The Timken (TKR) Q3 2018 Results - Earnings Call Transcript

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About: Timken Co. (TKR)
by: SA Transcripts

The Timken Co. (NYSE:TKR) Q3 2018 Earnings Call October 30, 2018 9:00 AM ET

Executives

Jason Hershiser - The Timken Co.

Richard G. Kyle - The Timken Co.

Philip D. Fracassa - The Timken Co.

Analysts

Stephen Edward Volkmann - Jefferies LLC

Joseph John O'Dea - Vertical Research Partners LLC

David Raso - Evercore ISI Institutional Equities

Joe Ritchie - Goldman Sachs & Co. LLC

Ross Gilardi - Bank of America Merrill Lynch

Steve Barger - KeyBanc Capital Markets, Inc.

Justin Laurence Bergner - Gabelli Funds LLC

George J. Godfrey - C.L. King & Associates, Inc.

Operator

Good morning. My name is Matt, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I'd like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

Mr. Hershiser, you may begin your conference.

Jason Hershiser - The Timken Co.

Thanks, Matt. And welcome, everyone, to our third quarter 2018 earnings conference call. This is Jason Hershiser, Manager of Investor Relations for the Timken Company. We appreciate you joining us today. If after our call you should have further questions, please feel free to contact me directly at 234-262-7101.

Before we begin our remarks this morning, I want to point out that we have posted on the company's website presentation materials that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link.

With me today are the Timken Company's President and CEO, Rich Kyle; and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from both Rich and Phil before we open up the call for your questions.

During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone an opportunity to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations.

Our actual results may differ materially from those projected or implied due to a variety of factors, which we described in greater detail in today's press release and in our report filed with the SEC, which are available on the timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by The Timken Company. Without expressed written consent, we prohibit any use, recording or transmission of any portion of the call.

With that, I would like to thank you for your interest in The Timken Company, and I will now turn the call over to Rich.

Richard G. Kyle - The Timken Co.

Thanks, Jason, and good morning, everyone. We delivered another excellent quarter. Revenue was up 14% from broad-based market demand with our outgrowth initiatives, strong execution, pricing and acquisitions, all contributing to the revenue result. We delivered $1.06 of adjusted earnings per share, up 49% from 2017, which is a record third quarter. We expanded margins 270 basis points from the prior year, including our fifth consecutive sequential quarterly improvement in Mobile margins in what is typically a seasonally weaker quarter for Mobile.

We generated $114 million in free cash flow. We continue to strengthen our portfolio, closing on three acquisitions and making one small divestiture. And we continue to advance our strategy, invest in our business, and position the company for continued long-term success Overall, it's an excellent quarter and what will be a record year for Timken.

Before I turn to the outlook, I'll expand on some of the results from the quarter and the year. In regards to revenue, we continue to see broad-based growth across most end markets and geographies. In Mobile, off-highway, heavy truck, automotive and aerospace were all strong. In Process, the growth was across nearly all sectors. Geographically, all regions were up. Asia continued to be strong with 18% growth and North America improved to 13% growth. Revenue was also helped modestly from the Cone Drive, Rollon, and ABC acquisitions. We are continuing to win in the marketplace, gain penetration in our markets, and improve the mix of the company.

Slide 6 from the deck highlights some of the areas of our business that are growing faster than our company average in 2018. We've been organically increasing our penetration in the wind market for a decade, going from virtually 0% to around 5% of company revenue. And while 2018 has not been a high-growth market globally for the wind industry, we are having another excellent year. We're confident in both the long-term growth prospects of wind as a market and in our ability to profitably grow in that market.

We just entered the growing solar market in the third quarter with the acquisition of Cone Drive. I'll touch more on Cone Drive in a moment. But we believe Cone Drive, as a part of Timken, is well-positioned to profitably grow in the global solar industry. In bearings, we are continually investing in broadening our product offering and technical solutions. One example is spherical roller bearings. A decade ago, we were a relatively small player with a limited line of products and solutions. Today, we have a broad line of products, a global sales force attacking the market, and excellent technical capability to bring the best solutions to the customers.

We expanded our automatic lubrication systems portfolio in 2017 with the acquisition of Groeneveld, and the combined businesses have been delivering strong organic growth. Groeneveld automatic lubrication systems improved the reliability and reduce the cost of maintaining expensive capital equipment. And in Asia, we grew 18% organically from a combination of outgrowth initiatives that have been taking shape for several years. We remain focused on building our business in Asia, particularly in China and India. There are many other examples how we're profitably expanding, diversifying, and changing the profile of the company.

Switching from revenue to margins and earnings, we faced increased costs in the quarter for material, labor, and tariffs. However, price-cost remained positive in the quarter and year-to-date. Our biggest opportunity to move price was at the beginning of the calendar year, but we also have opportunities to move price throughout the year and we have continued to do exactly that to more than cover input costs.

Additionally, we are partially offsetting cost increases with the carryover from our footprint and operational excellence initiatives from last year as well as the additional cost and productivity improvements we have implemented this year.

On SG&A, we've grown the business double digits two consecutive years and we've added very little structural SG&A cost or head count outside of acquisitions. While there are a lot of moving pieces in both directions in regards to cost, the net is that we have expanded margins 320 basis points from last year.

In regards to capital allocation, in addition to the acquisitions, we purchased 300,000 shares in the quarter, bringing our total for the year to 1.4 million or slightly under 2% of the outstanding shares. Our balance sheet remains strong, and we are confident in the future cash generation of the business. I'll let Phil discuss the balance sheet in more detail in a moment.

On acquisitions, first, a brief comment on our 2017 acquisitions of Torsion Control, PT Tech, and Groeneveld. All three have profitably grown in their first year, have good management teams in place, are making advances in the marketplace, and are stronger today as a part of the Timken Company than they were on their own.

While we just recently closed on Rollon, Cone Drive and ABC Bearings, there have been no surprises, and the acquisitions are off to a great start. ABC Bearings will be relatively quickly integrated into our Timken India business, which will put us in position to expand our presence with local India customers as well as expand our export position. Timken India has a strong and experienced management team to lead this integration as well as lead the now larger Timken India business.

Relative to Cone Drive and Rollon, the management teams for both businesses were successfully leading them prior to the acquisitions, and they are committed to continuing to do so as a part of Timken. We have integration leaders and teams in place working on the synergy plans, and we are already making progress. We're excited to have all three businesses in the portfolio, and all three businesses have strong backlogs that support an outlook for growth.

