Steve Tschiegg - Director of Capital Markets & Investor Relations Richard G. Kyle - Chief Executive Officer, President and Director Philip D. Fracassa - Chief Financial Officer.

Stephen E. Volkmann - Jefferies LLC, Research Division Eli S. Lustgarten - Longbow Research LLC Steve Barger - KeyBanc Capital Markets Inc., Research Division Justin Bergner - G. Research, Inc..

Good day. Good morning. My name is Tiffany, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. [Operator Instructions] Mr. Tschiegg, you may begin your conference..

Thank you. And welcome to our third quarter 2014 earnings conference call. I'm Steve Tschiegg, the company's Director of Capital Markets and Investor Relations. We appreciate you joining us today. If after our call, you have further questions, please feel free to contact me at (234) 262-7446.

Before we begin our remarks this morning, I want to point out that we posted on the company's website presentation materials 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 have opening comments this morning from Rich and Phil before we open the call up for your questions.

[Operator Instructions] During today's call, you may hear forward-looking statements related to our future financial results, plans and business operations.

Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the timken.com website.

We included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release. Today's call is copyrighted by The Timken Company. Without any -- without expressed written consent, we prohibit any use, recording or transmission of any portion of the call. With that, I'll turn it over to Rich..

revenue growth, mix and an improving cost structure. We leveraged the 8% growth well, and the Process Industries growth rate continues to mix us up at the corporate level. We're running ahead of schedule on our planned SG&A reduction initiative. SG&A as a percent of revenue was 230 basis points below prior year and 50 basis points lower sequentially.

In manufacturing and supply chain, we continue to drive operational excellence across a balanced set of metrics, which include cost improvement. Results from this multiyear cost-improvement initiative were evident in our margins in the quarter. Turning to Slide 6.

In Aerospace, we indicated early this year that we are not satisfied with our results or outlook for this business and that we had initiated a strategic review of the segment. We announced and launched the results of that work in the quarter. To summarize that, we've reorganized under the Mobile and Process leadership.

That leadership is driving the remainder of the restructuring as well as operational and market improvements. The overall operation will be closed this year.

We expect to have more clarification on our plans for the PMA parts business in the first quarter, after the overall operation is wrapped up, and we've worked with our employees and our customers on the closure of our Wolverhampton bearing plant in the U.K.

As we expected, our customers want a relatively slow close to that plant, so we don't expect to close the facility until the end of next year, which will mean the benefit will occur in 2016.

Phil will cover the financial impact in greater detail in his section, but our actual charges are right in line with the estimated range that we provided at the time of the announcement.

We remain focused on Aerospace as a market, and we're confident that these actions will position us to both perform better financially as well as to compete more effectively in the Aerospace market.

Since our Investor Day in June, Phil and I have been talking to investors and analysts about the strategic shift that we are in the early stages of, and that's a shift from restructuring and transforming our portfolio to profitably growing our business. We are now a company that is focused on performance, capital allocation and growth.

So I thought, before I turn over to Phil, I would cover a couple of areas that contributed to our 8% year-on-year revenue growth. On Slide 7, you see our geographic sales, and note that these figures are adjusted for currency. Two points on this slide. First, the strength in all regions outside North America. North America remains our largest market.

It is important to our success. But we have a value proposition and the capabilities to win globally, and when we do, we do so profitably. So you could see from our margins this quarter and the heavy mix of international revenue, growing internationally did not mix us down in the quarter, and that's despite currency headwinds.

Second point is the 30% growth in Asia. We have been investing heavily in this market for over a decade, and we're still in the early stages of reaping the benefits of these investments. The next few slides will go further into this point. On Slide 8, we share an overview of our Asian footprint.

We have 8 plants in Asia, and we continue to invest, improve and leverage our capabilities in manufacturing in the region. We have 29 sales offices across the region, and we have technical relationships with both the multinationals as well as the Asian companies that use our products and services.

