The Timken Company (TKR) Earnings Call Transcript & Summary

My name is Neil Frohnapple, I'm the Director of Investor Relations for Timken. We're excited to have many in the room with us here today in New York City, and we welcome those who are joining us virtually via webcast. We appreciate everyone taking the time to hear more about how Timken is advancing its profitable growth strategy and how the company is well positioned for the future. Let's start by looking at today's agenda. This morning, you'll hear from our President and CEO, Rich Kyle, as he gives you an overview of how Timken is performing as a diversified industrial leader and provides a vision for the future. Then, our President of Engineered Bearings, Andreas Roellgen, will spend time taking you through how the company is expanding its market-leading positions in the most attractive areas of the bearing space. After Andreas speaks, we'll take a short break, and then Chris Coughlin, President of Industrial Motion, will join us to talk about our portfolio expansion and how we're accelerating growth in the industrial motion space. Our final presentation today will be from Phil Fracassa, Executive Vice President and CFO, as he shares more details on our financial performance, capital allocation strategy and goes into more detail on our new long-term financial targets. After Phil's presentation, we'll have Rich, Chris and Andreas back to the podium for a Q&A session. [Operator Instructions] After the Q&A session, we hope those here in person will join us for a networking reception and lunch. Before we get started, let me direct your attention to our safe harbor statement on Slide 3 of the presentation materials. We will be making forward-looking statements throughout the course of the presentations today and we will also reference certain non-GAAP financial information. They have been reconciled and will appear disclosed in the appendix of the presentation. Please take a minute to read through the statement. So with that out of the way, please join me in welcoming to the podium, Rich Kyle, President and CEO of The Timken Company.