Turning to the outlook, we expect Q4 to look very similar to Q3 with strong year-on-year comps for revenue, margins and earnings per share, as well as very good cash flow. Our Q3 sequential organic growth of negative 3% in 2018 is the same that it was in 2017. We typically see a decline from Q2 to Q3, it's normal seasonality, and the negative 3% does not imply softness for the fourth quarter or the first quarter of next year, as clearly evidenced by last year's trend.

To address the questions around peak demand in margins, we generally have good visibility demand in the next three months, reasonable visibility six months out, and then after that, generally using customer forecasts as well as forecasting our own macroeconomic trends. The net of all that is that we continue to see strength in our end markets. With two months left in the year, our backlog and demand support strong growth in the fourth quarter and ending the year with a materially higher backlog than we had to start 2018. Customer sentiment is positive on 2019.

Additionally, with the carryover of the price actions we took in 2018 and those we are planning for 2019, we anticipate that we will realize more price next year than we did this year, both in terms of percentage and dollars. We expect that price-cost will again be modestly positive for 2019. And the final point on the revenue outlook, we expect positive benefit in both the fourth quarter and next year from the acquisitions as well as our market outgrowth initiatives.

In regards to margins and profits, we are forecasting a slight degradation in margins in Q4 from Q3 primarily due to seasonality. Speaking specifically to the impact of tariffs, the tariffs cost us about $3 million in the third quarter and we expect that to approximately double before the impact of mitigation actions. We have already begun to mitigate the impact of tariffs, primarily through the shifting of our production or our suppliers' production, as well as through pricing. We expect Q4 to be the peak net impact as mitigation ramps in 2019. We are expecting the tariff situation to remain fluid although our outlook does not assume any further tariffs or rollback of tariffs.

Despite tariffs and other cost input increases, we expanded Mobile margins again for the fifth consecutive quarter and we remain focused on getting to our target of 12% for a full year. In Process, we remained above 20% each quarter this year, and we're focused on growing while staying above the 20% level, including the impact of acquisitions.

In summary for the outlook, we expect a strong Q4 and a very good start to 2019. While we aren't ready to give you specifics on next year, we are planning to grow in 2019 from markets, from acquisitions, from outgrowth, and from price. We believe price-cost will be positive. We also believe we can achieve our 12% Mobile margin target next year while keeping Process above 20%.

I'll now turn it over to Phil for further comments.

Philip D. Fracassa - The Timken Co.

Thanks, Rich. And good morning, everyone. For the financial review, please turn to slide 11. Timken delivered strong performance in the third quarter, and you can see a summary of our results on this slide. Revenue came in at $881 million, up around 14% from last year. Adjusted EBIT in the quarter was $127 million or 14.4% of sales, with margins expanding 270 basis points from last year.

Sequentially, we held adjusted EBIT margins flat with the second quarter despite seasonally lower volume and the impact of tariffs. And finally, adjusted earnings came in at $1.06 per share, up 49% from last year and a record for the third quarter.

Turning to slide 12, let's take a closer look at our third quarter sales performance. Organically, sales were up around 14%, reflecting continued strength across most end markets plus the benefit of outgrowth initiatives and positive pricing.

Acquisitions added just over 2% to the top line. This includes the Cone Drive, ABC Bearings, and Rollon acquisitions, all of which closed in the third quarter. And currency translation was negative in the quarter by around 2% due to the strengthening U.S. dollar.

Sequentially, sales were down around 3% from the second quarter as a result of seasonally lower volume and negative currency, offset partially by the benefit of the three acquisitions. I would point out that we experienced a very similar seasonal decline last year.

On the right-hand side of the slide, we outline organic growth by region. So excluding both currency and acquisitions. You can see that all regions were up double digits in the quarter organically. Let me touch on each region briefly.

In North America, our largest region, we were up 13%, with most sectors up in the quarter led by distribution, services, aerospace, and automotive. In Asia, we were up 18%, as we saw continued strength across most end markets and sectors led by wind energy, rail, and off-highway. In Europe, we were up 11%, with notable gains in the wind energy and general and heavy industrial sectors. And finally, in Latin America, we were up 21%, driven mainly by growth in rail and industrial distribution.

Turning to slide 13. Adjusted EBIT in the quarter was $127 million, up from $90 million last year. Adjusted EBIT was 14.4% of sales, up 270 basis points from a year ago. The increase in EBIT in the quarter was driven by higher volume, favorable price-mix, and the benefit of acquisitions, offset partially by higher material and logistics costs. This includes an impact of roughly $3 million in the quarter from new tariffs.

Based on everything that's been enacted to-date, we expect the new tariffs to negatively impact us by about $6 million to $7 million per quarter going forward. This is before any mitigating tactics. As Rich indicated, with mitigating tactics, including pricing, we would expect to fully offset this impact in 2019.

Let me comment further on some of the other items. As I mentioned, price mix was positive in the quarter. Pricing was positive in both segments, but with more in Process Industries than Mobile. Mix was a headwind, mostly in Process, as strong OE sales outpaced distribution in the quarter just a bit. Price-cost continued to be positive this past quarter despite continued material cost inflation. We expect price-cost will be positive again in the fourth quarter and positive for the full year. Our higher logistics cost, ex-tariff, were mostly volume-driven, as premium freight has moved back to more normal levels.

Manufacturing performance was roughly flat in the quarter, as the benefits of higher demand were offset by the impact of a smaller inventory build than we saw last year. Other manufacturing costs were roughly neutral as well, with the benefits of our footprint and operational excellence initiatives mostly offsetting the impact of cost inflation during the period. And finally, SG&A and other income also came in roughly flat, as we continue to leverage our SG&A cost structure as we grow. Excluding special items, SG&A expense improved 170 basis points year-on-year as a percentage of sales.

On Slide 14, you'll see that we posted net income of $72 million or $0.91 per diluted share for the quarter on a GAAP basis. On an adjusted basis, we earned $1.06 per share, up 49% from the $0.71 per share we earned last year and a record for the third quarter. In the third quarter, our GAAP tax rate was 25.7%. Excluding discrete and other items, our adjusted tax rate in the quarter was 27%, down from roughly 30% last year and in line with our expectations for 2018, post U.S. tax reform. We expect our adjusted tax rate to remain 27% for the full year.

