Timken Company (the) · NYSE:TKR

Timken Company (the) — KeyBanc Capital Markets 2017 Investor Conference

41 slides from Timken Company (the)'s conference presentation, May 31, 2017

  1. Slide 1: KeyBanc Capital Markets 2017 Investor Conference: Delivering Next-Level Performance

    KeyBanc Capital Markets 2017 Investor Conference MAY 31 - JUNE 1, 2017 Delivering Next-Level Performance

  2. Slide 2: 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

  3. Slide 3: Company Review

    Company Review 3

  4. Slide 4: Why Invest in Timken?

    Why Invest in Timken? 4  Focused, talented and committed management team  Leading market, brand and technical position  Strong track record of results  Sound strategy to: - Grow and improve market position - Deliver next-level financial results  Timken is a compelling investment

  5. Slide 5: We Deliver Premium Bearings & Mechanical Power Transmission Products And Services

    We Deliver Premium Bearings & Mechanical Power Transmission Products And Services For The World’s Equipment And Vehicles 5  Timken engineered bearings feature a broad range of sizes, rolling elements and proprietary designs that are vital to a wide array of customer applications  Timken mechanical

  6. Slide 6: Our Sales Are Diversified Across Several End Market Sectors

    Our Sales Are Diversified Across Several End Market Sectors 6 Percentage of Sales for 2016 20% 16% 9% 9% 8% 8% 8% 5% 5% 4% 4% 4% G E N E R A L I N D U S T R I A L P A P E R / A G G R E G A T E C O N S T R U C T I O N C I V I L A E R O S P A C E M I N I N G M E T A L S A G R I C U L T U R E D E F E N

  7. Slide 7: Portfolio and Channel Position Reflects Progress in Diversifying Offerings

    Portfolio and Channel Position Reflects Progress in Diversifying Product and Services Offerings 7 48% 52% CHANNELS 76% 24% PORTFOLIO OEM Distribution/End-User Bearings MPT/Services Percentage of Sales for 2016

  8. Slide 8: Growth-Creating Megatrends Will Fuel Opportunities Going Forward

    Growth-Creating Megatrends Will Fuel Opportunities Going Forward 8 URBANIZATION INFRASTRUCTURE DEVELOPMENT SUSTAINABILITY & EFFICIENCY ENERGY POPULATION GROWTH

  9. Slide 9: Focus on Bearings & Mechanical Power Transmission Opens Up Significant Additional Opportunity

    Focus on Bearings & Mechanical Power Transmission Opens Up Significant Additional Opportunity 9 $10B TRB* $3B Mechanical Power Transmission Products and Services Space $70B Bearings *TRB = Tapered roller bearings

  10. Slide 10: Mobile Industries Segment: A Balanced & Attractive Market Mix

    Mobile Industries Segment: A Balanced & Attractive Market Mix Across Mobile End Markets 10 29% 25% 18% 14% 14% Automotive Off-Highway Rail Aerospace Heavy Truck MARKET SECTOR MIX (SALES) SALES $1.45 billion EBIT MARGIN* 6.0% ADJUSTED EBIT MARGIN* 9.6% PRODUCT PORTFOLIO Engineered bearings, mechanica

  11. Slide 11: Process Industries Segment: Industry-Leading Portfolio Serving OEMs & Aftermarket

    Process Industries Segment: Industry-Leading Portfolio Serving OEMs & Aftermarket 11 76% 24% Distribution/End User OEM CHANNEL MIX (SALES) PRODUCT PORTFOLIO Engineered bearings, mechanical power transmission products and related services SALES $1.22 billion EBIT MARGIN* 12.2% ADJUSTED EBIT MARGIN* 1

  12. Slide 12: A Growing Portfolio of Quality Brands

    A Growing Portfolio of Quality Brands 12

  13. Slide 13: We Have Strong Global Capabilities

    2016 SALES BY GEOGRAPHY We Have Strong Global Capabilities 28 countries 73 plants and service centers 58 sales offices 14K associates 25 logistics centers 13 60% North America 17% Europe, Middle East, Africa 16% Asia Pacific 7% Latin America

