Jason Hershiser - Manager of Investor Relations Richard Kyle - President and Chief Executive Officer Philip Fracassa - Executive Vice President and Chief Financial Officer.

Ross Gilardi - Bank of America Merrill Lynch Eli Lustgarten - Longbow Research LLC Stephen Volkmann - Jefferies & Company, Inc. David Raso - Evercore ISI Joseph O'Dea - Vertical Research Partners LLC Kenneth Newman - KeyBanc Capital Markets Justin Bergner - Gabelli & Company Stanley Elliott - Stifel, Nicolaus & Co., Inc.

Lawrence Pfeffer - Avondale Partners LLC.

Good morning. My name is Lisa, and I’ll be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everyone to the Timken’s Third Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Jason Hershiser, you may begin your conference..

Thank you, Lisa, and welcome to our third quarter 2016 earnings conference call. This is Jason Hershiser, Manager of Investor Relations for the Timken Company. We appreciate you joining us today. If, after our call, you should have further questions, please feel free to contact me directly at 234-262-7101.

Before we begin our remarks this morning, I want to point out that we have posted on the Company’s Web site 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 Timken Company’s President and CEO, Rich Kyle; and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from Rich and Phil 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 an opportunity 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 Web site.

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 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..

Thank you, Jason. And congratulations, to both you and Shelly Jason, on your expanded responsibilities. Good morning to everyone. Thanks for taking the time to join us today. I’ll start with a few comments about our third quarter performance and how we see the rest of the year.

And then I’ll turn it over to Phil, who will go further into the detailed numbers. Given the global market conditions, I’m pleased with how we continued to perform in the third quarter. We delivered $0.49 per share of adjusted earnings on revenue of $657 million, while we continue to drive the Company’s strategic initiatives forward.

On account on the markets-first and then how we are advancing the Company through these markets. Our revenue came in slightly lower than we expected with continued softness across most of our end markets.

I’ll start with the positive; automotive, wind and the defense commercial aerospace sectors, remained strong, bearing, and power transmission markets, globally. Demand remained solid and our customers are projecting continued strong equipment builds and after-market consumption.

Beyond those three sectors, essentially all of the other markets for our products and services remained depressed. And while we some signs of leveling off and possibly some small pockets of increases, we do not yet see signs of a sustained improvement in demand. Let me shed a little more light on some specific markets.

Our global distribution channel, which serves a broad array of general industrial markets with particular emphasis on the after-market, remains weak heading into the fourth quarter. And we saw no material improvement in order rates.

Capital equipment in heavy industries such as Ag, mining, metals, and oil and gas remain at low levels and after-market demand in these segments is also weak. Rail and heavy truck are declined for us, and we expect that to carry-over into the start of 2017.

As a result, we have lowered our full year 2016 revenue outlook from down 6% to down 7% to 8%, reflecting this continued softness across our markets. As we look to 2017, we expect to end this year with a lower backlog and a lower run rate, and with organic revenue being down, which will carry-over into at least the first quarter of 2017.

We are holding the mid-point of our full year 2016 guidance at $1.95 adjusted earnings per share, primarily as a result of our continued focus on cost reduction, productivity, and margin expansion initiatives.

Organically, we are executing well with the continued focus on winning new customer applications, and differentiating our products and service, all while carefully managing price and mix. Our consolidated year-to-date adjusted EBIT margins of 9.7% are below the low-end of our targeted ranges for both mobile and process.

And while improvement in demand could quickly get us back in that ranges, we are continuing to take actions, which will both improve margins in this weak market, as well as position us to reach new levels of performance when our markets improve.

In addition to the bearing plant in UK that we closed in the second quarter, we have a second bearing operation in South Africa that would be closed in the fourth quarter, and two bearing plants in the United States planned for closure in 2017.

Our new plant in Romania is on track for production early next year, and we continue to drive productivity and cost reductions across our global plans and supply chains in addition to excellent customer service and working capital management.

On SG&A, we are well into our third year of steady cost reductions through a wider array of productivity initiatives. During the quarter, we absorbed the incremental SG&A from the Lovejoy acquisition, while sequentially continuing to lower our total spend in the quarter. A quick comment on Lovejoy.

We have three months post acquisition, and we are very pleased with the business and the product lines. We remain confident in both the short-term margin expansion opportunities and the long-term growth opportunities that this business brings to Timken. It's an excellent strategic fit and we will continue to pursue similar opportunities.

In regards to capital allocation, our cash flow for the year has been strong. Our balance sheet is solid. And you can expect to continue to see us active across the four pillars of our capital allocation frame work.

And my final comment, while we don’t expect short-term recovery in our end markets, we remain confident that the underlying drivers of demand for our products, our services, and our technology, all remain intact, and then our markets will rebound off today's levels.

And when they do, we will be in an excellent position to capitalize and deliver new levels of performance for the Timken Company. In the mean-time, we will continue to work our out-growth operational excellence and capital allocation initiatives to deliver value and position Timken for long-term success. And with that, I'll turn it over to Phil..