Now, let's take a look at our business segments starting with Process Industries on Slide 15. Process Industries sales for the third quarter were $417 million, up around 20% from last year. Organically, sales were up $60 million or about 17%, reflecting broad strength across all markets and sectors, as well as the impact of positive pricing. Acquisitions added just over 4% to the top-line while currency translation was unfavorable by almost 2%.

Looking a bit more closely at the markets, in the distribution channel, the strength was broad-based with all regions up year-on-year led by North America. In the general and heavy industrial sectors, we also saw very broad growth across end markets and regions, with notable gains in metals, oil and gas, aggregate cement, and industrial machinery. In services, we had higher revenue from an improving market for high-speed gearbox repair and other MRO projects. And finally, wind energy was up in the quarter, mostly in Asia and Europe, as we continue to win business and grow with our customers in an otherwise flattish market environment.

For the quarter, Process Industries EBIT was $82 million. Adjusted EBIT was $84 million or 20.1% of sales compared to $62 million or 17.7% of sales last year. The increase in earnings was driven by higher volume and favorable price mix, offset partially by higher material and logistics costs, including tariffs, as well as higher SG&A expenses to support the higher sales. Process Industries adjusted EBIT margins were up 240 basis points year-on-year.

Our outlook for Process Industries is for 2018 sales to be up approximately 24%. Organically, we're planning for sales to increase around 18.5%, driven by broad growth across all markets and sectors as well as the impact of share gains and positive pricing. We expect the acquisitions to add about 5.5% to the top-line, and we now expect currency translation to be roughly flat for the full year.

Now let's turn to Mobile Industries on Slide 16. In the third quarter, Mobile Industries sales were $464 million, up around 10% from last year. Acquisitions added around 1% to the top-line while currency translation was unfavorable by about 2%. Organically, sales were up $46 million or around 11%, reflecting growth in the aerospace, automotive, off-highway and heavy truck sectors. Rail was up slightly in the quarter as well.

Looking a bit more closely at the markets, aerospace and automotive were up versus last year as a result of higher shipments in North America. The higher automotive shipments were due in part to some customer push-out from the second quarter to the third quarter. Overall demand in the automotive sector where we participate remains robust. Our growth in aerospace was driven mainly by increased defense demand although commercial aerospace shipments were up as well. The improvement in off-highway demand was driven mainly by growth in the mining and construction sectors. And the increase in heavy truck was broad based with all regions up versus last year, including North America where Class A truck builds remained strong.

Mobile Industries EBIT was $51 million in the quarter. Adjusted EBIT was $53 million or 11.3% of sales compared to $38 million or 8.9% of sales last year. The increase in earnings reflects the impact of higher volume and favorable price mix, offset partially by higher material and logistics costs. Mobile Industries adjusted EBIT margins were up 240 basis points year-on-year and also up 10 basis points sequentially from the second quarter despite seasonally lower volume.

Our outlook for Mobile Industries is for 2018 sales to be up approximately 16%. Organically, we're planning for sales to increase around 10.5%, driven by growth across all sectors led by off-highway, rail and heavy truck. We expect the acquisitions to add about 5.5% to the top-line, and we now expect currency translation to be roughly flat for the full year.

Turning to Slide 17, you'll see we generated strong operating cash flow of $137 million during the quarter. After CapEx spending, our third quarter free cash flow was $114 million compared to $6 million last year. The increase in free cash flow was driven by higher earnings in the quarter as well as improved working capital performance versus the year-ago period.

You can see some highlights in regards to capital allocation at the bottom of this slide. We spent $23 million on CapEx during the quarter or just over 2.5% of sales. In addition, we returned $35 million of capital to our shareholders, including the payment of our 385th consecutive quarterly dividend and the repurchase of 300,000 shares early in the quarter. Note that we have just under 8 million shares remaining on our current buyback authorization, and we made the three acquisitions, which Rich and I have already covered.

Finally, we ended the quarter with net debt at just under $1.6 billion or 49% of capital. As expected, this is up from the second quarter as a result of the acquisitions, which should come down in the fourth quarter with our strong cash generation.

When you pro forma our full year of EBITDA from the acquisitions, net debt to adjusted EBITDA was about 2.4 times at September 30. Timken's balance sheet remains strong and, coupled with our cash generation, will continue to provide opportunities for us to allocate capital to drive further shareholder value.

Next, let me review our outlook on Slide 18. We're now planning for 2018 revenue to be up roughly 19.5% in total versus 2017. Organically, we expect sales to increase about 14%, driven by broad growth across most end markets as well as the impact of outgrowth initiatives and positive pricing. Acquisitions should at around 5.5% to the top-line in 2018, and currency translation should be roughly flat for the full year.

On the bottom line, we now estimate that earnings will be in the range of $3.98 to $4.03 per diluted share on a GAAP basis. Excluding the anticipated net special charges totaling $0.20 per share, we expect record adjusted earnings per share in the range of $4.18 to $4.23, which at the midpoint of our guidance is up 60% from last year.

The midpoint of our 2018 outlook implies that adjusted EBIT margins will expand by roughly 300 basis points over 2017. This would put us at around 14% margins for the full year, a great accomplishment for the company. And we believe we still have some room to go from here. And finally, we estimate that we'll generate free cash flow of around $260 million in 2018 or almost 80% of adjusted net income.

So, to conclude, we are generating next level financial performance and advancing our strategy. And our balance sheet remains strong. Most importantly, we're excited about the company's future and look forward to the opportunities that lie ahead in 2019 and beyond.

This concludes our formal remarks, and we'll now open the line for questions. Operator?

Question-and-Answer Session

Operator

Thank you. And we will go first to Steve Volkmann with Jefferies.

Stephen Edward Volkmann - Jefferies LLC

Hi. Good morning, guys.

Richard G. Kyle - The Timken Co.

Good morning, Steve.

Philip D. Fracassa - The Timken Co.

Good morning, Steve.

Stephen Edward Volkmann - Jefferies LLC

So I guess the first question that I've been getting is just it seems like you tweaked down your organic revenue outlook just slightly and maybe that's just rounding or something, but I'm just curious the thinking behind that.

Richard G. Kyle - The Timken Co.

Let me start there and Phil can add some detail if he chooses to. As I said in my comments, we have pretty good visibility three months to six months out, but obviously there's still a range of air around that and a bandwidth around that. And we started a couple of years ago to give a precise number for a revenue forecast versus a range and really just trying to drive to the middle of where we saw the revenue coming.

