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TIMKEN CO (TKR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $1.14B (down 4.2% YoY), adjusted EPS $1.40, and adjusted EBITDA margin 18.2%; sequentially stronger than Q4 2024 on revenue and margins, but below Q1 2024 on profitability .
  • Consensus context: Revenue modestly beat Wall Street while adjusted EPS was essentially in line-to-slight miss; estimates were $1.13B revenue and $1.42 EPS vs actual $1.14B and $1.40 EPS* .
  • Guidance lowered on EPS and margins due to tariffs and softer demand: GAAP EPS now $3.90–$4.40 (from $4.30–$4.80) and adjusted EPS $5.10–$5.60 (from $5.30–$5.80); adjusted EBITDA margin outlook reduced to mid-to-high 17% from ~18.5%; free cash flow cut to ~$375M from ≥$400M .
  • Management is moving with urgency to offset ~$25M net direct tariff headwind in 2025 through pricing/surcharges, supply chain actions, and cost reductions; expects full run-rate tariff offset by year end, with potential margin recovery in 2026 .

What Went Well and What Went Wrong

What Went Well

  • Execution on cost actions and initiatives helped deliver resilient performance in a soft demand environment; adjusted EBITDA margin improved sequentially to 18.2% in Q1 .
  • Strong momentum in renewable energy within Asia driven by wind; management now expects mid-single-digit growth in renewables for 2025 versus prior “flat” outlook .
  • CGI acquisition continues to perform well and is accretive to margins, contributing ~$4M adjusted EBITDA in Q1 .
    • “Our team executed well in the quarter, delivering on cost actions and other initiatives” — Richard Kyle, Interim CEO .

What Went Wrong

  • YoY pressure from lower volumes, unfavorable mix/currency, and higher manufacturing costs reduced adjusted EPS to $1.40 (vs $1.77) and adjusted EBITDA margin to 18.2% (vs 20.7%) .
  • Tariff uncertainty led to reduced full-year EPS/margin guidance and a ~$25M net direct headwind assumed for 2025, predominantly affecting Q2 and Q3 .
  • Industrial Motion margins declined YoY to 17.7% (from 21.2%) on lower volume and manufacturing cost headwinds, including belt capacity ramp in Mexico and duplicative costs (e.g., Fort Scott), with step-change improvement only expected in H2 .

Financial Results

Consolidated performance

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,190.3 $1,073.6 $1,140.3
Diluted EPS ($)$1.46 $1.01 $1.11
Adjusted EPS ($)$1.77 $1.16 $1.40
Adjusted EBITDA Margin (%)20.7% 16.6% 18.2%
Net Income Margin (%)8.7% 6.6% 6.9%

Narrative:

  • YoY: Revenue -4.2%; adjusted EPS -20.9%; adjusted EBITDA margin -250 bps (from 20.7% to 18.2%) .
  • Sequential (Q4→Q1): Revenue +6.2%; adjusted EPS +20.7%; adjusted EBITDA margin +160 bps .

Segment breakdown (Q1 2025 vs Q1 2024)

SegmentQ1 2024 Net Sales ($MM)Q1 2025 Net Sales ($MM)YoY %Q1 2024 Adj EBITDA Margin (%)Q1 2025 Adj EBITDA Margin (%)
Engineered Bearings$802.5 $760.7 -5.2% 22.6% 20.9%
Industrial Motion$387.8 $379.6 -2.1% 21.2% 17.7%

Drivers:

  • Bearings: Higher renewables demand offset by lower demand elsewhere and FX; margin down on lower volume, unfavorable mix/currency .
  • Industrial Motion: Higher drive systems and acquisitions offset by lower demand and FX; margin down on lower volume and manufacturing costs, partially offset by lower SG&A and acquisitions .

