The Timken Company (TKR) Earnings

Management highlights

### New Strategy Launch - Launched the new three-pillar "Elevate to Outperform" strategy alongside 2028 financial targets at a recent investor day - Rolled out the 80-20 disciplined execution framework across the enterprise; 60% of company revenue is currently engaged in 80-20 initiatives, with a target of 75% coverage by Q3 2026, with bottom line benefits expected to begin in 2027 ### Portfolio Optimization - On track to complete the Bells divestiture in Q3 2026, which is expected to structurally improve industrial motion EBITDA margins by more than 200 basis points on a pro forma basis - The automotive OE exit is progressing as planned, with margin benefits for engineered bearings expected to begin in 2027 - Integration of the recently acquired Bijour Delamont is ahead of schedule; the acquisition scales the company's lubrication systems platform to ~$400 million in annual revenue, and contributed $4 million to Q2 2026 adjusted EBITDA at a high teens margin ### Strategic Vertical Growth and Investment - Reallocated resources to key high-growth strategic verticals, which delivered high single-digit organic growth in Q2 2026; automation and robotics grew mid-teens year-over-year - Making targeted strategic investments to expand aerospace and defense operations to meet growing pent-up demand and a growing backlog; investments include adding specialized operating headcount and improving retention to support long-term profitable growth - Cross-business R&D collaboration is accelerating technology-led growth; the first annual One Timken Technology Summit will be held this fall to align internal and external innovation pipeline ### One Timken Multinational Footprint Leverage - Expanding acquired regional businesses across global markets to capture synergies and growth; the expansion of Roland (a European linear motion business) into the U.S. delivered a second consecutive quarter of double-digit organic growth for the linear motion platform, outperforming in the fast-growing factory automation end market - Announced two new senior leadership appointments to strengthen enterprise-wide execution: Tim Graham as new Chief Commercial Officer to lead global commercial strategy, marketing, sales, and regional leadership, and Steve Rubato as new Chief Operating Officer to oversee global operations, supply chain, procurement, and P&L leaders; the appointments do not change financial reporting segments and are designed to improve execution speed and accountability across the company ### Overall Financial and Capital Allocation - Total Q2 2026 revenue was $1.26 billion, up 7.5% year-over-year, with 4.4% organic growth, 1.8% growth from acquisitions, and 1.3% growth from foreign currency translation - Adjusted EBITDA margin expanded to 19.6% (up 190 basis points year-over-year), adjusted EPS grew nearly 30% to $1.83, including an 8 cent per share net benefit from IEPA tariff refunds - Generated $107 million in operating cash flow and over $80 million in free cash flow; returned $45 million to shareholders via dividends and share repurchases, raised the quarterly dividend by 3%, and repurchased ~155,000 shares - Ended the quarter with net leverage of 2x, within the company's targeted range, providing flexibility for continued balanced capital allocation

Guidance

Management raised full-year 2026 guidance across all metrics: - Total net sales growth guidance raised to 5-6% year-over-year, up from the prior 4-6% range; organic sales are now expected to grow 3.5% at the midpoint, an upward revision of 1.5% from prior guidance. The Bijour Delamont acquisition is still expected to add 1% to full-year revenue, and currency translation is expected to add 1%, both unchanged from prior guidance. - Adjusted EPS guidance raised to $6.05-$6.35, an increase of 20 cents at the midpoint versus prior guidance. The midpoint implies 16% adjusted EPS growth year-over-year, up from the prior 13% growth target. Adjusted EPS is expected to grow year-over-year in both Q3 and Q4 2026, with a higher growth rate in Q4. - Consolidated adjusted EBITDA margin is now expected to be in the low 18% range at the midpoint, slightly above prior guidance and up from 17.4% in 2025. Incremental full-year margin is expected to exceed 30%. - Free cash flow guidance raised to $375-$400 million, an increase of $25 million from prior guidance, primarily reflecting higher expected full-year adjusted earnings. - The upward revision to EPS guidance reflects a 20-25 cent positive impact from better-than-expected Q2 performance and organic sales, plus the 8 cent per share Q2 tariff refund benefit partially offset by a 10 cent headwind for incremental cost inflation and strategic aerospace and defense investments in the second half of the year. No additional tariff refunds are included in the second half guidance due to uncertain timing and amounts.

