The Timken Company (TKR) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to Timken's Third Quarter Earnings Release Conference Call. [Operator Instructions] 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.

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. [Operator Instructions] 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 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 Lucian.

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 targets, 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 digits 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 1.7x EBITDA. Our strong balance sheet gives us flexibility to fuel our capital allocation priorities. In the quarter, we delivered meaningful progress across all 3 pillars of our strategy as we put 80/20 and our disciplined execution framework to work across the entire enterprise. Starting with Pillar 1 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 section 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 80 customers. Key account playbooks have been developed and deployed and a number of large accounts to grow our share of wallet by engaging as a one-time 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 2, where we are stepping up our resources investment and customer-facing efforts to drive out growth 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 electro-adhesive 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 3, 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 Drive, Cone Drive and Spinea brought together complementary technologies and expertise to develop an integrated actuator solution for the commercial space industry. This 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 a strategic acquisition. To date, we are reducing portfolio complexity, aligning commercial resources with our strategic verticals and aggressively scaling our Timken's multinational footprint beyond the businesses largely European-based. Our Chief Operating Officer structure, led by Steve Roboto who joined Timken in September, is now responsible for our P&L. 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 factory with P&L. We will continue to benefit from rightsizing and maintaining a nimble and globally flexible footprint that is competitive on cost and lead times to support our customers' growth. Taken together, these actions show how the Timken team is moving with speed to execute or elevate our performance strategy. We are focused on finishing data 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 digits 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?

Thanks, Lucian, and 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 [indiscernible] 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 bearings 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 & 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 Bejar Elliman 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 & 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 Beater Delmont 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 & 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 1.7x, which is an improvement from last quarter, driven by higher EBITDA and debt pay down. 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 Bejar Delmont acquisition continues to perform well, while the updated outlook now reflects the impact of the Belts divestiture in 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 million to $400 million in 2026, unchanged from the prior outlook. On Slide 14, a 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 declined 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 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 was 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?

Thanks, Mike. Let me reiterate that we are focused on delivering a strong finish to the year, while making continued progress on our Elevate [indiscernible] strategy, which is a multiyear transformation. In 2026, we have taken significant actions to transform the core of our business to reduce complexity and exit nonstrategic 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 we'll 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 margins and drive significant shareholder value over the coming years.

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

[Operator Instructions] We'll hear first from the line of Bryan Blair with Oppenheimer.

So we know your Q4 organic sales outlook is unchanged, 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 "bad guy" on the bearing side and the comp is obviously a bit healthier for industrial motion?

Yes. 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. So you're a little bit looking at that going across the water and not 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 focused verticals. So whether you're talking about automation and robotics or [indiscernible] aerospace and defense for their significant double-digit increases. Those happen in Q3 in the pipeline. Obviously, they will continue to happen. We expect for them to continue to happen in as well. The demand picture externally, we don't see that being dramatically different going from Q3 to Q4. But the undertone from 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 is a lot of churn in here that we're doing to really deliver on the 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 going to do. But we're -- 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.

I appreciate the color, and you did offer a segue to the preliminary 2027 outlook there. So I have to dive in a bit. Is it fair to assume that consistent with the medium-term framework you 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 and in your prior answer. But how would you rank order growth expectations given the current visibility?

Yes, absolutely. I think if you look -- I think what you said is appropriate. We definitely -- obviously, now we're focused 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 expect 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, accelerate as we move forward. The markets that you were asking about, absolutely automation and robotics is very much a 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 in 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 margins. So that's 1/3 of the company. So take 1/3 of that number, 60 bps 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.

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

I was curious, you spoke of auto exits as part of the fourth quarter comments. But 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.

Yes. What we've committed to is a net number. Absolutely, yes.

Okay. So the mid-single digit is even with -- I'll put a number around it, $100 million of revenue backed away from an auto even with exiting that you still look at mid-single digit. It includes the exiting just to ...

Yes, I'll remind you that the exit is -- the majority of the revenue exit is not in 2027, some of 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.

Okay. Helpful. So 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 -- like China win, 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 0. 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 EV showing any growth into '27? And why is that a credible view?

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 a 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 tends to be a little more cyclical, a little more lumpy. And there is 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 yes, it's a little bit down Q4 versus Q3 is another step down sequentially.

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 IEEPA. The mix was very different in this quarter. It was a negative 2, and in last quarter, I think it was a positive $13 million. Did I miss that? What was the big mix change?

No, you're right, David, you didn't miss it. It's -- it was primarily in the Industrial Motion segment where we had the larger mix impact, and it's the -- 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, are 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.

No, 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.

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

This is Oliver on for Angel today. Maybe just when we look across kind of organic growth across your peers, I mean do you feel like you have the mandate to go and take more price? Or 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?

Yes. 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 -- and so -- on 1 hand, yes, you think of the 3 pillars of the strategy and how we're trying to focus on the right verticals, we're doing 80/20 to focus on our 80 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 what the assets mindset, which means leveraging that fixed cost, it's a 2-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 have when the capacity is not competitive, then we take action and we reduce that capacity. But we -- it's our job to maintain the capacity as [indiscernible] once we have it, we use it. And so aligning those P&Ls with the factories and really having that's what the asset focus is going to get additional opportunity to do some of the things that you are talking about especially on the engineered bearings side where you're more fixed cost intensive. And so that fixed cost leverage does create a lot of value.

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

Yes. Look, the sum is much greater than the parts. And the sum is greater than the part both in how we operate, but also how we present ourselves to the market. And One Timken can 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 picture random company, what we'll find is, if you take 1 customer that does business with 3 or more business units inside the company that customer is more loyal, the customers more sticky. You have more ability to collaborate with that customer and innovation is just everything gets better with a multi-business line customer. And that doesn't happen if you leave it kind of to 1 business at a time, everybody for themselves. If you present yourself to this customer as 1 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 used the example in the prepared remarks where we were talking to somebody in the space industry and they were an existing customer using 1 of our legacy solutions in their Gen 1 product or moving to a next-gen product or the precision of what they required was far greater. The good news is as we looked at our [indiscernible] technology that they were using originally, we were able to shift them over to [indiscernible] 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 tell them the subsystem instead of just the gearbox which generated really don't have almost 3x more revenue than the opportunity would have otherwise. So we took something that was business at risk and turn it into a much bigger opportunity than it was before. But much more importantly, build 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 the technology that really didn't meet their needs 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 1 single way. Why would you buy steel 2 different ways you wouldn't. Why? So that's -- 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 architects. They're not all the same, but they're all different. Are there 4 or 5 different archetypes that you can then establish, you need KPIs for those and automation strategy and operating those and then finally, sweating those assets. So the -- some 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 [indiscernible] customers and with our key account plans, we've done a few right now. And wherever we go, we see 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.

Our next question comes from Rob Wertheimer at Melius Research.

I had one kind of in a similar vein to what David asked. As you've worked through 80/20 and opportunities and things you might cut, is there any other drag in 2027 from fading smaller products that had low volume, et cetera? And then I had a follow-up, if I can.

So the short answer is no drag from 80/20 in 2027. We think the drag is behind us or 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 the 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, it'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 is 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, 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.

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