Timken Q3 2026 Earnings Call Transcript

Timken (NYSE:TKR) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Timken Company reported a 4.7% increase in total sales for Q3 2026, with organic revenue growth of nearly 3%, driven by positive pricing and higher volumes.

The company achieved an adjusted EBITDA margin of 18.5% and a 20% year-over-year increase in adjusted earnings per share to $1.65.

Significant strategic initiatives included the completion of the Belt business divestiture and progress in the ‘Elevate to Outperform’ strategy, focusing on Industrial Motion segment growth and 80/20 execution.

Timken invested in technology expansion, including a minority investment in electroadhesive technology, to support growth in automation and robotics.

The company repurchased over 500,000 shares in Q3, improved its net leverage ratio to 1.7x, and expects organic sales growth of mid-single digits in 2027.

Management expressed confidence in continued growth, driven by strategic initiatives and an increase in backlog, while reaffirming full-year 2026 earnings guidance.

Full Transcript

OPERATOR

Good morning ladies and gentlemen and welcome to Timken’s third quarter earnings release conference call. All participants will be in a listen-only mode and should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Neil Frohnapple.

Welcome sir. You may begin.

Neil Frohnapple (Vice President of Investor Relations)

Thank you, operator. And welcome everyone to our third quarter 2026 earnings conference call. This is Neil Frohnapple, Vice President of Investor Relations for the Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company’s website 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 Lucian Boldea and Mike Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike 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 a chance 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 describe in greater detail in today’s press release and in our reports 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 and without express 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 Lucian.

Lucian Boldea (President and CEO)

Thanks, Neil, and good morning everyone. We appreciate you joining us today to discuss our quarterly results and outlook. I’d like to begin by thanking our Timken team for their dedication to our customers and for the significant progress they have made in advancing our company’s transformation. As I reflect on my first year at Timken, I’m proud of what we’ve accomplished together. We have developed and deployed our Elevate to Outperform strategy to build upon our strong foundation and transform Timken into a leader in advanced motion technology.

We’ve aligned our teams around our disciplined execution framework that anchors the strategy and made substantial progress towards achieving our 2028 target, most notably in Industrial Motion where we delivered high single-digit organic sales growth and significant margin expansion so far this year. The steps we have taken and early results reinforce my confidence in our direction and the significant opportunities ahead. Let me now turn to our third quarter performance, including the advancements we are making in executing our strategic priorities. In the quarter, total sales were up 4.7% versus last year and organic revenue grew by nearly 3% driven by positive pricing and higher volumes. In the Industrial Motion segment, we saw improving demand trends across most of our industrial markets and if we exclude the significant decline in China wind energy sales from a very strong third quarter in 2025, organic sales were up mid-single digit from last year.

We expanded EBITDA margins to 18.5% driven by positive price/cost and higher volumes. Adjusted earnings per share increased 20% year over year to $1.65. We also generated over $228 million in free cash flow. Regarding capital allocation, we repurchased more than 500,000 shares during the third quarter, substantially increasing our buyback activity from the first half of the year. Our net leverage ratio also declined to 1.7 times EBITDA. Our strong balance sheet gives us flexibility to fuel our capital allocation priorities.

In the quarter, we delivered meaningful progress across all three pillars of our strategy as we put 80/20 and our disciplined execution framework to work across the entire enterprise starting with pillar one, Optimizing the Portfolio. We completed the divestiture of the Belt business near the end of the quarter. This is an important milestone in achieving our 2028 financial targets and we expect this action to increase Industrial Motion EBITDA margin by more than 200 basis points in 2027.

We also continue to build great momentum with 80/20. With employee training largely complete and work streams established and underway, 80/20 teams are taking actions across our businesses and regions. A few recent examples include the implementation of minimum order values for customers to reduce our cost to serve and improve profitability without negatively impacting total revenue. We also established our differentiated commercial service model to drive incremental growth with our 80s customers.

Key account playbooks have been developed and deployed at a number of large accounts to grow our share of wallet by engaging as a One Timken solution provider. Overall, I’m very encouraged by what we’re seeing. These initiatives are well underway and generating positive early results by reducing complexity and expanding margins while increasing our focus on the fastest growing customers and verticals. That brings us to pillar two where we are stepping up our resources, investments and customer-facing efforts to drive outgrowth within our strategic verticals. Building a vertically aligned M&A pipeline is also a priority. This organizational focus contributed to double-digit growth in automation and robotics. During the quarter we also completed a minority investment in an early-stage manufacturer of electroadhesive technology, highlighting how we’re expanding our technology model to align with next-generation motion technology.

This investment is intended to support our growth in automation and robotics. For pillar three, our One Timken operating model is fully in place to speed up decision making and execution and to bring together commercial and operating organization. Our recently announced Chief Commercial Officer structure is connecting strategic marketing, sales excellence and execution across our multinational footprint to generate greater differentiation, enhance customer value and most importantly, accelerate growth. This supports our One Timken commercial strategy which is already driving greater integration across many of our platforms including precision drives.

For example, in precision drives, Cone Drive and Spinea brought together complementary technologies and expertise to develop an integrated actuator solution for the commercial space industry. It is an exciting example of our evolution towards a system-based solution. We’re also accelerating the integration of our lubrication systems platform. Over the past decade we have added capabilities in this space through strategic acquisitions. Today we are reducing portfolio complexity, aligning commercial resources with our strategic verticals and aggressively scaling across Timken’s multinational footprint beyond the business’s largely European base. Our Chief Operating Officer structure led by Steve Ribaudo, who joined Timken in September, is now responsible for our P&Ls.

