Slide 1: 3Q 2015 Earnings Investor Presentation
3Q 2015 Earnings Investor Presentation October 28, 2015
Slide 2: 3Q 2015 Earnings Conference Call Detail
2 3Q 2015 EARNINGS CONFERENCE CALL DETAIL Conference Call: Wednesday, Oct. 28, 2015 9:00 a.m. Eastern Time Live Dial-In: 888-740-6143 or 913-312-1448 (Call in 10 minutes prior to be included) Conference ID: Timken Earnings Call Conference Call Replay: Replay Dial-In available through Nov. 11, 2015 8
Slide 3: Forward-Looking Statements Safe Harbor and Non-GAAP Financial Information
3 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 t
Slide 4: 3Q 2015 Summary
4 3Q 2015 SUMMARY • Sales of $707 million decreased 10% from prior year, or down just under 5% excluding currency of around 5% Process Industries sales down 14%; down 9% excluding currency of 5% Mobile Industries sales down 7%; down 1% excluding currency of 6% • Net income per share from continu
Slide 5: Completed Acquisition of New Belts Business
5 • A leading North American supplier of power transmission belts for industrial, commercial and consumer applications • Business founded over 100 years ago; headquartered in Springfield, MO • Portfolio features more than 20,000 parts engineered for demanding applications • Expected revenue split 65
Slide 6: Quarterly Sales Trend Year-over-Year
6 QUARTERLY SALES TREND YEAR-OVER-YEAR -2% 0% 8% 4% 3% -3% -5% -6% -4% -2% 0% 2% 4% 6% 8% 10% 1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015 All periods are excluding currency See Appendix for reconciliation of net sales excluding the impact of currency to net sales.
Slide 7: Global Macro Environment Weakening
7 GLOBAL MACRO ENVIRONMENT WEAKENING* • Decelerating end markets in China • Industrial distribution weak • De-stocking • Agriculture, mining, metals and oil & gas markets at very low levels • Wind and rail growth moderating • Automotive, heavy truck and Europe stable *Outlook as of October 28, 2015.
Slide 8: Focus on Margin Enhancement and Cash Flow
8 FOCUS ON MARGIN ENHANCEMENT AND CASH FLOW • Ongoing actions to reduce costs Material costs declining; YoY benefit expected to extend into 1H’16 Reducing headcount in manufacturing plants Driving enterprise-wide operational excellence Continued SG&A improvements • Continue to optimize our m
Slide 9: Improving Cost Structure - SG&A
9 IMPROVING COST STRUCTURE - SG&A $141.8 $136.8 $132.2 $131.7 $128.5 $126.1 $120.7 $110 $115 $120 $125 $130 $135 $140 $145 1Q-2014 2Q-2014 3Q-2014 4Q-2014 1Q-2015 2Q-2015 3Q-2015* ($M) Continuing to Reduce Expense While Investing in DeltaX Percent of Sales 19.2% 17.3% 16.8% 17.3% 17.8% 17.3% 17.1% *
Slide 10: Aerospace Restructuring Update
10 AEROSPACE RESTRUCTURING UPDATE Last year, we Launched an Aerospace Performance Improvement Plan: Initiative Status Eliminate the segment and leadership positions, consolidate into Mobile Industries Completed Phase I in Q1’15; Phase II to be complete in Q1’16 Drive margin improvement, operational
Slide 11: 2015 Outlook Update
11 2015 OUTLOOK UPDATE Sales $2.85B $2.83B Organic -2 to -3% -4.5% •Weaker end-market demand and de-stocking Inorganic NM +1.5% • Belts acquisition Currency -5% -5% Total -7 to -8% -8% Earnings (EPS) $2.10-$2.20 $2.05-$2.10 July Outlook October Outlook Change Reflects •Driven by lower volume and mix
Slide 12: Our Focus
12 OUR FOCUS • Respond to uncertain macro environment • Drive margin enhancement/competitiveness initiatives Operational excellence SG&A efficiency • Continue to build our pipeline of out-growth initiatives • Capital Allocation
Slide 13: Financial Review
Stronger. A *. Financial Review
Slide 14: 3Q 2015 Financial Highlights - Sales
14 3Q 2015 FINANCIAL HIGHLIGHTS - SALES • Sales of $707 million, down 10% from a year ago Excluding currency impact of ~5.5%, sales declined ~4.5% Decline driven by weakness across industrial end markets partially offset by growth in automotive and rail, and the benefit of acquisitions 3Q ’15 3Q
Slide 15: 3Q 2015 Financial Highlights - Adjusted EBIT
15 3Q 2015 FINANCIAL HIGHLIGHTS - ADJUSTED EBIT 3Q ’15 3Q ’14 $707.4 $788.0 $ B/(W) Sales % B/(W) $(80.6) (10.0)% 195.4 225.5 Gross Profit 120.7 132.2 SG&A 99.4 Impairment & restructuring $(4.3) EBIT ($M) % of sales 17.1% 16.8% % of sales 27.6% 28.6% (100) bps (30) bps See Appendix for reconciliatio
Slide 16: 3Q 2015 Earnings Comparison