So we – of the 150 basis points, about 50 basis points of that was currency, 100 basis points spread across the rest. And I would say, Steve, is a little bit across a wide range of markets, but I would say all within a normal bandwidth of air. And I would say, if anything, maybe we were a little too optimistic because if you look at the second quarter to third quarter sequential, the minus 3% is really pretty darn good when you look over our history.

Philip D. Fracassa - The Timken Co.

Yeah. I mean, I would agree, Steve. I mean, clearly more of just a forecast adjustment for us and what I would call, I mean, any market adjustment or any market move. The markets remain strong. As Rich said, the 1% decline in the organic, some of that was in the third quarter or some of it in the fourth quarter. No market in particular, as Rich said. Still expecting some seasonality in the fourth quarter. But again, I think our guidance implies we'll be up 12% to 13% organically in the fourth quarter, which is really strong considering comps are getting a little bit tougher, particularly in Mobile.

Richard G. Kyle - The Timken Co.

I would add, as you know, Steve, we – our fourth quarter is generally our hardest to forecast precisely because of what happens often with our customers with inventory management and the 12% to 13% that we're guiding to. Obviously it's still a forecast. So, as we lowered the outlook a little bit, obviously we could always come in above or below that (27:20).

Stephen Edward Volkmann - Jefferies LLC

Great. I agree. Sort of a minimal change, but unfortunately that's the market we live in today. So – you actually kind of prefaced my next follow-on, which is just around the tariffs and a couple of things, Rich, if I could. Have you factored in sort of the step-up that we're going to see at year-end? And how do you think this impacts inventory since you just mentioned that? Do you think customers could sort of pre-buy sort of ahead of year-end or maybe they don't and does it change the way you think about your inventory into year-end as well?

Richard G. Kyle - The Timken Co.

We have factored in all known planned tariffs and no planned rollbacks. I think when they started, we were hopeful that maybe some of this would be temporary. I think in our minds now, we're building our mindset around to expect this for the full year of 2019. So we, and I believe our customers as well, have stepped up their activity to mitigate it. I don't think it will have a meaningful impact on our revenue in regards to the timing of buy-aheads or resourcing, nor do I think we're taking any specific actions to buy ahead.

I think on the revenue in general, as a large producer of bearings in the U.S., I think short-term, there's probably some upside for us in market share where we don't produce in a region where that is getting impacted by tariffs and somebody is looking to mitigate the impact of that. But I think even that will be gradual and not a big impact on our organic revenue numbers.

Stephen Edward Volkmann - Jefferies LLC

Great. That's good color. I appreciate it. I'll pass it on. Thank you.

Richard G. Kyle - The Timken Co.

Thanks, Steve.

Philip D. Fracassa - The Timken Co.

Thanks, Steve.

Operator

And our next question will come from Joe O'Dea with Vertical Research.

Joseph John O'Dea - Vertical Research Partners LLC

Hi, good morning.

Richard G. Kyle - The Timken Co.

Good morning, Joe.

Philip D. Fracassa - The Timken Co.

Good morning, Joe.

Joseph John O'Dea - Vertical Research Partners LLC

First question, just on pricing and trying to calibrate kind of how much pricing is required when we think about going into next year and the expectation of some steel inflation from key suppliers in North America as well as now looking at the tariffs.

And then, counter to that, you also have some carryover benefit from pricing this year. So when we started 2018, you were talking about getting somewhere around 100 bps of pricing. It seems like that's going to end up being a lot closer to maybe something around 200 bps. I'm just trying to think how much pricing is really required that you don't already have from a carryover benefit to offset the costs you're facing now.

Richard G. Kyle - The Timken Co.

So a couple comments. One, I'd say that our pricing through three quarters has improved sequentially each quarter. So, again, we've got the biggest impact generally around the end of the calendar, but it has improved sequentially each quarter.

We came in to the year conservatively saying that we were planning on the 100 bps, and as we said, we've been above that each of the three quarters and would expect next year to be higher than where we'll realize for the full year.

When you do specifics, I think we're looking at a year for material costs similar probably to this year ex-tariffs. And then you throw in the tariffs at roughly $25 million to $30 million unmitigated will mitigate a significant part of that through sourcing and footprint actions.

So that knocks that number down a fair amount. I think our other inflationary inputs are fairly similar, which again is why we're sitting here today saying we think we can be modestly price-cost positive again next year as we were this year.

Joseph John O'Dea - Vertical Research Partners LLC

Got it. And how will you approach pricing for tariffs? Do you think about that as a surcharge kind of mechanism just in terms of communicating that to customers and the benefit maybe of keeping that as a separate line item on invoices versus just kind of a bundle-based pricing?

Richard G. Kyle - The Timken Co.

I would say in some cases, yes. But in general, I would say no, because I think passing on for the most part, passing on a 15% to 25% type price increase would generally lead our customers to look into resourcing activities. So, again, first, we're looking at do we have options and can we mitigate that impact. On some cases, we believe competitively it can just be passed through. And again, we've got tariffs in both directions, right, because we've also got tariffs in China for products that we're bringing in to China that we're dealing with.

So I would say, in total, we're looking to do what we did this year, and I believe this year, we will net positive price, positive price-cost and gain market share. And we think we can do all of that next year net, and it will have some surcharge but mostly more even pricing.

Joseph John O'Dea - Vertical Research Partners LLC

Okay. And then the end market comments when you think about where the backlog is and you think about some of the drivers for growth expectations into 2019, can you talk about at a segment level and at the key end markets that you see is contributing to continued growth next year?

Richard G. Kyle - The Timken Co.

I'd say we're still looking at pretty broad-based optimism, positive sentiment in the case of through the first quarter orders and backlog. It'd probably be easier to hit the exceptions to that. I think the two exceptions that may be automotive where I don't think we're counting on robust automotive outlook for next year, not that it's necessarily falling, but I don't think it's going to be a big upward market.

And probably China where we're seeing, again, not contraction, but we're seeing a little more concern on the outlook and I'd say more of a flattening. So I would say those are two areas that we're not counting on to be big contributors to our growth. And beyond that, a lot of strength in industrial distribution and a lot of strength in heavy industries. Heavy truck, a little mixed around the world, but in general, good. Rail, still improving off of relatively low historical numbers. Good strength in off-highway equipment for the most part. So pretty broad-based geographically and end market with a couple of exceptions that I noted.