Thank you, Neil, and good morning, everyone. We appreciate you joining us in person and virtually today. We're excited to share with you today how Timken is performing as a diversified industrial leader. Strategically and financially, The Timken Company has been performing at a high level. Our strategic initiatives are delivering results and gaining momentum, and we are in excellent position moving forward to drive even greater value for shareholders. The Timken portfolio has evolved significantly over the last 15 years, beginning with transformative moves in reducing and exiting our market positions in automotive and steel over 8 years ago to steadily shifting our mix from mobile industries to process industries, resulting in an industry-leading bearing and industrial motion portfolio. Today, Timken's market position is stronger, more diverse, growing faster, less cyclical and better positioned to generate greater value for shareholders. Our technology and service are valued by customers worldwide across a wide array of end market sectors, and we are positioned to win as our customers develop more sustainable equipment solutions. The last 5 years of industrial end markets have included a wide variety of macroeconomic conditions, and Timken has consistently performed, delivering value to our customers and shareholders. In 2019, we set financial targets, not knowing that the world would soon go into a pandemic-induced slowdown, followed by a recovery marked with unprecedented supply chain challenges. Despite the unexpected challenges, the Timken management team achieved several of the targets early and is on track to deliver record results 3 of the last 4 years. And today, we're setting our sights even higher with new 5-year targets for revenue, margins, earnings per share and return on capital. As we look to the future, Timken is well positioned to capitalize on new opportunities, achieve stronger performance and create significant value. You'll hear more about our plans from our experienced Timken management team who are here with us today. Timken's portfolio of highly engineered bearings and industrial motion products are focused on the premium end of the market. Our products are often the most critical component in a particular piece of equipment. We've succeeded for over 120 years because we continue to solve our customers' most difficult technical challenges and service their equipment through its full life cycle better than anyone else. This year, we celebrate another significant milestone in Timken's storied history, 100 years of being listed on the New York Stock Exchange. Only 29 companies have been listed on the exchange longer than Timken and even fewer have paid a dividend every quarter over that 100 years. Our rich and long history is evidence of the enduring demand for our products and technology. And Timken today is positioned to thrive for the next 100 years. As the world focuses on sustainable solutions for the next generation of equipment, Timken's value proposition has never been stronger. In 2021, we successfully navigated a highly dynamic operating environment to deliver strong performance. We achieved record revenue of $4.1 billion and record earnings per share of $4.72. We have a global business with more than half of our revenue generated outside of North America. Timken is a world leader in engineered bearings technology, and we have the most attractive industrial bearing franchise in the world, focused on the most premium and profitable parts of the bearings market. For the last decade, we've been leveraging our global leadership position in engineered bearings to expand and scale in industrial motion products and services. Today, our Industrial Motion product offering is greater than 30% of our sales. It includes linear motion products, automatic lubrication systems, drive systems, belts, chain, couplings and industrial clutches and brakes. These engineered components are generally found in the same equipment that also contains bearings. That means they often share the same customer channels, both OEMs and distributors, and are in the same end markets as bearings. Expansion in Industrial Motion has both increased our share of wallet at existing customers and taking us into new customers in faster-growing markets. We go to market directly to original equipment manufacturers as their trusted design partner, and we serve our aftermarket and small OEM customers through our global network of distributors. We are a global broad-based supplier to the industrial market. This is where we focus our investments and growth and we have a strong and differentiated value proposition. Looking at Timken's financial performance over the last 5-year period, you can see the strength and consistency of our results. We have performed at a high level through a wide variety of macroeconomic conditions, some favorable and some unfavorable. We've won in the marketplace with our products, technical sales model and excellent service, and we have steadily deployed capital back into the business and directly to shareholders. 2018 was a strong industrial market globally, and Timken delivered a breakout year with earnings over 30% higher than our prior record. And despite concerns since that time about the strength of industrial markets, disruptions in technology, the pandemic or significant inflation and supply chain issues, we went on from the breakout year in 2018 to set 3 more revenue and earnings records. Over this 5-year period, we are on track to grow revenue 24%, grow earnings 35% and operate between 17.4% and 19.2% EBITDA margins, 5 years of extremely dynamic market conditions and only 180 basis points of margin variation and 4 years of record revenue and earnings. We will not spend time today on 2022 as today is meant to be longer-term focused, but '22 on these charts is shown at the approximate midpoint of our guidance that we provided in July for revenue, earnings and margins. With 2 more months behind us since we provided the guidance, we are tracking above the midpoint of the earnings range and demand remains strong across our markets. As we look forward to the next 5 years, Timken is a stronger company in '22 than when we entered 2018. We are better positioned to win with a more diverse and attractive end market mix and a broader product portfolio. We have largely the same management and talent that delivered the last 5 years, engaged and committed on achieving our next set of financial targets. And financially, we are a larger company, generating more EBITDA and more cash flow, and we have ample opportunities to continue to deploy that capital to create value for customers and shareholders. As you can see on this chart, we serve a diverse and fragmented set of industrial end markets. We have steadily shifted the end market mix of the company by investing in our own capabilities and also through M&A. As a result, our market mix is one of the most attractive in the industry. And a good portion of our sales today are in newer markets like renewable energy and automation, which are experiencing strong secular growth. Renewable energy is now our single largest individual end market at 12% of sales, and automation is right behind it at 8% of sales. We continue to maintain our leadership in our traditional core end markets, markets like aerospace, rail and construction, which are also critical to our global growth. At the same time, we're focused on winning across sectors newer to Timken that include marine, robotics, food and beverage and others. Across our market mix, the largest OEM customer is under 3% of revenue, and the top 10 OEM customers make up less than 20% of company sales. And those top customers purchase across thousands of part numbers and applications. We ship hundreds of thousands of part numbers in a year. And when you factor that in as well as the customer and geographic diversity, the huge installed base and the application development pipeline that we are engaged in, you get a sense for the growth, resiliency and diversity of the Timken portfolio. We are not dependent on any one market or a customer. We have a large installed base that creates recurring revenue and we are technically positioned to win in our customers' future applications. We operate in segment our business by the markets we serve. Mobile industries is comprised of applications in vehicles and moving equipment, off-highway equipment, like ag, construction, mining and rail, plans and helicopters and on-highway vehicles, cars and trucks. Process industries is comprised of applications in fixed equipment, wind turbines, solar panels, factory automation, conveyance, packaging and fixed machinery across diverse industries. In general mobile, more concentrated at large OEMs, higher volume and less aftermarket than process. These factors are why process margins are higher than mobile margins. Over the last decade, we have consistently and steadily grown process industries faster than mobile industries, and that shift has been a key driver in the improved margins and resiliency of our business. As we move forward, we will continue to deliberately allocate more of our CapEx and M&A resources to process to contribute to the achievement of our new margin targets. Strategically, we're shifting our end market mix to attractive markets with strong margins, secular growth and different cyclicality profiles. Some of these markets include renewable energy, automation, services, marine, food and beverage and passenger rail. Since 2014, we've tripled our annual revenue in these markets, which now amount to 30% of our total sales. These are attractive industries for Timken. Take wind energy, for example, when you think about what's inside of wind turbine where the technology exists, the bearing -- industrial motion components. There's a huge amount of content per megawatt hour of power generated. Reliability is absolutely critical. And there's a lot of innovation happening in the space with a very narrow supply base that is capable of providing the technology and quality required. Timken has created a market-leading position in renewables going from 0 to 12% of company revenue in a relatively short time frame. Automation is also an attractive market for Timken. We've built a diverse portfolio of products for high-growth automation end markets, including robotics, logistics, conveyance. We also provide automatic lubrication systems that serve a variety of end markets, and our Groeneveld, BEKA business is among the world's largest producers of automatic lubrication systems. Another market opportunity that we're working to scale is food and beverage. We like food and beverage for its challenging applications. The factory equipment has many rotating parts. It's a highly regulated industry. The customers have eye technical and operating requirements, and it does not follow a traditional industrial capital goods cycle. We've been building our product offering for this market organically and inorganically, and it's a target market that we will continue to scale over the next several years. Our recently announced acquisition of GGB will provide an additional technical solution for us in this market and will bring new customers to Timken. Timken has a long history for being an excellent corporate citizen. We find solutions to solve our customers' most challenging problems, and this is how we also approach corporate social responsibility and the goals and initiatives we are working to advance. We prioritize our resources and investments where we can make the greatest impact. Across our portfolio, sustainability is core to our products, and we are taking action to reduce our emissions, waste and energy consumption across our own facilities. We're investing in the development of our people, the diversity of our workforce and ensuring safety across the enterprise. We're also committed to giving back and making our communities stronger and leading enterprise ethically with strong corporate governance practices. We're proud to be recognized once again as one of America's most responsible companies by Newsweek. We've also received recognition from Forbes as one of America's best employers, and we are consistently honored as one of America's most ethical companies. One of the core thrust of our CSR activities is advancing sustainability. Timken was founded to help customers achieve efficiency and save energy, and we are constantly driving sustainability in the products we make through our global operations and in the industries we serve. The concept of efficiency is essentially sustainability. Through our approach to product sustainability, we use less friction and energy, fewer resources are consumed and more materials are recycled and reused. We recently announced our 2030 emissions target. We are targeting a reduction of our aggregate Scope 1 and 2 greenhouse gas emission intensity by 50%. This covers direct emission from our operations and indirect emission from purchased energy. We continue to contribute significantly to the world shift to renewable energy production. We are proud to be a leading supplier to some of the most significant wind and solar projects worldwide. And Timken Technology continues to make renewable energy more efficient, more reliable and more competitive. And the commitment of governments and corporations around the world to reduce greenhouse gas emissions will continue to drive significant growth across this market. Timken's competitive advantage begins with our customer-centric innovation. We're focused on developing and growing a portfolio of highly engineered, mission-critical products that we design into our customers' next generation of equipment. We're a global leader in application engineering, which allows us to improve and differentiate customer performance. As a result, blue-chip customers continue to turn to Timken to design their next-generation platforms. The quality, reliability and brand promise that comes with a Timken-backed product are very important to our customers. OEMs, distributors and end users value our technical sales model, which combines field sales and service engineers with application specialists, all supported by product development and R&D capabilities. Most of our customers operate globally and their equipment is used all over the world. Our global footprint and operating model allow us to service that OEM or end user globally or locally. We are a trusted business partner that delivers industry-leading customer service. And we do that through operational excellence initiatives that are focused on quality, safety, service, cost and capital efficiency. At Timken, operational excellence is more than a buzzword is a way of life and a passion for making the company better each and every day. For over 120 years, Timken has continued to remain critical to equipment designs and industrial motion through 3 paths. We service the large installed base of legacy products that we have in the field. We provide our existing OEMs with excellent service and high-quality products for the equipment they produce today, and we invest heavily in R&D and application engineering to advance the equipment designs of tomorrow. We continue to excel at all 3 today, and our application pipeline is strong. Taken together, these factors give us confidence in our growth prospects while also differentiating us from competitors and creating significant barriers to entry. With our diverse product portfolio and application engineering expertise, we are well positioned to benefit from a number of emerging trends as our products can help meet our -- help our customers meet the needs for optimized reliability, fuel efficiency, cost and performance. Sustainability is a major opportunity for us, not just in the solar and wind energy industries, but across all of our markets. Andreas will spend some time detailing our participation in the wind industry for engineered bearings, and we've developed a broader offering of industrial motion products for that industry, including automatic lubrication systems, clutches and couplings. And through our acquisition of Cone Drive, we provide drive systems for solar equipment. Electrification is a building trend in the design of future on-highway vehicles, and we are winning in electrification and hybrid designs across our markets. New design cycles are good for us. Sometimes new designs use more, less or different bearing in industrial motion product technology. But friction, tribology, load transfer and rotational motion all remain and customers need premium technical suppliers to participate in the new equipment designs and that is opportunity for Timken. More broadly, every OEM is actively working to improve the sustainability of their future equipment. This also includes what we call lightweighting application. To do this, Timken participates in the designs of those systems to reduce weight, reduce friction, reduce emissions, reduce size, use different sources of energy and all of the technical challenges that go along with all of that, while continuing to deliver rotational motion and transfer loads. This requires strong application engineering expertise, and this is a place where Timken really excels. You'll hear more about our growing position in industrial automation from Chris. Many of our recent acquisitions, Rollon, Cone Drive, Spinea, Groeneveld, BEKA have opened up opportunities for us in this space. Asia is also a sizable opportunity. We have a talented team there with a good market position, and we are well positioned to participate in the growth that this region offers for industrial products. This is often a synergy opportunity for our acquisitions. With our scale and our talent, we can move an acquired company into that region faster and less expensively than what they could do on their own. And as developing countries in Africa and around the world further industrialize and use more premium product solutions, Timken is well positioned with our global footprint to meet those needs. To fully appreciate where Timken is today as a diversified industrial leader and where we are going, I think it's valuable to reflect on where we came from and the magnitude of our transformation. Prior to 2015, we were really focused on transforming the enterprise. We did that by spinning off a steel business that comprised over 1/3 of company revenues. This improved our cyclicality, capital intensity and other financial metrics. We also exited low-margin automotive business and restructured our Aerospace business. And we shrank and derisked our pension plans, which historically consumed a significant percentage of our cash flow. The pre-2015 strategy successfully transformed our margin, cash flow and cyclicality profile, but growth was sacrificed in the process. During this time, we also started our acquisition strategy. And by 2015, we were done shedding business, and we're focused on growing and optimizing the existing portfolio while adding complementary and synergistic growth through M&A. We then moved on to build a more focused, faster moving enterprise to grow our industrial leadership position over the last several years. We launched operational excellence initiatives that addressed costs, improved customer service, expanded margins, advanced our market mix, and we deployed $1.7 billion in M&A to accelerate our profitable growth strategy. The results have been top quartile for revenue and earnings per share and above median for margins. As we set our sights on higher performance going forward, we have many advantages in '22 as compared to 2015, including a stronger portfolio, is better positioned to win in the applications of tomorrow, the benefit of the investments that we've made in the company the last several years, improved operating capabilities and greater cash flow to deploy. Looking forward, we're focused on scaling the enterprise, accelerating the execution of our profitable growth strategy and achieving top quartile financial performance. So as you can see from the previous slide, our long-term strategy has been working, is comprised of 3 main elements. The first is driving above-market organic growth in our core business by being the leader in product technology, innovation, application engineering and customer service. As I mentioned, we're already leaders in our industry in application engineering and the design partners of choice for OEMs. We then service the life cycle of that equipment with distributors and end users with our best-in-class technical service model. Our objective is to outgrow the markets in which we participate, while continuing to shift to higher growth markets and technologies. Second, we improved the performance of our business and expand margins through operational excellence initiatives, including our ongoing efforts to improve our manufacturing footprint, reduce capital intensity and drive efficiencies across the enterprise. Operational excellence is also at the core of our acquisition strategy as we integrate and improve the acquired companies. We are a manufacturing company, and we are excellent at it. We pursue greater performance and efficiency across all aspects of our business. It's core to our culture and critical to our ability to differentiate and win globally. Our quality record is outstanding. Our factories are world class. We have a global business model, and we leverage technology to drive productivity across the entire business and supply chain. The leadership team at Timken has an outstanding track record of creating value through their operational expertise. Third, we deploy our cash flow and capital to value-creating activities. Referencing back to the previous slide, in the pre-2015 era, a significant percentage of our cash flow went to the restructuring and pension derisking that was required to transform the company. In the '15 to '21 era, the cash flow was invested in growing the portfolio, improving operating capabilities and creating shareholder value. Looking forward, we're in a position to generate greater levels of cash flow, and we have ample opportunities to continue to deploy capital to create even greater shareholder value. We've made excellent decisions around where and how we deployed our capital and remains a differentiator for us. Both Phil and I will cover capital allocation in greater detail later. The Timken business model keeps us focused on where we compete and invest. We're very good at finding the profit pools where our technology and capabilities are relevant and providing a compelling value proposition. Of all of our global bearing competitors of scale, I believe we are the best at doing this. The bearing industry is large and so is the industrial motion space. It's an excellent space to be in with plenty of opportunity, but we have been and will continue to be selective in where we participate and invest. Our objective is not to be the biggest. Our objective is to be the best. So we pick our positions using the 4 criteria on the left: challenging applications, aftermarket, fragmentation and high service or cost of failure requirements. On the right are our competitive differentiators. This is where we focus on building our internal capabilities to capture and win the opportunities that make it through the filters. We then align with secular growth and technology trends and develop a portfolio of products and services to meet current and future customer needs. We are successful strategically and financially because we're very intentional and selective in what we pursue, both organically and inorganically, then we bring outstanding capabilities to the execution of the pursuit of those market opportunities. We are delivering on our 2019 Investor Day targets. We previously provided 5-year targets for revenue growth and 20% EBITDA margins, which together would translate into a double-digit earnings CAGR. Despite a lot of the challenging macroeconomic and industrial conditions over the time frame, we're exceeding several of the targets and advanced all of them. Our results are creating significant value for shareholders and have contributed to top quartile financial performance over the last 5 years compared to our industrial peers. And more importantly, we're in a great position today to raise these targets as we look ahead to the next 5 years, which I'll cover in a few minutes. We are disciplined in our capital allocation. We first invest in our core business to drive organic growth and margin expansion. We also look to expand the portfolio through accretive acquisitions. In addition, we focus on paying a steadily increasing quarterly dividend, and we have deployed significant capital to buy back shares. We look to do all this while maintaining a strong investment-grade balance sheet. We are focused on the cash generation of the business, and we're confident in our ability to deploy that cash to drive total shareholder returns and a stronger Timken company. This is one of the biggest differentiators of the Timken Company of today and the company of pre-2015, and we are confident that this is an even greater value-creating opportunity in the future. We have a strong track record of completing strategic acquisitions to accelerate growth since 2010. We've completed at least 1 acquisition every year and allocated over $2 billion of capital to acquire businesses. M&A has significantly expanded our Industrial Motion portfolio, as you can see on the slide and has also moved us into new faster-growing markets. These acquisitions have driven higher profitability while reducing the capital intensity of the portfolio and enhance the company's growth profile. We've made the acquired company stronger, and they in turn have brought value to Timken in the form of talent, market positions, cost reduction opportunities and more. We plan to continue to grow through M&A, acquiring businesses that are a strong fit and meet our financial criteria. We've targeted an inorganic growth CAGR of 2% to 3% over the next 5 years. Timken has become a successful acquirer, and we have the talent and the operating capabilities that allow us to continue to capture significant cost and sales synergies. Here are our new 5-year targets. From a revenue standpoint, we're now planning for organic growth in the 4% to 5% range, which is 100 basis points higher than our prior outlook. Our strategy is gaining momentum, and we will continue to drive outgrowth. Our portfolio mix today is also built to perform at a higher level. Additionally, we're well positioned to capitalize on emerging trends and pricing should be a greater contributor over the next 5 years versus the '17 to '21 period. As I mentioned earlier, we're targeting M&A to contribute 2% to 3% annually as strategic acquisitions will continue to enhance growth. Overall, the result is a total sales CAGR of 6% to 8%, which is 1 percentage point higher than our prior targets. Looking at margins, we are targeting 200 basis points of margin expansion over the next 5 years as compared to the last 5. And then compounded adjusted earnings per share growth of greater than 10% and free cash flow conversion on net income of 100%. We're excited about these targets, which Phil will also detail later in his presentation. We're confident that we have the right strategy, the right team and the right portfolio in place to deliver on these targets over the coming years. Timken is a strong investment. Over the years, we've proven our ability to consistently create value through various industrial market conditions and through evolving technologies. We've improved our financial performance and we know that we have additional runway ahead. Our portfolio and mix are positioned to deliver higher growth and margins, and we are committed to further diversifying our products and markets into attractive and complementary spaces. We've put ourselves in a great position to accelerate our already strong performance, and we're excited about the opportunities in front of us and confident in our abilities to capitalize on them and drive significant shareholder return in the years ahead. I'll now turn it over to Andreas Roellgen and then Chris Coughlin. As part of both our succession planning and the execution of our strategy, Andreas recently moved into the leadership position of our Engineered Bearings Group, and we consolidated all of the Industrial Motion businesses under Chris in his newly created position. Both Andreas and Chris are long-tenured executives at Timken. And while they're in relatively new positions, they have held critical leadership roles in driving our success for many years. This team is committed to and believes in the targets I just summarized and is very capable of delivering on them. Thank you, and with -- Andreas.