Thanks, Rich, and good morning, everyone. I'm going to start on slide eight, in the Investor Presentation. For the third quarter, Timken posted sales of $657 million, down 7.1% from last year. Organically, our sales were down 9.2% in the quarter. The impact of currency year-on-year was also negative in the period, reducing our sales by $7 million or 1%.

On the positive side, the net benefit of acquisitions, including the recently completed Lovejoy acquisition, added sales of $22 million or 3.1% in the quarter. On the bottom right of your slide, you'll see our geographic performance. Sales in North America were down 7% from last year.

If you exclude the net benefit of acquisitions, sales in North America were down roughly 12% organically, driven mainly by market weakness in rail, industrial services, and heavy industries. Excluding currency, our sales were down 7% in Europe, 2% in Asia, and 4% in Latin America. Let me touch on each of these briefly.

In Europe, results were driven mainly by weak rail markets, and lower aerospace shipments due in-part to the closure of our aero bearing plant in the UK earlier this year. This was offset partially by share gains in wind energy, and a slight benefit from the Lovejoy acquisition.

In Asia, China drove the decline as we had lower shipments in wind energy, and weakness across the industrial landscape, offset partially by gains in automotive. And Latin America's results reflect continued weakness in Brazil.

On slide nine, you can see that our gross profit in the third quarter was $168 million, or 25.5% of sales, down 210 basis-points from last year, as the impact of lower volume, price mix, and higher acquisition related and other special charges, were only partially offset by favorable material and operating costs.

SG&A expense in the quarter was $110 million, down $11 million from last year. The decrease reflects our ongoing cost reduction initiatives and lower discretionary spending, offset partially by incremental SG&A from the Belts and Lovejoy acquisitions.

SG&A was 16.7% of sales in the quarter, which is 40 basis-points favorable from last year despite the lower revenue. Below the SG&A line, you can see that we had $5 million of impairment and restructuring charges in the quarter related to plant closures and other cost reduction initiatives.

We also had $10 million in pension settlement charges, primarily related to the wind-up of a defined benefit plan in Canada, which included an annuity purchase and lump-sum payouts. Our third quarter EBIT was $42 million on a GAAP basis.

When you back out the adjustments listed on this slide, adjusted EBIT was $63 million or 9.6% of sales compared to $76 million or 10.8% of sales last year. On slide 10, you can see that the decline in adjusted EBIT was driven by lower volume and price mix, offset partially by low material, manufacturing, and SG&A costs.

On slide 11, you’ll see that we posted net income of $21 million or $0.26 per diluted share for the quarter on a GAAP basis. On an adjusted basis, our net income was $39 million or $0.49 per share compared to $0.55 per share last year. Note that EPS benefited from share buybacks, including 480,000 shares repurchased during the third quarter.

Our GAAP tax rate in the quarter was 39.1%, which reflects our inability to record a tax benefit for the pension charges in Canada. Our adjusted, tax rate was 29.5% in the quarter, bringing our year-to-date rate to 30.5%. We expect to maintain 30.5% for the fourth quarter and the full year.

Now turning to slide 12; let’s take a look at our business segment performance, starting with Mobile Industries. In the third quarter, Mobile Industries’ sales were $353 million, down 10.9% from last year.

The impact of currency year-on-year reduced sales by $3 million, or just under 1% and the net benefit of acquisitions, including the Belts acquisition completed in the third quarter of last year at a sales of $6 million or 1.5%.

Organically, sales were down 11.6% driven by declines in the rail, aerospace, heavy truck, and off-highway sectors, as well as unfavorable pricing year-on-year.

Looking a bit more closely at the markets, rail and heavy trucks are the largest percentage declines year-on-year, driven by lower freight railcar and Class A truck production in North America. Off-highway was mixed.

Mining and construction were down, while agriculture was relatively stable in the quarter, although market fundamentals remained weak in the sector. Aerospace was impacted the closure of our plant in the UK earlier this year, as well as lower defense related shipments. Automotive markets, on the other hand, remained relatively strong.

For the third quarter, Mobile Industries’ EBIT was $24 million. Adjusted EBIT was $31 million or 8.7% of sales compared to $46 million or 11.6% of sales last year. The decrease in earnings was driven by lower volume and price mix offset partially by favorable material and manufacturing costs and lower SG&A expenses.

Our outlook for Mobile Industries is for 2016 sales to be down roughly 8% in the aggregate. The net impact with acquisitions is expected to add around 2%, while currency is expected to reduce revenue by 1.5%.

So, organically, we are planning for sales to decline 8% to 9%, driven by lower demand across the mobile end markets with the exception of automotive where we continue to expect growth year-on-year.

Now let's turn to Process Industries, slide 13 shows that Process Industries' sales for the third quarter were $304 million, a decrease of 2.2% from last year.