KPIs and balance sheet

KPIQ3 2024Q4 2024Q1 2025
Cash from Operations ($MM)$123.2 $178.5 $58.6
Free Cash Flow ($MM)$88.2 $124.9 $23.4
Net Debt / Adjusted EBITDA (x)2.1x 2.0x 2.2x
Cash and Equivalents ($MM)$413.4 $373.6 $376.1
Total Debt ($MM)$2,238.9 $2,062.7 $2,127.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue vs 2024FY 2025-4% to -1% -2.5% to 0% Raised (less negative)
GAAP EPSFY 2025$4.30–$4.80 $3.90–$4.40 Lowered
Adjusted EPSFY 2025$5.30–$5.80 $5.10–$5.60 Lowered
Adjusted EBITDA MarginFY 2025~18.5% midpoint Mid- to high-17% Lowered
Free Cash FlowFY 2025≥$400M ~$375M Lowered
Net Interest ExpenseFY 2025~$105M $95–$100M Lowered (favorable)
Adjusted Tax RateFY 202527% 27% Maintained
Cost Savings (gross)FY 2025~$75M ~$75M Maintained
Tariff net direct impactFY 2025“Fairly immaterial after mitigation” in Feb guide ~$25M net headwind; ~$0.25 per share New headwind
Dividend per shareCurrent—Raised to $0.35 (May 2, 2025) Raised

Earnings Call Themes & Trends

TopicQ3 2024 (Nov)Q4 2024 (Feb)Q1 2025 (Apr)Trend
Tariffs/MacroNot in guidance; cautious outlook; logistics/currency headwinds Initial 2025 guide included China tariffs and cautious demand; Canada/Mexico not included Tariffs central; ~$150M gross annualized cost; ~$25M net in 2025; full run-rate offset by year-end via pricing/surcharges Headwind intensified; mitigation accelerating
Supply chain/logisticsSpike in logistics cost impacted margins Expect higher costs into year-end; footprint investments driving duplicative costs LIFO accounting amplifies timing; Mexico belts capacity ramp; Fort Scott closure in Q3 Structurally improving H2; near-term drag
Renewable energy (Wind)Stabilizing at low levels; pricing pressure in China; selective participation Flattish expected in 2025 Up significantly off low base in Q1; now mid-single-digit growth expected for 2025 Improving from trough
Regional trendsEurope weakest; Americas resilient; India strong Europe softness persists; sequential step-up Q1 expected Lower demand in Europe/Americas; Asia up (wind); backlog up low single digits QoQ Stabilizing; Asia improving
PricingPositive but modest; distribution outperformed OE Slightly higher pricing planned; flattish overall in 2025 Actively repricing portfolio to pass tariffs; industry prices rising in U.S.; aiming to hold share Firming with tariff pass-through
Portfolio (Auto OE)Portfolio review contemplated Cost/margin focus; capital-light initiatives Targeting >50% of auto OE for exit/restructure by 2027; margin uplift expected in 2026–27 Strategic pruning accelerating
Cost reductionsCost actions; margin protection planned $75M cost savings; 40% H1/60% H2 phasing Reaffirmed $75M; urgency on execution Ramping through year
M&A/CGICGI acquired; accretive CGI accretive to margins; ~1% revenue contribution CGI contributed ~$4M adj EBITDA in Q1; accretive Consistent accretion

Management Commentary

  • “We are quickly responding and actively passing the cost into the market through repricing the portfolio… We expect to fully offset the cost impact on a run rate basis by the end of the year, and we would expect to eventually recover margin on the incremental cost as well.” — Richard Kyle .
  • “Our revised outlook implies that our full year consolidated adjusted EBITDA margin will be in the mid- to high 17% range… includes a net unfavorable direct impact from tariffs of $25M.” — Phil Fracassa .
  • “We are focused on winning in the marketplace… operating with excellence and creating shareholder value… portfolio review has us focused on a significant portion of our automotive OE business.” — Richard Kyle .