China was the driver of the 30% year-on-year growth for us, and on Slide 9, we hit the highlights of our operating model in China. We continue to develop new as well as build existing technical relationships with OEMs and service relationships with end users and channel partners.

Our success in designing Timken bearings into OE applications, coupled with our aftermarket channel development efforts, is generating aftermarket demand, and we're seeing strong growth from our distributor channel partners.

A key element of our strategy around the world is to expand our product and services portfolio, advancing a more comprehensive product offering, and this is resonating particularly well in the Chinese marketplace.

Our recent market wins include securing business for bearings and services at China's largest copper mine, China's largest operator of paper mills and the largest single mine site in China. These are just a few examples of how we continue to win business in China.

At the same time, we are building our brand, our capabilities and seeding the aftermarket. Moving to Slide 10. Another market we are -- where we are making significant inroads in China as well as the rest of the world is the wind energy market.

Prior to 2009, our participation in wind would largely have been limited to tapered roller bearing designs that would be commonly found in other industrial equipment. In 2009, we launched a wind technical team focused on developing new products specifically aimed at solving the technical challenges that the industry had been facing.

Since that time, we've launched multiple new products, built 1 new plant and expanded another. We acquired a small wind services business in North America and opened a wind test center. Slide 11 shows you an example of the product produced in our Xiangtan, China facility, main shaft bearings with a diameter of over 2 meters.

We did not have this capability as recently as 5 years ago. Moving to Slide 12. We've been actively marketing these expanded capabilities with global customers and winning business as a result. China has been a focus market for us for win because of the government's commitment to clean energy, but we do participate in wind around the world.

As a result of these investments, our revenue was up over 100% in the third quarter year-over-year in wind in both China and the rest of the world. So I share these examples just to give you an idea of the type of opportunity that we have for our products and capabilities to continue to accelerate our growth rates.

There are many more in other industries and products, but I'll now turn it over to Phil..

Thanks, Rich, and good morning, everyone. Let's start on Slide 14. For the third quarter, Timken posted sales of $788 million, up 8% from a year ago. Organic growth in wind energy, rail, off-highway and the industrial aftermarket drove the increase year-on-year.

This was partially offset by lower shipments from planned exits in the light vehicle sector of approximately $20 million. As we've discussed on prior calls, the last major contract concluded at the end of 2013 and has been negatively impacting our comparisons this year. Excluding this impact, our sales for the third quarter were up over 10%.

From a geographic standpoint, sales were up in all regions of the world, with a notable increase in Asia, up 30%. Currency had a relatively small impact on our sales this quarter given the mix of our global operations and the timing of currency rate changes. Turning to Slide 15. Gross profit in the third quarter was $226 million or 28.6% of sales.

Included in gross profit was a $20 million inventory write-off related to the Aerospace restructuring we announced in September. Excluding this item, our gross profit margin for the quarter was 31.2%, up 360 basis points from last year. The improvement was driven by higher volume, favorable mix and strong manufacturing cost performance.

SG&A expense in the quarter was $132 million, down $7 million from last year. The decrease reflects the savings from our cost-reduction initiatives, offset partially by higher variable compensation expense. SG&A expense in the quarter was 16.8% of sales, an improvement of 230 basis points from the year-ago period.

Under impairment and restructuring, during the quarter, we incurred $89 million of primarily noncash charges in connection with the restructuring of our Aerospace business. The charges included goodwill and other asset impairments as well as a small amount of severance.

Including the inventory write-off, Aerospace charges totaled $110 million in the quarter. As a result, EBIT for the quarter was $4.1 million on a GAAP basis. Turning to Slide 16.

When you back away the costs associated with the Aerospace restructuring and other unusual items, adjusted EBIT in the quarter was $115 million or 14.6% of sales compared to $64 million or 8.7% of sales last year.

On Slide 17, you can see that our EBIT improvement in the quarter was driven by our top line growth, favorable mix, strong manufacturing performance and lower SG&A expense. We continue to realize benefits from our manufacturing and SG&A cost-reduction initiatives. Turning to Slide 18.