With this structure, business leaders have greater accountability for the strategic choices that shape business performance, investment and long-term competitiveness. Additionally, by bringing the entire supply chain footprint under a single organization and aligning individual factories with P&Ls, we will continue to benefit from rightsizing and maintaining a nimble and globally flexible footprint that is competitive on cost and lead times throughout to support our customers’ growth.

Taken together, these actions show how the Timken team is moving with speed to execute our Elevate to Outperform strategy. We are focused on finishing the year strong and delivering our 2026 outlook and we are confident in our ability to achieve even stronger performance next year. While it is still early, we currently expect our organic sales to increase by mid-single digit during 2027 driven by incremental growth from our strategic initiatives and further positive momentum across our industrial markets.

As one example of the momentum we are seeing, the company’s backlog at the end of the third quarter grew sequentially and was up mid-single digits from last year. With that, let me turn the call over to Mike for a more detailed review of the results and outlook. Mike

Michael Discenza (Executive Vice President & Chief Financial Officer)

Thanks, Lucian. Good morning everyone. For the financial review, I’m going to start on Slide 6 of the materials with a summary of our third quarter results. Overall total revenue for the quarter was $1.21 billion, which was up 4.7% from last year. Adjusted EBITDA margins increased to 18.5% and adjusted earnings per share for the quarter was $1.65. Note that our adjusted results include a net benefit for IEEPA tariff refunds of approximately $12 million or $0.13 per share.

Turning to Slide 7, let’s take a closer look at our third quarter sales. Organically, sales were up 2.8% from last year. The increase was driven by higher volumes in the Industrial Motion segment and positive pricing across both segments. Looking at the rest of the revenue walk, the acquisition of Bijur Delimon added 1.8% to sales in the quarter, while foreign currency translation had minimal impact on the top line. On the right you can see third quarter performance in terms of organic growth by region.

In the Americas, our largest region, we were up 6% driven by growth across both segments and most end market sectors. In EMEA we were down 3% from last year driven by lower demand in the Engineered Bearing segment, while Industrial Motion revenue was relatively flat with last year. And finally we were up 3% in Asia Pacific driven primarily by strong growth across most of the region, partially offset by lower sales in China. Turning to Slide 8, adjusted EBITDA was $225 million or 18.5% of sales in the third quarter compared to 17.4% of sales last year. Let me comment a little further on a few of the different drivers on the EBITDA bridge you can see on this slide. Starting with the impact of pricing in the quarter, it was positive $12 million and added 1% to the top line as we continued to benefit from pricing actions over the last year, and as you can see on the slide, tariffs had a $14 million net favorable impact versus last year, driven by the benefit of refunds and modestly lower tariff costs compared to the prior year.

Looking at material and logistics, costs were modestly higher versus last year driven by logistics. With respect to the manufacturing cost line, the increase primarily reflects labor and other cost inflation, including investments we are making to strengthen our aerospace and defense operations. Moving to the SG&A and other line, expenses were up from last year as expected, driven primarily by higher compensation expense and spending on strategic initiatives, and finally, our Bijur Delimon acquisition contributed $4 million to adjusted EBITDA in the quarter with a high-teens margin.

Now let’s move to our business segment results starting with Engineered Bearings on slide 9. Engineered bearing sales were $771 million in the quarter, up 0.7% from last year. Organic sales were up 0.5% driven by higher pricing, while volumes were relatively flat among market sectors. Aerospace and defense achieved the strongest gain versus last year. We also posted growth across the automation and industrial solutions, infrastructure and industrial transportation and mobility sectors. However, we experienced a double-digit decline in power and electrification driven by a significant decrease in China wind revenue.

Note that organic sales for the segment were up more than 3% from last year. When excluding the impact from China wind, Engineered Bearings adjusted EBITDA was $156 million, or 20.2% of sales in the third quarter, compared to 18.8% of sales last year. Margins in the quarter benefited from tariff refunds and favorable price mix. However, margins were negatively impacted by higher operating costs compared to last year. Now let’s turn to Industrial Motion on slide 10. Industrial Motion sales were $440 million in the quarter, up 12.4% from last year. Organically, sales increased 7.3% driven by higher demand across most market sectors and higher pricing. The Bijur Delimon acquisition also added more than 5% to the segment’s top line in the quarter. Among market sectors, aerospace and defense was up nearly 20% versus the prior year. We also generated growth across automation and industrial solutions, infrastructure and power and electrification, while industrial, transportation and mobility was relatively flat with last year.

The segment saw solid growth in the quarter across all product platforms and was led by double-digit gains in Linear Motion Systems. Industrial Motion’s adjusted EBITDA margins came in at 19.8% of sales in the third quarter, up 80 basis points from last year. The increase in segment margins reflects the impact of higher volumes and favorable price mix. Organically, segment incremental margins were about 30%. Moving to slide 11, you can see that we generated operating cash flow of $256 million in the third quarter, and after CapEx, free cash flow was $221 million, up significantly from the prior year. From a capital allocation standpoint, we returned $89 million of cash to shareholders through share buybacks and dividends in the third quarter. Note that we have approximately 9 million shares remaining on our repurchase authorization. Looking at the balance sheet, we ended the third quarter with net debt to adjusted EBITDA at 1.7 times, which is an improvement from last quarter driven by higher EBITDA and debt paydown.