  14. Slide 14: Proven Strategy to Drive Next-Level Performance

    OPERATE WITH EXCELLENCE  Drive enterprise-wide Lean and continuous improvement efforts  Build a more cost-effective global manufacturing footprint  Deliver efficiencies across our supply chains  Optimize processes and SG&A efficiency DEPLOY CAPITAL TO DRIVE SHAREHOLDER VALUE  Invest in organic

  15. Slide 15: Our Actions Are Driven by the Timken Business Model

    Our Actions Are Driven by the Timken Business Model 15 Challenging Applications Aftermarket & Rebuild Fragmentation High Service Requirements Markets Supported by Strong Macros Technology & Innovation Business Capabilities Operational Excellence Talent T I M K E N C O M P E T I T I V E D I F F E R E

  16. Slide 16: Timken's Differentiated Capabilities Will Drive Outgrowth

    Timken’s Differentiated Capabilities Will Drive Outgrowth 16 While macro trends change and customer needs evolve, technical differentiation and customer service continue to be highly valued in marketplace and critical to our success  Resources and capabilities drive technical differentiation betwee

  17. Slide 17: Constructing Our "Footprint for the Future"

    64% 26% 10% Constructing Our “Footprint for the Future” 17  Expand capacity in high- growth, low-cost geographies  Regional manufacturing hubs in Americas, Asia and Europe  Continually implementing state-of-the-art processes and technologies 2007 Americas EMEA Asia-Pacific TRANSFORMING OUR BEARIN

  18. Slide 18: Operational Excellence: SG&A Expense

    Operational Excellence: SG&A Expense 18 * SG&A as a percentage of sales excludes the impact of the change to mark-to-market accounting for pensions.  Driving Lean principles across the organization  Leveraging best-cost locations  Streamlining the organization  Part of our culture 18.0% 16.9% 20

  19. Slide 19: Financial Review and Capital Allocation

    Financial Review and Capital Allocation 19

  20. Slide 20: 1Q17 Off to Strong Start with Return to Top-Line Growth

    1Q17 Off to Strong Start with Return to Top-Line Growth  Sales up ~3% – Benefiting from improving industrial markets and recent acquisitions  Adjusted EBIT margin at 9.9%, up 30 bps from 1Q16  Adjusted EPS of $0.55 per share, up 10% from 1Q16  Ended the quarter with 27% net debt to capital $684

  21. Slide 21: Segment 1Q17: Improving End Markets Drive Increased Demand

    MOBILE INDUSTRIES 1Q17: Improving End Markets Drive Increased Demand  Sales roughly flat - Improved off-highway demand (mining and agriculture) - Rail still weak; lower aerospace shipments  Adjusted EBIT margin at 9.6%, down 20 bps from 1Q16; driven by price/mix 9.8% 9.6% 1Q16 1Q17 NET SALES ($M)

  22. Slide 22: Disciplined Capital Allocation Strategy Enhances Shareholder Value

    Disciplined Capital Allocation Strategy Enhances Shareholder Value 22 INVEST IN CORE BUSINESS Organic Growth and Margin Improvement CapEx Target: ~4% of Sales Pay Attractive Dividend Target: 25-40% Payout Ratio Over Cycle DIVIDEND Return Capital to Shareholders Through Stock Buybacks SHARE REPURCHAS

  23. Slide 23: Investing in Core Business Remains Top Priority for Growth

    Investing in Core Business Remains Top Priority for Growth  Investing in core business remains #1 priority for capital allocation – Highest IRRs  Includes investments in CapEx, R&D, etc.  CapEx – targeted at 4% of sales – Includes normal maintenance (~1% of sales) – Bulk of spend (~3% of sales) a

  24. Slide 24: Rich History of Attractive and Growing Dividend

    Rich History of Attractive and Growing Dividend  Goal: Pay an attractive dividend that grows over time with earnings – Target 25-40% payout (adj. EPS)  In May 2017: – Declared 380th consecutive quarterly dividend o One of the longest active streaks on NYSE – Increased quarterly dividend 4% to 27 c

  25. Slide 25: Proven Track Record of Driving Inorganic Growth

    2012 2011 2013 2014 2015 2010 2016 2017 Lubrication systems Chains, augers Industrial gear drive and repair services Split roller housed unit bearings Spherical roller- bearing steel housed unit and steel couplings Electric motor repair and services Electric motor repair, related services and up-tow