Good morning. Thanks, Rich, for the introduction. I'm Andreas Roellgen, heading up our global Engineered Bearings Group. First, a few words on myself. Sure. I'm originating from Germany with an education in both engineering and business. I have been with the company for 25 years. Worked out of Europe, the United States, spent a lot of time in Asia to grow our business in emerging markets. In 2017, I was appointed a Corporate Officer of The Timken Company, and most recently, led the company's engineered bearings business in Europe, Africa and Asia. Following which company overview, I'm going to take you a little deeper into how we are expanding our market-leading positions and, thus, winning in engineered bearings. Here are the key messages I'd like to convey today. First of all, as you have seen by our financial performance with our differentiated portfolio of engineered bearings, we are clearly the most attractive industrial bearings business in the world. This is because we have successfully diversified our product portfolio. We are focused on serving the most attractive markets, and we are well positioned to capitalize on global demand trends and emerging technologies. Our profitable growth strategy is driven by the ongoing development of our differentiated technical expertise, our growing investments into product vitality and our passion for operational efficiency, effectiveness and rigor all around the world. Let me give you a brief overview of our profile in Engineered Bearings again. Timken is the world leader in tapered roller bearings. In fact, [indiscernible] Timken invent it and patented the product more than 120 years ago. In the meantime, we have accumulated the best IP. We enjoy the largest installed base. We have the best brand recognition and the broadest product offering. Tapered roller bearings are the preferred antifriction solution for much of the world's equipment. Our strategy is essentially to sustain our leadership while leveraging all the strengths that come with our position in taper roller bearings in the form of people, technology, channel, geographic reach and operational excellence to expand with a broader industrial bearings portfolio across attractive industrial markets. In the chart on the right, we are showing our sales mix by the various end market sectors. The largest share we are showing here represents actually our global industrial distribution channel, by which we are serving several dozen underlying end-user markets again for both OEM, maintenance and repair of equipment wherever it is being used. We are engaged in a very fragmented space here, which is characterized by deep profit pools and high barriers to entry. Then our single largest individual market, as Rich pointed out already before, has become the highly technical renewable energy sector, accounting for 14% of our engineered bearings sales. And then you see a number of other attractive markets with an excellent fit to our value proposition, including rail, aerospace, metals and mining or agriculture to name just a few. The space we are addressing with our strategy is large, attractive and it keeps growing. We remain focused on premium industrial bearing sectors, which are characterized by mission-critical applications, high service requirements and aftermarket opportunities for spare parts and other services often for decades out. Our goal is to achieve leadership positions in more sectors of this premium space, which is a subset of the global bearings market that we target and accounts for about $25 billion to $30 billion of revenue globally. Let me summarize here our strategy by which we go after that premium bearing space. First of all, based on customer feedback, we are the market leader in application engineering. This is where we design the most effective bearing solution into our customers' equipment with highly engineered mission-critical products for maximum performance, energy efficiency and life of that equipment. Then our customers rely on us for best-in-class service throughout the life cycle of that same equipment, including spare parts and repair services throughout the usage of it, supply it to any location in the world through our extensive network of industrial distribution partners. Extremely important for our success is our global approach to operational excellence, as Rich alluded to it already, which enables us to win particularly also in emerging markets. And finally, we keep growing by expanding our portfolio of technologies, markets and products and also through M&A activities. Rich introduced already the Timken business model. The engineering bearing strategy is very much aligned with the corporate business model and important to understanding how we approach this bearing space. On the left, again, we are depicting the filters we apply to remain focused on the most attractive opportunities in this marketplace. We are the best at challenging applications in fragmented markets with aftermarket opportunities. Let me emphasize here also the focus on applications with high service requirements as we justify our premium position in bearings with the optimal usage of our products for best performance, lowest energy consumption and longest life of the equipment. That makes a significant difference in our customers' total cost of ownership proposition and drives the brand reputation of Timken. Then, as Rich had mentioned before, our engineered bearings business is characterized by the competitive differentiators we have listed here on the right. We enjoy not only the strongest reputation today with our customers and channel partners for our technology and operational excellence, but our people are relentlessly pursuing the next level of efficiency and effectiveness in everything we do. Let me now deep dive into 2 key aspects of our business model, both critical to our journey of profitable growth. One key feature of our strategy and a real strength of the company again is to create value throughout the complete life cycle of applications of that equipment and serve end users of our products consistently around the world. In this context, it is quite common for us to work with an OEM, an original equipment manufacturer in one region, to design the best possible bearing solution for their equipment by leveraging our global R&D capabilities and, hence, feed this installed base of premium applications. And then as end users are running that machinery all around the world, we serve the same equipment often in other regions with service and spare parts throughout our expansive network of industrial distributors. Think about a huge copper mine in Latin America or Africa, wind turbines in Northern China or heavy haul way lines in Australia to exploit the lithium needed for the electrification of the world. A lot of that equipment used there is not built there. However, that installed base of equipment requires service on the ground as it is heavily utilized by operators in extremely harsh environments. That is what is creating attractive aftermarket demand throughout the life of that equipment. That's why Timken is there. That's why we have built and continue optimizing a powerful global footprint of interlinked operations and support competencies in order to reap the benefits of serving that installed base and leveraging our knowledge we have accumulated around those applications. Second, operational excellence, another key aspect of our strategy. In this context, let me first explain something. When we refer to operations, it is a much broader definition than just manufacturing, although we are also a world-class manufacturing company. We actually regard most of our business processes as operations as any, repetitive process provides enormous opportunity for continuous improvement, particularly now again in the age of digitization cloud-based solutions and machine learning. This is why in engineered bearings, our business processes are globally designed in one consistent best-practice manner, no matter if they cater for the function of sales, pricing, engineering, product development, manufacturing, supply chain and so on. Not only does our setup allow us to run the highest effectiveness and quality of those processes and operations, but also run at the lowest possible cost to maximize margins and returns. In addition, given our integrated ERP systems, advanced analytics and increasingly cloud-based solutions, we gained speed and scale in our processes, for example, when it comes to managing this volatile market environment with regards to pricing or service in the supply chains. It is one global show. We are increasingly engaged in providing differentiated customer experiences through more digital solution as we connect with customers and distributor networks through our ERP, engineering and commercial systems. On the sustainability side, as Rich mentioned, work is underway to achieve our 2030 emission reduction targets. We are doing this by driving an eco-friendly culture amongst people, investing in plant efficiency projects and increasing our renewable energy use across our global facilities. As an example, one of our larger manufacturing plants in Asia is running already today essentially entirely on renewable energy. Last but not least, our business model provides a huge benefit also to our Industrial Motion businesses, those that we choose to integrate into the Bearings machine. And customers benefit from one phase from Timken for all the products and services we offer. Let me move on now to the market side of our business. As Rich alluded to, we stay focused on those key megatrends that are driving secular growth within industrial markets. In Engineered Bearings, for example, we are capitalizing on various growth trends driven by the quest for more sustainability for higher levels of fuel efficiency, electrification and automation of the world and the continued industrial advancement of developing countries. Timken's bearing portfolio and technologies are well positioned to benefit from these megatrends that are important drivers to long-term growth. Timken remains a leader in traditional markets, which are -- which we are depicting here on the right, such as metals, mining and rail. The previously described megatrends are opening up opportunities in markets newer to Timken in both the light, medium and heavy sectors of industry, offering which opportunities for continued profitable growth. With that out -- with our outgrowth initiatives, we continue targeting fragmented markets like industrial machinery, the safety critical food and beverage sector but also the more consolidated markets like off-highway and wind energy. I will provide later on some case studies in 2 selected markets to demonstrate our approach and the results of our successful strategy. In order to grow in a new market, we are leveraging our core competencies in talent, technology and operational excellence. However, the ultimate ingredient to success in new markets is the competency we have developed in product vitality where we are accelerating our efforts to innovate. For new products, we are pursuing a 3-pronged approach in a sequential fashion. First, we are going in with a portfolio of base products. Customers trust our brand and our comprehensive value proposition, so we get the food in the door. Then as we work more intensively with customers through application engineering to solve their most challenging problems, we are differentiating ourselves and our products, improving our customers' experience of performance and expanding the Timken brand recognition. And then finally, as we deepen our knowledge and stay focused on emerging trends, we keep innovating by adding features to our products and services and applying advanced process technologies to our manufacturing operations to fuel profitable growth. For established products, and driven by our continuous improvement mindset, we apply the same 3-pronged approach in parallel fashion, prioritizing where we are improving cost structures, where we're adding capacities for further growth, where we are globalizing best practices or where we are optimizing our operational footprint around the world. A great example of product vitality in action is mounted bearings. Mounted bearings consist of various forms of bearings and sealing solutions with a housing around it, made from different materials that protect the bearing in harsh operating environments. Think of processing equipment in mining, in roadworks, harvesting, wastewater treatment, with dust, heat, vibration, water contamination and so on. A few years ago, Timken had a very small position in such mounted bearings. With our strategy at work and product vitality in action, we have developed an extensive portfolio of industrial mounted bearings by now. Today, we enjoy one of the broadest and differentiated product ranges in the industry, with superior performance for very specific application sets in fragmented industries. And we have grown it at a high single-digit compound annual growth rate over the last several years. Our operational capabilities around the world allow us to highly customize these solutions close to our customers at low cost and deployed capital. And by applying the Timken business model, we are successfully growing also in newer markets like, again, the mentioned safety critical food and beverage sector. Finally, mounted bearings enjoy a heavy aftermarket with attractive margins, again, part of our business model in action. Second example, GGB Bearings, one of our most recent acquisitions we announced. It is another example of product diversification while at the same time, strengthening our position in some of the newer markets for Timken. GGB Bearings is engaged in highly engineered plain bearings with global revenues of $200 million. Plain bearings come in a very large variety of materials, sizes, features similar to mounted bearings. They are building an advanced -- on advanced coding technologies and are customized for specific needs in fragmented markets. GGB Bearings is serving a similarly diverse and fragmented global customer base as Timken, with about half of their revenues in Europe, 1/4 in the U.S. and then the remaining quarter between Asia and Latin America. In the world of bearings, plain bearings are segmented as their own $10 billion product category. Due to the features we described, they are carrying an attractive margin profile and are expected to grow at a rate of more than 5% annually. As a result of our strategy, we are driving superior results. First of all, we remain focused on maintaining our leadership position in tapered roller bearings by constantly pushing the limits of technology, innovation and operational excellence and extending into new geographies like Africa and new market sectors. And then secondly, we are driving outgrowth and keep optimizing the margin profile of adjacent product lines, building on the strategies and competencies as part of our global Engineered Bearings business model. As a result, we have achieved a compound annual growth rate of more than 6% with nontapered bearings since 2001. We have demonstrated we are consistently and profitably outgrowing the market, and our goal is to continue doing so with new additions to our technology and product lines through both organic and M&A activities, as I laid out before. Phil is going to elaborate more on our M&A strategy in his section later on. Let me walk you now through 2 examples of our value-creation strategy in action. First one is wind energy, a very attractive market for Timken for multiple reasons. First, with the growing dynamics around sustainability, the global demand for wind energy remains strong with an expected compound annual growth rate of 9% over the next decade. Then it's important to know that no matter what designs are being deployed, wind turbines require more bearings content per megawatt hour of produced electricity than fossil fuels. Clearly, that is a good thing for us. As turbines are designed larger and the quest for higher power density grows, we are extremely well positioned with our competencies in technology and innovation to drive the more sophisticated and customized bearing designs. As a result, we are a leading supplier of choice with essentially all major turbine and gear drive OEMs, and we have achieved a revenue compound annual growth rate of about 30% with our Renewable Energies business. We are excited to continue delivering our growth over the next years. And then there are more opportunities to capture down the road. The combination of a growing and aging installed base of turbines will drive strong higher-margin aftermarket opportunities for critical components. And since bearings are where the action is in any equipment, bearings are amongst those critical components that often need replaced. Finally, we are successfully pursuing cross-selling opportunities with our Industrial Motion businesses as we expand into new product areas like couplings, linear motion, lubrication systems, all applicable also to wind energy. My second example for value-creation and action is food and beverage. This is another market with strong macros, as laid out earlier, with safety critical requirements, government regulation, steady growth and low cyclicality. With our portfolio of mounted bearings I discussed a few minutes ago, as well as standard steel and other specialty bearings, we are steadily growing our presence in this market, both with OEMs as well as the aftermarket. Here again, we have achieved compound annual growth rates of about 30% over the past couple of years, and we are by far not done. We do expect further outgrowth in this market, too, particularly also as we are leveraging our latest acquisitions and deliver cross-selling opportunities with our Industrial Motion businesses. So let me summarize our vision for Engineered Bearings. We are continuously growing our leadership position in the industrial bearing space. We are focused on and winning in the most attractive market sectors with product vitality and global operational excellence. We capitalize on mega trends in the industrial market space and leverage the latest emerging technologies in both products, processes and digital solutions. We drive synergies across both our Industrial Motion businesses and our recently announced GGB Bearings acquisition to accelerate growth and profitability; and we are poised to continue delivering out growth while expanding our industry-leading profitability with our proven Timken business model. Dear ladies and gentlemen, thank you for your attention. I'm turning it now back to Neil, and I'm looking forward to your questions in the upcoming Q&A sessions. Thanks a lot.