Segment performance

1. Engineered Bearings: Q2 2026 sales were $807 million, up ~4% year-over-year, accounting for 64% of total company revenue. Organic sales grew 2.5% year-over-year, with currency translation adding ~1%. The strongest growth was seen in aerospace and defense and infrastructure sectors, with additional growth in power and electrification and automation and industrial solutions, while industrial transportation and mobility revenue was flat year-over-year. Adjusted EBITDA was $161 million, equal to 20% of segment sales, up from 19.7% in the prior year quarter. Margins benefited from favorable price mix, tariff refunds, and higher volumes, but were partially offset by higher operating and labor costs from selective headcount additions to support growth. 2. Industrial Motion: Q2 2026 sales were $454 million, an all-time quarterly record, up 14.6% year-over-year, accounting for 36% of total company revenue. Organic sales increased 8% year-over-year. Double-digit growth was delivered across automation and industrial solutions, infrastructure, and industrial transportation and mobility, led by double-digit gains in linear motion systems and lubrication systems platforms. Adjusted EBITDA margins came in at 23.3% of sales, up 500 basis points year-over-year. The margin increase reflected strong operational execution, higher volumes, favorable price mix, and net benefits from tariff refunds.

Risks & headwinds

- Geopolitical volatility, including ongoing uncertainty from conflicts in the Middle East, creates near-term demand uncertainty that management has incorporated into conservative second half guidance - Aerospace and defense capacity expansion requires long lead times for training specialized labor, creating short-term margin headwinds even as it supports long-term growth - Uncertainty around future trade policy changes (including potential additional tariff adjustments following the recent replacement of 10% global tariffs with Section 301 tariffs) could create input cost volatility - General macroeconomic caution among customers and channel partners has led to gradual demand growth rather than a typical post-cycle snapback, and has kept inventory levels lower than historical peaks, limiting near-term top line expansion - Ramp-down of the Bells business ahead of the planned Q3 divestiture creates a modest headwind to Q3 2026 sales

Analyst Q&A

• Q: The guidance implies 2H 2026 organic growth will moderate to ~2.5% from the first half, against a healthy overall demand backdrop. Is this moderation driven by a order slowdown, 80-20 rationalization, or conservative forecasting amid uncertainty?

  A: Management stated there are no visible signs of a demand slowdown, with order booking remaining robust and order book growth continuing in Q2 2026, led by aerospace and defense, automation, and infrastructure. The moderation reflects two main factors: historical normal seasonality where first half growth outpaces the second half, and conservative forecasting to account for ongoing geopolitical uncertainty in the Middle East. There is potential for upside to the second half guidance if uncertainty eases.

• Q: Can you confirm that after the Bells divestiture, your 2027 starting industrial motion margin will be ~24.5% based on first half 2026 performance? What is the long-term margin trajectory for the segment?

  A: Management declined to provide specific 2027 guidance this early in the year, but confirmed the Bells divestiture will add 200 basis points to industrial motion margins starting in 2027 as expected. Long-term, the segment will continue to see further margin expansion from internal mix shift: higher growth in higher-margin sub-segments like automation and robotics, plus incremental 80-20 efficiency improvements, which will move margins toward the company's 2028 targets. Industrial motion as a whole is already margin-accretive to the broader company, so its faster relative growth drives ongoing company-wide margin expansion.

• Q: What drove the decision to create new CCO and COO roles, what bottlenecks did this address, and what will be the first priorities?

  A: The new roles are designed to operationalize the One Timken model under the Elevate to Outperform strategy. The CCO leads unified enterprise commercial strategy and all regional commercial teams, creating an internal marketplace where P&Ls compete for sales team attention based on growth and margin, incentivizing improved performance across the business. The COO oversees all P&Ls, operations, supply chain, and procurement to holistically optimize the company's global factory footprint and operating model with a unified set of performance metrics. This is a proven structure that improves execution speed and accountability, and aligns the organization behind the company's three strategic pillars.

• Q: With the stock selling off on the guidance raise, how much of the 500 basis points of long-term margin expansion promised at investor day is already locked in via completed actions versus still dependent on future execution?

  A: Over a third of the 500 basis points of total targeted expansion is already tied to completed or well-underway actions with low execution risk: specifically the Bells divestiture and automotive OE exit, which are already announced and progressing on schedule. The remaining expansion comes from 80-20 simplification efforts (which are on track and have low execution risk), volume growth (which is already materializing per quarterly results), and continued mix shift (where faster growth of higher-margin industrial motion and higher-margin sub-segments within industrial motion drives ongoing expansion). Management remains fully confident in hitting the 2028 targets, with a linear trajectory of progress that has credible anchor points each year, and the conservative guidance balances current geopolitical uncertainty while maintaining long-term credibility.