Sign in

You're signed outSign in or to get full access.

TC

TIMKEN CO (TKR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue was $1.074B, down 1.6% YoY; diluted EPS was $1.01 and adjusted EPS $1.16; adjusted EBITDA margin was 16.6%, with management stating margins were “better than expected” due to favorable mix and improved cost performance .
  • Free cash flow was $124.9M in Q4 (cash from operations $178.5M); full‑year 2024 free cash flow was $305.6M and net debt/adjusted EBITDA improved to 2.0x at year‑end .
  • Initial 2025 outlook: revenue down 4% to 1%, GAAP EPS $4.30–$4.80, adjusted EPS $5.30–$5.80; plan for ~$75M gross cost savings, ≥$400M free cash flow, capex ~3.5% of sales; adjusted EBITDA margin ~18.5% midpoint despite currency/tariff headwinds .
  • Strategic priorities under the new CEO emphasize customer‑centric product design, “local for local” execution, portfolio focus and cross‑selling (e.g., marine with Lagersmit), with expansion in India and belts ramp in Mexico serving as operational levers .

What Went Well and What Went Wrong

  • What Went Well

    • Distribution strength and favorable mix (including a sizable marine project) supported margins; acquisitions (CGI, Lagersmit) were accretive in Q4 .
    • Strong cash generation: Q4 free cash flow $124.9M; full-year CFO $475.6M and FCF $305.6M; net debt/EBITDA improved to 2.0x .
    • Management tone: “We delivered a good finish to the year with strong cash flow,” and “margins are near trough levels,” indicating confidence in margin support from cost actions in 2025 .

  • What Went Wrong

    • Europe remained the weakest region with broad industrial slowdown; Engineered Bearings and Industrial Motion margins compressed on lower volume and higher manufacturing/logistics costs .
    • Adjusted EPS declined 15% YoY and adjusted EBITDA margin fell 130 bps YoY in Q4, reflecting lower demand and currency headwinds .
    • Logistics costs rose versus last year; manufacturing line was unfavorable due to inflation, ramp costs (belts Mexico) and lack of one-time supplier/warranty benefits seen last year .

Financial Results

Consolidated Quarterly Performance

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$1,182.3 $1,126.8 $1,073.6
Diluted EPS ($)$1.36 $1.16 $1.01
Adjusted EPS ($)$1.63 $1.23 $1.16
Adjusted EBITDA ($USD Millions)$230.2 $190.0 $178.2
Adjusted EBITDA Margin (%)19.5% 16.9% 16.6%
Net Income Margin (%)8.1% 7.3% 6.6%

Q4 Year-over-Year and Sequential Context

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$1,091.2 $1,126.8 $1,073.6
Diluted EPS ($)$0.83 $1.16 $1.01
Adjusted EPS ($)$1.37 $1.23 $1.16
Adjusted EBITDA Margin (%)17.9% 16.9% 16.6%

Segment Breakdown (Q4 2024 vs Q4 2023)

SegmentNet Sales ($USD Millions) Q4 2023Net Sales ($USD Millions) Q4 2024Adjusted EBITDA ($USD Millions) Q4 2023Adjusted EBITDA ($USD Millions) Q4 2024Adjusted EBITDA Margin (%) Q4 2023Adjusted EBITDA Margin (%) Q4 2024
Engineered Bearings$724.2 $707.7 $132.5 $122.0 18.3% 17.2%
Industrial Motion$367.0 $365.9 $81.6 $70.7 22.2% 19.3%
Consolidated$1,091.2 $1,073.6 $195.4 $178.2 17.9% 16.6%