Okay. Thanks, Andreas. Thanks, Rich. I appreciate what you guys have shared thus far. We're going to go ahead and take a 10-minute break. There are refreshments and other things that are available out in the hall. Restrooms are down the hall just on the left, and we'll start back up at around 10:35 a.m. Thanks so much. [Break]

[indiscernible] veteran of the Timken Company. In my previous role, I led the global bearing business and power transmission business for the company over the last decade before assuming this role. So in this presentation, I'm going to explain why and how Timken is expanding into Industrial Motion. And more importantly, explain why this is a significant value creation opportunity for our shareholders. Here is a summary of the key points I want to clearly communicate to you this morning. Timken's leading position in engineered bearings is highly complementary with Industrial Motion and the global bearing infrastructure enables us to leverage and accelerate the growth in Industrial Motion. Secondly, Industrial Motion expands the content Timken can provide to existing customers and channels, and thus, significantly increases the revenue opportunity for the company. Like Bearings, Industrial Motion is focused on the diversified industrial markets. And consequently, it's positively impacted by the same global demand trends that are impacting our engineered bearing business. However, there are also new opportunities for Timken created by the Industrial Motion portfolio. With industrial motion, Timken has now established considerable market presence in faster-growing, less cyclical areas such as solar, automation and industrial services. Moving forward is our intention to scale and accelerate the growth of Industrial Motion via both organic growth and strategic M&A. Shown here is the current revenue breakdown by product grouping for the Industrial Motion businesses. You'll first note, it's a diversified portfolio of technical high-performance products that are fairly evenly split across the $1.3 billion of revenue. Secondly, an important characteristic of these products as they are used in engineered, mission-critical applications. These applications are typically solving the issues related to wear, friction, speed weight reduction and power transmission efficiency, the same as the engineered bearing business where Timken is a global technical leader. Further, these products are used in applications that share the same fundamental bearing business model of engineered in technical product solutions and then servicing those applications across the lifetime, thus, there's considerable overlap with the engineered bearing channels and customers. Here's an illustration of a typical power transmission system that highlights the overlap and adjacency of industrial motion products with engineered bearings. Various combinations and configurations of this equipment schematic can be found everywhere within the operating equipment in the diversified industrial markets. On the right, we outlined the numerous bearing and industrial motion products that are used in these applications. The first thing to note is just the range of products and services Timken provides to this power transmission system. Secondly, recognize all of these applications are solving some technical requirement around making this power transmission system operate more effectively and efficiently. And lastly, all of these applications require long-term maintenance and thus provide significant recurring revenue streams. Thus, you can clearly see both the adjacency of industrial motion products to bearings as well as the greater relevance and opportunity Timken now has with both equipment producers and distribution channels. Like the product split, the market mix of the current industrial motion business is diversed as well. In addition to the previously discussed overlap with engineered bearings, there is also some excellent exposure to additional higher growth, less cyclical markets such as automation and solar. Approximately 50% of the industrial motion portfolio is aligned to attractive newer growth markets that Rich highlighted earlier. Also note, around 30% of the business is in industrial distribution and services. In addition, there is also a very large amount of OE service business in many of the markets, just like engineered bearings. Consequently, the total revenue exposure associated to end users is significant, and we estimate it at around 50% of the business. This end user exposure is very important aspect relative to profit pools and the ability to extract long-term profit. It's exactly the same approach we use with Engineered Bearings. I've already made a number of comments around the connection of Industrial Motion to Engineered Bearings, but given the importance of this topic for investors, let me now summarize those connections. Industrial Motion significantly expands Timken's addressable market space via a broader range of products and technologies. Secondly, Timken is a global engineering leader in highly technical bearing solutions, and these same competencies can be leveraged within the Industrial Motion space. The expanded product portfolio creates more revenue opportunity in existing markets, but also opens up new opportunities in attractive higher-growth markets. And lastly, the business model and the opportunity to participate in attractive, fragmented profit pools is the same as the Engineered Bearing business. So at this point, I want to briefly discuss what our strategy is in Industrial Motion, and then I'll pivot towards talking about the business moving forward. The strategy for Industrial Motion is conceptually not complicated. It is difficult to execute. Focusing on diversified industrial markets, we want to accelerate our growth and scale utilizing both M&A and organic growth. On the M&A, we are looking to scale both our existing product positions as well as adding new products to the portfolio. Our criteria for additional products is very clear. We are searching for products used in technical solutions that have a lifetime of revenue opportunity. The more fragmented the market, the better as the profit pools are generally more attractive. Managing and growing fragmented market spaces is a core competence of Timken. It's the one key characteristic that differentiates Timken from most of its global competition. The second part of the strategy is then to accelerate the organic growth of our portfolio by leveraging the competencies and the scale of the global Timken company. We first focus on standing up infrastructure focused on product vitality and innovation to both create and drive growth opportunities. And then we look to leverage the global Timken infrastructure to drive and accelerate organic growth. In summary, the net result of the combination of engineered bearings in Industrial Motion is a significantly stronger Timken. Our value proposition to our direct customers, end users, distribution channels is greatly expanded. And correspondingly, our revenue and profit potential substantially increases. So let's -- at this point, let's now review the progress that we made and what our aspirations are moving forward. Over the last 7 years, Timken has made considerable progress building out the industrial motion portfolio. Listen on the left are the brands and products that make up the business as well as the point that we have invested $1.5 billion into Industrial Motion over the last 7 years. In the middle, we show the revenue progression to $1.3 billion at a CAGR of 18%. And on the right is our vision for the future. It is our intention to continue scaling industrial motion along the approach I have already outlined. We intend to achieve outgrowth by also capitalizing on both existing and emerging market trends. Our objective is clear around creating a $2 billion industrial motion business by 2026. And if the right opportunity emerges, we can clearly exceed that target. Moving forward, our growth aspirations are supported by many of the same global trends that both Rich and Andreas outline. Like Bearings, there are very clear significant global trends driving the long-term opportunities within Industrial Motion. Some are exactly aligned with those impacting Engineered Bearings, but there are some others where there are clear differences in terms of scale and impact. One of those is in the automation area. So I will now go into more detail on the automotive trend to illustrate both how we assess markets and then build the industrial motion product portfolio to penetrate that market. So briefly, I mean, why automation? On the left, you can see a number of points on the long-term growth in the automation space. To highlight just a few, both the consistent shortage of labor in many regions as well as the growth of e-commerce, they are driving significant growth in the automation space. On the right, we list some specific data around the installed base of industrial robots, which is a result of these trends. So how does this align to the Industrial Motion business of Timken? To start, automation is currently the biggest market segment for the Industrial Motion business, and it's as well as being the second largest segment for all of Timken. Further, we are ideally positioned with the right product and value propositions to capitalize on this growing area. In the middle of the slide, you can see a variety of Timken products and applications in the automation space. For example, on the far right is a picture of our automatic lubrication systems that are a direct solution to the labor challenges in many industries. On the bottom, we list the areas within the automation space where Timken products are prevalent. Starting on the lower left, we list the Timken products using robotic applications. They range from cycloidal and harmonic gearing solutions from our Spinea and Cone Drive divisions to our roll-on group, which provides linear motion solutions to move robots across all axes. To the right are some of our products used in automated warehousing, autonomous guided vehicles and surgical robots. In total, Timken provides 14 different bearing and industrial motion products to these 4 segments. Per our strategy, these products were developed both organically and via M&A. For instance, harmonic gearing was developed organically. The cycloidal gearing came from our acquisition of Spinea in 2022. The 2 critical summary points are this. This is now a $350 million market segment for the Timken Company and the majority of that revenue has been built within the last 5 years via the Industrial Motion strategy. And we're working to further scale this position moving into the future. Given the importance of M&A to the Industrial Motion strategy, I want to talk a little bit about our approach and take you through a couple of specific examples of what we're doing and how we actually do it. Here is the synergy framework we utilize to create value from our acquisitions. I've already made a number of points about around how we create and drive the growth synergies we're illustrating on the right. But equally important is our focus on operational synergies, shown on the left. In our global industries, Timken is known and respected as an excellent operator of its businesses. Industrial Motion accesses and leverages those global operational capabilities and strengths to drive synergies with all of the acquisitions. Now let's look at 2 specific examples, and I'll start with our Rollon group. Timken acquired Rollon in 2018 and established a new product category for Timken in the highly profitable customized linear motion space. Linear Motion is a close adjacency to engineered bearings in that both products require knowledge and tribology and friction management. In addition, they serve many of the same end markets. At acquisition, Rollon was a leading brand in providing customized linear motion solutions, came with an excellent management team and track record. They specialize in the challenging applications and tend to operate in faster-growing markets such as automation and warehousing. In addition, Rollon provides an excellent platform from which Timken can further expand into the linear motion space. So what has happened? The core business has continued to grow in scale despite the COVID situation. Rollon also added an acquisition to fill in a product line gap in the robotics space. So today, Timken has a thriving, fast-growing business in attractive markets operating at very high levels of profitability. It is also ideally positioned to expand via both acquisition and organic growth. The original management team remains in place and have aggressive plans to continue scaling the business into the future. So let's now review a second example in the automated lubrication space. Timken had a small offering in automated lubrication for many, many years. But then we scaled that position in 2017 with the acquisition of Groeneveld and then scaled it again in 2019 with the acquisition of BEKA. Automatic lubrication is a close adjacency to engineered bearings portfolio in that many of the parts that get lubricated in a piece of equipment are the bearings and the other power transmission products. These 2 acquisitions had aspects that were different than Rollon. With Rollon, the acquisition was primarily focused on creating new product category in attractive new markets and then accelerating the growth. With the lubrication acquisitions, cost and operational efficiency improvements were critical aspects of the synergy plan, and access to the global operating capabilities of Timken were essential to the success of the integration. We ultimately achieved the cost reduction targets and now operate at very good margins. With integration complete, the focus is now on scaling revenue and improving operating efficiency. We are aggressively driving product vitality and bringing new solutions to market. We also continue to leverage the global Timken infrastructure to drive geographic outgrowth. This is the second example of Timken's scaling a market position in an attractive market in a relatively short time frame, in this case, 5 years. So hopefully, this presentation provided the insight as to why Timken is driving into the industrial motion space and how the strategy is being executed. And ultimately, hopefully gives all of you and our investors' confidence in our direction. Moving forward, our plan is more of the same. We will continue to drive additional cost and revenue synergies across the existing portfolio. We will expand our existing product positions organically, and we will use strategic M&A as well. New products and capabilities will be added to capitalize on the emerging trends and to expand our position in higher-growth markets. And we fully intend to exceed our $2 billion revenue target for 2026. So thanks for the time today. And let me now turn the podium over to Phil Fracassa, the CFO of The Timken Company.