Because of the Aerospace charges, we incurred a net loss from continuing operations of $4 million in the quarter or $0.04 per share. On an adjusted basis, our EPS came in at $0.77 per diluted share compared to $0.40 per diluted share last year. Note that share repurchases added roughly $0.04 per share this quarter versus the prior year.

Our adjusted tax rate for the quarter was 34%. We expect to maintain this rate for the balance of 2014. With regard to the TimkenSteel spinoff that took place at the end of June, we incurred roughly $10 million of pretax separation expenses in the third quarter.

These expenses were recorded in discontinued operations on the income statement, and they comprise substantially all of the remaining costs we expected to incur. Turning to Slide 19. Let's take a look at our business segments, starting with Mobile Industries. In the third quarter, Mobile Industries sales were $357 million, up 3% from a year ago.

The increase was driven primarily by market demand and growth initiatives in the rail sector. Off-highway, mainly mining, was also up in the quarter from last year's low levels. Offsetting this growth was the impact of lower sales from planned exits in the light vehicle sector of approximately $20 million.

Excluding this impact, sales in Mobile were up roughly 8% over last year. Year-to-date, planned exits have impacted us by approximately $95 million, with $15 million anticipated for the fourth quarter. For the third quarter, Mobile Industries EBIT was $47 million.

Adjusted EBIT was $49 million or 13.7% of sales compared to $32 million or 9.1% of sales for the same period a year ago. The increase was driven by higher volume, favorable mix and lower manufacturing costs. Partially offsetting this was negative currency. Turning to Process Industries on Slide 20.

Sales for the third quarter were $356 million, up 16% from a year ago. The increase was driven by higher demand and share gains, particularly in wind energy and the industrial aftermarket. For the quarter, Process Industries EBIT was $77 million.

Adjusted EBIT was also $77 million or 21.7% of sales compared to $52 million or 16.6% of sales for the same period a year ago. The increase in adjusted EBIT was driven by increased demand and strong manufacturing performance. Moving on to Aerospace on Slide 21.

Third quarter sales of $75 million were essentially flat compared to last year, as a decline in sales from the defense and critical motion sectors was offset by improved general aviation demand. Aerospace EBIT for the quarter was a loss of $105 million, which included impairment and restructuring charges totaling $110 million.

These charges were essentially all noncash. Adjusted EBIT was $4.9 million or 6.5% of sales, relatively unchanged from a year ago, as favorable SG&A expense offset unfavorable mix. Beginning with the fourth quarter, Aerospace business results will be reported primarily through our Mobile Industries segment. Turning to Slide 22.

Operating cash flow from continuing operations was $90 million in the third quarter. After CapEx of $39 million, free cash flow from continuing operations was $52 million. Our free cash flow for the third quarter was driven by our strong operating earnings, excluding the noncash Aerospace charges.

This was partially offset by higher working capital as inventory negatively impacted our cash flow in the quarter. We are taking steps to reduce our inventory levels, which will have a slight dampening effect on our fourth quarter operating margins. Turning to capital allocation on Slide 23.

During the quarter, we returned $138 million of capital to our shareholders through the payment of dividends and the repurchase of 2.5 million shares. We ended the quarter with net debt of $278 million or 14.4% of capital. This compares to net debt of $46 million or 1.7% of capital at the end of 2013.

The increase was driven primarily by the repurchase of 5.1 million shares during the first 9 months of the year. As of the end of September, we have roughly 9 million shares authorized for repurchase through the end of 2015.

We will continue to track and report our progress with regard to capital allocation and our targeted leverage on a quarterly basis. Shifting to our outlook.

As shown on Slide 24, we now expect the top line to be up approximately 2% in 2014 due to stronger demand and improved penetration in key sectors, including wind energy, rail and the industrial aftermarket as well as the benefit of acquisitions.