Joseph John O'Dea - Vertical Research Partners LLC

Thank you. And Phil, just one on capital deployment, when you think about where you are on the debt-to-cap and being at the high end of the range, but from an EBITDA leverage standpoint, really not flashing any kind of risks there, are you limited in terms of what you might do on the buyback front because of where you are on debt-to-cap or just how you think about that leverage influencing what you do on deployment moving forward?

Richard G. Kyle - The Timken Co.

Hey, Joe, I'll take that. We've been a consistent buyer of our stock for the last five years and have bought back a sizable amount. We dropped off in the third quarter as we focused on the acquisitions and the debt that Phil talked about. The balance sheet, particularly combined with what we expect to be a good fourth quarter of cash flow, we do have capacity for share buyback and we've got the outstanding authorization.

We don't expect any M&A in 2018. We would – we have an active pipeline and would like to do more M&A in 2019. But we do have the capacity to do either M&A or buyback. And again, through the third quarter before the fourth quarter cash flow, the balance sheet is in good shape with some capacity. We generally talk about specifics with the buyback in the rearview mirror versus forward and would intend to continue to do that. So we'll update you on specifics when we get to the first quarter.

Joseph John O'Dea - Vertical Research Partners LLC

Okay. Thanks a lot.

Philip D. Fracassa - The Timken Co.

Thanks, Joe.

Richard G. Kyle - The Timken Co.

Thanks, Joe.

Operator

And our next question will come from David Raso with Evercore ISI.

David Raso - Evercore ISI Institutional Equities

Hi, good morning.

Richard G. Kyle - The Timken Co.

Good morning, David.

Philip D. Fracassa - The Timken Co.

Good morning, David.

David Raso - Evercore ISI Institutional Equities

I noticed the margin guidance for next year, if I heard correctly, right, 12% for Mobile and 20% plus for Process, given your commentary about what you're seeing in your end markets, I mean, clearly things could change notably. But as we sit here today, it does sound like a framework you're providing is maybe EPS, $4.50 to $5 at a minimum. Your stock is at $35. Can you help us understand what acquisitions would be more attractive than your own stock if you believe in that outlook into 2019? Your stock is trading at seven times, eight times sort of the framework you're looking at 2019 right now. So I'm just trying to understand how is there a better alternative than your own stock?

Richard G. Kyle - The Timken Co.

Well, I think that – yeah. I think that's a pretty high bar. I would agree with that. When – I think we started the month about $50. So obviously a lot has changed there. As I said, I don't expect that we will be making any acquisitions in 2018. So we'd see where the stock and acquisitions go forward there, but I would agree that's a high bar to cover for an acquisition.

Philip D. Fracassa - The Timken Co.

Yeah. And David, if I could just add...

David Raso - Evercore ISI Institutional Equities

And then regarding – sorry, go ahead, Phil. Sorry.

Philip D. Fracassa - The Timken Co.

... and I would say the hallmark of our capital allocation philosophy, as Rich said, for the last five years has been balanced across organic, inorganic, capital return. And I think it will continue to be balanced. We try to be very thoughtful about it. We'll continue to be very thoughtful about it but with the goal of creating the most shareholder value.

David Raso - Evercore ISI Institutional Equities

Yeah – no, I appreciate it. Look, I mean, obviously, the world feels a little dicier and your visibility could change a view on 2019 fairly dramatically in six months. So I'm not naive to that. But again, as we sit here today, it just appears a framework that's a tough bogey to find an acquisition more attractive if you believe in your guidance.

And regarding that framework for 2019, the 12% Mobile margins, can you help us kind of flesh that out a little bit? Obviously, that would be a pretty encouraging margin for 2019. And I know you don't want to give organic sales guidance. But just a sense of when you think of 12%, you must have thought a little bit about mix, volume, obviously price-cost. Can you just help flesh that out, because obviously that 12% margin would be the highest since 2012?

Richard G. Kyle - The Timken Co.

Yeah. I would say, again, in Mobile, we have more OEM mix – significantly more OEM mix than in Process Industries, more contractual business than in Process Industries. So it takes us longer to realize price. Going back to the 2016 to 2017 end-of-year calendar, we were still in at the end of 2016 a relatively weak Mobile market.

So we did not – that first year of 2017 did not have positive price realization in Mobile. Got it in 2018, expect to get it again in 2019. And really when you look at where our contracts stand in the mix, I would expect to get it in 2019 almost regardless of what happens with the market because of the magnitude of what we would have from a carryover standpoint and what we would have by the end of the year. So I would say price-cost being a contributor there and volume, and then after that, all of it relatively small.

David Raso - Evercore ISI Institutional Equities

Yeah. Very – sorry, go ahead, Phil.

Philip D. Fracassa - The Timken Co.

Yeah, a couple things I'd maybe add, David, is the – manufacturing footprint continues to improve with the new plants coming on line and the prior plant closures. So we're seeing some good favorability there. We'd expect that to continue and I think we're leveraging our SG&A cost structure extremely well. Also, particularly in the Mobile part of the business. And the last point, the acquisitions that we're bringing into the fold can help Mobile margins a bit. They don't help a lot early on, but certainly they contribute nicely as well.

David Raso - Evercore ISI Institutional Equities

That's helpful. One last quick one. The organic sales guide for the fourth quarter, the 12% to 13% that's implied, Mobile seems to be below 7% and Process is near 20%. Part of that is the comp gets a little harder in Mobile, the comp gets a little easier in Process, but it's still interesting to see your Process organic growth in the fourth quarter accelerates from the third quarter. And again, part of that could be price kicking in, I'm just trying to make sure – I know you said there wasn't much change to how you view your markets, but just Mobile going to a little below 7% and Process accelerating to 20%. Can you just help us understand that or is that just a little bit of comp?

Philip D. Fracassa - The Timken Co.

I think the comps are a big part of it, David. I think the other thing, when you think of when markets recover for us, as you guys recall, a year ago, I mean, the mobile markets moved first. So off-highway, heavy truck tend to move first and then the comps obviously get tougher a little bit more quickly, given that.

And then the process markets, whether it's heavy or in general industrial or the services business and distribution certainly tend to move a little bit later. So I think it's really comps getting a little bit tougher in Mobile. It's the normal seasonality that we're anticipating on that part of the business. And then, with Process, the acceleration is really I think indicative of kind of where we're at in the cycle and the continued growth we expect.