Now let’s turn to the current outlook for full year 2026 with a summary on slide 13. Starting with the bottom line, we are increasing our adjusted earnings per share outlook to the range of $6.35 to $6.50, which represents 20% growth at the midpoint versus 2025. With respect to net sales, we expect total revenue to increase approximately 5.5%, unchanged versus the midpoint of the prior range. Organically, we are reaffirming our outlook for revenue to be up 3.5% at the midpoint.

Currency translation is estimated to contribute around 1.25% to sales for the year, up slightly from the prior guide. M&A is expected to add 0.75% to full year revenue on a net basis. The Bijur Delimon acquisition continues to perform well. While the updated outlook now reflects the impact of the belts divestiture on the fourth quarter, the current earnings outlook implies that our 2026 consolidated adjusted EBITDA margin will be in the mid-18% range at the midpoint, slightly higher than the prior guidance to primarily reflect the third quarter performance.

Moving to free cash flow, we expect to generate $375 to $400 million in 2026, unchanged from the prior outlook. On slide 14, we provide an updated view on our 2026 organic sales outlook by end market sector, which includes the impact of both volumes and pricing. Again, we are reaffirming the full year organic sales growth rate of 3.5%. You can see that we upgraded our outlook for the automation and industrial solutions sector while we reduced our outlook for the power and electrification sector.

Note that our outlook assumes that sales in the China wind market decline again in the fourth quarter, both sequentially and year on year. Keep in mind that our China wind business is expected to be only a low single-digit percentage of total company sales in 2026, with the run rate in the second half of this year now below prior trough levels. As a result, we would not expect this business to have a significant impact on the full year 2027 outlook and it supports the step up in the organic sales outlook for next year that Lucian highlighted earlier.

Moving to slide 15. Here we provide a bridge of the increase in our 2026 adjusted earnings per share outlook at the midpoint. Most of the increase is driven primarily by our outperformance in the third quarter, including the impact of the tariff refunds. You can also see that we are adding $0.08 per share to reflect a lower net interest expense outlook for the year compared to our last guide. In summary, Timken delivered solid results in the third quarter including double-digit earnings growth and strong cash flow.

We have a strong balance sheet, significant capital deployment optionality and are well positioned to achieve strong earnings growth again in 2027. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian.

Lucian Boldea (President and CEO)

Thanks, Mike. Let me reiterate that we are focused on delivering a strong finish to the year while making continued progress on our Elevate Outperform strategy, which is a multi-year transformation in 2026. We have taken significant actions to transform the core of our business to reduce complexity and exit non-strategic, underperforming businesses, refocus our resources on strategic verticals and integrate our Timken operating system. As a leadership team, we take our commitments very seriously and will continue to work relentlessly to deliver what we committed to.

Our plans are on track and we remain confident that our strategy will accelerate growth, structurally increase margin and drive significant shareholder value over the coming years.

Neil Frohnapple (Vice President of Investor Relations)

Thanks, Lucian. This concludes our formal remarks. We’ll now open up the line for questions. Operator,

OPERATOR

Gentlemen, thank you. And to our phone audience joining today, at this time we will now begin the question and answer session. If you would like to ask a question, you may press star and then the digit one on your telephone. If you are using a speakerphone today, please pick up your handset prior to pressing the keys. And if you would like to withdraw your question, repeat the steps. Star 1 will also remove you from the queue and we’ll take just a moment to pause while we assemble our roster.

Here, first, from the line of Brian Blair with Oppenheimer.

Brian Blair (Analyst)

Thank you. Good morning, guys.

Lucian Boldea (President and CEO)

Good morning, Brian.

Brian Blair (Analyst)

So we know your Q4 organic sales outlook is unchanged. Similar, similar growth to Q3. Maybe offer a little more color on how orders trended through October and how we should think about core growth by segment in the fourth quarter. I assume that China wind is a little bit less of a quote unquote bad guy on the bearing side and the comp is obviously a bit healthier for Industrial Motion.

Lucian Boldea (President and CEO)

Yeah. Thank you, Brian. Yeah, I think when you look at, you have to look at the context of Q3 and Q4 in everything that we’re doing to transform the company, a little bit looking across the water and not at everything that’s happening beneath the surface. We’re definitely focusing our resources where we said and you look at the early wins. We alluded to that in our prepared remarks where our pipeline sat year over year. So our pipeline is up in Q3 mid-single digit.

But then what’s more exciting is the percent increases that happen in that pipeline in our focus verticals. So whether you’re talking about automation and robotics, or we’re talking about aerospace and defense, where they’re starting significant double-digit increases, those happened in Q3 in the pipeline. Obviously they will continue to happen. We expect for them to continue to happen in Q4 as well. The demand picture externally, we don’t see that being dramatically different going from Q3 to Q4, but the undertone, the undercurrent from all this is also, obviously, we have an automotive OE unwind that is already having a little bit of volume impact that we’re offsetting with growth. And so there’s a lot of churn in here that we’re doing to really deliver on a number and on a commitment that we have made. And I’m proud of the team that we have done that.

