Slide 1: 2Q 2015 Earnings Investor Presentation
2Q 2015 Earnings Investor Presentation July 30, 2015
Slide 2: Earnings Call Detail
EARNINGS CALL DETAIL Timken 2Q 2015 Earnings Conference Call Conference Call: Thursday, July 30, 2015 11:00 a.m. Eastern Time Live Dial-In: 800-289-0498 or 913-312-0839 (Call in 10 minutes prior to be included.) Conference ID: Timken Earnings Call Conference Call Replay: Replay Dial-In available thr
Slide 3: Forward-Looking Statements Safe Harbor and Non-GAAP Financial Information
FORWARD-LOOKING STATEMENTS SAFE HARBOR AND NON-GAAP FINANCIAL INFORMATION Certain statements in this presentation (including statements regarding the company's forecasts, beliefs, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the
Slide 4: Agenda
AGENDA ● Introduction Shelly Chadwick – Vice President, Treasury & Investor Relations ● Overview & Business Update Rich Kyle – President & CEO ● Financial Review Phil Fracassa – Executive Vice President & CFO ● Question/Answer Session 4
Slide 5: 2Q 2015 Highlights
2Q 2015 HIGHLIGHTS ● Sales of $728 million decreased 8% from prior year, down 3% excluding currency of 5% ‒ Process Industries sales down 1%; up 4% excluding currency of 5% ‒ Mobile Industries sales down 13%; down 8% excluding currency of 5% ● Net income per share from continuing operations of $0.43
Slide 6: 2015 Outlook Update
2015 OUTLOOK UPDATE Sales $2.95 Bil. $2.85 Bil. Markets / Penetration +1% -2 to -3% •Down markets with modest outgrowth Currency -5% -5% Total -4% -7 to -8% Earnings (EPS) $2.30- $2.40 $2.10- $2.20 Currency Impact ~$(0.35) ~$(0.35) EBIT Margin ~11.5% ~11% 6 April Outlook July Outlook Change Reflects
Slide 7: Our Focus
OUR FOCUS 7 ● Remain flexible to respond to the market environment ● Drive margin enhancement/competitiveness initiatives - Operational excellence - Mix - SG&A efficiency ● Continue to build our pipeline of outgrowth initiatives ● Capital Allocation
Slide 8: Timken UC-Series Ball Bearing Housed Units
Launched new product line designed to help improve efficiencies through: • Increased equipment uptime and reduced maintenance cost • Robust sealing designed for the most demanding environments • Wide range of ready-to- mount units TIMKEN UC-SERIES BALL BEARING HOUSED UNITS 8
Slide 9: Financial Review
Stronger. Financial Review
Slide 10: 2Q 2015 Financial Highlights – Sales
● Sales of $728 million, down 8% from a year ago ‒ Excluding currency impact of 5%, sales declined 3% ‒ Decline driven by weakness across most end markets partially offset by growth in wind, industrial services, military marine and rail 2Q 2015 FINANCIAL HIGHLIGHTS – SALES 2Q ’15 2Q ’14 $728.0 $789.
Slide 11: 2Q 2015 Financial Highlights – EBIT
2Q 2015 FINANCIAL HIGHLIGHTS – EBIT 2Q ’15 2Q ’14 $728.0 $789.2 $ B/(W) Sales % B/(W) $(61.2) (7.8)% 205.1 233.6 Gross Profit 126.1 136.8 SG&A 5.4 Impairment & restructuring $89.9 EBIT ($ Millions) % of sales 17.3% 17.3% % of sales 28.2% 29.6% (140) bps -- bps Note: See Appendix for reconciliation o
Slide 12: 2Q 2015 Financial Highlights – Adjusted EBIT
- Impairment & restructuring(1) - Pension settlement charges 2Q 2015 FINANCIAL HIGHLIGHTS – ADJ. EBIT Note: See Appendix for reconciliation of EBIT, adjusted EBIT, and EBIT and adjusted EBIT margin to their most directly comparable GAAP equivalents. (1) Includes rationalization costs recorded in cos
Slide 13: 2Q 2015 Earnings Comparison
2Q 2015 EARNINGS COMPARISON ● Adjusted EBIT of $80.4 million or 11.0% of sales compares with $96.1 million or 12.2% of sales in the same period a year ago ‒ Negative currency and lower volume, partially offset by favorable material and logistics costs, and lower SG&A expenses 2Q 2014 Currency Volume