All right. Okay. Thanks, Chris, and good morning, everyone. I'd also like to welcome all of you here in the room and all of you participating virtually. We appreciate you joining us this morning, and I hope you can sense our excitement around Timken's future. I've got the last presentation of the day before the Q&A session, so I will try to get through my slides as efficiently as possible so we can allow maximum time for Q&A. In my presentation today, I'm going to recap our strong financial performance over the past few years, and then I'm going to put that performance into perspective by showing how it stacks up compared to our industrial peers. I'll then walk you through our capital allocation framework, hit some accomplishments and give you a sense of what to expect going forward. And then I'm going to dive a little deeper into our M&A strategy, including how we're driving profitable growth through acquisitions. And then finally, we'll take a closer look at the long-term targets that Rich highlighted earlier. As we get through the materials, you'll see that Timken has delivered top quartile financial performance and we're confident in our ability to sustain our performance going forward, and that makes Timken a very compelling stock investment. But before I start, let me come back to 2022. Today is not about 2022. But as Rich said earlier, we're confident in the earnings guidance range we provided back in July, and we're tracking well towards the upper half of that range as we sit here today. We will formally update guidance after we report third quarter results, and that is the last comment we're prepared to make on our 2022 outlook. Rich covered this slide earlier, so I'll be brief and just make a few comments. Looking at our performance over the last 5 years, you can clearly see that we've improved the structural earnings power of the company. Timken's strategy to drive profitable growth is working and working well. We've thoughtfully and deliberately diversified our portfolio, and we've created a company that is built for stronger and more consistent performance over time. And I think our performance this year really underscores that point. Despite the dynamic environment we're all navigating through, our 2022 earnings per share are on track to exceed the next best year in our history by over 20%. And more importantly, we're even better positioned for additional growth in the coming years. This next slide takes our performance over the past 5 years and shows how it stacks up against what we call our industrial peers. Our industrial peers are a group of 18 mid- and large-cap U.S. diversified industrial companies. A full list of these companies can be found in our proxy statement filed with the SEC. As you can see, we've delivered top quartile performance across the board over the past 5 years. From a revenue standpoint, we delivered a CAGR of 9% over the 2017 to '21 period, which was above the top quartile threshold and 500 basis points higher than the peer median. We were able to convert the strong sales growth in the top quartile adjusted EBITDA and earnings per share performance. In fact, you'll note that our CAGRs for both EBITDA and EPS were roughly double the CAGRs of the peer median over the period. Here's another perspective on our recent performance focused on 2020. On this slide, we show our 2020 performance versus our peer group as well as our own performance back in 2016, which experienced a similar revenue decline. We posted margins in 2020 that were 400 basis points higher than 2016, and we held adjusted earnings per share above $4, which was more than double what we delivered in 2016. This demonstrates how we have truly improved the earnings power of the company at all points of the cycle. You can also see the resiliency of the business compared to our peers. Timken's adjusted EBITDA margin was nearly 200 basis points higher than the peer median in 2020, while our top line performance was roughly 400 basis points better. Our adjusted EBITDA margin was down only 40 basis points year-on-year in 2020, which was meaningfully better than the peer median decline. The diversity of our portfolio into newer markets like renewable energy, our outgrowth initiatives and our efforts to improve our cost structure are really paying off and driving better performance any way you look at it. And I think these last 2 slides really highlight the opportunity in Timken stock as we're a company delivering top quartile performance yet trading at a multiple below the peer median. And most importantly, I'm confident that we'll achieve even higher performance over time, including higher peaks, higher troughs through cycles while driving our diversification strategy and incrementally dampening the delta between the two. Timken has also proven its ability to generate strong free cash flow, which, as you know, fuels our profitable growth strategy and capital return to shareholders. Overall, we generated approximately $1.5 billion of free cash flow over the last 5 years as we achieved conversion of around 100% on the top quartile earnings growth I highlighted earlier. More importantly, we expect strong free cash flow going forward, and we're continuing to target over 100% conversion on net income. Our conversion will be less in high organic growth years like 2021 and '22, and more in other years. But we're confident in our ability to deliver 100% conversion on average over time. Here's our capital allocation framework, which we believe is a real differentiator for Timken. It's how we drive our strategy and maximize returns for our shareholders. We're effectively compounding our strong free cash flow and utilizing our investment-grade balance sheet to deliver higher levels of performance, while consistently returning cash to shareholders. Our disciplined framework is largely unchanged from what we reviewed with you back in 2019. Investing in our core business remains our #1 priority, and we're still targeting CapEx in the range of 3.5% to 4% of sales. For the dividend, we'll target a payout ratio of 20% to 30% of net income, and our commitment to the dividend is as strong as ever. I'll cover M&A and share buybacks further in a few minutes, but both remain very attractive options for us to deploy capital to enhance our earnings power and maximize returns. And finally, we're still targeting net debt in the range of 1.5 to 2.5x adjusted EBITDA, which is the foundation of our capital deployment framework and is in line with the low to mid-BBB investment-grade credit rating. As you can see on this next slide, we presently sit right in the middle of our targeted range as of June 30, with net leverage at 2x. We're comfortable with our leverage target and would intend to operate within the range of 1.5 to 2.5x as we deploy capital going forward. Even after the GGB acquisition, which is expected to close in the fourth quarter, we would still expect to finish the year with pro-forma net leverage of around 2x plus or minus. So from a balance sheet standpoint, we remain in great position to continue driving our strategic priorities going forward. You'll also see that we have limited near-term debt maturities with more than half of our debt maturities 5 years out or longer. Note that we do have a bank term loan maturing in roughly 1 year from now, and you can expect us to address that well in advance of its maturity. Here's what our disciplined capital deployment framework looks like in action. Over the past 5 years, we've deployed around $3 billion in capital with a balanced approach; over $600 million in CapEx; nearly $800 million in capital return, which includes both dividends and share buybacks; and around $1.5 billion in acquisitions. This has had and continues to have a big impact on Timken's growth and earnings power. Over the next 5 years, we expect to deploy even more capital to these priorities based on the strong earnings growth and free cash flow generation we're targeting over the period. With our long-term targets, we expect to have over $4 billion of available capital to deploy, with roughly 2/3 of that targeted toward M&A and share buybacks. We continue to have a bias for acquisitions because of the longer-term value creation potential. But in the absence of M&A, share buybacks remain an attractive option. Let me spend a few minutes unpacking each of our capital allocation priorities. First, when we talk about investing in the core business, we're talking about driving organic growth and margin expansion. This includes R&D, innovation, application engineering, digital and, of course, CapEx. These investments generally produce the highest returns at the lowest risk. As I mentioned earlier, we're still targeting 3.5% to 4% of sales for CapEx. Think of around 1% of maintenance CapEx, with the remainder driving growth by adding capacity, investing in new capabilities or driving operational excellence. Examples of this include our new plant in Mexico and investments to drive labor productivity such as installing automated inspection equipment in the U.S. We also remain very committed to returning capital to shareholders through our dividend. Earlier this month, we paid our 400th consecutive quarterly dividend. Additionally, we're proud that 2022 will be the ninth consecutive year of higher annual dividends. We intend to continue this streak as we look to become a dividend aristocrat over time, so you should expect us to continue to pay an attractive and competitive dividend that grows over time with earnings. And as I mentioned earlier, we'll target a payout ratio of 20% to 30% of net income. You've heard a lot about acquisitions from the other speakers. M&A has clearly played a critical role in our capital deployment strategy, and will continue to do so. The one thing I would reiterate on this slide is that we are in a great financial position to continue to drive our strategic M&A priorities. The strength of our balance sheet and expected cash flow should allow us to hit our long-term target for inorganic growth and add more than $500 million of sales in aggregate to the top line over the next 5 years through actionable M&A. And we have a disciplined filter for what we look for in M&A to ensure that it will drive profitable growth, deliver attractive returns and ultimately make Timken a stronger company. This slide details the key criteria we use to look at deals to ensure that they will be a great fit, both from a strategic and cultural standpoint and, of course, be financially attractive to us. We will continue to look at targeted bolt-on acquisitions within the global bearing space. Both Aurora and GGB are great examples of this. But looking ahead, I think it's safe to assume that most of our M&A capital will be focused on the industrial motion space as we continue to add scale and expand into new adjacencies, as Chris discussed earlier. We expect our acquisitions to be accretive to earnings in year 1 and earn the cost of capital, which we think of as currently around 9% by year 5 and also provide attractive longer-term IRRs as compared to other uses of capital. In other words, make Timken better. In terms of size, we remain size agnostic, if you will, but we have been most successful with small- to medium-sized businesses like our recent Spinea and GGB acquisitions. So I would expect that size range to remain the focus area. We're not opposed to doing a larger deal if we have the opportunity, but we'll be disciplined. And the reality is that there are fewer opportunities to do large acquisitions. Here's an M&A scorecard on how the 5 largest acquisitions by value in recent years compared to the criteria I just reviewed. Strategically, you can see that these acquisitions are strongly aligned with the Timken business model. Notably, they all have strong brands and provide highly engineered products for challenging applications in fragmented markets, which is where Timken can best differentiate and add value. In addition, these companies are all positioned to benefit from evolving technologies and the strong secular growth trends that the other speakers highlighted earlier. From a financial standpoint, you can see that these businesses are generally enhancing our growth profile and accretive to the company's adjusted EBITDA margin. In addition, we're driving strong synergies, and as a result, have been able to reduce the net acquisition multiple paid by several turns and below 10x in most cases. So overall, we still believe in the value-creation potential of M&A, and we'll continue to add attractive businesses to the portfolio where it makes sense. But we'll stay disciplined as we go. Share repurchases have been an important element of our capital deployment strategy, and we continue to view buybacks as an attractive use of capital. Since the beginning of 2014, we have repurchased about 21% of our shares on a net basis, and that's after taking employee stock compensation into account. This has driven significant EPS accretion. Our share buyback activity demonstrates our confidence in the long-term earnings power of the business and our commitment to consistent and accretive capital allocation. In the first half of this year, we repurchased close to 2.3 million shares or about 3% of total shares outstanding. We ended June with just under 7 million shares remaining on our current buyback authorization that runs through early 2026. In fact, when we report our third quarter earnings in a month or so, you'll see that we have continued to repurchase shares since the end of June. So to summarize, capital deployment has been and continues to be a huge differentiator for Timken. As we generate strong cash flow and create balance sheet capacity in the future, we expect to continue driving a balanced approach to capital deployment, targeted at delivering the highest returns for our shareholders. Rich reviewed our new long-term financial goals already, so I'll be brief. These 5-year targets are focused on maximizing shareholder value. We're excited to be raising our long-term revenue and margin targets as compared to our prior targets. Notably, we intend to generate a top line CAGR of 6% to 8%, including M&A, which is 100% -- 100 basis points higher than our prior top line target. The 100 basis points reflects a higher organic growth target, which in turn reflects our current expectations for markets outgrowth and pricing. Over the next 5 years, we're aiming for a margin expansion of 200 basis points on average versus what we delivered in the 2017 to 2021 period. This implies right around 20% adjusted EBITDA margin on average over the period, which is also higher than our prior target. The continued evolution of our portfolio mix, better price/cost performance and our ability to leverage the top line growth will be key drivers to expanding margins. Putting the strong top line growth and margins together, we're targeting an earnings per share CAGR of more than 10% over the period, which we believe would push our adjusted EPS to north of $8 per share in 2026. Our 5-year target assume that we deploy our free cash flow toward M&A or capital return such that we remain near the middle of our targeted leverage range. The inorganic growth will be opportunity-driven. It could be more, which would call for less buyback, or vice versa. We're also focusing on delivering ROIC in the low teens, which is well above our cost to capital. And keep in mind, this metric has a 40% weighting in our long-term incentive compensation plan. And finally, on cash flow, we expect to convert 100% of our net income to free cash flow over the period. This will drive significant free cash generation over the next 5 years. We expect cash flow to grow with earnings and be augmented by our continued efforts to improve working capital and asset efficiency while staying true to our business model. Now the next 5 years will likely not be linear or go straight up, but what you can expect from Timken is strong performance over the period, regardless of the environment, as we have proven our ability to successfully navigate evolving challenges. We have a better mix on the top line with a higher margin profile today, and we have a more variable cost structure, driving a more resilient bottom line. This will translate to higher peaks and higher troughs and overall strong performance through cycles. Now what are the imperatives to deliver these targets? Essentially, we need to continue to drive our proven profitable growth strategy. We need to be thoughtful and selective in terms of our mix of business. We need to be relentless in our approach to operational excellence and cost management. And most importantly, we need to be smart with our capital deployment, including M&A and share buyback. This management team has a strong track record, and we're confident that we can achieve these targets and deliver outstanding returns to our shareholders. When you look at where we trade today, I think the upside in Timken stock is significant. So that's it for me. Thank you for listening. And now I'd like to turn it over to Rich for some final remarks before we jump into the Q&A session. Rich?