And we’re trying to give that same kind of appropriate guidance for Q4 on what we believe we’re gonna do. But the pipeline, order book that we’re looking at, all the indicators say that we’re headed in the right direction. It is going as planned. There are no big surprises. So assuming the market just holds the way it is and continues to stay where it is, then we feel very good about our ability to deliver similar performance in Q4. And then we’ve already given a little bit of a view into 2027 without really giving a guide, but that’s where we are.

Brian Blair (Analyst)

I appreciate the color, and you did offer a segue to the preliminary 2027 outlook there, so have to dive in a bit. Is it fair to assume that, consistent with the medium-term framework you’ve put out there and performance through 2026, that you’re contemplating high-single-digit Industrial Motion growth next year? More low single on the bearing side? And then if we look across your major end markets, I think you alluded to some of these dynamics in your prior answer, but how would you rank order growth expectations given current visibility?

Lucian Boldea (President and CEO)

Yeah, absolutely. I think if you look, I think what you said is appropriate. We definitely, obviously now we focus on finishing 26 strong, but the destiny for Q1 is pretty much set during Q4 and so we definitely are focusing on both. I think it’s a little early to comment on 2027 with a lot of certainty, but expecting our organic sales to increase by mid single digits is still the case. Our strategic initiatives are starting to drive incremental growth and those will of course only accelerate as we move forward.

The markets that you are asking about, absolutely. Automation and robotics is very much the leader in driving that growth. But right behind it is aerospace and defense. In both of these, we’re seeing increases in our pipeline of double digit year over year. And it’s not a low double digit number. It’s a very healthy double digit number. And so that gives us a lot of confidence that we will be able to start benefiting more and more from pivoting that portfolio.

Obviously there’s still pricing. I’m sure there’ll be other questions on pricing later. But to tease that a little bit early on, our price minus cost in Q3 was positive on a year over year basis. It was positive sequentially. We expect the same in Q4, both year over year as well as sequentially from Q3. So that says that our discipline around pricing is there. Our track record is now there. So we feel good about that being additive to our organic, to our volume growth going into 2027.

There’s 80/20. Obviously that’s going to start being a beneficiary not only to the bottom line but to the top line as we focus on customers. So that will help as well. And then on the margin side, belts, you’re going to start seeing that already in Q4. And really we feel good about seeing a significant impact to that in 2027. We’ve committed to more than 200 basis points of Industrial Motion margin. So that’s a third of the company. So take a third of that number, 60 to 70 bps from the belts.

So again, all those actions that we have taken without really providing a formal outlook make us confident in our ability to achieve stronger performance in 2027 as we continue to build upon what we’re executing today.

Brian Blair (Analyst)

Understood. Thank you again. Thank you.

Neil Frohnapple (Vice President of Investor Relations)

Thanks, Brian.

OPERATOR

Our next question will come from the line of David Rosso at Evercore.

David Rosso (Analyst)

Hi. Thank you for the time. I was curious. You spoke of auto OE exits as part of the fourth quarter comments. When you speak of organic sales next year, mid single digit growth, is that including with some of the auto exits or excluding, just to level set? And I have a follow-up.

Lucian Boldea (President and CEO)

Yeah. What we’ve committed to is a net number. Absolutely, yes.

David Rosso (Analyst)

Okay. So the mid single digit is even with, you know, put a number around $100 million of revenue backed away from auto, even with exiting that you still look at mid single digit. It includes the exiting.

Lucian Boldea (President and CEO)

Yeah. I’ll remind you that the exit is—the majority of the revenue exit is not in 2027. That happens in 28. But there is a number in 27 as well. It’s smaller than what you mentioned. It’s a part of the total. But the majority is in 28. But yes, the number is a net number. Is the answer.

David Rosso (Analyst)

Okay, helpful, because I’m just trying to understand, I thought the China wind business, the comp gets easier in the fourth quarter to the extent where EB this quarter would have been like 3.8% organic without the China wind drag. And that’s why I’m just curious if that’s sort of the bogey and the wind year over year—if I remember correctly, it’s not much of a decline. Like if you kept it like China wind, I guess sequentially is it—are we now kind of flatlining a little bit sequentially?

Because if that’s the case, I think the comp becomes almost nil. So why would EB go from 3.8 ex-wind to still sub-3 in the fourth quarter? I’m just trying to get the confidence on EB showing any growth into 27. And why is that a credible view?

Lucian Boldea (President and CEO)

Right. No, that’s very fair. And again, we can go into more detail on China wind, but what I would tell you is at a high level there is another step down sequentially going from Q3 to Q4. But when you look at it, at that point it really becomes low single digit percentage of the total. So it’s no longer that significant. Having said that, if you’ll recall, first half of 2026 we had pretty strong performance. It was also in the back half of 25, so there was about a 12 month period that was pretty strong. China wind tends to be a little more cyclical, a little more lumpy. And there’s nothing that says that overall demand is going away or that we’re not competitive or any of that. What the reality of that market is, it does tend to be a little more cyclical and so we’re now in the down cycle.

But yeah, it’s a little bit down. Q4 versus Q3 is another step down sequentially.

David Rosso (Analyst)

And one last thing, sorry if I missed it, the mix issue that hurt the—when I do price-cost, I also include the mix in it and that mix was the real drag. When we look at price-cost, I’m excluding IPA. The mix was very different in this quarter—was a negative 2, and last quarter I think it was a positive $13 million. Did I miss it? What was the big mix change?