Q&A Highlights

  • Pricing/tariffs: Company and competitors raising prices; bearing prices increasing globally (especially U.S.). LIFO accounting accelerates tariff cost recognition; majority of mitigation via pricing/surcharges with supply chain tactics limited .
  • Renewable energy: Momentum improving; wind orders stabilized; 2025 now mid-single-digit growth vs prior “flat”; aftermarket opportunity remains attractive .
  • Auto OE portfolio: Targeting more than half of auto OE (≈8% of 2024 sales) for restructuring/exit; expected to be accretive to margins in 2026–27 .
  • Footprint: Fort Scott not fully closed; negative to IM margins in Q1; step-change improvement from Q3; belts out of Mexico are USMCA compliant, limiting tariff exposure .
  • Demand/order book: April revenue/backlog in line; no notable pre-buy ahead of tariffs; backlog up low single digits sequentially vs Q4 .

Estimates Context

MetricQ3 2024 ConsensusQ3 2024 ActualSurpriseQ4 2024 ConsensusQ4 2024 ActualSurpriseQ1 2025 ConsensusQ1 2025 ActualSurprise
Revenue ($USD)$1,117.98M*$1,126.8M +$8.8M$1,066.14M*$1,073.6M +$7.5M$1,127.30M*$1,140.3M +$13.0M
Adjusted/Primary EPS ($)$1.376*$1.23 -$0.15$0.990*$1.16 +$0.17$1.422*$1.40 -$0.02
# of Estimates (EPS/Rev)12 / 10*——12 / 10*——12 / 9*——

Values with asterisk were retrieved from S&P Global.

Implications:

  • Q1 2025 revenue beat but EPS was essentially in line to slight miss, supporting a narrative of pricing/mitigation lag and cost headwinds compressing margins despite topline resilience .
  • Estimate adjustments likely to lower FY EPS/margin assumptions given tariff commentary and guidance reset, while revenue paths may drift modestly lower-to-flat vs prior expectations .

Key Takeaways for Investors

  • Tariffs are the primary 2025 swing factor: ~$25M net direct headwind assumed, with full run-rate pricing offset by year-end; watch Q2–Q3 gross margin cadence and surcharge execution for confirmation .
  • Sequential improvement evident in Q1 margins vs Q4, but YoY pressures persist; expect margin recovery to be H2-weighted as cost savings ramp and belt capacity duplication fades .
  • Renewable energy (wind) showing tangible improvement; management now expects mid-single-digit growth in 2025, providing upside to Asia mix if sustained .
  • Strategic portfolio pruning in auto OE (>50% targeted) is a meaningful medium-term margin catalyst (2026–27), with likely capital redeployment to higher-return businesses .
  • Balance sheet flexibility remains solid (Net debt/Adj EBITDA 2.2x); dividend increased to $0.35, and buybacks continued in April, supporting capital return alongside M&A optionality .
  • For near-term trading, focus on tariff pass-through pace (distribution vs OEM), logistics normalization, and Europe demand stabilization; these will drive estimate revisions and multiple support .
  • Non-GAAP adjustments (e.g., CEO succession expenses, restructuring) were material to GAAP-to-adjusted EPS; use adjusted results for core trend analysis while monitoring adjustment run-rate .

Appendix: Q1 2025 Earnings Press Release Highlights (8-K 2.02)

  • Net sales $1.14B (-4.2% YoY); adjusted EPS $1.40; adjusted EBITDA margin 18.2% .
  • Bearings: Sales $760.7M (-5.2% YoY); adj EBITDA margin 20.9% .
  • Industrial Motion: Sales $379.6M (-2.1% YoY); adj EBITDA margin 17.7% .
  • Updated 2025 outlook: GAAP EPS $3.90–$4.40; adjusted EPS $5.10–$5.60; revenue -2.5% to 0%; ~$75M cost savings target reaffirmed .
  • FCF $23.4M; Net debt $1.75B; Net debt/Adj EBITDA 2.2x .

Values with asterisk were retrieved from S&P Global.