David Raso - Evercore ISI Institutional Equities

I appreciate the time. Thank you.

Philip D. Fracassa - The Timken Co.

Thanks, David.

Operator

And next, we will go to Joe Ritchie with Goldman Sachs.

Joe Ritchie - Goldman Sachs & Co. LLC

Thanks. Good morning, guys.

Richard G. Kyle - The Timken Co.

Good morning, Joe.

Philip D. Fracassa - The Timken Co.

Good morning.

Joe Ritchie - Goldman Sachs & Co. LLC

So I guess just my first question, Cat is a big customer of yours and they talked about inventories building and their dealer network this quarter. I'm just curious like any color or commentary that you can shed light on on where inventory levels are, obviously particularly in Mobile.

Richard G. Kyle - The Timken Co.

Yeah. Mobile, again, largely would be more OEM and even OEM services in the case of or for others in that regard. So I would say we think they're in good shape for where the demand is today. I don't think there's a lot that's gotten ahead of itself. I think we saw a little bit of correction this year in a couple of the markets; off-highway being one, heavy truck in the other. And I think probably that's also one of the reasons why the question that David just asked that Phil answered that we're seeing a little bit lighter Mobile numbers in the fourth quarter. But those are the same customers who say they're just taking some inventory out into the fourth quarter but still expect strong numbers in 2019.

So a little bit of pullback in a couple of markets in Mobile on inventory, but overall I'd say in good shape. And I think the same would be said for – well, you didn't ask about Process. Same we said of Process, if anything, a little bit low. And again probably what we're seeing with the higher numbers in Process, they've been a little bit low all year and heading into 2019, remain a little bit low.

Joe Ritchie - Goldman Sachs & Co. LLC

Got it. That's helpful. And if I were to just kind of think about regionally, obviously, you're still experiencing a pretty good growth in both EMEA and APAC. But we saw a little bit of a decel this quarter. There's been a lot of concern I think in the market around Europe getting slower, China auto getting slower. And so, again, maybe some more color around what you're seeing specifically in Europe and maybe specifically on China auto.

Richard G. Kyle - The Timken Co.

Yeah. I would say, Joe, China auto is not a big exposure for Timken. We would have – we participate with our customers over there kind of modestly. But as you know, we tend to participate more on the light truck SUV and premium car. So we're probably not the best person to speak to China automotive. But speaking to Asia more broadly, I mean, we saw really solid growth across both segments. I mean, we were up 18% in Asia and I would say we were up close to that number plus or minus in both segments.

So, in Mobile, it was – rail was a big contributor, off-highway was a big contributor, heavy truck, as I said, light vehicles and aerospace kind of flattish in Asia. And then looking on the Process side, distribution was up, the OE sector's win was a big driver for us as well. We also had some services business coming through. So, I mean, really – I think the key – the word we've been using all year long relative to growth, particularly outside the U.S., has been broad.

And I would say, flipping over to Europe in the quarter, the same would be true. I mean, while automotive was flat, light vehicles automotive was kind of flat in Europe, we saw a nice growth in off-highway, a modest growth in rail, heavy truck was up, aerospace was up. On the distribution side, we saw some growth. The OE sectors were very strong in Europe, heavy and general industrial OE, and then wind was also up.

So while you're seeing some mix data coming out of Europe, I would tell you, where we participate, both Europe and Asia, we've seen good growth although, as you pointed out, down from where we were last quarter on a year-on-year basis but still seeing some nice year-on-year gains again broadly across most of the sectors we serve.

Joe Ritchie - Goldman Sachs & Co. LLC

Very helpful, guys. Thank you.

Operator

And our next question will come from Ross Gilardi with Bank of America Merrill Lynch.

Ross Gilardi - Bank of America Merrill Lynch

Hey, good morning, guys.

Richard G. Kyle - The Timken Co.

Good morning, Ross.

Philip D. Fracassa - The Timken Co.

Hi, Ross.

Ross Gilardi - Bank of America Merrill Lynch

Just a little bit further on that with Asia, I mean, can you help us size China specifically these days for your business on sort of an LTM basis or whatever you have handy in terms of percentage of overall Asia? And how should we think about the end market mix there? I'm not looking for specifics, but where would you be overweight versus underweight relative to the corporate average maybe?

Richard G. Kyle - The Timken Co.

High-single digits as a percentage of company revenue, and we would be heavily mixed towards what I call heavy industries, construction equipment, mining equipment, metals. Again – and we participate in automotive, but as Phil said, it's very nichey. We participate in heavy truck that also tends to be nichey. So – more so on the heavy equipment side.

Ross Gilardi - Bank of America Merrill Lynch

Got it. Thanks. And then just based on your implied fourth quarter outlook on organic, if you had normal seasonality into early 2019, where do you think you would start the year from an organic growth perspective in 2019 in Q1?

Richard G. Kyle - The Timken Co.

Probably more specific than we want to be at this point, Ross, except to say we would expect to be up, and up in Mobile and in Process. But I probably don't want to get more specific than that until we get to the end of the year.

Ross Gilardi - Bank of America Merrill Lynch

Okay.

Philip D. Fracassa - The Timken Co.

Yeah. I would say, Ross, generally speaking, we're seeing continued order book building across the business. So, as Rich said, while we'll have some – little bit of seasonality in the fourth quarter, we're expecting to be well-positioned for 2019 at least out of the gate.

Ross Gilardi - Bank of America Merrill Lynch

But could you help me just with the normal seasonality though for Q4 to Q1? I mean, you mentioned the down 3% this year from Q2 to Q3, which was a good outcome. Like, what would be the normal revenue step-down Q4 to Q1?

Richard G. Kyle - The Timken Co.

I would say Q4 to Q1, low-to-high single digits would typically be depending on where we're at. Maybe very rare for us to shrink from Q4 to Q1. And typically we would step up, I'd call it, a mid-single-digit type number.

Ross Gilardi - Bank of America Merrill Lynch

Got it. Thank you. And just on your efforts to – you mentioned some efforts to reorganize your supply chain and you're seeing customers do some of the same things. What – can you give us some color on what exactly you guys are doing?

Richard G. Kyle - The Timken Co.

