of our offer, and customer inputs in terms of our own portfolio and being local to local.

So if I'm hearing you right, then for your in-region kind of strategy, it having your customer application engineers really better understand the customer requirements so that you can do more of that cross-selling.

Yes. On the customer requirement side, absolutely. But also to make sure that the customers' needs are part of our product portfolio that we produce in the region for the region. So you can imagine a bit being a little bit less global, a bit more local, on the portfolio. That's the directional component that we have that we're talking about. That means our design engineers and application engineers in the regions are getting input from the customers on what they want. An example of that is what we have done in the wind business with the change in the product and both the cost and the price and the performance in the last four, five months, some good progress.

Got it. And then just one quick follow-up. You also talked about focusing on more profitable parts of the portfolio and reviewing how you go to market. Does that mean potentially exiting some product lines that are less favorable or which you see as having structural headwinds to margin expansion?

I mean, it's a bit too early. As we said, we will come back in the fall. Later in the year with more specifics on exactly giving an answer to your question. We will come back with more specifics later in the year.

Understood. Thanks.

Thanks, Steve.

The next question comes from Michael Feniger with Bank of America. Please go ahead.

Hey, guys. Thanks for squeezing me in. I know we're running a little long. Just did you see any with your commentary about the end of the quarter or even in January, is there any sense or hearing from distributors or customers? There's a prebuy or a pull forward of sorts, you know, post-election, but maybe before tariffs. Just if anything seemed a little irregular on pull forward that you want to flag.

No. I would say, Mike, good question. I'm glad you asked it. I would say no. I mean, we actually kind of inquired a lot internally around that. And, no, we didn't see anything of significance that would be material in terms of a prebuy in the fourth quarter that would have impacted it in an unusual way.

Perfect. And just lastly, I know you guys give a lot of commentary on the renewables. And good to hear about the stabilization there. Just, you know, there are some pickup of signs around maybe some pricing pressure there. I think you guys even flagged earlier about a little push for local content. I don't know if you guys are actually seeing a sea change there. That's more just the cycle being a little bit weaker. Just any comments you're seeing on the pricing side of that renewable that you want to highlight? Thanks, everyone.

I mean, I guess you can imagine when such a volume drop happens, competitiveness dynamics mean the prices are for sure under pressure. And while that might have been the case in 2024, we see our market share stabilizing towards the latter half of 2024 and early indications in 2025. And that's our assumption going in. We don't see any increase in intensity relative to what we said, and we are changing our portfolio to meet the requirements. And both on the profitability side as well as the customer side.

Thank you.

Thanks, Mike.

Our next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Thanks. And now good afternoon, guys. I guess, a couple quick ones. Slide fourteen where you guys have the bridge for it is the manufacturing cost item is a pretty big item. And I know, Philip, I think you mentioned a couple of things in your prepared comments. But, like, can we double click on this? Like, what happened on this bridge, this $31 million?

For the quarter. No. Great question, Joe. There's really a couple of things going on. You know, last year, you know, last year difficult comp. Last year, we had some benefits that came through. We had a favorable supplier, and we talked about this on last year's call, favorable supplier settlement. We had a customer warranty settlement that was favorable, and we also had, you know, the year over year, we had, I would say, a pretty large amount of capitalized variances last year from an inventory accounting standpoint. That we didn't really see repeat this year. So we sort of had a and that's a big chunk of that $31 million that you see on the slide, and the rest would be the, you know, the normal inflation offset by the cost reduction actions, but the I would say that, you know, a big chunk of that number was actually benefits from last year that did not repeat. So we won't see that continue as we move forward to the same degree.

Okay. Yeah. That makes sense. And maybe just a broader question, actually, thinking about your guidance and maybe going back to last year. When you set your initial guide, I think you were calling for organic growth down 6.5%, and you basically came in pretty close to that number. And fully recognize that the short, you know, your business is fairly short cycle. But as you kind of think about the construct of the 2025 guide and the organic, that's baked in, I guess, just I don't know. Is there any level of confidence based on the conversations that you're having with your key customers? And then, like, if there is potentially, you know, any downside risk to the organic number, what do you think is the most at risk in 2025 from an end market standpoint?

I would say, yeah, I think our aim right now is to keep delivering higher performance to the cycle. So the focus is very much on the profitability. And the cost programs are very much along those lines. It's a difficult crystal ball to see through in 2025 with everything that we've heard in the last couple of weeks. Doesn't make it easier. And there's potential impact on demand. The team is very much tuned to making sure that the costs are in line. And then we are being cautious because we see the uncertainty in the market. So our focus right now is, you know, short term is cost and margin making sure we deliver on that. And then let's see what happens later in the year from a growth perspective.

Okay. Thank you.

Thanks, Joe.

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

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.