The impact of currency year-on-year reduced sales by $4 million or 1.2% and the benefit of acquisitions, including the recently completed Lovejoy acquisition and the Belts acquisitions from last year, added sales of $16 million of 5.2%.

Organically, sales were down 6.2%, driven by lower acceptance in heavy industries and wind energy sectors, which lower demand for industrial services, offset partially by higher military marine revenue.

Looking a bit more closely at the markets, our performance in heavy industries and industrial services was impacted by year-on-year declines in oil and gas and other commodity related sectors. Wind energy was mix in the quarter with lower shipments in the Americas and Asia, while continued growth in Europe.

Industrial distribution was relatively stable, although market fundamentals remained soft in this sector as well. For the quarter, Process Industries' EBIT was $41 million. Adjusted EBIT was $44 million or 14.5% of sales compared to $45 million or 14.7% of sales last year.

The decrease in earnings resulted from lower volume and price mix, offset partially by favorable material costs and SG&A expenses, and the benefit of acquisitions. Our outlook for Process Industries is for 2016 sales to be down roughly 7% in aggregate. Acquisitions are expected to add around 4%, while currency is expected to reduce revenue by 1.5%.

Organically, we are planning for sales to be down 9% to 10%, driven primarily by declines in the industrial after-market and heavy industries. Turning to slide 14, you'll see that net cash from operating activities was $75 million during the quarter.

After CapEx of $34 million, free cash flow for the quarter was $41 million, or slightly above adjusted net income. Our free cash flow in the period was below last year's level due to lower earnings, less cash generated from working capital, and higher CapEx spending and cash payments.

We also had some positive hedging settlements in the year ago period. Looking at the balance sheet and capital allocation, we ended the quarter with net debt of $532 million or 28% of capital.

During the quarter, we completed the Lovejoy acquisition and we have returned $35 million to shareholders through the repurchase of 480,000 shares and the payment of our 377th consecutive quarterly dividend. Turning to the outlook on slide 15, as Rich mentioned, we are adjusting our revenue outlook to reflect the current view of the markets.

We are now planning for 2016 sales to be down 7% to 8% in aggregate, with currency negatively impacting us on the top line by around 1.5% and the net benefit of acquisitions adding around 3%. So organically, we are planning for sales to be down around 9% this year at the corporate level.

On the bottom line, we expect GAAP earnings per diluted share to be in the range of $1.77 to $1.83 per share.

Despite the further weakening we are seeing in the markets, we remain focused on operational excellence initiatives and expect adjusted earnings per diluted share in the range of $1.92 to $1.98 for the year, maintaining the mid-point of our previous guidance range.

We expect to generate free cash flow of around $240 million for the year, which is more than 1.5 times adjusted net income. And net after CapEx spending of around 5% of sales, which includes spending for new bearing plant in Romania as part of our strategic footprint initiatives.

In summary, end markets remained challenging, but we continue to execute well, generated strong free cash flow, and smartly deployed our capital to drive shareholder value. Our team is focused on execution and positioning the Company for long-term earnings growth. With that, we will conclude our formal remarks.

And we will now open the line for questions. Operator..

Yes, thank you. [Operator Instructions] and we will now take our first question from Ross Gilardi with Bank of America Merrill Lynch..

I just want to ask you about free cash flow you guys delivered on your guidance I think Timken will have generated an average of $260 million in free cash flow over the last five years, which is almost 10% your market cap. So are we at the point where this is just an annuity.

Do you feel like $215 million free cash flow number is sustainable going forward and are you seeing valuations for acquisitions finally come in with all the pressures in the industrial markets? A - Philip Fracassa I'll take the first part and then I think Rich will take the second part.

Relative to free cash flow we do feel as over the last two, three years there has been a structural shift in terms of our ability to generate cash, our pensions are fully funded now, we have derisked those. We believe that company is now a consistent cash generator and you have seen in the numbers we have delivered over the last three years.

So we targeted greater than 100% of adjusted net income, I think that continues to be the target.

We have run higher than in the last two years and some of that has been working capital as sales have come down we have seen some positive cash flow from working capital, but going forward we would expect to continue to generate strong free cash flow at or north of that 100% level.

A - Richard Kyle Ross on the M&A landscape I would say we have not seen any relief in what would be historically high multiples. What we are multiplying by that was obviously well on peak. So if you just look at our last two acquisitions we acquired across our both business fairly early in the Ag downturn.

We saw and have started experiencing, but by the time we bought Lovejoy much further later in the cycle. But the reflection of relatively low borrowing cost and then I think good cost synergies versus organic growth opportunities the multiples remain relatively high..

So given that I mean what do you do now because you guys are obviously going to try to remain disciplined.

Are you in a situation or you would just continue to return more cash or you build it up on the balance sheet?.

I would not expect us to build it up on the balance sheet, we as you look forward we are focused on out capital allocation for total reserved and we are focused on maintaining our investment grade metrics.

But your point, when you look at the, where we are at, relatively lightly levered and low-end of our ranges and in the cash flow, we will have quite a bit of cash to deploy.