Michael Discenza (Executive Vice President & Chief Financial Officer)

No, you’re right, David, you didn’t miss. It was primarily in the Industrial Motion segment where we had the larger mix impact, and it really is just the shift in where the growth was. So we grew still in some of the higher margin businesses, but grew at a slower rate in the higher margin businesses and a little bit faster in some of the lower margin businesses. So it really was just a mix. And think the highest margin businesses—lubrication, linear motion, et cetera, our Philadelphia Gear business—and then lower margin businesses like chain and some of the more OE-focused markets.

So it really was just a shift between the markets and the growth rates between the quarters.

David Rosso (Analyst)

Thank you, I appreciate it. Oh, sorry. Go ahead, Lucia.

Lucian Boldea (President and CEO)

Thank you. No, and I was also going to add regionally, I think if you look at where our slow growth was, Industrial Motion has a very heavy European footprint. Europe being down in Q3, and really almost all of that happened in the month of August. That also weighed down that mix from a regional standpoint.

OPERATOR

Our next question will come from Angel Castillo at Morgan Stanley.

Oliver (Analyst)

Hey, good morning, guys. This is Oliver on for Angel today. Maybe just, you know, when we look across—good morning—when we look across, you know, kind of organic growth across your peers, I mean, do you feel like you have a mandate to go and take more price or, you know, maybe are we making some sort of strategic choice here in terms of price-cost? I mean, just hoping you could help us understand kind of confidence in reacceleration going forward.

Lucian Boldea (President and CEO)

Yeah, look, really appreciate the question. As I said, we’re in the midst of a pretty significant transformation on how we’re thinking about our business, how we’re—. And so on one hand, yes, you think of the three pillars of the strategy and how we’re trying to focus on the right verticals. We’re doing 80/20 to focus on our 80s customers, to get more share of wallet, to be a little bit less cyclical than we are today and to really be more resilient and more efficient in our growth.

What we’ve also started now to do is we set up a Chief Operating Officer organization and we’re frankly looking at our assets differently. We are taking that sweaty assets mindset, which means leveraging that fixed cost. It’s a two-step process. We look in the mirror, we look at our cost structure, we build a competitive cost structure and then with confidence we go out and compete and we use the capacity that we have. When the capacity is not competitive, then we take action and we reduce that capacity.

But it’s our job to maintain the capacity that’s competitive and once we have it, we use it. And so aligning those P&Ls with the factories and really having that sweaty asset focus is going to get additional opportunity to do some of the things that you are talking about, especially on the engineered bearing side where you’re more fixed-cost intensive and so that fixed-cost leverage does create a lot of value.

Oliver (Analyst)

Understood. Maybe just to follow up on that, I mean, 110 it’s helped you drive some early wins here. You’re able to combine some different capabilities. I mean the question is, is the sum greater than the parts here? Is there some margin uplift or maybe some revenue uplift that’s maybe we’re not fully appreciating?

Lucian Boldea (President and CEO)

Yeah, look, the sum is much greater than the parts, and the sum is greater than the parts both in how we operate but also how we present ourselves to the market. And “one Timken” sometimes is a big word, and people take it to the extreme that it means every product line to every customer. Clearly it doesn’t. But if you look at data in any—pick a random company—what you will find is if you take one customer that does business with three or more business units inside a company, that customer is more loyal, that customer is more sticky, you have more ability to collaborate with that customer.

In innovation, it’s just everything gets better with a multi–business line customer, and that doesn’t happen if you leave it kind of to one business at a time, everybody for themselves. If you present yourself to this customer as one company, then you can combine the appropriate value, the appropriate offerings, so that the sum of the parts is greater. It also allows you to bring more of a solution in. We used the example in the prepared remarks where we were talking to somebody in the space industry, and they were an existing customer using one of our legacy solutions in their Gen 1 product or moving to a next-gen product where the precision of what they required was far greater. The good news is as we looked at our Cone Drive technology that they were using originally, we were able to shift them over to cycloidal gearbox through Spinea. That’s a little higher-cost technology, but much higher precision, which met their need.

So that generated a higher value opportunity for us with the same customer. In addition to that, we were able to then convince them to sell them the subsystem instead of just the gearbox, which generated really two and a half, almost three times more revenue than the opportunity would have otherwise. So we took something that was business at risk and turned it into a much bigger opportunity than it was before. But much more importantly, built credibility with that customer that we actually can provide a solution instead of what we would have done in the past—maybe try to negotiate the price on a technology that really didn’t meet their need going forward. So it’s just an example.

Now, when you step to the back of the store operationally, there is even more opportunity there. And you go from very simple things like why would you not buy airline tickets, hotel rooms, and rental cars and all that one single way? Why would you buy steel two different ways? You wouldn’t. Why? Or how would you manage real estate? You’d manage it all together. That’s all kind of table stakes—obvious. Some of that we’ve already been doing; we’re going to do more of it more deliberately.

But then how do you take 100-plus operating locations and establish playbooks by archetype? They’re not all the same, but they’re not all different. Are there four or five different archetypes that you can then establish unique KPIs for those, an automation strategy in operating those, and then finally sweating those assets. So the sum of the parts is definitely greater here as we move forward. I’m convinced of that. I’m convinced of that, both operationally but especially in front of the customers.