I would say there's some cases where we produce product in the U.S. or in China. And we have the ability to produce that product in India or Europe or some other location to offset the tariffs. There's also places where we buy product from one of those two regions and are – and in short-term, we'd be paying a tariff and have the ability to buy that product from other locations.

And I think we're seeing the exact same thing with our customers. I would say, in general, our customers are probably focused on steel more than bearings because of the magnitude and are faced with a pretty wide range of tariff issues. So, to the degree that we're passing through modest price increases, I think that – a lot of cases have other priorities to work on to the degree they're faced with taking the entire burden of the tariff, that's where you're seeing customers take actions as well.

Ross Gilardi - Bank of America Merrill Lynch

And then just lastly, on the wind, can you give us a little bit more flavor for what's actually happening there? I mean, I think wind a couple of years ago was only – if I remember correctly, it was only like 3% or 4% of sales. Is it substantially higher than that now?

Philip D. Fracassa - The Timken Co.

Yeah. Well, it's in that – it's in that range, Ross, where – obviously, it's in that 4% to 5% of revenue at the company level. And I think what we've been talking about for several quarters now in wind is just winning with our customers, winning new business with new customers and getting on the new platforms. And as you know, we make both the ultra-large bearing that goes on the main shaft of the turbine as well as a product that would sit inside the gearbox. And we're seeing really nice growth across both of those product lines.

So wind in the quarter was up nicely. I mean, it was one of the – it was up north of 20% in the quarter year-on-year, again, mostly Asia and Europe because that's kind of where we play, kind of where our customers are. But it's share gains at key customers around the world, probably with a little bit slightly more on the gear drive side than the main shift side but with both of them up.

Richard G. Kyle - The Timken Co.

Yeah. I would add to that, Ross, that we're focused on Asia and Europe as end markets, participate in North America but not to the same degree as the other. So the dynamics there have been a little bit different than maybe the stop-and-start that we've seen in the U.S. market.

And then I would – coming back to your question on Q4 to Q1, and this would be – obviously we get off to a very strong start this year, but we were up low-doubles organically this year. And that was again off a similar Q2 to Q3 sequential and a similar Q3 to Q4 that we're guiding to. Again, not necessarily saying that's what you should expect this year, but that's what we – and that would be on the high end, but of what we would have seen over the last five years to 10 years, but typically up.

Ross Gilardi - Bank of America Merrill Lynch

Got it. Okay. Thanks very much, guys.

Richard G. Kyle - The Timken Co.

Thanks, Ross.

Philip D. Fracassa - The Timken Co.

Thanks, Ross.

Operator

And our next question will come from Steve Barger with KeyBanc Capital Markets.

Steve Barger - KeyBanc Capital Markets, Inc.

Hi, good morning, guys.

Richard G. Kyle - The Timken Co.

Good morning, Steve.

Philip D. Fracassa - The Timken Co.

Hey, Steve.

Steve Barger - KeyBanc Capital Markets, Inc.

Railcar orders are up a lot for the industry year-over-year through the first three quarters. Isn't that really positive for mix? And is there room for share gains on top of the increases that should come in production in coming quarters?

Richard G. Kyle - The Timken Co.

It is positive for mix. Keep in mind that our business is quite global in rail. So the North American market is only part of it, but it is – but North America and rail tend to be positive for mix. I think that'd be certainly an area where we believe we have room to go. So while they're up, they're still – I'd say there are numbers that when you look at where commodity prices have been and other industries that there should be some room to run on that railcar build, and I think it's another area where we're seeing positive sentiment. Certainly globally, we have been focused on gaining share in freight rail as well as passenger rail. Probably don't want to get too specific on – commenting on North American share.

Philip D. Fracassa - The Timken Co.

Right. Yeah. Steve, let me – maybe I'll just add a little bit of color. So in the quarter, we said rail was up slightly. As Rich said, we saw really nice gains outside the U.S.; really all regions, Asia, Latin America, and even Europe a little bit.

North America was actually a difficult comp. we had some higher shipments last year following hurricane season. So North America was probably down a little bit. But I think you hit the nail on the head. The traffic in North America is very good. You mentioned the railcar builds are improving. So we do think rail is moving from the last few years where it was declining to moving into a period where we can see some growth. And obviously the timing and the magnitude, yet to be seen, but we do feel really good about our position in the marketplace and in our ability to grow and continue to gain share as we go.

Richard G. Kyle - The Timken Co.

And I would add that hurricanes don't normally affect our rail bearing sales, but last year it wiped out some customer inventory that we were involved in the replenishment of.

Steve Barger - KeyBanc Capital Markets, Inc.

Got it. And then looking at the acquisitions on Slide 7, you've obviously built a nice portfolio there. I'm curious how your thinking has evolved around setting objectives for the group. Does each company or vertical have its own specific goals or are you moving to a more coordinated market strategy for power transmission?

Richard G. Kyle - The Timken Co.

I would say it varies a little bit across the acquisitions. I would say lubrication systems, generally, is going through a different channel. I would say wherever the products you look here are going through what we would consider the bearings and power transmission and distribution channel.

We have a highly coordinated go-to-market strategy where we are often – where we are in all cases providing electronic commerce ordering capabilities of combining orders and shipments through warehouses, usually start in North America and Europe on that, but globalizing that. So that channel very much so, OEMs mixed, but generally, a coordinated strategy. And then in the case of Rollon and lubrication systems, we picked up fairly sizable other new channels where I would say those businesses have the lead on those channels and we're looking to pull bearing sales into those channels versus the Timken core bearing business being the lead.

Steve Barger - KeyBanc Capital Markets, Inc.

Right. And obviously, you're still serving cyclical end markets with this group. But how do you think the exposure reduces volatility, or how do you think the diversification changes how you manage the business through cycles?

Richard G. Kyle - The Timken Co.

I think we've done – the acquisitions have certainly been a part of it. I think we have – if you look over a 20 or 30-year period, we've consistently gotten better in managing cycles, and particularly this last one on the industrial markets where we went through, that was a fairly long and painful one. We bottomed out at roughly a 10% EBIT margin. We've done that not only through the acquisitions but by variablizing our cost structure, our level of vertical integration in manufacturing. Our incentive compensation plan designs are set up too for that cyclicality as well. And probably not ready to say how much better, but I would expect we will – we're setting new ceilings today and would certainly expect that our floors will be significantly higher than they were in past cycles as well.

Steve Barger - KeyBanc Capital Markets, Inc.