16 3Q 2015 EARNINGS COMPARISON • Adjusted EBIT of $76.2 million or 10.8% of sales compares with $115.2 million or 14.6% of sales in the same period a year ago Driven by the impact of lower volume, unfavorable price/mix and currency, partially offset by favorable material and operating costs and lo
Slide 17: 3Q 2015 Net Income and Diluted EPS
17 3Q 2015 NET INCOME AND DILUTED EPS 3Q ’15 $63.4 $0.75 Net Income from Continuing Operations - Benefit from income taxes Net Income, after adjustments $46.7 $0.55 $M EPS (27.0) 3Q ’14 $(10.9) $(0.12) $70.0 $0.77 EPS (38.6) Adjusted tax rate: Quarter 30% 34% - Impairment/restructuring & other 4.8 1
Slide 18: Mobile Industries
18 MOBILE INDUSTRIES Heavy Truck Automotive Aerospace Rail ($M) 2015 2014 Change Sales $396.4 $427.0 $(30.6) EBIT $43.0 $(63.4)* $106.4 Margin 10.8% (14.8)%* NM Adjusted(1): EBIT $46.1 $56.5 $(10.4) Margin 11.6% 13.2% (160) bps 3Q YOY Commentary 3Q Performance • Sales down 7%; excluding currency of
Slide 19: Process Industries
19 PROCESS INDUSTRIES Original Equipment Aftermarket ($M) 2015 2014 Change Sales $311.0 $361.0 $(50.0) EBIT $43.1 $74.4 $(31.3) Margin 13.9% 20.6% (670) bps Adjusted(1): EBIT $45.4 $74.0 $(28.6) Margin 14.6% 20.5% (590) bps 3Q YOY Commentary 3Q Performance • Sales down 14%; excluding currency of 5%,
Slide 20: 3Q 2015 Cash Flow Overview
20 3Q 2015 CASH FLOW OVERVIEW 3Q ’15 3Q ’14 $64.5 $(10.2) Income from Continuing Operations $140.8 $90.3 Cash from operations (15.2) 28.8 Change in working capital (trade) (13.1) (11.4) Income taxes 32.2 1.0 Depreciation & amortization $119.2 $51.7 Free cash flow 6.9 Pension/OPEB expense, net of con
Slide 21: Capital Allocation
21 $46 $236 $555 0% 10% 20% 30% 40% $0 $200 $400 $600 $800 2013 2014 3Q 2015 2015 2016 Capital Expenditures Dividend Share Repurchases Acquisitions Framework: Capital Structure Cash $170 Debt 725 Net Debt 555 Equity 1,352 Net Capital $1,907 Leverage Total Debt/Capital 35% Net Debt/Capital 29% ($M) (
Slide 22: 2015 Full-Year Outlook
22 2015 FULL-YEAR OUTLOOK • Sales down approximately 8% Negative impact from currency of 5% Declines in agriculture, heavy industries, aerospace and the industrial aftermarket, partially offset by growth in wind energy, rail, military marine and automotive • GAAP EPS estimate of $0.65 to $0.70 p
Slide 23: Appendix
Stronger. Appendix
Slide 24: GAAP Reconciliation: Net Income & EPS
24 GAAP RECONCILIATION: NET INCOME & EPS (Unaudited) (Dollars in millions, except share data) 2015 EPS 2014 EPS Income (Loss) from Continuing Operations 64.5$ (10.2)$ Less: Net Income Attributable to Noncontrolling Interest 1.1 0.7 Net Income (Loss) from Continuing Operations attributable to The Tim
Slide 25: GAAP Reconciliation: Consolidated EBIT & EBIT Margin
25 GAAP RECONCILIATION: CONSOLIDATED EBIT & EBIT MARGIN (Unaudited) (Dollars in millions, except share data) 2015 Percentage to Net Sales 2014 Percentage to Net Sales Net Income (Loss) 64.5$ 9.1 % (21.2)$ (2.7)% Income From Discontinued Operations, net of income taxes — —% 11.0 1.4 % Benefit from in
Slide 26: GAAP Reconciliation: Net Debt
26 GAAP RECONCILIATION: NET DEBT (Unaudited) (Dollars in millions) September 30, 2015 December 31, 2014 December 31, 2013 Short-term debt, including current portion of long-term debt 98.7$ 8.0$ 269.3$ Long-term debt 625.9 522.1 176.4 Total Debt 724.6$ 530.1$ 445.7$ Less: Cash, cash equivalents and r
Slide 27: GAAP Reconciliation: Free Cash Flow
27 GAAP RECONCILIATION: FREE CASH FLOW (Unaudited) (Dollars in millions) 2015 2014 Net cash provided by operating activities from continuing operations 140.8$ 90.3$ Less: capital expenditures (21.6) (38.6) Free cash flow 119.2$ 51.7$ Three Months Ended September 30, Reconciliation of Free Cash Flow
Slide 28: GAAP Reconciliation: Net Sales
28 GAAP RECONCILIATION: NET SALES (Unaudited) (Dollars in millions) March 31, 2013 June 30, 2013 September 30, 2013 December 31, 2013 March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015 Net Sales 763.2$ 791.2$ 731.5$ 749.5$ 736.8$ 789.2$
Slide 29: GAAP Reconciliation: Segmented EBIT & EBIT Margin
29 GAAP RECONCILIATION: SEGMENTED EBIT & EBIT MARGIN (Unaudited) Mobile Industries (Dollars in millions) Three Months Ended September 30, 2015 Percentage to Net Sales Three Months Ended September 30, 2014 Percentage to Net Sales Earnings (loss) before interest and taxes (EBIT) 43.0$ 10.8% (63.4)$ (1