As we engage with these 80s customers and with our key account plans, we’ve done a few by now. And wherever we go, we see value. We have to see one yet where we walk home and say, well, that was not a good idea—it’s working. The early indications are there. Obviously this takes time. You don’t show up the first day and land a bunch of revenue that afternoon. But we do see early wins. We see pipeline, we see orders, we see all the indications that we need to see that give us a lot of confidence that we’re headed on the right track.

Thank you.

OPERATOR

Our next question comes from Rob Wertheimer at Research.

Rob Wertheimer (Analyst)

Hi. Thanks, and good morning. I had one in a similar vein to what David asked. As you’ve worked through 80/20 and opportunities and, you know, things you might cut, is there any other drag in 2027 from fading smaller products that had low volume, etc.? Then I had a follow-up, if I can. Thank you.

Lucian Boldea (President and CEO)

Yeah, thank you for the question. So the short answer is no drag from 80/20 in 2027. We think the drag is behind us, for it was more of an investment. We’re now at a point where we’re at least paying for that investment through the early actions. I gave some examples in the prepared remarks. And the benefits are starting to flow in as you enter into 2027, where 80/20 is a net benefit. And I say that from a cost side—from the cost of implementing 80/20, the cost of training, the cost of all that—that’s a net benefit.

The bigger benefit—obviously it’s called 80/20 and not 20/80 because the benefit doesn’t come from the 20s; the benefit comes from the 80s. The benefit comes from growth. So that’s what’s most exciting to me about 80/20: this engagement with our key customers, key account plans, bringing more than one Timken business to bear to solving a customer problem. That’s what will change our trajectory. And frankly, that’s what’s already helping our Industrial Motion.

Our Industrial Motion business now has several quarters in a row where we’re growing very nicely in the mid- to high-single digits. And so that’s expected not only to continue but to start accelerating that number.

Rob Wertheimer (Analyst)

Perfect, thank you. And maybe it’s small—I don’t know—but the electroadhesive acquisition is not one I expected. So I wonder if you could expand for a second on how that fits into current either technology or end market. And then does that significantly kind of signal an expansion of your acquisition playfield or TAM? And I’ll stop there, thank you.

Lucian Boldea (President and CEO)

Right. No, look, it’s a great question, and I have to confess, when it was introduced to me a while back with that name—electroadhesive—I said the same thing: where is mechanical engineering or tribology or precision machining in there? But let me give you the layman’s explanation, at least that I think of, on this technology. Basically, think of an e-brake that holds position without consuming electricity. And so on a humanoid, if it has to pick something up and then it has to hold that position very firmly without really consuming battery life, that’s what this technology does.

And so the application—really, humanoid is a great application. But you can think of this also in other industrial applications. It’s not a brake in the sense of a car, so it doesn’t slow something down; it holds position locked. It’s either on or off, but it does it in a very energy-efficient way. And where battery life is very important, we think this technology is a big enabler—again, in conjunction with actuators, in conjunction with some of the other offerings.

Because then we’ll do the go and we’ll do the stop at the same time with equal precision and in an energy-efficient manner. So that’s the idea of the technology. It’s part of the overall solution—being more of a systems provider.

Rob Wertheimer (Analyst)

Thank you.

OPERATOR

Our next question will come from Kyle Menges at Citigroup. Please go ahead.

Kyle Menges (Analyst)

Thanks. Maybe a follow-up on Rob’s last question. Lucian, I think you made comments about starting to build up an M&A pipeline and would just love to hear anything you can share on maybe how that M&A pipeline is building—areas of focus—and are we still thinking about bolt-ons, or could there be potential for anything larger?

Lucian Boldea (President and CEO)

Yeah, so let me start with the last question because that’s the easiest one. So yes, still bolt-ons, not something larger. How we think about our M&A pipeline is really way more strategically aligned with the verticals. So one of the things that we tried to do at Investor Day is to really lay out very, very clearly our roadmap—how we’re trying to grow, where we’re trying to grow, how we’re trying to win. So also the both the where to play and how to win, we articulated the key verticals.

And so what that means is really we expect our M&A pipeline to really be aligned with those key verticals. What I would tell you is there would be probably two types of M&A. One, you can think a little bit in terms of the Bijur Delimon being an example. How do I further the technology platforms that I have, continue to solidify my leadership? How do I add more complementary offerings in these key markets that really work with the solutions that we already provide? And then there’s a smaller subset, which is similar to this investment in this technology, which is R&D make versus buy.

We might do an acquisition that maybe doesn’t have a lot of revenue, but you acquire a technical capability that then you can leverage in the portfolio to bring your current solutions or pull others through the market, but would have to be pretty well aligned with our focus markets and with where we’re trying to go. The other part that we’re developing—and have now developed—is this playbook of regionally translating our existing acquisitions that we have, 22 of those that we made in the last 10 years, depending on exactly how granular you get with the count. And most of those are regional in Industrial Motion. So how we translate those from one region to another will become a playbook for future M&A as well, where we’ll be in a great position to buy a single-region play that then we can very quickly copy, paste, translate into other regions.

And so that’s another avenue to create value with M&A that we now have in place.

Kyle Menges (Analyst)

Got it. That’s helpful, Lucian. And then it seems like since the Investor Day, you continue to talk about 80/20 initiatives and maybe some organizational changes as well that at least some of which feel somewhat incremental. So we’d love to just hear what you feel like you’ve been doing on 80/20 and any other restructuring initiatives that you would say are probably incremental from what you laid out at the Investor Day.