We will continue to invest in the business relatively high year, this year of CapEx expect another relatively high year, next year as a percentage of sales continue to pay the dividend.

And then as we look at buyback and M&A, I would say we have a slight bias us to M&A, the buyback creates shorter term faster accretion, but the M&A has longer term upside to it, so certainly we have a little bit bias there. But we will to your point maintain a discipline I think it will all depend on the level of opportunities.

If we could get three or four more Lovejoy next year, you would see us style back, the buyback, if we get one Lovejoy next year, you will see us fairly active I would believe in buying back shares..

Thanks very much..

Thanks Ross..

And now go to Eli Lustgarten with Longbow Securities..

Good morning, everyone..

Good morning, Eli..

Can we talk a little bit about with the changes that you have seen, you took your wake at the earnings, it is terrific. But you have taken your outlook and fundamental demand down 1% in each sector.

Can you give us some color what is going on and with mobile really just rail and truck? Can you give us some idea of what is happening - particularly because not only is the fourth quarter, but it’s going to indicate some into 2017.

So what is happening in fundamental demand, what is happening in pricing with this market and how its impact now in fourth quarter, but probably looks like a difficult first quarter, first half in 2017?.

I think, let me start with the pricing piece. Nothing, I would say change with pricing from what we have talk about the last couple of quarters, top pricing market. We will be slightly negative on price for the full year still in that one each percentage range that we have been talking about.

So look at next year, certainly not going to be a strong price environment for us again. But by the same token we are not out pacing business with price either and pretty confident in our ability to keep that to be relatively small factor and we expect price cost to continue to be positive.

On the market, I would say general softness across the Board and still highlighted as you into his comments some of these couple of places where we saw some sequential improvement. But very modest and not necessary order flow to support that we really think that anything there is taking off on a continue level of strength.

So I would characterize the first and foremost from our reduction revenue guidance broad weakness. And then highlight the two specific markets, Well for us year-on-year were about 50% North America and that markets down 20%. So that one is a big drag on it and we expect it to be down, but it’s down more than what we had anticipated.

And I would say heavy truck as well, which is why we highlighted it is down in that range as well, which is sizable number for us as well..

I would just add a couple of things Eli just to provide a little bit more color. I think Rich is right, it’s pretty broad and it’s mostly market or couple of instances thinking specifically aerospace in win where we have seen some push outs in the next year.

so that might be a little bit more timing but I would say it's predominantly the broad market weakness that we just talked about earlier..

And a follow-up, can we talk a little bit about inventory levels, we are assuming inventory is liquidates basically over, I suspect there might be some in the fourth quarter, there is marked weakness.

Can you talk a little bit about inventory levels and your ability to hold margins basically where they are now and whether or not they can improve at all in 2017 and so volume begins to improve?.

I think there were two questions. So, on inventory I would say that we continue to see our inventory, our customers’ inventory and channel OEM, distribution, bring inventory down with sales. Down organically significantly year-over-year and 3-ish percent sequentially and we continue to see those inventory levels drop modestly with that.

As we look across how much inventory our distributors have, our customers have of our product, we don't see any gross and balances. That being said, if you look across equipment, idle equipment, we certainly still have not - the end-consumption of our product, the end use of our product is higher than our production levels.

Meaning there is more railcars parked are still consuming things like that versus, but the miles are being driven, farmers are putting the time on combines et cetera, et cetera. So we had not seen that I think neutral level off in virtually all of our capital markets.

On the margin side, not really there really comment on 2017, already mentioned we would expect price to be a little bit unfavorable. We would expect price cost in total to be favorable.

We roll into next year with some carry over costs, some good cost reduction activity still taking place and I think the wild card in margins is going to be volume as it has been. And with volume leveling off we could not only hold but expand margins I believe with the cost reduction activity.

But as you said and we expect to start off the year with volume down through at least the first quarter. So more to come on that into providing guidance for next year..

Greta. Thank you very much..

Thanks Eli..

Thanks Eli..

And we will go next to Stephen Volkmann with Jefferies..

I sort of have a semi similar question I guess, I don't know how far you want to go with it. but Rich you said I think in the outset that you weren't at your targeted margins, or were you below the low end or something and then you had talked about the UK plans, South America too and the U.S. to close in 2017, the new Romania plant.

I'm just curious as you add up all those things that you are doing since none of us can really forecast volume, assuming volume is flat and you do the things that you have described, does that get you to kind of where you want to be margin wise or would you still have work to do?.

Sure Steve, this is Phil, I mean I think, let me tee it up and ask Rich to expand on it.

so I mean you are right, we are doing a lot in the footprint activities that we have been working on for several years now really all designed to give us a more competitive cost structure that we can then obviously leverage when the volume returns and that will be a huge tailwind for us when the new plants fully ramp.