All right. Thanks, Phil, and thank you, other members of the management team. We've covered a lot of material today. I hope the presentations have given you a better appreciation for the diversity of The Timken Company, strength of our portfolio, the quality of our management team and our strategy to continue to drive profitable growth. I'm proud of our team. Over the last 5 years, our strategy and our execution have made Timken a stronger and more resilient company, as evidenced by the chart Phil showed you of our top quartile financial performance. And I'm excited about the opportunities that lie ahead as Timken is well positioned to advance as a diversified industrial leader and achieve even higher levels of performance over the next 5 years. So with that, let's open it up for Q&A. I'll ask Andreas and Chris to come on up, and the podium will go over to Neil.

Okay. Thanks, Rich. Okay. We're now going to move to the Q&A session. I'll first take a few questions from those that were submitted online, and then we'll take a few from the audience in the room. Okay. So the first question today I think is for Rich. It's on Timken's strategy. It reads, Rich, the strategy looks similar to what you laid out at the 2019 Investor Day, but with higher financial targets. How should we expect the strategy to change over the next 5 years?

Yes. The strategy is very similar. And I think really, if you look back, it's been quite similar and been more evolutionary than transformative really since that '14 to '16 time frame. And why isn't it more revolutionary or transformative? I think when you look at -- let's look at what we delivered over those 5 years. As Phil just showed, our financial metrics, EPS, ROIC have been top quartile over the last 5 years, above median margins. Our TSR depends a lot of when you start and stop is hovered around median, sometimes in the second quartile, sometimes dipping below in the third quartile over that time frame, so that's a little disappointing. But part of that, that's really driven that is our multiple in the peer group is actually compressed over that time, so a bottom quartile multiple. So I think we feel good that we can, with this strategy, repeat those results that we've delivered in the next 5 years in a bigger way, off of a bigger base and a bigger starting point -- better starting point. And I think if you do that again, obviously, if you don't get multiple expansion, even just the top quartile performance, so deliver at least second quartile results. And if you can get the multiple up to median second quartile or first quartile, the compounding impact of that is huge. And we feel really good about the potential for that. So we think the strategy has been working effective, really good results. And the TSR part of it has been a little disappointing, but again, right around the median. And we think there's, as Phil wrapped up, an enormous amount of upside to that.

Okay. Great. The second question is on recent M&A. It says 2021 was a relatively light M&A year, but you've been more active thus far in 2022 with a couple of deals. Can you just talk more about your recent GGB and Spinea acquisitions?

Let me start those and then Andreas and Chris can chime in as well. So 2 very different acquisitions. I'll start with the first one and the smaller one of the two, Spinea, a technology leader in this space, factory robotics, but I wouldn't say a market leader. It's got a blue-chip customer base. But when you look at the whole market, a fairly narrow blue-chip customer base. And then probably not the growth profile you would expect. It's a very profitable business, but not the growth profile you might expect within that market. Privately owned, and with that, a risk exposure around wanting to lever the business up for inventory and capital, wanting to take it global, et cetera. So one location in the world, not a very global business but a blue-chip customer base with a great technology position. So bring that into The Timken Company, globalize it, professionalize the management, from the size, it is ready access to capital to expand and the output that we expect out of that 5 years from now is a significant top line revenue CAGR well above what our target is and mixing the company up with that and moving it from a niche technology leader to a market leader. And then also some synergies with Cone. I think as Chris mentioned in his Cone has harmonic drive solution and Spinea brings a cycloidal drive solution. So two different size solutions in the same application. So really excited about that with the growth potential and the -- I'll say, the professionalization of taking a small privately held business and bring it into The Timken Company. GGB, very different and that it's been owned by a publicly traded company in the U.S., so professionally managed and part of a corporation bearings, obviously right in our wheelhouse. And when you look at the bearings space, we talk a lot -- there's usually not a lot of opportunity for us to acquire bearing businesses. We have a relatively full product line. It's a fairly consolidated industry globally already. In this case, GGB and Timken is really a complete new technology offering for us in our portfolio. So essentially zero overlap with what we do. We've done 5 acquisitions in the bearing space in the last decade. And when you look at each one of those 3 to 5 years later, every one of them has been really good. We have a model that we protect what's good about the business, but then bring it in and really leverage the global scale, the digital platform we have, the channel access that we have, the hundreds and hundreds of salespeople that we have versus what they have. The problem with those 5 bearing acquisitions is, they've all been small. So all 5 of them added together don't add up to what GGB is. So if you look back and go, wow, it's been great. We bought a $15 million business making 15% EBITDA. And 3, 4 years later, we've put a double-digit CAGR on it and got the margins up 1,000 basis points, but the base was so small. So when we do what we've done with those 5 with GGB, it will obviously have a significantly bigger impact because it is of a size and scope that I think will move the needle on the corporation versus the other ones. And again, coming back to the technology, obviously, it's a global business, but -- and EnPro, I think, ran it well as a isolated business, but they just don't have the synergy possibilities that we have is bringing that into being part of our multibillion-dollar bearing business. And again, the channel access sales, et cetera. So that one in particular, I think, on a financial value creation standpoint, more because of the size, it's not different than the model that we've been deploying. But because of the size of it, I think it is quite exciting for us. Chris, anything? Do you want to add on either?

Yes. Maybe on GGB bearings, let me maybe add 2 points. A, you mentioned there's not a lot of technology overlap. So Timken is very strong in materials, friction management and lubrications, and it's quite exciting that GGB adds competencies in all 3 areas. We're really adding technology in all 3 of our competency areas. And what makes me most excited is Timken is engaged in quite a few markets that GGB is not so much engaged in today, and both markets and channels, and we're really looking forward, taking them into additional Timken markets with their technologies. Quite exciting.

Okay. Great. I think we'll take one more online and then we'll open it up to any questions in the room. So we've got a couple of questions that have come in on the 2023 outlook. Can you provide any commentary or highlight anything to consider for 2023 at this point?

Yes, I'll start there and then maybe, Phil, jump in. One, as we said we really weren't going to talk about '22 and definitely not looking to make a forecast yet for '23. But certainly, as we finish the year here, we're going to finish the year with a strong backlog. The market demand is going to continue to be good. And we've got a lot of carryover impact from things that have happened this year from pricing to the GGB acquisition. So we've got a lot of self-help going into next year. Obviously, we have all the same concerns that others do. But I would say our customers in total, in aggregate right now, the Timken Company is planning to be up next year to start the year certainly on the top line. And we're not seeing certainly a lot of the negativity that we see in the stock market and some of the other concerns in the consumer market. So industrial markets continue to power through at this point. And then the other thing I think I would add on to that from a secular standpoint, I think there's a lot of drivers from pent-up demand to investment in technology, electrification, sustainability that I think a lot of our customers believe are going to power through some of these markets. And one more comment on it. When you look back to 2020 and the difference in The Timken company, and we had a lot of markets that powered through the pandemic. Marine powered right through, defense powered right through. China is, in total, powered right through. Renewable energy had a record year that year. And so I think we've got a lot of favorables. And I'm sure there will be some pockets of weakness next year. But right now, I think it looks net positive.

Yes, I would only add, Rich said we're planning to be up next year, and I do -- I would expect, with the price cost dynamic, we are up next year on the top line, we'll be up on the bottom line, of course. I think we'll be in a position to expand margins and would expect cash flow to be improved as we move into next year versus this year. And the last point would be balance sheet will be in a great position to continue driving our strategic priorities. So we expect to be active in the M&A market. We expect to continue to return capital. So I would expect more of that as we move into next year as well.

And just to be clear, my planning to be up next year would be pre GGB and Spinea incremental revenue. So add that on the top.

Great. Okay. Is there anybody in the room who would like to ask a question, please raise your hand. Justin?