Lucian Boldea (President and CEO)

Yeah, look, I think if you polled 19,000 people today, I would bet you won’t find many that say it’s incremental. We’ve made a lot of changes in the company. So if you think how we were operating a year ago, we had an engineered bearings segment that was running like a vertical P&L and then Industrial Motion running separately. We’ve turned that basically 90 degrees on its side. And so we have a single chief operating officer that runs a single customer-facing organization that’s regional first, but inside those regions it’s verticalized.

It’s not territories, it’s not product lines; it’s verticals, it’s industries. So the entire salesforce went from—you had an EB salesforce and then you had, you know, a dozen IM sales forces. Now you have a Timken salesforce, and if you go to Europe you have a Timken salesforce that might be focused on automation; you might have one that’s focused on aerospace and defense, and they’re specialized in that area. So that transformation on the customer-facing side is dramatic.

We have a technology organization under a chief technology officer that now includes the entire company. It’s not independent organizations inside the P&L. So that’s pulled together. And then on the operations side we have a single COO that includes Bearings, includes Industrial Motion. Inside the P&Ls we used to have the P&Ls aligned by market. They’re now aligned with the factories. So we would have Rail P&L in Bearings and Aerospace one. Now they’ll share the factory.

By the way, that’s no longer the case. I have a small-bore and a large-bore P&L ownership in Bearings that basically is aligned with a network of factories that then can be leveraged so they can sweat the assets. So there’s been very, very significant changes under the surface to really operationalize this. But the more significant change—and Steve is driving even more of that, Steve Ribaudo, as he joined our COO—is that’s the hardware, the org structure; the software, obviously, is the operating model. That discipline, that cadence. We now have a cadence every month. We call it Business Decision Week. That’s where it’s a prescribed agenda. It happens the same day every month. It’s the same system, it’s the same reporting, just new numbers every month.

And we refer to what did we do, what did we say we were going to do, did we get it done, what are we doing to mitigate. So all that is very transparent, very prescribed. So there’s a substantial amount of operationalizing the strategy that’s happened—some before Investor Day, but most of it after Investor Day. And it’s now really taking shape on the back of this with Steve Ribaudo joining in September as COO.

Kyle Menges (Analyst)

Right, that’s helpful. And I guess this was all kind of within that plan that you shared at the Investor Day.

Lucian Boldea (President and CEO)

Yes, it is within the plan, but some of it—that Investor Day was a plan; it is now past-tense, actions.

Kyle Menges (Analyst)

Got it. That’s helpful. Thank you.

Neil Frohnapple (Vice President of Investor Relations)

Thanks, Kyle.

OPERATOR

Our next question will come from Steve Barger at KeyBank.

Steve Barger (Analyst)

Hey, thanks. Really nice to see the positive backlog trend. How much of the mid-single-digit backlog growth is OEM versus aftermarket and distribution, and where are you seeing the most acceleration in OEM schedules?

Michael Discenza (Executive Vice President & Chief Financial Officer)

Yeah, hey Steve, Mike here. Thanks for the question. Yeah, maybe I’ll come at that question a slightly different way because we don’t really classify the backlog by channel. What I would say is that our channel partners—we feel confident that the inventory levels are at a good place. So, you know, the backlog is commensurate with kind of the sell-through rate, if you will. So order intake is strong there, commensurate with strong sales growth. On the OE side, Lucian referred to where we are seeing the strength, but maybe to get one level more specific, we saw strong order book growth in our Infrastructure market, which would include things like heavy industries, off-highway, etc. Of course, Aerospace has been growing strong and continued to grow strong, and that’s in both segments, both Industrial Motion and Engineered Bearings—we see continued backlog growth there. And then General Industrial, which again cuts across a lot of the lighter industrial markets.

The one place where we obviously are struggling from an order book standpoint was Wind Energy, which was down substantially and we already said would be down again in the fourth quarter. So hopefully that helps give a little color.

Steve Barger (Analyst)

Yeah, I appreciate that. And then, Lucian, you said the early minimum order and customer segmentation actions are improving profitability without affecting revenue. Are the benefits that you’re seeing so far from a better price versus cost to serve, or are you already driving incremental growth and share of wallet with the high-priority customers?

Lucian Boldea (President and CEO)

Yeah, both are already happening. So I think that we have a few examples now with larger customers where really probably September was the first month where I could really hang my hat on a significant number that made a difference to say, okay, yes, this is starting to pay off. I can identify discrete opportunities at these large customers that were directly related to opportunities we got through a different level of engagement. So I think that started really in earnest in September.

And then as we expand that effort, I’m optimistic, obviously that’s going to grow not only with the customers we’ve already engaged, but also as we expand the customers. The minimum order value—that came from when you do 80/20, you do a zero-up, and you kind of look in the mirror and say, okay, what does it actually cost me to process an order? And it’s not a small number. And then you realize that maybe you were processing orders that were below the revenue that it cost you to process the order. And why on earth would you do that? Also recognizing that, by the way, the customer that places the order—it’s not free for them either to place their order.

And it just doesn’t make any sense. And so we have a minimum order value now that’s going to allow us to be more efficient. For the time being, what that does in the immediate term is it frees up the resources to serve those 80s customers better. Because obviously when we engage with those 80 customers and we say we need more from you, that means we will do more for them. We will give them better service, we will give them better lead times, we will give them better visibility, and as a result, they will give us more of their share of wallet. Well, that requires people as well.