A lot of time to keep in mind when we take plants down, by the time we close the plant it’s been rationalized down over many quarters, in some cases many years. So the impact of closing plant sometimes isn’t as large as you might think, just because we have been realizing those benefits over a long period of time.

But there is no question that the footprint shifts that we have done in the low cost countries, have helped the bottom line, are helping the bottom line today in terms of what we move to some of our existing footprint. It will help the bottom line in the future as the new plant in Romania for example comes online.

And we would expect with volume - when we think about our margin sort of lock-in backup if you look to the ranges or even to the high end of the ranges, obviously volume is important, you are continuing to focus on working, selling products in markets with a richer mix force.

So process industries maybe versus some of the OE markets in mobile and then continuing with the cost discipline both on the SG&A side and the manufacturing side.

So I will let Rich comment on prospects for the margins going forward, but all-in the cost reductions that we have generated this year is significant, we expect to maintain most of those heading into the future..

Answer your question first is yes, I think we can get back those margins at today’s volume levels leveling off. But we have been chasing the volume down really since late 2014 and wouldn’t have immediately.

So we have got some rebound, I think that’s really where you would see the strength of everything that we have doing and the elements of that are structural are not coming back into the business mix play the role is still highlighted.

But we saw a leveling off, we could get back yes to those target margin, but not instantaneously because we are still chasing it down, that’s why we are below them today..

Okay, great.

Any chance you have an idea about the incremental cost saves that accrue in 2017 just from things you have already done?.

Yes, obviously, we generated quite significant, we talked about $60 million coming into the year last quarter, the full-year cost save with 90, as we sit here today it’s just close to 100, probably a little bit north of 100 even. As far as in the next year, clearly will some carryover benefit.

I would say the savings were more frontend loaded this year and what we would have seen last year. but I think there is a lot of moving pieces and lot of puts and takes relative to 2017, I think We will probably defer that to January, February, when we come out with the fourth quarter..

Okay. Fair enough. Thank you..

Thank you..

We will go next to David Raso with Evercore ISI..

Hi, good morning..

Hi, Dave.

How are you?.

I was trying to think about that the year-over-year sales cadence, especially where you refer to 2017 starting off. The implied fourth quarter has a further degradation and the sale decline that’s about 9%, 10%, just to help us a bit trying to quantify how we start the year.

The comps get a little bit easier on organic, but not a ton from fourth quarter, first quarter, when we are talking that the year ago comp. Should we think of the year starting sort of similar to the fourth quarter sales decline or enough markets that you are seeing at least leveling off that we should at least want to be positive about it.

that maybe this fourth quarter year-over-year decline is the worse we will say..

Yes, let me start with the fourth quarter is significantly hard for us to call from a revenue perspective then our other quarters, and it’s really just a function of our customer base and the fact that we are a part supplier and service provider.

So we have got the backlog, we have got good visibility to it, but we last year we actually got pull-ins and we got some increased service business, we got some pull-ins on parts, in past years we have had push out.

So that timing of the December versus January last year we saw some January pull-in, December we are not expecting that this year, but that is always a little bit of the challenge for us, but over two quarters it's just in the ways and movement between them.

As we have grown the services business, the aftermarket versus our OEM over the last 5-ish years, our fourth quarter to the first quarter would generally be flat to maybe down a little bit and as we look at normal seasonality that's a pretty good benchmark, which is why we are looking at the first quarter year-on-year being down.

As you said, the comps get easier as the year goes, we have seen some leveling off of orders, which would support maybe normal seasonality next year, which remains sequentially first quarter to second quarter improving..

It sounds like the fourth quarter is down 9% to 10% maybe the first quarter is down slightly less, but it's still down only high single. What are you seeing on your orders if you can indulge me with me that.

I mean are your orders down less than 10% I mean I know your backlog doesn’t usually go out six, nine, 10 months, but still I'm just trying to think about when can we start to get comfort that you call it third quarter or fourth quarter that sales should be back to at least flat?.

I would say you are probably a little high on that first quarter number because of the year-on-year comp but....

Okay. Are you are saying high meaning not down quite as high as high single digit, you are hoping on what percent of that....

Correct. Probably more mid to high versus high. The order input in some segments have certainly as you look at last year at this time we would have been really chewing through a lot of backlog, particularly in the fourth quarter and we are really not expecting to do that.

So definitely, order input versus shipment has become healthier, and again it's broad statement. So there is packets of the world and packets of our business with that there will be ups and downs in that but it is definitely healthier from where it would have been a year ago and six months ago. but we are also at a lot lower shipment levels.

So we can't sit here and say the orders have picked up, it's just the orders of shipment backlog metrics would be trending better..

So I guess which business is then is the book-to-bill at one above one at least close to one.

To answer the question, where do you expect to start to see some of the first signs of at least flattening year-over-year to ideally some growth? Are there is some end markets at least showing book-to-bill close to one?.

Well yes. Certainly as I talked about the strength, I mean I would expect it to be greater than one in win going forward and that may not be true in any particular quarter, but on a year-on-year, next few years we are expecting to continue to grow and win.

