Timken Reports Strong Fourth-Quarter Results to Close Out a Record 2023

Sales of $1.09 billion in the fourth quarter, up 1 percent from last year

Fourth-quarter earnings per share of $0.83; adjusted EPS of $1.37

Record full-year sales of $4.8 billion, up 6 percent from last year

Full-year 2023 EPS of $5.47; record adjusted EPS of $7.05

Full-year net income margin of 8.3 percent; adjusted EBITDA margin of 19.7 percent

Company provides initial estimate for 2024 EPS of $4.90-$5.30, with adjusted EPS of $5.80-$6.20 on lower anticipated demand

The Timken Company (NYSE: TKR; www.timken.com), a global leader in engineered bearings and industrial motion products, today reported fourth-quarter 2023 sales of $1.09 billion, up 0.9 percent from the same period a year ago. The increase was driven by the benefit of acquisitions (net of divestitures), higher pricing and favorable foreign currency translation, partially offset by lower volume across several industrial sectors including wind energy and off-highway.

Timken posted net income in the fourth quarter of $58.7 million or $0.83 per diluted share. This compares to net income of $97.2 million or $1.32 per diluted share for the same period a year ago.

Excluding special items (detailed in the attached tables), adjusted net income in the fourth quarter was $97.3 million or $1.37 per diluted share. This compares to adjusted net income of $98.2 million or $1.34 per diluted share for the same period in 2022. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the quarter was $195.4 million or 17.9 percent of sales, compared with $186.0 million or 17.2 percent of sales in the fourth quarter of last year.

Net cash from operations for the fourth quarter was $128.3 million, and free cash flow was $75.4 million. During the quarter, Timken returned $55.7 million of cash to shareholders through dividends and the repurchase of 450 thousand shares of company stock. In November, the company closed on the previously announced acquisition of iMECH, and in December, Timken completed the acquisition of Lagersmit, which adds engineered sealing solutions to its industrial motion portfolio. Collectively, these two transactions are expected to add around $70 million of pro forma annual revenue and be accretive to company operating margins (excluding acquisition-related costs).

"We delivered excellent results in the fourth quarter to close out another record year for The Timken Company," said Richard G. Kyle, Timken president and chief executive officer. "In 2023, we grew revenue, expanded margins and set a new all-time record for adjusted earnings per share as our team executed well in this dynamic environment. The year also marked several other significant accomplishments, including six acquisitions and increasing our annual dividend for the 10th consecutive year. Through consistent execution of our profitable growth and capital allocation strategies, we continue to scale and enhance our position as a diversified industrial leader and improve our ability to deliver higher levels of performance."

2023 Full-Year Results and Highlights

For 2023, sales were a record $4.8 billion, up 6.1 percent compared with 2022. The increase was primarily driven by the benefit of acquisitions (net) and the impact of higher pricing, partially offset by lower volume and unfavorable foreign currency translation. Organically, 2023 sales were up 1.1 percent versus 2022.

Net income was $394.1 million or $5.47 per diluted share for the year, compared with net income of $407.4 million or $5.48 per diluted share a year ago. The modest year-over-year decrease reflects the impact of lower volume, higher operating costs and interest expense, unfavorable foreign currency, and the impact of higher pension remeasurement, impairment, restructuring and acquisition-related charges, partially offset by the impact of favorable price/mix, lower material & logistics costs, and the net benefit of acquisitions.

Excluding special items (detailed in the attached tables), adjusted net income was $508.1 million or a record $7.05 per diluted share in 2023. This compares with adjusted net income of $480.3 million or adjusted earnings of $6.46 per diluted share in 2022. Adjusted EBITDA for the year was $939.7 million or 19.7 percent of sales, compared with $855.9 million or 19.0 percent of sales in 2022.

Net cash from operations for the full year was $545.2 million, and free cash flow was $357.4 million. Timken ended the year with net debt to adjusted EBITDA at 2.1 times.

Among other highlights in 2023, the company:

Expanded its Industrial Motion segment with the acquisitions of Nadella, Des-Case, Rosa Sistemi and Lagersmit. The company also bolstered its engineered bearings portfolio with the acquisitions of American Roller Bearing and iMECH. In total, Timken allocated $639 million toward these six strategic acquisitions;

Repurchased 3.16 million shares, or over 4 percent of outstanding shares, and increased its quarterly dividend. In 2023, the company achieved 101 straight years of paying quarterly dividends and marked its tenth consecutive year of higher annual dividends. In total, Timken returned $345 million to shareholders during the year through dividends and share repurchases; and

Was named one of America's Most Responsible Companies for the fourth straight year by Newsweek magazine and Statista Inc., and one of the World's Most Ethical Companies® for the 12th time by Ethisphere Institute, reflecting the company's continued commitment to corporate social responsibility and strong core values.

Fourth-Quarter 2023 Segment Results

Engineered Bearings sales of $724.2 million decreased 2.4 percent from the same period a year ago. The decrease was driven by lower volume, partially offset by the benefit of acquisitions (net), higher pricing and favorable foreign currency translation.

EBITDA for the quarter was $123.0 million or 17.0 percent of sales, compared with EBITDA of $129.6 million or 17.5 percent of sales for the same period a year ago. The decrease in EBITDA was driven primarily by the impact of lower volume, higher operating costs and unfavorable foreign currency, partially offset by favorable price/mix, lower material & logistics costs, and the benefit of acquisitions.

Excluding special items, adjusted EBITDA in the quarter was $132.5 million or 18.3 percent of sales, compared with $134.2 million or 18.1 percent of sales in the fourth quarter of last year.

Industrial Motion sales of $367.0 million increased 8.0 percent compared with the same period a year ago. The increase was driven by the benefit of acquisitions (net), higher pricing and favorable foreign currency translation, partially offset by lower volume.

EBITDA for the quarter was $62.6 million or 17.1 percent of sales, compared with EBITDA of $60.4 million or 17.8 percent of sales for the same period a year ago. The increase in EBITDA was driven primarily by favorable manufacturing costs, the benefit of acquisitions and favorable price/mix, partially offset by lower volume and higher acquisition-related charges.

Excluding special items, adjusted EBITDA in the quarter was $81.6 million or 22.2 percent of sales, compared with $64.9 million or 19.1 percent of sales in the fourth quarter of last year.

2024 Outlook

Timken is setting an initial outlook for 2024 revenue to be down in the range of 2.5% to 4.5% in total, as the benefit of acquisitions completed during 2023 is expected to be more than offset by lower anticipated organic revenue based on the current demand environment. The company is planning for earnings per diluted share in the range of $4.90 to $5.30 and adjusted earnings per diluted share in the range of $5.80 to $6.20.

"We are focused on delivering resilient performance in 2024 through softer industrial markets while continuing to advance our proven strategy," said Kyle. "Our team is actively managing costs and driving operational excellence initiatives across the enterprise to mitigate a lower organic revenue outlook. We will also benefit from recent acquisitions and are accelerating integration activities to realize synergies."

Kyle continued, "We expect to deliver solid operating margins and a significant step-up in free cash flow in 2024, which coupled with our strong balance sheet will continue to fuel our profitable growth strategy and capital allocation priorities. We remain confident in our ability to navigate macroeconomic volatility, profitably grow through industrial cycles, and deliver strong returns for shareholders."