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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 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 a 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 the 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 and 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 humanoids. 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 & chain saw the largest decline as it continues to be impacted by lower ag demand in North America. Lubrication Systems was lower on softer 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 to 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. The 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, we provide a bridge of the $0.10 per share reduction and our 2025 adjusted EPS outlook at the midpoint. Here you can see the positive $0.15 change related to tariff which I just covered. 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 on 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 CGI 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 Rollon 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 would 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, 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-on-year 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 lifts as mix...

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 through 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, Phil, you just kind of walked through some of those markets that changed. I guess when I looked at it, I was slightly surprised, not shocked on any of it, but slightly surprised just 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, I suppose. 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 markets 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 when 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 is -- 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 -- while 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, when -- 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 robotics, 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 the portfolio in our capabilities to be able to compete and win as 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.

Excellent. 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 industrial 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 zero 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 up-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 [Audio Gap] market help could be a good year or 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 second of it now, but we've also got the India plant ramping as those plants ramp, I 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 real -- 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, I'd throw 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 concede some 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 [Audio Gap] I think as these trade deals get concluded and that we end up with maybe a 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 special 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 bearings. 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 Harmonic Drive, within a Cycloidal 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 markets 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 package them 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 at 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 -- 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 equipment's 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 from 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 is when -- when investment is made. Net whether, how successful impactful it is. And in increasing capital investment in the United States to the degree you believe that is going to happen, then 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, 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 belts 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 in 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 walk it's -- 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 belts 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.