Automotive has leveled but at a strong place and then I think that probably the big one where I would say it's leveled off more than one is industrial distribution, I mean last year at this time it would have been well under and it's pretty close to level today. So to your point, it's a good starting place..

Okay that's helpful. Thank you very much..

And then we hit on it, but the two that are obviously still negative is heavy truck is where we are forecasting that’s going to continue to chew that up, but again those will be included in my statement that you had all pluses and minuses and it’s a much healthier book-to-bill ratio than what it has been..

Okay. Thank you. A - Richard Kyle Thanks David..

And we will now go to Joe O'Dea with Vertical Research Partners..

Hi good morning. Just on the fourth quarter a little bit more in terms of the outlook and what is implied there and it looks like just sequentially we see a little bit more softening on the mobile side than on the process side.

But just to understand whether or not the outlook is really calling for kind of stable trends from Q3 into Q4 and its more seasonality effect, it would be appreciation for some of the tough things to call in terms of pull forward or push out.

But just to try to get a handle on, do you feel like things are stable here and the outlook is more seasonality into end of the year or where you see some incremental softening from Q3 into Q4?.

I would definitely, the seasonality that within the mobile business fourth quarter, more OEM content, fewer shipping day, holidays, global statement, that usually the widest quarter for automotive builds, equipments those on the OEM basis.

And then on the flip side our process industries, our services business fourth quarter strongest quarter of the year within that part of the process industries. Distribution tends to move little bit more with way the markets are going up and down but it doesn’t have that fourth quarter fall off that you see with the OEM.

So seasonality would be the biggest issue and then within that where the heavy truck softness..

Got it. And then on the pricing side can you talk about price cost positive next year. could you talk maybe specifically to the raw material side of it. And I think the way contracts are structured most of the things should be flow through, but particularly within the distribution channel, do you think that you are facing - price headwinds.

Is it going to be tough to pass along any cost increases there or do you view that as more neutral?.

Well from last year to this year we had the big step down scrap surcharges which is mostly what a lot our North American or bit of European pricing is build off which again some I guess past service some of it negotiated some of it on to.

We would not expect that to be a big favorable next year , in fact or probably more likely it’s an unfavorable but some of that will depend on the strengths for markets but this year would be a probably record well level for scrap prices and some time reflection of the strength of the dollar or weal markets et cetera.

We don’t expect much help there like the gap this year, but we have some carry over on other material and purchasing components raw material tactics we went through last year.

So when I just came out a review from this morning with our global purchasing teams and feel pretty good that net of all that we will have some good favorable cost reduction heading in the next year..

Got it. And then you just mentioned a couple times that the carry over headwind into Q1.

Can you quantify just what you think that represents as a headwind for the year?.

It’s kind of tough Joe, I mean, I would say a little bit further to the conversation we had earlier and when we think about what our guidance would imply if you look at the second half to take the second half and annualize it is probably 2% pull if you will relative to 2016.

Just kind of do in the math on the second half versus the full-year guidance. And then you obviously a lot will depend on what happens within the market tend into next year. Obviously we believe or considered today rail and heavy truck, We will continue to decline and the fundamental there remain very weak.

Obviously automotive question is so running relatively strong. Although obviously, we are keep an eye on it and same pretty close to our customers there. So it’s typical to say relative to the full year, what might happen beyond that. But clearly the second half will start us off in about call it 2% start first half..

So I think just to add going back to the mass, we are running through there with David. We do looking start in the year with a [indiscernible] single-digit decline from prior year. And then the year goes on the comps get easier.

And then obviously we see how the markets develop and with the help your book-to-bill ratio, how things progress from there, but starting year off mid-single-digits organically..

Got it. That's really helpful. Thank you..

And we will go next to Ken Newman with KeyBanc Capital Markets..

Good morning, guys..

Hey Ken..

So I’ll ask the 2017 growth question a little bit differently. You have talk about organic growth maybe forget it weakness persisting in the 2017. But if markets in 2017 is going to flat now volume wise.

Where you see the incremental impact and reaccelerating organic growth coming from, that really be a function of mix of pricing or will you have to take market share in order to get that?.

Yes. Ken, this is Phil. I would say relative to - it’s things like not in the market. Market share is been a big, sort of a big thrust of ours relative to gaining out grow in our markets, we have done very well over the past couple of years and win for example, we did very well in the rail up until the market decline.

But I mean, even if we got back to more of a normal MRO and replacement cycle and some of the markets that are kind of out along the bottom and that would certainly be a shot in the arm.

So if we could get for example mining and some of the highway commodity related sector, heavy industries back to a normal replacement cycle versus, we have seen some extension up at this point. Now that would be a shot in the arm. Obviously, mix would play a role relative to where we target or efforts.

And then clearly up growth initiatives will be continue to pursue across our end markets, I talked about went in rail, but we are really targeting initiatives across all the markets to without that initiative..