  26. Slide 26: Mechanical Power Transmission Products & Services – Natural Adjacency to Bearings

    Mechanical Power Transmission Products & Services – Natural Adjacency to Bearings  Target products are critical components in mechanical drivetrain - Close proximity to bearing positions - Require same engineering expertise – friction, motion and materials - Often served through same aftermarket ch

  27. Slide 27: M&A: What We Look To Achieve

    27 M&A: What We Look To Achieve DELIVER FINANCIAL VALUE Discipline & Returns Maintain financial discipline & deliver returns  ROIC – earn the cost of capital by Year 3  EPS – accretive in Year 1  Improve mix – margins & growth STRENGTHEN THE COMPANY’S STRATEGIC POSITION Customer Reach Customers,

  28. Slide 28: Share Repurchases Play an Important Role

    Share Repurchases Play an Important Role  Share repurchase an important component of capital allocation strategy  Since June 30, 2014: – Repurchased 14.5M shares for $538M (avg. ~$37/share); ~16% of outstanding shares as of 6/30/14 o Includes 185K shares repurchased in 1Q17  Current share repurch

  29. Slide 29: Capital Deployment Is Focused on Highest Returns

    Capital Deployment Is Focused on Highest Returns  Balanced approach to capital deployment having an impact  Allocated over $2B of capital over past 4 years across all major elements: • ~$500M in CapEx • ~$350M in dividends • ~$370M in acquisitions • ~$870M in share buybacks  Fully funded pensions

  30. Slide 30: Next-Level Financial Framework

    Next-Level Financial Framework 30 Drive Above-Market Top-Line Growth; Improved Mix Robust Earnings and Cash Generation Value-Driven Capital Deployment  Grow top line organically – target 1% above market growth rates  Add >2% top-line growth annually through M&A  Expand operating margins with grow

  31. Slide 31: Next-Level Performance Targets (Over the Cycle)

    31 Next-Level Performance Targets (Over the Cycle) REVENUE GROWTH  Organic: Market growth plus 100 bps “outgrowth”  Inorganic: 200+ bps growth from acquisitions  11-13% adj. EBIT margin (consolidated; over cycle)  Target top end of range (13%); ~300 bps margin improvement from 2016 OPERATING MAR

  32. Slide 32: Timken Is Positioned to Deliver Next-Level Performance

    We will:  Win with customers – innovate, differentiate, deliver value  Outgrow improving end markets through the differentiators of the Timken Business Model  Invest in the business to drive competitive advantage  Generate strong cash flow and create value through capital allocation – core busin

  33. Slide 33: Why Invest in Timken?

    Why Invest in Timken? 33  Focused, talented and committed management team  Leading market, brand and technical position  Strong track record of results  Sound strategy to: - Grow and improve market position - Deliver next-level financial results  Timken is a compelling investment Total Sharehol

  34. Slide 34: Appendix: Additional Slides

    Appendix: Additional Slides 34

  35. Slide 35: 2017 Incentive Compensation Plan

    2017 INCENTIVE COMPENSATION PLAN Compensation Aligned to Shareholder Value Creation ANNUAL LONG-TERM OBJECTIVE Short-Term Operational Business Priorities 3-Year Strategic Business Priorities Long-Term Shareholder Value Creation PARTICIPANTS ~4,000 Associates Globally under the Corporate Plan ~300 Le

  36. Slide 36: Appendix: GAAP Reconciliations

    Appendix: GAAP Reconciliations 36

  37. Slide 37: GAAP Reconciliation: 2016 Segment EBIT & EBIT Margin

    GAAP Reconciliation: 2016 Segment EBIT & EBIT Margin 37

  38. Slide 38: GAAP Reconciliation: 1Q 2017 Consolidated EBIT & EBIT Margin

    GAAP Reconciliation: 1Q 2017 Consolidated EBIT & EBIT Margin 38

  39. Slide 39: GAAP Reconciliation: 1Q 2017 Net Income & EPS

    GAAP Reconciliation: 1Q 2017 Net Income & EPS 39

  40. Slide 40: GAAP Reconciliation: 1Q 2017 Segment EBIT & EBIT Margin

    GAAP Reconciliation: 1Q 2017 Segment EBIT & EBIT Margin 40

  41. Slide 41: GAAP Reconciliation: Net Debt and Net Debt to Capital

    GAAP Reconciliation: Net Debt and Net Debt to Capital 41

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