Partially offsetting this will be approximately $110 million of lower revenue related to planned exits in the light vehicle sector and negative currency. Note that our current outlook is slightly below our prior estimate due primarily to weaker agricultural markets, a stronger U.S. dollar and lower anticipated Aerospace shipments.

In the fourth quarter, we expect sales to be up around 3% from the year-ago period despite the currency headwinds. We expect full year earnings per diluted share to range from $1.45 to $1.55 per share on a GAAP basis.

Excluding the unusual items outlined on the slide, which net to $1 per share of expense, we expect adjusted earnings per diluted share to range from $2.45 to $2.55 per share. Note that the midpoint of $2.50 per share is consistent with the estimate we provided in July.

We expect our adjusted EBIT margin for the year to be in the range of 12% to 12.5%, slightly above our prior estimate. In the fourth quarter we expect EBIT margins to be up from the prior year.

However, fourth quarter margins are expected to be down sequentially from the third quarter due to seasonally lower revenue, primarily in Mobile Industries, and actions to reduce inventory levels. For 2014, we expect cash from operating activities to be approximately $305 million.

After CapEx of $115 million, free cash flow is expected to be $190 million. This is below our prior estimate due primarily to higher anticipated year-end inventory levels. All in all, we performed well in the third quarter.

The progress we're making, both to achieve organic growth and targeted markets and to reduce manufacturing and SG&A costs, gives us confidence that we'll deliver on our targets for 2014. This concludes our formal remarks, and we'll now open the line for questions.

Operator?.

[Operator Instructions] We'll go to our first question from Steve Volkmann with Jefferies..

I'm wondering if we can just look at the fourth quarter, sort of the implied guidance, a little bit closer. It seems like a pretty big deceleration in your EPS, if you sort of hit the range you're looking for. And I guess Phil, you talked a little bit about inventory reduction. Maybe we need to just feel out sort of where that is and how big that is.

And do you think that's the biggest issue that's kind of causing the fourth quarter to be so much lower?.

Yes. Let me start with that, Steve, and then Phil can jump in on the inventory from quarter-to-quarter. If you look at sequentially, certainly, there's some deceleration, but we do have normal Mobile/OEM seasonality in those numbers. So I would start with the third quarter came in pretty close to where we expected on the top line.

So we did take the revenue guidance for the full year down a little, and a couple of things have changed since the last quarter. The ag market has softened from an OEM perspective over the course of the last quarter. We slipped a little bit of aero shipments from the fourth quarter into 2015.

Currency has become a little bit more -- became a little bit more of a headwind in the quarter in terms of translating it back, but it was a fairly modest gap.

So the fourth quarter is not too different, from a revenue perspective, from where we would have expected, and the sequential decline is more from the seasonality of the Mobile and OEMs than maybe what was assumed in the previous guidance.

And then also, certainly, there will be the normal seasonality, and we're seeing that unfold with our order book patterns. So outside the ag market, I wouldn't really say anything has particularly softened or declined during that time..

Yes. And I would agree, Steve. Clearly, with the volume being lower in the fourth quarter, the inventory adjustment will impact us because it did bolster our margins slightly in the third quarter. I wouldn't call it significant. It's certainly under 100 basis points. We'll probably get that back in the fourth quarter.

So that, coupled with the volume, as Rich talked about, and the plant shutdowns and the currency, really explains the sequential margin impact. And then -- but year-on-year, we'll still be up pretty sizably from the fourth quarter of last year as we go to the fourth quarter of this year..

Yes. Just to finish on Phil's point on the comp from prior years. If you take the midpoint of the guidance, we'd be up about 3% on revenue and leverage that to about 23% on EPS at the midpoint, which would imply a couple of hundred basis points of improvement at the EBIT margin level over prior year's fourth quarter..

Okay, that's helpful.

Does the ag weakness mix you down or not?.

As a company, I would say no because Process would certainly be higher than ag. Within Mobile, I would say it's in the targeted EBIT margin range..