We spend with our early cycle cyclicality, we have been under producing our revenue and lowering our inventory or customers are under buying and under producing and the end user under buying reducing their inventory, which is typical of our cycle. So you have to see that leveling off and again getting a book-to-bill ratio of one is step one.

Don’t see anything in the short-term at least that, but still first time and I believe it was a normalization of the repair and maintenance cycle and an equalization of consumption across that will actually lead to a increased in demand for us and we will leverage that increase in demand very well..

Got it, and if I may, my follow-up, curious if you could talk a little bit more about the pricing environment, I know that you are not expecting a lot of a strength going into next year, but are you seeing increasing price competition from competitors looking to take share either through the OEMs or through distributions?.

Well I would say I think our price discipline of holding price is certainly hurting our ability to improve our penetration. So, with OEMs you are designed into an application, there is always price pressure, there is also a desire not to change varying suppliers, because it's a lot of work and costs money and takes testing, et cetera.

But it's obviously, very easy one, well if you don’t move price here you don't get any new business in that entire cycle. So, I think it's definitely hurting our initiative to improve our penetration and outgrow.

That being said I think we are holding our position, I think we are holding our market share and we are doing it with 1-ish percent across the Board on price. So, I think I would leave it at that..

I guess one more follow-up, I mean is annuity out there being irrational with pricing as you look at it, not any new names or anything?.

I think I'll leave at it where I was. So, I don't think I would want to expand on any of that. I think we are confident in our ability to hold our market share position with 1% down price and I don't see anybody's rational behavior affecting that. But you could look at a lot of bearing companies profitability and question some of that so..

Understood Thanks..

Thanks Ken..

We will go next to Justin Bergner with Gabelli & Company..

First question in terms of the lower organic revenue guidance for the year, I mean it looks like a 100 to a 150 basis points guide down, as some other industrial companies exposed to the heavy industrial part of the economy have seen more of a flattening out as we get into the fourth quarter.

So, perhaps I mean it would be helpful if you could take us through sort of what end markets have led to your revised view coming out of the third quarter versus coming out of the second quarter?.

Sure, I'll start Justin and then Rich can expand on it from there. So, let's start first with - so you are correct we are going down about 1.5% on the guide, now as we look at it in terms of what our expectations were, we would say that was roughly split between third quarter and fourth quarter as we looked at it.

Call it guide, the July guide and the October guide, so a part of that results we have today, the other half would be in the fourth quarter.

And as we look at it, I would say it's primarily markets, but there is also some other things going on, but in markets like for example in mobile, be heavy truck would be probably the single largest driver, aerospace would have been adjusted, that's really more push outs within what I would call market per se, it’s just really the timing of when we are going to ship the helicopter transmissions and alike.

And then we did take all the up down slightly obviously some of our customers are taking a little bit of production not a lot, but there was a little bit coming up there. As you move over to the process side, it was primarily wind and again I think a piece of that would be market, but probably more of that would be to push outs.

We have had some expectation for the fourth quarter, but now look like though they will get pushed into next year. I mean as I said when was a bit of mix pad in a quarter, we were down in Americas and Asia, Europe still very strong, we are gaining share, we still have a positive outlook for wind, going forward heading into next year.

But clearly guide-to-guide we took it down and then our industrial services business frankly with the oil and gas activity and alike that probably was a little bit lower than what we anticipated three months ago.

obviously that the military marine businesses remains strong, but on the industrial services side, probably a little bit coming out of there, which I would characterize as market. So it was broad it was kind of a little bit, almost everywhere but those were kind of the key drivers if that helps..

Yes that’s very helpful. Thank you. I mean in terms of the organic revenue guide I mean, you are suggesting that you are holding share on your markets. Was the assumptions are three months ago that you could gain share and now you have decided to not get too much in price and sort of maintain shares.

So is there slightly lower outgrowth expectation as well?.

No, I would say, it’s a big factor in the change in guidance, so it’s probably a factor as we look over the next year. Our growth initiative is not that real market 5%, 6% a year, I mean it’s more modest than that. So I mean we are looking at a percent, so that would not be something I would point to..

Okay. Thank you.

On the price cost side, I guess it’s not expected to hear that you are going to see sort of negative material costs into 2017 is that part of a function of the timing of your contracts and sort of the higher steel price kicks through we will see the material cost shift from been tailwind to being a headwind?.

No, I wouldn’t say we are going to have negative material costs, we don’t have the big improvement that we had from 2015 to 2016 and then the surcharge element of material, could be. And right now if it stays flat for the year, we would be fine, it would be immaterial, one way or the other.

But probably more likely they are not that will be higher just because of that. That’s one element and it’s well less than half of what we pay for steel and then obviously we buy a lot of other processing and components beside steel. So overall, I would look for our input cost to be favorable..

And that would be on the non-steel inputs declining..

Yes, but I would not say steel is going up either..

Okay. Got it.

And then finally, are there pension headwinds that we should expect in 2017?.