Justin Bergner with Gabelli Funds. So I think most people in this room I think you've done a really good job running the business over the last 3 years since the prior Investor Day and even the 3 years before that. As you mentioned, the multiple has not really expanded much in the market. A number of your global bearings peers trade at even lower multiples. So that may be a drag. Have you thought about doing a larger onetime repurchase, either accelerated share repurchase or Dutch tender, to help alleviate the discount multiple? I mean I don't dispute the balanced notion of your capital allocation making sense. But with the market continuing to undervalue the stock, have you considered the pros and cons of that? And where have you come out?

Let me answer a different question first. On the comparison to global bearing peers, I mean we are so different than those companies, right? They all -- their biggest market is automotive. Typically by a 2x to 3x multiple over industrial markets. And they have good industrial bearing businesses, but really dominated by automotive. And then obviously, you have the Japanese element of that and the Japan bearing market is a whole different market, which a couple of them are very prominent in and we don't participate in that market to any material degree at all. So we may get drugged down by that somewhat, but there's really no good reason for that. And then on the flip side, while it's a big step down in size, the next largest publicly traded company in the United States that has bearing business trades at a very, very attractive multiple. So I don't know that bearing itself is there. I think if you continue to deliver the performance, it will -- that will pay out, and you want to take the actual question.

Yes, sure. I would say the question comes up from time to time. I mean, investors ask about it from time to time. I would just say we believe in the power of the balanced approach to capital allocation. We certainly have a lot of capital to deploy and share buybacks attractive, probably more attractive short term. M&A is more attractive longer term as there's power in diversifying the portfolio, making Timken better and lessening our reliance on any particular market or any particular product. So from our standpoint, as we look long term and say, what can we do to make Timken the best company in the space, the best of our industrial peers, by far the best of our bearing peers, but the best of our industrial peers. We believe a consistent, balanced approach to that capital allocation is the way to go. I mean, I certainly understand your point about the potential near-term impact of an accelerated buyback or a Dutch tender. But from our perspective, being consistent, consistently allocating, consistently looking for the best opportunities, again, we believe is the right way to go and what you all should expect going forward.

And I would add, we did step up the buyback again this year, and this will be the highest year already in a couple of years and there's still several months left. So we like the buyback.

Just a follow-on, the 9% target threshold for acquisitions, return on invested capital, is that the level that you've had for a number of years running, the 9%? Or have you increased it recently due to higher interest rates? And if not, are you sort of on the verge of upping that due to higher interest?

Yes, it's a great question. It sort of bounces around. I think probably a year or 2 ago, we were thinking of it as below 9%, and then we're kind of viewing it as 9%. We don't like to move it too often, but I do think it's certainly -- it's got more upward pressure than down as we sit here today. And again, our view on the M&A is, look, we're not looking for, we need to see value immediately. So we've got to drive synergies. We've got to integrate where it makes sense, start driving top line growth, make those businesses better and hit that cost of capital within a relatively short amount of time, and then obviously, continue to move it up as you move forward. So with multiples being high, we've sort of -- we've tried to target year 3, quite frankly. I think with where multiples are, year 5 has been more of a reasonable target, quite honestly, as we've looked at M&A deals over the last few years and where multiples have been. But really, the idea is keep a regular finger on the pulse of our cost of capital and make sure we're getting there in a relatively short amount of time.

Okay. We'll go to Rob Wertheimer. I know a couple of people have submitted questions in the room, so I'll make sure I get to them here shortly.

Just a quick one on price inflation in your outlook, how much of the 100 bps increase in the revenue outlook is just inflation driven? And maybe if you could wrap around that, how you're changing your pricing and how you're progressing along in the ships to get pricing more quickly?

Yes. I would say not a huge assumption. We're certainly not assuming in that outlook that what we've seen over the last 18 months is going to continue at that, that we will have this a onetime step-up in cost and onetime step-up in price. And then a little bit, and then I would say just a little bit better pricing environment going forward. That being said, if we are in an ongoing inflationary environment that's significantly higher than what we've experienced, that is not a bad environment for The Timken Company. We sometimes get out of sync of that for a quarter or 2 like we did at the end of last year. But our peak, peak margins historically, and I think that will still bear out despite the different product mix of the company is when our input costs are higher and we're able to pass that through to the market. So I don't see inflation -- if we're underestimating inflation, those numbers would just go up. And how we're doing on price, I will assume it, at 20% EBITDA margins through the first half of the year, it's tapering off in the forecast of the guide for the second half of the year. That would be normal for us. We're not looking at any price going back on that. We would expect a lot of carryover pricing that we put in each quarter through this year to carry over to next year. And then potentially somewhere between a small step-up and a bigger step-up like we saw this year in the January time frame. And I think some of that depends on the cost situation as we see it unfold. So our pricing has increased sequentially through the last quarter for 7 straight quarters. It will increase sequentially for at least the next 3 quarters, regardless of what happens with the markets. And then we'll see what happens from there.

Can I ask another one? So just this may be a bit early. I know the markets are a bit chaotic, but just impact of higher interest rates on M&A discussions, activity, valuation until you noted that multiple has been elevated, interest rates have been record low for a while. So any commentary on whether that slows the M&A market or changes the opportunity set?

Yes. I would say from our standpoint, I think we'll still be in a great position to continue to move the needle on M&A. And as we said, coming into the year, interest rates are rising, the debt markets, particularly for the non-investment grade players has been a little bit choppier, a little bit more challenging. So we feel like we're in a good position. We do think there'll still be assets, attractive assets out there to buy. And we haven't seen a big -- we've seen moves in public multiples, certainly, but haven't seen moves as big of a move yet in the private business multiple expectations, if you will. But we keep an eye on those. They have -- they do -- in some areas, maybe have softened a little bit. But from our perspective, M&A is opportunity-driven for us, and we expect we'll have good opportunities to keep moving the needle.

Yes, I wouldn't say we've seen anything that would discourage us that we will continue to be active in 2023. I think to Justin's question, we have [ price ] to expect it will be a little more expensive to finance that M&A. And there certainly have been some changes, as Phil just talked about, in terms of expectations and cost. But I don't think any of it would preclude us from getting something good done strategically and financially next year.

And maybe the other last point would be in the Industrial Motion business, Chris' business, it's so fragmented that there are just a tremendous amount of small- to medium-sized businesses in that space that -- again, they don't all come to market at the same time, but I think the opportunity set is definitely there, and it's definitely robust. Yes, Steve?

One thing that -- one question I get a lot, and I think maybe it weighs on the multiple a little bit because I see it in other similar applications is that you guys have some good exposure, obviously, to new energy and electrification. But you also have exposure to existing drive training technology like transmissions and internal combustion engines and so forth. So what do we say to people who are worried about that revenue stream sort of tailing off over time?

Yes. Let me take the automotive piece of that, which is usually where most of the negativity comes across. And then maybe I'll ask Chris to talk about electrification and wind energy and some of these other places where it's been around for quite some time. So on automotive, 7% of our sales last year would be less than that this year. 0 of that 7 in is in the combustion engine. We don't participate in combustion engine. We exited that market in 2010 when we simplified our automotive business. We do a little bit in transmission, so maybe 1% to 2% of the company revenue is in transmission. So in the next -- in the current design, that's what's exposed of The Timken Company. Our 7% is in axles and wheel ends, and those designs stay. So I would say -- the other thing to say about automotive, it is not the growth engine of the company. We're not looking necessarily to take it from 7% to 2% organically. It will probably -- it will continue to shrink because of our investments in other parts of the business. The other thing with automotive, we make one product for the automotive industry, and we do that because we're the world leader in tapered roller bearings, we're really good at it, and we can get an acceptable return on our activity there. And that remains a prominent design solution. So I think the foreseeable next design cycle, which would take you out at least 7 to 10 years, I think it's, at minimum, neutral and possibly a slight favorable. And we're really not trying to have it be a big favorable. So on the automotive side, it's a very contained piece of business. Now probably back to Justin's question, I think we do need a better job of marking it because it is a pretty big deal of the bearing industry. If we were still the company we were at 2008 and had hundreds of millions of dollars of revenue in transmissions and engines, it would be a big deal. And a lot of our competitors have billions of dollars of revenue in those applications, we don't. So it's a very small deal and probably a net positive to us. And Chris, maybe talk about the other markets?

Yes. Well, it's frustrating, to be honest, the -- because we're misunderstood from our viewpoint. First of all, Rich highlighted automotive, which gives all the newspapers -- the reality is electrification has been going on in equipment design now for 30 years. I mean, this is not a new trend at all. And so from our perspective, it's just the same thing, right? I mean electric wheel ends and mine trucks has been around for 15 years if you go back and that kind of thing. So our business is our business. And really, electrification is just as a technical issue for us in terms of the configuration of what we're going to do. The only other point I would make on it, the one thing about electrification though, that I don't think people realize relative to Timken, it has a dramatic impact on some of our end markets, all right? When you think about power generation, mining and the elements necessary to make electrification happen. Those are huge end markets for the core Timken business. And is it directly electrification? No, but a lot of our end market space is very positively impacted by the trends underneath electrification. And I think that's sort of the frustrating part from our perspective because it's just really almost more of a good thing for us versus the traditional, oh my gosh, you're going to lose bearings because of electrification.

Yes. The other comment on it, we have some markets, applications, where it's not even on the radar screen, rail, aerospace and places like that where it's not even a factor. We are on a lot of applications where it is a factor, but the application isn't like automotive. And then it's some other places like Chris said, it's been around a long time. So even wind, there is an electric drive system. There's a mechanical drive system. 10 years ago, it looked like the more -- and they both use bearings. One uses more bearings and more industrial motion. They both use bearings, they both use industrial motion. One that wouldn't use less, look like it was going to win. What's actually been happening is the other one has been winning more because it remains a lower cost, more reliable solution. If that inverts and the other one does, maybe our growth rate on the market will be a little less. But bearings and industrial motion remain.

Steve, did you want to ask the one you submitted or...

Yes, I'm going to ask it slightly differently, though. I'm curious, maybe, Phil, how we should think about the volatility around the 20% kind of average margin that you've described. And obviously, we're able to do almost 19% in 2020, I guess it was, which was a volatile year, I believe, if I remember correctly. And so would you counsel us to think that, that's kind of the bottom? Or is there a scenario where it goes below that? How do we think about the volatility around the 20%?

Yes. No, it's a great question, Steve. So again, the way we've thought about it with the target was 200 basis points better than what we did in 2017 to 2021. So if you look at that period, the low was like 15.5%, the high was like 19.2%. The average was 17.8%. So we said, all right, we're going to target 200 bps above that, which gets you to roughly a 20% average over the cycle. But with the changes in the business over the years, with the M&A we've done, the markets we've added to the portfolio, the work we've done on our cost structure which you saw in 2020, really, in prime time, if you will. We are looking to kind of dampen that delta. So '17 to '21, it was a 370 basis point delta, I believe, between high and low. We look for that to come in. Now we're not talking specifically by how much. But I mean as we continue -- everything we're working on is really all about making Timken a stronger performer, consistent performer over time. So I would expect whether that's 300 bps, a little bit over that, but we would look to bring that delta in over time.