Okay, great. And then a quick follow-up maybe for you, Rich. There's been some new stories out there recently about you potentially being interested in making some actually specific acquisitions. I won't really ask you -- unless you want to comment on that, feel free, but I won't really ask you that.

But I guess I'd just like to get a sense from you of sort of what are the return metrics under which you would sort of look at something like this? How important is things that are strategic versus things that are financial? And if you were to do some sort of acquisition, whatever it were to be, would you still anticipate continuing the share repurchase?.

There are a lot of questions in there, so let me take a few of them.

The share repurchase and the capital allocation, so we have committed to make a move from, essentially, a year -- the last several years, close to no debt to getting to our targeted debt levels by the end of last year, and we said that we would look to do that through a combination of M&A and share buyback.

And how much the share buyback is, clearly, to some degree, depends on the size of the M&A, and we have modeled relatively modest M&A over the 18-month period, which is -- which would imply that we would buy back a sizable amount of the remaining 11.5 million shares.

And we got off to a pretty strong start of that in the third quarter with the 2.5 million shares, which would be a little bit faster than a flatline pace over that 18 months.

On the strategic versus financial criteria, there's certainly -- I'd throw a third criteria in there in terms of risk in regards to step-out versus proximity to our existing businesses. We look at that.

But under either of those scenarios, we still hold a strong financial discipline as we look at the returns, and I'll let Phil rattle off how we look at that here in a moment, but balance the 3 of those, along with share buyback. And we continue to work the M&A pipeline.

So Phil, you want to hit those financial criteria?.

Sure. As we've talked about before, we look for any potential M&A target to be accretive to earnings in year 1 and earn the cost of capital within a relatively short amount of time. We typically target 3 years for an average-sized acquisition, if you will. And then, obviously, it has to have an attractive IRR as well.

So we start with a strategic fit, and then it has to meet our financial criteria. And then we've been pretty disciplined over our history in terms of making acquisitions, and we'd expect to continue to be very disciplined as we move forward..

[Operator Instructions] We'll take our next question from Eli Lustgarten with Longbow Securities..

If we can go back to acquisitions. New reports have come out that you made the first cut in the Browning bidding with Emerson or so.

Can you give us any insight of what's going on in that, how serious your expense of this thing is getting and whether this is something that you're really focused on or not?.

No. Eli, we read those press releases. We were not a source of that information and to our knowledge, nor was anybody else that was mentioned in those. So we would say that, that is a rumor that we're not going to comment on..

Okay. And I didn't expect you to, but I figured I had to ask. Can we talk about profitability levels that we're seeing this year? I mean, as the fourth quarter is coming in -- the third quarter came in a lot better than anybody expected with much better profitability.

Because of the mathematics, it suggests a weaker fourth quarter by a good dime from where everybody was at this point.

And can we talk about the profitability, underlying profitability of the businesses in the third and fourth quarter, but really, more importantly, how that sets us up for 2015 and what we should expect next year, as we look at the -- what will be 2 major segments at this point and whether we should expect improving profitability across the board next year versus this year?.

Well, we're not here to provide 2015 guidance, certainly, but I think it sets us up pretty well. So as you look at 2014 fourth quarter, coming back to a comment I made with Steve, the midpoint of that guidance and the revenue that we gave would imply a couple of hundred basis points improvement over 2013 for the fourth quarter.

And there's been some cases in the past where there's been some things in the market, but generally, the fourth quarter is our toughest from a margin perspective with more OEM plant downtime, sometimes some inventory pressure in our supply chains as well as our own plant production days and that sort of thing.

So we would still look at that, while it's down a little sequentially, as favorable from a year-over-year. And showing the momentum that we have in several areas, one we can -- as Process grows at a higher clip than Mobile, we continue to mix up the corporate margins.

We've had an SG&A reduction initiative that's been in place for about a year that continues to gain traction. And from where we ended the third quarter at 16.8%, we would be looking to pick up another 50 basis points over the course -- not necessarily in the fourth quarter, but over the course of 2015. We have some improvement from Aerospace.