No, Justin I would say not material, we have been looking at roughly flattish on the pension on the [indiscernible] at this point..

Okay. Thanks, Rich. Thanks, Phil..

Thanks, you..

Thanks Justin..

We will go next to Stanley Elliott with Stifel..

Good morning, Stan..

Hi, guys good morning. Thanks for taking my question. Quick question for you on the auto business. I used to this that you all had visibility let’s say kind of three to six months period of time. It sounds like there is a fair amount of confidence I guess if you want to use that word.

Heading into next year is it more new platform wins, new program wins or just the segments of the markets where you guys are competing the most?.

Well I would say we have a forecast and a plan. The automotive companies certainly have a plan, but we have very short lead time into those automotive operations. So it is contractually our agreements are we will supply this part to this application and we have to share, but they have the right to push orders out or pull orders in.

so my statement around automotive is strong. Heavy light truck or heavy more premium cars and those markets currently the order book is still good and the forecast for next year is flattish at what could be argued peak level.

So that is not any contractual guarantee and but if we see a pickup truck production increase next year, we would benefit from that and see a decrease to go against us..

Great, kind of given what you are seeing in the order books, the changes that you have made to the footprint with some the new factory coming online, other things are coming on.

Do you envision need to didn’t take any additional kind of major restructuring as we look into next year assuming that we look at markets kind of leveraging off how you are planning that right now?.

I would expect our restructuring to not go up from this year. so it would be kind of in that line, I would expect it to continue to be on the high-end, because obviously we have got a couple of plant closures carrying over into next year that we have already communicated.

We are working on some other things, but we have been phasing that over a time and would expect us to not have anything abnormal next year on that..

Great, guys. Thanks, and best of luck. A - Philip Fracassa Thanks Stan..

Thanks Stanley..

And we will now go to Larry Pfeffer with Avondale Partners..

Hey good morning guys. So I know it's still early in a call for acquisition and really early in Lovejoy, but obviously the strategy on the power transmission side of house trying to cross sale and lever that into your other relationships.

So just kind of curious A, How those are going and B, how you are thinking about the power transmission portfolio and as we move forward?.

We feel good about both of them, as I mentioned earlier we caught the - Lovejoy wanted little lower revenues, so our revenue primarily because of the agricultural market was - the Belts acquisition came under some significant pressure.

So we are probably a little late to get some cost out there, new to the business and maybe a little more cautious when we have. But we have done that over the course of the year that we have had it.

We have also got good line of sight on the cost for lot of the synergy case we just integrated them into in the third quarter into our North American logistics network that makes distributors ordering that product much easier it gives them inventory visibility and really put some on different plain in regards to ease of doing business with our North American distributors.

We have done a lot of cross training on the products and a lot of sales opportunities. We are in an absolute basis made a little behind the synergy case because of the markets, but just went through this and we think we have got a good line of sight to hitting the sales synergies targets going forward even in a tough market.

So we remain bullish and confident on our ability to create more strategic value of a stronger package of brands, products, scale for both the bearing as well as PT and also on delivering a good financial case on it..

Got you.

And when you referenced earlier in the call looking at acquisition targets, would PT still be the area you are looking at more or anything new on the bearing front?.

I would say PT is more because there is more availability and more fragmentation and we are always looking at bearings, but the availability and candidates that we believe would fit with our package on our strategy there is just frankly a lot fewer of them..

Right, that makes sense. And just kind of changing gears a little bit, but curious on the geography obviously saw Latin American and APAC get a little less bad this quarter whereas the developed markets slit a little bit.

Would you expect that pattern to continue though the end of the year and in the Q1 or is that just kind of noise between quarters?.

Yes I would say it’s probably a little bit too early to call that. I would say that I think you are right, I mean North America clearly remains probably our most depressed market and that’s been exacerbated more recently with rail and heavy truck, declining it on the heels off highway declines we saw earlier in the year and into last year.

And then I think when you get outside the U.S. it can be very business specific. So for example, in Europe I talked about the share gains we had in wind energy and came on which improved that a little bit.

I would say within Europe for example, Eastern Europe is clearly trending better than Western Europe and that’s been better trend we have seen all year. And in Asia it's really been a story around, China continues to decline.

We had lower shipments in wind, the industrial markets are weak but we did see some growth in automotive in the premium cars base and that was a positive. And then Latin America was remained depressed, although you are correct I think sequentially we were a little bit improved there, but it remains a pretty weak market.

So hard to call headwind in the next year, but we don’t see any a major change at this point..

OKAY. Thanks guys..

Thanks Larry..

It appears there are no further questions at this time. Mr. Hershiser, I would like to turn the conference back to you for any additional or closing remarks..

Thanks Lisa. And thank you everyone for joining us today. If you have further questions please call me. Again, my name is Jason Hershiser and my number is 234-262-7101. Thank you and this concludes our call..

Ladies and gentlemen that does conclude today's conference call. Thank you for your participation..