Appreciate the time. Thanks.

Philip D. Fracassa - The Timken Co.

Thanks, Steve.

Richard G. Kyle - The Timken Co.

Thanks, Steve.

Operator

And our next question will come from Justin Bergner with Gabelli & Company.

Justin Laurence Bergner - Gabelli Funds LLC

Good morning, Richard. Good morning, Phil.

Richard G. Kyle - The Timken Co.

Good morning, Justin.

Philip D. Fracassa - The Timken Co.

Hey, Justin.

Justin Laurence Bergner - Gabelli Funds LLC

A couple quick questions. On the Mobile side, I mean, the 100 basis point reduction in organic guide for the year, it really is 200 basis points in the second half. Are there markets that stand out as being larger components of that reduction, or maybe asked another way, are there markets that are not part of that reduction?

Richard G. Kyle - The Timken Co.

No, I would say it's fairly widespread. And again, I would come back – you look what we did last year three quarters into growing mobile markets, we stepped on the gas pretty hard with production, built some inventory, and I think customers did some of the same. And I think we're seeing them this year, again, as I said earlier, some pullback of inventory in Mobile but not necessarily reduction in demand. So I'd say it's a little bit wide. It's across – a true-up across the various markets across Mobile.

Justin Laurence Bergner - Gabelli Funds LLC

Okay. Great. And then in Process, TimkenSteel indicated they had seen sort of more of a flattening in industrial distribution. They noted some, I guess, customers doing some de-stocking maybe because they had pre-bought ahead of tariffs. Can you comment on that trend? Is that behind some of the slight reduction in your Process outlook?

Richard G. Kyle - The Timken Co.

Yeah. I won't say too much about TimkenSteel. But I mean, their industrial distribution channel and the markets they serve with that are totally different than ours. Right? So we're – our industrial distribution channels are serving a lot of MRO, and aftermarket demand versus – and it also serves small OEMs. But there isn't necessarily aftermarket for a bar or tube of steel. So it's a very different dynamic. So I don't think comparing those two is meaningful.

Justin Laurence Bergner - Gabelli Funds LLC

Okay. That's helpful. I just thought maybe there'd be a linkage given the sales that they still sell through you, but appreciate you clarifying. And then lastly, on the tariff outlook, I mean, it's impressive that you guys think you can offset the full impact. I guess, going beyond the math, qualitatively, what gives you confidence you can offset the full impact of tariffs in 2019? And I'm assuming that maybe there's a slight step-down in second half of 2018 but then there won't be incremental pressure in 2019.

And then I guess lastly as part of that question, if the tariffs weren't stepping up, I mean, would you expect to see more improvement in price-cost than you sort of expect at this time or is it more that the improvement is the same and you're just offsetting the tariffs?

Richard G. Kyle - The Timken Co.

So a lot of questions mixed in there. Let me start with why we think we can mitigate it all. I think we have line of sight to specific actions that we are going to take to change our country of origin of material that we buy and that we produce and that will – again, that is early. Some of that – frankly, we have done some of that, but some of that will take some time.

So we'd expect the net negative to peak in the fourth quarter and then trend down through the course of 2019. And then the part of it that isn't covered by that, we would expect to get mixed in in total with our cost and be positive price-cost. And again, there we have very good visibility to the carryover pricing that we have from 2018 to 2019. And while we're making still some assumptions because a lot of things are in negotiation, we have confidence that will net positive pricing next year.

Some of that, again, would be specific targeted pricing to a tariff. And where that is the case, if the tariffs were rolled back, I would expect to roll that back. If they were rolled back in general, would expect price-cost to be more positive or less. I'd say, one, we're not planning for that at this point. And there would certainly be some pressure for us to relieve some of that because clearly that's been a driver of why we're looking for as much price as we are. So I'm not sure I'm ready to answer that.

Justin Laurence Bergner - Gabelli Funds LLC

No, that's very helpful. Thanks for taking all my questions.

Philip D. Fracassa - The Timken Co.

Thanks, Justin.

Operator

And we will now hear from George Godfrey with C.L. King.

George J. Godfrey - C.L. King & Associates, Inc.

Thank you. Thank you for taking my question. Good morning, Rich and Phil.

Philip D. Fracassa - The Timken Co.

Hey, George.

Richard G. Kyle - The Timken Co.

Good morning, George.

George J. Godfrey - C.L. King & Associates, Inc.

Good morning. I just wanted to ask the – can you give us an estimate of the EBITDA margin for the three acquisitions completed this quarter; ABC Bearings, Cone Drive and Rollon, just approximately what they are and how they compare to your EBITDA margins?

Richard G. Kyle - The Timken Co.

I'll round, but 30-ish% for Rollon, 20-ish% for Cone Drive, and 15-ish% for ABC Bearings.

George J. Godfrey - C.L. King & Associates, Inc.

Got it.

Richard G. Kyle - The Timken Co.

And...

George J. Godfrey - C.L. King & Associates, Inc.

Thank you.

Richard G. Kyle - The Timken Co.

I mean, you do the math on what we are.

Philip D. Fracassa - The Timken Co.

Yeah, that's true. And that would be trailing, George. So, I mean, obviously before any synergies or any positive impact post-acquisition, but that would be a good number on a trailing basis.

George J. Godfrey - C.L. King & Associates, Inc.

Okay. And would that – those would be – would they be the segment-level margins or would that be inclusive of any corporate expenses or common charges for the company?

Philip D. Fracassa - The Timken Co.

Those would be the margins that would be flowing through to the segments. So it would include all the...

George J. Godfrey - C.L. King & Associates, Inc.

Got it.

Philip D. Fracassa - The Timken Co.

... the SG&A that would be specific to the business.

George J. Godfrey - C.L. King & Associates, Inc.

Got it. Great. Thank you very much. All my other questions have been answered. Thank you.

Richard G. Kyle - The Timken Co.

Thank you.

Philip D. Fracassa - The Timken Co.

Thanks, George.

Operator

And with no further questions, I'd like to turn the call back over to Mr. Hershiser for closing remarks.

Jason Hershiser - The Timken Co.

Thanks, Matt. And thank you, everyone, for joining us today. If you have further questions after today's call, please contact me. Again, my name is Jason Hershiser, and my number is 234-262-7101. Thank you, and this concludes our call.

Operator

And once again, that does conclude the call for today. Thank you for your participation. You may now disconnect.