I think that starts with the top line. And when you look back to '20, yes, we did a good job on the bottom line and variablizing a lot of costs. But our revenue held up better than any of the peer players, if you were in automotive or if you were in off-highway equipment, our revenue held up better. And again, you go back to that aerospace, defense, marine, China grew during 2020. And automotive was down double digits. I think off-highway equipment certainly was down quite a bit. So it starts with the -- I think it starts with the top line. And a lot of our business doesn't cycle with the traditional metals, off-highway, global marketing board. And I think renewable energy is an example. It is cyclical. We're seeing that this year that it's not a growth market for us this year. But it's completely -- up to this point, it's been completely dislocated from some of our other markets. So I do think the top line will be more resilient. And also, as Phil said, we've done a lot of work to variablize the bottom line as well.

We'll go to Chris Dankert of Loop Capital.

A quick question, maybe more for Andreas and Chris here. But digging in a bit more on product innovation, vitality, any additional metrics you can share around product innovation and vitality, maybe where we're going, what the target is versus the past 5 years? And kind of what that could mean for sales growth overall?

Yes. So we measure application renewal, right? And that is really the best measure as well. Andreas brought up that mounted bearing example. So we tend to look at it from 2 different perspectives. We tend to look at it from a market application perspective, which would be like a food and bev number he showed you on the 30, and then we tend to measure it also on product groupings, right? So that's how we measure it internally. And in terms of total enterprise, I don't think -- we don't look at it at a total enterprise level. We look at it by market segments. And I mean Andreas showed you the food and bev example as an example. Andreas, I don't know if you want to?

Yes. Definitely, we have to look at that in a very differentiated manner. And particularly for the aftermarket opportunities I described there, it is essential for us that we have tens of thousands of products that were developed over the last 100 years that we have available and we continue going to market with, right, because of spare parts requirements. And then in these newer markets, I described, the products are essentially all new. The 30% compound and the growth rate comes with all new products essentially. So measure that in a similar fashion, basically for those markets. But very differentiated, very different market by market.

Certainly, if you measured it as a traditional new product or product vitality metric, we'd be -- our all-time highs were 120 years old, but modern highs just because of wind energy alone because we didn't have any of those products in the portfolio 10 years ago, and it's 12% of the company today. The other thing I would add to what they said is all of our new product sales, all of our new application sales, it's a long sales cycle ranges from probably a year to a decade in aerospace where you've got to be in the customer today to know that you're going to have that revenue 5 years from now. And we are -- and again, we do measure that, and we are stronger today than we've been at any time and certainly in the era that I discussed. And I think going back to the first question, one of the things that we're excited about the strategy. We aren't busy lopping off parts of the portfolio. We aren't busy in shedding things. We've been focused for 5 years on winning in these long sales cycle markets and putting the tools in place to win in these long sales cycle markets. And we're in a better position today than we were when we started that '18 to '22 chart that Phil and I spent some time on.

Yes, the big change is, from my perspective, as the finance guy is when I sit down with Andreas' and Chris' teams is the discipline they go through that Timken business model is exactly how they look at investing in product vitality, new product development is do we have a good market? Are there good secular trends there? Does it fit the filter? We talk about that Timken business model from the context of M&A a lot, but it is exactly how they operate and determine where we're going to invest our innovation in R&D dollars. And that's a big change from, say, what we were doing 15, 20 years ago.

Thank you so much all for the color on that. Because again, I think trying to understand that increase in the 100 bps on the organic growth, it sounds like, I mean, pricing is a contributor, but it's also -- it's structural. It's end market-driven rather than something that's more niche. So I really appreciate the color. Thank you.

Yes. Yes, I kind of look at it as the pricing element, as Rich talked about, that's not as big an element because we look for longer term. It's the outgrowth that we just talked about. And then the mix. I mean, as we continue to grow faster in higher growth markets. When you look at what is the underlying market, what is the underlying -- are you tied to IPI or you're tied to GDP, we're getting a bigger share of markets that are tied to higher growth macros. And I think that will mix it up. And when we're here in front of you all 2, 3 years from now, I hope that organic growth target is even higher as we continue to mix our way into it.

The other thing that's unique about our -- not unique -- completely unique, but we don't -- nobody buys a bearing to stick it on the shelf, right? It has to be a part of an integrated design system. So our product vitality, a lot of our engineering focus is around where our customers are going where they're going with their technology. And we have to focus on making their products even more sustainable, more efficient, lighter weight, whatever they're looking to do. So our innovation is really focused around that, which, coming back to Chris's point, it's very different in wind versus very different in off-highway equipment, very different in rail.

Great. Well, I'll take one from Jeremy Miller here. Jeremy?

Guys, thanks for all this, very informative. I wanted to delve into your decision to change the management structure to focus on product. I know you're still reporting segments based on customer. But what went into the thinking in terms of realigning around product categories, what do you think you're going to get out of that? And any other changes that you're going to need to make to ensure that the customer focus remains where it needs to be? And then if I could just follow up with one more piece of that. Either by traditional segments that you have now or by the product families or categories that you've introduced today, can you just help us bridge where the improvements that you've laid out in your targets come from by segment?

Sure. Yes. I think the -- as I mentioned in my comments, the new positions. And again, Andreas prior responsibility for 60% of what he has of the -- and the 40% is new and probably about the same for Chris. Chris had responsibility for 50-plus percent of what he had as well. One is about succession planning, and Andreas had been being developed and groom to be the future leader of engineered bearings. And then two, it was about the change in the portfolio where the industrial motion businesses and products we're reporting up through at least 4 different leaders around the company -- executives around the company. And bringing that in -- and as we were buying this and it fit over here, but bringing that together under one umbrella with the experience and that Chris has and the capabilities that Chris has, we got big enough where it was the right time to do it. And it's also about him having somebody of Chris' capabilities that can add more to the M&A process because it was under multiple leaders, we didn't have really somebody that was out driving that. And so I think it was a clear evolution in our strategy, and it's been well received in the organization. And not as given because they both had over half of the responsibility, it was another step. Do you want to take the second part?

Yes. I would say on the targets, I mean, the biggest delta, I would say, between the 2 on the targets, when you think bearings versus motion, would be around the top line CAGR. I mean, we're talking -- I think you could expect us to allocate more of the M&A dollars to Industrial Motion. And I think we're targeting both engineered bearings and Industrial Motion to drive organic growth CAGRs that would be in line with the range we provided. But more of the M&A dollars go into Industrial Motion. And when you look at the Motion revenue going from $1.3 billion that we're targeting over $2 billion, I think, Neil, that's at least a 9% CAGR over the period. So that would say more of that M&A dollars of that 2% to 3% will go towards industrial motion. Obviously, the denominator is smaller there. So that would be the biggest change. I think the margin target would apply to both, if you will. The earnings growth would apply to both the ROIC, but it would really be that top line. And I think it's a fair point, from my perspective, I think as we talked about, we're continuing to report mobile and process as our external reporting segments. But I'm excited about the reorganization from the standpoint. I think it's going to drive stronger performance across both. And what really excites me is Chris and Andreas have worked so well together for so long, that the ability to drive those synergies, whether it's cross-selling or bundling as the case may be, I think it will be as strong as ever with the two of these guys running those businesses.

Yes. Maybe 2 additional points to elevate your concern. First of all, we don't allow customer centricity to go below organizational structure. It is clear that we do have certain customers where we go to with both product groups. And we clearly keep going to those customers with one face to the customer. That doesn't change. Actually, I would suggest we are going to increase our customer centricity because of digital solutions. We're increasingly allowing customers to engineer with our engineering systems, the solutions there. And that is where we're bringing all these products into those solutions, and that is going to tie us even closer to them. So internal external reporting along product lines, yes, but that doesn't stand over customer centricity, not at all.

We've got about 5 minutes left. So I'm going to ask one here on the screen. Steve, I know you submitted one. But if you want to ask it after I read this one.

[indiscernible] asking about changes in the distribution channel. Are you still pushing for [indiscernible] distribution channel.

Let me repeat the question. So yes, so Steve's question was what are you doing in distribution with regard to price? And if you want to elaborate on that a little bit more.

Yes. So we're always moving price in distribution channels, quite frankly. Obviously, in the last couple of years, it's been significantly more aggressive, I guess, would be the term I would use. But yes, as you already know, we are incredibly focused on distribution channels. We're really good at it, quite frankly. The one thing, just real quick, I do want to relay because we get this lagging of pricing that everyone talks. The question I get is, wow, you're in distribution, why is the price lagging? You have to remember that a lot of distribution is under like national contracts, all right? So our Motion Industries has a national contract with a big OE in, say, 100 of their plants. We don't want our distribution channels to get into margin compression. So we have to get that price to the ultimate end user. And sometimes that end users are big multinational companies, right? So even with distribution pricing, you still have to remember, we do not want to compress margins for distributors. That's bad channel management long term. So we're always focusing on price, but we're always focusing on getting that price driven to the end user. And so that sometimes creates the lag that we sometimes get questioned about. So I don't know if that helps or...

I think a part of your question, Steve, was changes in the channel. And obviously, U.S. channels continue to consolidate. One of the top 3 players consolidated with the top, and generally view that as a good thing. And I would say that happens on a smaller scale around the world where the other -- where India still tends to be a lot of mom-and-pops that are consolidating. Europe tends to be country -- a couple per country, but that's getting more pan-Europe. So consolidation still happens across the space. And then another thing that I think is interesting with the M&A, it's opened up new channels. We now have HVAC distributors, which we never had because tapered roller bearings were never in HVAC systems. We have ATV distributors in the U.S. We've got some linear motion distributors. So it's a combination, in some cases, of opening up new distribution channels as well as leveraging Timken's strength than the traditional channel to expand their reach.

Okay. I think we've got time for one more question here, so I'll take one from -- one that was submitted online. So it has to do with Industrial Motion. Question is, "Can you frame the revenue opportunity related to capturing greater share in Industrial Motion that you talked about, Chris, maybe give an example or two? And how do you plan to go about doing this?"

Yes. Well, first of all, like Engineered Bearings, we're talking about hundreds of markets. So even automation, if you break it down, it's in a number of different segments in that. Once again, what we do, we break it down systematically, and we systematically map our products. We look at the profit pools, and we very intentionally target certain aspects and then we focus our sales force and our technical engineering streams on those segments. So I gave you the existing examples in automation. You -- look at robotics is one thing. Surgical robots is another thing. E-commerce, which is really warehousing, right? If you think about the Amazons and the speed with which they process packaging, now go down a level and think about what that means around precision of equipment, speed, control of equipment, precision of equipment, et cetera. So that's how we do it. And we will continue to run that same playbook moving forward. So we've been at an 18% CAGR for the last 7 years, yes, okay, there's M&A in that. But that is a combination of both the M&A and the organic growth. And we intend to do the same thing. And the number is 9% now. Obviously, we're getting bigger. So it's -- the growth rate is coming down a little bit. But that's how I would answer the question.

All right. Well, thanks, everyone, for your time. I appreciate all the questions. If you have any further questions after today's event, please feel free to contact me. Again, for those in the room, please feel free to stick around and network with the management team, and we're going to have lunch. So thank you, and this concludes The Timken Company's 2022 Investor Day. Thank you.