The Timken Company 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and welcome everyone to our second quarter 2026 earnings conference call.

This is Neil Frohnapple, Vice President of Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Lucian Boldea, and Mike Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike before we open up the call for your questions.

During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by The Timken Company, and without express written consent, we prohibit any use, recording, or transmission of any portion of the call.

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

Thanks, Neil, and good morning, everyone. We appreciate you joining us today to discuss our second quarter results. It was great seeing many of you at our recent Investor Day, where we launched our new Elevate-to-Outperform strategy, as well as our 2028 financial targets. We're making good progress on our plans for creating value as an advanced motion technology leader and leveraging mega trends in strategic verticals. Work is well underway in advancing our strategic priorities as we deploy 80/20 in our disciplined execution framework across the entire enterprise. Our focus on Elevate-to-Outperform is reflected in our second quarter results, and I would like to thank our Timken team for delivering another strong quarter. Our performance during the first half of the year and continued momentum gives us the confidence to raise our full-year guidance again.

Our outlook now implies 16% adjusted EPS growth at the midpoint of our range, up from 13% we previously guided. Mike will take you through the details of our outlook later in the call. This morning, I'll discuss the key elements of our second quarter performance and provide more specifics on how we are executing our strategy. In the quarter, total sales were up 7.5% from last year and organic revenue grew more than 4%, driven by higher pricing and volume growth across both segments as we capitalized on improving customer demand. We expanded EBITDA margins to 19.6% in the quarter, and adjusted earnings per share increased nearly 30% year-over-year to $1.83 while also generating solid cash flow. With respect to capital allocation, we raised our quarterly dividend by 3% and repurchased approximately 155,000 shares.

We ended the quarter with a strong balance sheet and net leverage of two times, giving us continued flexibility to pursue our balanced approach to capital allocation. The company is successfully navigating continued geopolitical volatility. We're operating with urgency to finish the year strong and execute against the Elevate-to-Outperform strategy. As we discussed at Investor Day, Elevate-to-Outperform is focused on three pillars: optimizing our portfolio, investing decisively in our strategic verticals and customers, and better leveraging our multinational footprint as we operate as One Timken. In the second quarter, we made progress against all three of our strategic pillars. Within pillar 1, optimizing the portfolio, we remain on track to complete the Bell's divestiture in the third quarter. This divestiture is expected to structurally improve Industrial Motion EBITDA margins by more than 200 basis points on a pro forma basis.

The automotive OE exit is also progressing as planned and is expecting to start benefiting Engineered Bearings margins in 2027. Another example of portfolio shaping is our recent Bijur Delimon acquisition. The integration of this business as part of our lubrication systems platform is going very well and ahead of schedule. It is clear that Bijur Delimon is a natural fit and scales our lubrication systems platforms to about $400 million in revenue. Turning to pillar 2, it's easier to win where you are already winning and have positive market momentum. We're allocating more resources to drive growth within the key strategic verticals we revealed during Investor Day. The impact of increased organizational focus and investment is already delivering with high single-digit organic growth in these verticals in the second quarter. Automation and robotics is worthy of a call-out, which increased mid-teens versus last year.

We're also making strategic investments to improve our aerospace and defense operations and drive future profitable growth. As part of our transformation, our teams implemented 80/20 actions during the quarter across regions and across businesses. Through training and active project workstreams, 60% of our enterprise is now engaged in 80/20 when you look at it by total company revenue. By the third quarter, we're on target to achieve 75%. We still expect 80/20 to benefit the bottom line in 2027, and we're confident in the growth opportunities ahead as we redeploy resources to better serve our strategic customers. To further support the acceleration of technology-led growth in our strategic verticals, our R&D teams across businesses are partnering more closely.

We look forward to hosting our first annual One Timken Technology Summit this fall, where we will gather technology leaders across the entire company, along with customers and external partners, to further accelerate our innovation pipeline. For pillar 3, we're more effectively taking advantage of our multinational footprint to leverage technology and better serve our customers by operating as One Timken. We're also generating synergies through the global expansion of our acquired regional businesses. Our expansion of Rollon is a good example of what this looks like in practice. Carrying Rollon's strong European position into the U.S. contributed to a second consecutive quarter of double-digit organic growth in our linear motion platform. Rollon's expansion is driving outperformance in the rapidly developing factory automation end market, demonstrating the potential in taking our current portfolio into under-penetrated regions.

To further advance One Timken across our businesses and regions, we recently announced two leadership appointments. We're pleased to name Tim Graham to the new position of Chief Commercial Officer and to have Steve Ribaudo join Timken as our new Chief Operating Officer. As Chief Commercial Officer, Tim will lead our enterprise-wide commercial strategy, marketing, sales excellence, and our regional leaders. Tim has a proven track record with more than 20 years at Timken across both of our segments. As Chief Operating Officer, Steve will oversee enterprise-wide operations, supply chain, and procurement, as well as our P&L leaders. Steve has an impressive background with deep global operations and industrial leadership experience, most recently at Carrier, having also spent time at Collins Aerospace and United Technologies.

These appointments have no impact to our financial reporting segments and build on our organizational announcements from earlier this year where we elevated technology, marketing, and regional leadership. We're excited for this new structure, which is designed to enhance execution, speed, and accountability across the enterprise. In summary, our Elevate to Outperform strategy was a positive contributor to our results and gives us confidence to raise our 2026 outlook again. We're operating with discipline and moving with urgency to accelerate growth, structurally increase margins, and drive shareholder value. With that, let me turn the call over to Mike for a more detailed review of the results and outlook.

Mike? Thanks, Lucian, and good morning, everyone.