KPIs

KPIQ2 2024Q3 2024Q4 2024
Cash from Operations ($USD Millions)$124.6 $123.2 $178.5
Free Cash Flow ($USD Millions)$87.3 $88.2 $124.9
Net Debt / Adjusted EBITDA (x, trailing)1.9x 2.1x 2.0x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growth (YoY)FY 2025N/ADown 4% to 1% (incl. currency headwind) New
GAAP EPSFY 2025N/A$4.30–$4.80 New
Adjusted EPSFY 2025N/A$5.30–$5.80 New
Adjusted EBITDA MarginFY 2025N/A~18.5% at midpoint (implied by EPS outlook) New
Free Cash FlowFY 2025N/A≥$400M New
CapExFY 2025N/A~3.5% of sales New
Net Interest ExpenseFY 2025N/A~$105M New
Adjusted Tax RateFY 2025N/A~27% New
Cost SavingsFY 2025N/A~$75M gross savings; ~40% 1H / 60% 2H phasing New
Dividend per shareQ1 2025$0.34 (Nov 2024) $0.34 (Mar 7, 2025 payable) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Europe demand weaknessEMEA down 12% (Q2); lower Europe demand cited (Q3) Europe remains weakest; down ~11% with broad sector pressure Persistent weakness
Tariffs/macroLimited in Q2/Q3 disclosures10% China tariff included; Canada/Mexico potential; mitigation via pricing/surcharges/sourcing Emerging headwind; mitigation planned
Renewable energy (China wind)Significant decline; stabilization indications (Q2) Flattish for 2025; rate of decline moderated in Q4 Stabilizing at lower run-rate
Distribution (aftermarket)Strength globally ex-Europe (Q2) Americas up ~2%; inventory levels healthy; flattish outlook in 2025 Resilient/steady
Logistics costsHeadwinds emerging (Q2) Higher vs LY; pressure on margins persists Worsening then persistent
Customer-centric/local-for-localFootprint actions (Mexico/India), operational excellence (Q2) Emphasis on tailoring products by region; engineering engagement with customers Elevated focus under new CEO
Cross-selling (e.g., marine/Lagersmit)Not highlightedBroader go‑to‑market; marine wins and accretive margins New initiative
India expansionIndia growth strong (Q2) Bharuch plant expansion to open; supports share gains Continuing expansion

Management Commentary

  • “We delivered a good finish to the year with strong cash flow... Our diverse product portfolio, differentiated technology, and performance culture create a strong foundation for profitable growth led by customer-centric innovation.” — Tarak Mehta, President & CEO .
  • “We believe margins are near trough levels... We expect margins to be supported by cost-reduction actions and are planning to generate higher free cash flow with improved working capital performance.” — Tarak Mehta .
  • “Adjusted EBITDA margins were 16.6%... better than expected due to favorable mix and improved cost performance... acquisitions continue to perform well.” — CFO Philip Fracassa .
  • “We expect adjusted EPS in the range of $5.30 to $5.80 [FY25]... consolidated adjusted EBITDA margin will be around 18.5% at the midpoint, flat with 2024 despite lower organic sales and a sizable headwind from currency.” — CFO .

Q&A Highlights

  • Outlook conservatism: Despite ISM inflection and distributor activity, management is cautious given Europe weakness; sees stability elsewhere but will not model recovery until visible .
  • Tariffs: 10% China tariff included and expected to be immaterial after mitigation; Canada/Mexico would be a near‑term headwind (mid‑single‑digit $M per month), mitigated via pricing/surcharges, sourcing and supply chain changes over 2–3 quarters, as in 2018 .
  • Cost savings phasing: ~$75M gross savings with ~40% realized in 1H and ~60% in 2H; ~80/20 skew to COGS vs SG&A; ~two‑thirds Bearings / one‑third Industrial Motion; ~$20M carry‑over into 1H 2026 run-rate .
  • Manufacturing cost bridge: Q4 manufacturing line unfavorable largely due to non‑recurring supplier/warranty benefits and capitalized variances last year; ongoing inflation and Mexico ramp costs weighed .
  • Renewable energy: Stabilizing with flattish 2025 expectations; competitive price pressure acknowledged but share stabilizing; portfolio changes aim to improve profitability and customer fit .

Estimates Context

  • S&P Global consensus for Q4 2024 (EPS, revenue) was unavailable at time of analysis due to SPGI request limits; therefore, formal beat/miss vs Wall Street consensus cannot be determined today. Adjusted EPS of $1.16 was down 15% YoY but cited by management as above internal expectations .
  • We will update beat/miss status once S&P Global consensus becomes available.

Key Takeaways for Investors

  • Cost actions and mix improvements underpin margin resilience; with ~18.5% adjusted EBITDA margin guided at FY25 midpoint despite currency/tariff headwinds, execution on ~$75M savings is the near‑term swing factor .
  • Europe remains the primary risk to volumes; Americas/India strength and distribution resilience partially offset region‑specific weakness .
  • Free cash flow inflects higher in 2025 (≥$400M) on working capital improvement and lower capex (~3.5% of sales), supporting buybacks and accretive bolt‑on M&A even without top‑line growth .
  • Tariff mitigation playbook (pricing/surcharges/sourcing) limits earnings risk; watch timing lags at OEMs and potential demand elasticity in worst‑case scenarios .
  • Strategic pivot to customer‑centric, local‑for‑local product design, and cross‑selling (marine/Lagersmit) should lift growth/mix over time; belts Mexico ramp and India plant expansion are tangible enablers .
  • Segment margins compressed YoY (EB: 17.2%, IM: 19.3% in Q4), but accretive acquisitions and cost programs support recovery potential when volumes normalize .
  • Dividend maintained at $0.34/share; long dividend streak underscores capital returns consistency amid cycle uncertainty .