Certainly, we would expect some of that next year, some of that in 2016. That obviously has been a disappointment for us this year, but the incremental actions that we are taking, we are confident we will start to see some benefit of.

And then I think you also see in the adjusted gross margin line this quarter, particularly year-over-year, you see the improvement of our manufacturing, purchasing, supply chain initiative that has gained traction and continues to be a major focus for us..

Okay. And during your commentary, you talked about or alluded to an inventory liquidation process in the fourth quarter, and then you also implied that your free cash will be a little bit lower because of higher inventory.

Can you clarify what's going on with inventory, where the inventory liquidation is taking place in the quarter? And what's going on? Where are you going to wind up? Can we get some idea of what you're exactly referring to?.

Yes. So let me start with the channel. We're -- our inventory comments were more internal than they were external. So we mentioned last quarter that we felt inventory in our channels was roughly at the normalized level for the volume, and nothing has really changed there.

We're certainly not -- we expected some softness from the OEMs in the fourth quarter on the inventory side, and we're -- we still expect some of that. But that sets us up relatively well for 2015 as well. Internally, we had planned on taking a little bit of inventory out in the third quarter.

Instead, we built some, so we're looking to take a little bit out in the fourth quarter. And as Phil said, that might have popped margins up a few hundred basis points. Nothing significant, but we would look to take a little bit of inventory out in the fourth quarter.

But these are relatively modest numbers, but when you look at a plus versus a minus, it does add up and put a little pressure on the EBIT margin..

Is that in Mobile or in Process? Or where is that inventory?.

It's more in Mobile than Process, Eli. And just to add to what Rich had said, it would have been less than 100 basis points at the corporate level that benefited us in Q3 and will probably hurt us a little bit in Q4. And as Rich said, we'll take some inventory out in the fourth quarter.

It won't get into -- not enough out to get to our original free cash flow estimate. But we're currently assessing our need for 2015. We'll probably provide more color around free cash flow and working capital in January. But we still believe 100% free cash flow conversion is a good long-term target for us relative to net income..

Okay. And just one final question. The strength in Process was across the board.

And is there any implication with falling crude prices that some of that gains would be moderating?.

From an end of market standpoint, oil and gas has been a targeted growth market for us. But that being said, it's still -- it's a small bearing market. Globally, it's a small bearing market, and for us, it would be 1% to 2% of our company revenues. So it's a relatively small target market for us.

And obviously, there's the global repercussions of what less expensive oil means for the rest of the industry, the trucking industry and rail and so on, but as an end market, it's relatively small..

We'll go next to Steve Barger with Keybanc Capital Markets..

International growth, obviously good. You said it didn't hurt mix. But APAC being up 30%, at some level has to be a function of easy comps because the revenue declined last year.

So are you suggesting that you were more cyclical in 2012 and '13 than you are now? And have there been enough structural changes that you think the business has just more stability than it had in the past?.

Yes. Yes, I think, very much so, we would look at last year's comp as a very low bar, not just in terms of Asia Pacific revenue, but we were slow to adjust the cost structure.

We were in the midst of a spin, which limited our ability to get at some of those costs, and we would certainly expect to have better visibility to that in the future and be more reactive to that in the future than what we were in the past..

Any specific areas where you can be more reactive? What's giving you that increased flexibility?.

Well, if you look at where most of it has been, at this point, would be in manufacturing. And we were, again, slow to take out some of the manufacturing costs last year, and we've been methodically going at that through the course of this year..

So given all the cost actions you've taken, where do you think incremental margins for the portfolio should run if we stay in a relatively low growth world? Is the -- can the business run at a low 20% range? Or can you get to a high 20% range? Just how are you thinking about incremental profitability?.

We're still targeting, at a corporate level, 14% as a long-term goal. We haven't exactly guided yet as to when we will get there. We'll come out in, like, January with what we expect to achieve in 2015.

But as I said earlier, I think to Steve's question in regards to margin momentum, we would -- as we sit here today, we would expect that we have margin momentum going into next year.