So that’s that redeployment of fewer orders to process—because there’s fewer, smaller ones—more time for the big customers. But as we continue to do this, there will be some productivity opportunities. Obviously there will be a net benefit from a margin standpoint.

Michael Discenza (Executive Vice President & Chief Financial Officer)

Yeah. And maybe, Steve, just a reminder of what we’ve said all along, which was 80/20—the first half was a drag on the company. The second half, which we’re squarely in right now, those benefits are really offsetting some of those costs. And then we’ll expect to see, you know, that drop-through on the margin really as we get into 2027. You know, we’ve spent the last almost a year now—we’ve been doing this for a little less than a year—doing a lot of learnings, and Lucian’s referenced several of the tools that we put in place.

There’s many tools. Each business, as we’ve segmented, has different needs, and so a lot of activity going on there, deploying the tools, and then looking for that to start delivering results next year, both top and bottom line, in a meaningful way.

Steve Barger (Analyst)

Understood, thanks.

OPERATOR

Next we’ll hear from the line of Tim Thein at Raymond James. I hope I said your name correctly, sir. Please go ahead.

Tim Thein (Analyst at Raymond James)

That is good effort. Yeah, just a question on the visibility you have for ’27, and, you know, some of your longer-cycle business or, you know, longer-cycle, larger backlog-based businesses that you called out earlier is driving a lot of the order momentum. And as well as automation and robotics—I mean it’s nearly 40% of revenue. So just as you kind of exit the year, I’m just curious if you could speak to where you expect to exit the year—how much of that mid-single-digit growth, again, and nothing’s certain, but just how much of that is already within your control, based on what you would expect to exit the year in terms of having added backlog.

Lucian Boldea (President and CEO)

Yes, Tim. So it’s always a little bit difficult to link pipeline in long-cycle business to revenue in a short period of time, especially in the near term. But with that caveat, in the long run it does all flow through and all even out. So when I step back and look at the Aerospace and Defense business, for example, where does the pipeline sit? And again I mentioned Q3 of ’26 versus Q3 of ’20—significant double-digit increase. Same with automation and robotics—dramatic double-digit increase.

When I look at the revenue side of both of these verticals, whether it’s Q3, whether it’s Q4, again, very, very strong performance. Aerospace and Defense—we’ve made the investments in manufacturing that have been a drag on us on cost. But I’m happy to share with you that our revenues are up double digits in Aerospace and Defense on the bearings side. And then as I look at Industrial Motion, it’s basically a 20% year-over-year kind of trajectory, and the pipeline is growing more than that. I’m still, unfortunately or fortunately, still building past dues and backlog in spite of our best effort.

But the extra revenue, especially on the bearings side in Aerospace, only came on the back of us being able to produce more because we were capacity limited. So those investments are starting to pay off. We have other step changes in the ability to serve that are coming in Aerospace, where we’ve invested in more infrastructure, more material. So far what we’re getting is a bit of try-harder with more people—we’ve hired more people—and some of the equipment we invested in that’s coming now and will help us.

So there are a number of things. Then on the Defense side, especially on the Marine side, we have a number of pretty significant projects—to your point, on long cycle—that we will have to deliver, actually start delivering, start working on them, and have revenue recognition in 2027 from those. And those are pretty significant. We feel very good about winning these opportunities. We’re in the final stages of bidding. We obviously have a very motivated customer who wants to move with speed, and so that will further help us on the Defense side.

So again, the pivot we’re making, we feel very good about. I just want everybody to recognize we’re managing to a net number. So it’s the undercurrent of we’re exiting a market, we’re doing divestitures, we’re doing growth at the same time. But what we said we’re doing—what we said we’re working on—is working. It’s working very well. The early indicators are very positive that we’re headed down the right track. And that’s why we’re sitting here earlier than normal, reaffirming our views on 2027 without doing a firm guide, but getting as close as we can to that.

Michael Discenza (Executive Vice President & Chief Financial Officer)

The other thing just in our control and that we’ve communicated is pricing. We included 100 basis points of pricing in our long-term targets and expect to be able to deliver on that promise as well. So we have that in our control to help with that growth.

Tim Thein (Analyst at Raymond James)

Got it. Okay. And then, Mike, one quick one on the earlier—there’s an earlier question on the mix impact in the quarter. Curious if you dovetail. Usually when I think of mix, I think of the distribution playing an important role in that calculation. How did distribution fare in the quarter and what you’re expecting in the fourth quarter in terms of global distribution sales?

Michael Discenza (Executive Vice President & Chief Financial Officer)

Yeah, so distribution was not a significant impact on that mix. You know, it really was a little bit more of the, as Lucian referred to, the regional impact, Europe being down. Of course, some of our acquisitions, industrial motion heavier in Europe, so mix from that. And when I think about distribution, you know, going forward, like I said, we feel that inventory is in a good place. You know, our big customers that have announced their growth rates, we feel comfortable that we’ll be able to match those.

So we look for continued growth in those markets. And then of course when that grows, it does help with mix, but in the quarter it wasn’t a contributor to the negative mix.

OPERATOR

Next we’ll hear from the line of Tomo Sano at J.P. Morgan.

Tomo Sano (Analyst)

Hi, good morning everyone.

Lucian Boldea (President and CEO)

Morning. Morning, Tomo.

Tomo Sano (Analyst)

Thank you. It was