Slide 14: 2Q 2015 Net Income and Diluted EPS
2Q 2015 NET INCOME AND DILUTED EPS 2Q ’15 $36.7 $0.43 Net Income from Continuing Operations - Provision (benefit) for income taxes Net Income, after adjustments $49.1 $0.57 $ in Millions EPS 6.3 2Q ’14 $56.5 $0.61 $59.4 $0.65 $ in Millions EPS (3.3) Adjusted tax rate: Quarter 31% 34% - Impairment/re
Slide 15: Mobile Industries
MOBILE INDUSTRIES Heavy Truck Automotive Aerospace Rail ($ Millions) 2015 2014 Change Sales $388.6 $447.2 $(58.6) EBIT $36.0 $42.3 $(6.3) Margin 9.3% 9.5% (20) bps Adjusted(1): EBIT $37.0 $46.7 $(9.7) Margin 9.5% 10.4% (90) bps 2Q YOY Commentary 2Q Performance • Sales down 13%; excluding currency of
Slide 16: Process Industries
PROCESS INDUSTRIES ($ Millions) 2015 2014 Change Sales $339.4 $342.0 $(2.6) EBIT $56.7 $64.8 $(8.1) Margin 16.7% 18.9% (220) bps Adjusted(1): EBIT $57.5 $66.6 $(9.1) Margin 16.9% 19.5% (260) bps 2Q YOY Commentary 2Q Performance • Sales down 1%; excluding currency of almost 5%, sales up almost 4% - D
Slide 17: 2Q 2015 Cash Flow Overview
2Q 2015 CASH FLOW OVERVIEW 2Q ’15 2Q ’14 $37.7 $57.6 Income from Continuing Operations $88.5 $83.8 Cash from operations (16.6) 17.9 Change in working capital (trade) (14.8) (47.3) Income taxes 32.1 (18.0) Depreciation & Amortization $64.7 $54.4 Free cash flow 2.9 Pension/OPEB expense, net of contrib
Slide 18: Capital Allocation
CAPITAL ALLOCATION Capital Structure Cash $256 Debt 638 Net Debt 382 Equity 1,371 Net Capital $1,753 Leverage Total Debt/Capital 32% Net Debt/Capital 22% ($ Millions) Balance Sheet (6/30/15) Target: 30 – 40% Net Debt Net Debt/ Capital $46 $236 $382 0% 10% 20% 30% 40% $0 $200 $400 $600 $800 2013 2014
Slide 19: 2015 Full-Year Outlook
2015 FULL-YEAR OUTLOOK ● Sales: down approximately 7 to 8% ‒ Negative currency of 5% ‒ Declines in aerospace, agriculture, industrial aftermarket and heavy industries, partially offset by growth in wind energy, rail and military marine ● GAAP EPS estimate: $0.30 to $0.40 per diluted share ● Adjusted
Slide 20: Appendix
TIMKEN Appendix
Slide 21: GAAP Reconciliation: Consolidated EBIT & EBIT Margin
GAAP RECONCILIATION: CONSOLIDATED EBIT & EBIT MARGIN 21 (Unaudited) (Dollars in millions, except share data) 2015 Percentage to Net Sales 2014 Percentage to Net Sales Net Income (Loss) 37.7$ 5.2 % 63.8$ 8.1 % Income From Discontinued Operations, net of income taxes — —% (6.2) (0.8)% Provision for in
Slide 22: GAAP Reconciliation: Segment EBIT & EBIT Margin
GAAP RECONCILIATION: SEGMENT EBIT & EBIT MARGIN 22 Mobile Industries (Dollars in millions) Three Months Ended June 30, 2015 Percentage to Net Sales Three Months Ended June 30, 2014 Percentage to Net Sales Three Months Ended March 31, 2015 Percentage to Net Sales Earnings before interest and taxes (E
Slide 23: GAAP Reconciliation: Net Income & EPS
GAAP RECONCILIATION: NET INCOME & EPS 23 (Unaudited) (Dollars in millions, except share data) 2015 EPS 2014 EPS Income (Loss) from Continuing Operations 37.7$ 57.6$ Less: Net Income Attributable to Noncontrolling Interest 1.0 1.1 Net Income (Loss) from Continuing Operations attributable to The Timke
Slide 24: GAAP Reconciliation: Net Debt
GAAP RECONCILIATION: NET DEBT 24 (Unaudited) (Dollars in millions) June 30, 2015 December 31, 2014 December 31, 2013 Short-term debt, including current portion of long-term debt 82.2$ 8.0$ 269.3$ Long-term debt 555.6 522.1 176.4 Total Debt 637.8$ 530.1$ 445.7$ Less: Cash, cash equivalents and restri