As you -- to your comment about a slow to flat growth world, again not necessarily guiding to 2015, and obviously, our business is a compilation of a lot of different markets globally, but when we roll all those up in 2015 and come out with that guidance, we would expect to no longer have the headwind of Mobile lost business that we've been facing for the last 5 or 6 years and have some tailwind of market penetration tactics that we would expect to slightly outperform the compilation of those global industry metrics to have some growth slightly higher than the market..

Got it. That's good color. You're talking about some inventory adjustments. Inventory as a percentage of revenue has been running in the high 70% range.

As you think about positioning the company for growth and performance, do you have an inventory target? Whether it's in absolute dollars or it's a percentage of revenue, where are you trying to get to?.

Yes. Steve, this is Phil. Actually, the inventory as a percentage of sales would not be quite that high. It wouldn't be -- it would normally be typically in the 20s, if you will. We do not have a specific working capital target yet that we've communicated externally. We will look to do that at some point.

Obviously, the inventory where it sits today, we believe, is a little bit higher than it needs to be, and we'll take it out in the fourth quarter. We'll do it the right way. We want to be mindful of '15 and our growth prospects for 2015.

So we want to set ourselves up for a good start to next year, but we will take a little bit out of the system in the fourth quarter and get ourselves as primed as we can for next year..

Yes. Okay, good. I was talking about quarterly revenue, so that's the discrepancy there.

As you shift your focus to performance, capital allocation and growth, what are you most focused on as you talk to people internally? Is it free cash flow, return on capital, EPS growth? What's -- how are you incentivizing the operating managers?.

EPS growth and return on invested capital..

All right, great. That's all -- one more, if I can get it in. Looking at mining products. Last quarter, you said you didn't expect a strong recovery, but due to inventory depletion you didn't expect continuing decline.

And I think you mentioned some of this in the prepared comments, but any more commentary around how the aftermarket replacement activity is trending?.

Specifically to mining?.

Yes..

I'd probably say flattish. Our off-highway business was a contributor in the third quarter year-on-year to growth, but again, it was -- to the point you raised, it was a relatively low comp. And the only market we're seeing there -- or really across the business of road would be ag, which is in that off-highway element.

But mining would be at a low level compared to peak, but flattish..

[Operator Instructions] We'll go next to Justin Bergner with Gabelli & Company..

With respect to wind, it came at me a bit fast.

Could you remind me how fast the growth was in your wind business this quarter? And also, are you maxed on capacity? And where do you stand in terms of future capacity adds in wind?.

Year-over-year, I said it was up over 100%. Again, to the earlier comment, a relatively low comp and also, in this particular case, some new products and capabilities that were in the very early stages of ramping up last year that are ramped up.

The only place, as a company, that we would say that we are tight on capacity would be, essentially, in that photo that I showed you of the -- what we call an ultra-large bore bearing. Those are investments that we made generally in partnership with large OEMs.

And we are in -- we are running at relatively high utilization levels, could still grow a little bit year-over-year but probably not double-digit type growth levels. And we are in commercial discussions today to -- with multiple OEMs to determine if we will make future investments in that yet this year and next year..

Great, that's helpful. Second question I had was on the aftermarket. I realize it was an easier comp this quarter, but it didn't appear in the first half of the year that there was much growth in the aftermarket in Process year-on-year.

Did that change in the third quarter? I mean, excluding the easy comp, was there a notable pickup in aftermarket on the Process side?.

Not a noticeable pickup, so it -- from -- certainly, from a sequential standpoint, I would call it a low-growth market for us pay, low single-digit type comparables..

[Operator Instructions] There are no questions in the queue at this time. I will turn the call back over to your moderator, Steve Tschiegg ..

Thank you for your interest and investment in The Timken Company and for joining us today. If you have any further questions, please give me a call. This is Steve Tschiegg at (234) 262-7446. This concludes our call..

And that does conclude today's conference call. Thank you for your participation..