Got their coffee. Get a little buzz to finish up the day. I'm Michael Feniger on the U.S. side, the Machinery, Engineering & Construction Analyst. Today we have Timken, which has attended the BofA Global Research Global Industrials Conference for a couple years now.
From the beginning, I think. Yeah.
From the beginning. It's grown quite a bit. I'm just gonna pass it over to Phil and Andreas to introduce themselves, and we'll jump into some Q&A.
All right. Andreas, wanna introduce
I'm Andreas Roellgen. I'm originally from Germany, mechanical engineer, a couple of years consulting, started with Timken in France. Spent a couple of years in the U.S., working there for now 25 years, heading up the bearings business of the company. That's 2/3 of the company.
Great. I'm Philip Fracassa, Chief Financial Officer. I've been with Timken 17 years, been CFO about half that time. In my nine years as CFO, I think I've been to this conference every single year. Glad to be here again, Mike. Thanks for having us.
Of course, Phil. Maybe just to kick this off, for those a little less familiar with the Timken story, can you provide us a commentary on Timken's portfolio evolution over the last, you know, 10+ years? What are the key high-level points to keep in mind regarding Timken today versus maybe where Timken was in 2014, 2015?
I think that's a great place to start. You know, the Timken, the story and the transformation, if you will, has really been quite remarkable. I'd break it down into a few key buckets. First bucket was, you know, we strengthened the core business, and the strengthening the core business meant de-emphasizing automotive and on-highway markets and shifting those resources, that capital to more fragmented industrial markets. The second was the spin-off of our steel business in 2014, which we were able to spin off a more cyclical part of our portfolio. Once again, become more focused on broader diversified industrial markets. Third would be around legacy liabilities like pensions. You know, we took steps to fund, reduce, and de-risk our exposure to pension and other legacy liabilities.
In fact reduced our gross exposure to pension and OPEB by 90% since 2012 to a point now where it's requiring a pretty predictable stream of about $20 million-$25 million of cash a year, down from, you know, several hundred 10 years ago. The last point I would say is around operational excellence and footprint initiatives. You know, it's part of our culture. Continuous improvement is part of our culture, and we took steps to improve the performance of the base business. That was really all around strengthening the core, which back, you know, 10 years ago was predominantly bearings. You know, the next step in the evolution of the business was what I would call scaling and diversifying, and that was really through our approach to capital allocation.
Started first with driving organic growth, product vitality and outgrowth through, you know, targeted investments in CapEx and R&D, again, focused on broader industrial markets. Certainly the M&A strategy. The M&A strategy was all about identifying very close adjacencies to bearings that sit in the same system, get pulled through the same channels in the aftermarket, get sold to the same customers, in the first fit, and really broaden our presence, broaden our relevance to customers across, and once again, across those industrial markets to where the Industrial Motion business, as we'll talk about it, is about 1/3 of our revenue today, up from about 5%, say 15 years ago. Finally, I would say capital return is another element which is really rewarding our shareholders regularly, consistently through a steady dividend.
We've paid 100 years of continuous dividends, nine straight years of higher annual dividends. During the last, you know, call it eight to 10 years, have bought back over 20% of our stock. Share repurchase continues to be a big element of our strategy. What has it produced? Neil pulled up the slide 22 in the book. The result has been a more diversified company, stronger portfolio, higher growth, higher margins, less cyclical, more resilient. You can see the last five years depicted on this slide, which over this period, Timken generated top quartile financial performance kind of versus our peer group across the 2017 to 2021 period. Looking ahead, I think, you know, the strategy's working. We wanna do more of the same.
We've put out some robust five-year targets at our Investor Day last year, which calls for, you know, 6%-8% top line growth over the next five years, double-digit EPS growth, and then, EBITDA margins, which would be structurally 200 basis points above the last five years, which will really be accomplished mainly through continued working on improving the mix of our portfolio and continuing to operate the business with excellence. You know, The Timken story's been a series of systematic moves, incremental moves. We haven't done a big M&A deal during that time, but we have done over 20 deals in the last 10 years with over $2 billion of capital allocated, and we now believe we have, excuse me, one of the most attractive portfolios, not just within the bearing space but within, the broader industrial space.
Thanks, Phil. Before we kinda dive into those five-year targets, I'd just love to get a sense of for 2023. Last month, you kind of provided your initial outlook for revenue and earnings. What are the drivers kinda underpinning your outlook? What are you seeing right now from the demand standpoint, given the visibility?
Yeah. Let Yeah. Maybe I'll start first with the second part of the question around kinda what we're seeing presently, 'cause I do wanna provide an update on how the quarter's progressing and what we're seeing out there in the marketplace. Back in February when we released our earnings and provided our initial outlook, you know, we said the year would get off to a good start. I would say it's been even stronger than we anticipated. When we talked about what was behind our assumptions related to the first quarter, we expected revenue to be up mid-to-high single digits organically. You know, right now we're looking like we'll be up at least high single digits organically.
I would tell you price cost and operational execution, which would include efficiencies in our plants as well as supply chain, are both trending better than expected, which is driving better bottom line performance I would say. Our backlog remains healthy across most of the sectors we serve. Right now I would say we expect the first quarter earnings to exceed our expectations and likely place us on a trajectory that would be towards the high end of our guide, you know, if not higher when we add in Nadella, you know, come May after that deal closes. Still a lot of uncertainty out there. Actually elevated uncertainty with the banking situation. Visibility still remains limited across many markets, especially in the back half of the year. We're not updating guidance today.
You know, I think we wanna see how March closes out, how April develops. We're off to a great start, as I said, and we'll update our guidance in early May when we release, first quarter results. You know, and as far as what was sort of behind the guide, it was continued growth across most industrial markets, continued pricing, but we did bake in some conservatism in the back half of the year when we set the original guide. Again, as I said, as we're sitting here today, we're trending towards the high end of that number.
Phil, I appreciate that, those comments. Maybe just to drill in a little further, are there any end markets, verticals that you would highlight that maybe are coming in higher than your expectations in February so far?
Yeah. You know, I would say it's been very broad. When we set our guidance in February, we had most markets positive. We had a few markets in the neutral column, plus or minus. I would say as we're sitting here today, markets have been broadly slightly better than anticipated, nothing that would stand out. We still expect renewable to be the biggest driver to top line growth this year, up double digits. I would say everything's sort of trending slightly positive. As I mentioned on the bottom line, operational execution as well as price cost are both trending positive as well.
Thank you, Phil. You recently announced in the beginning of the first quarter you're gonna operate under two new reportable segments, it's gonna be Engineered Bearings and Industrial Motion. I think that's an interesting decision, based on the growth you've seen in Industrial Motion. Can you kind of speak more to why you decided to go away from your old segments?
Yeah. I'll kick it off, and then I'll ask Andreas to comment since he leads the Engineered Bearings business today. Really I would say the resegmentation emanated from, you know, just a series of an evolution, if you will, over the last several years around the acquisition strategy and the growth of the Industrial Motion portfolio. It really culminated in the second half of last year. We appointed new Presidents of Engineered Bearings, Andreas, and a President of Industrial Motion, Chris Coughlin, who many of you know. He's been with Timken for many years, to lead both of those businesses. At that time it really made sense when we, when we thought about how we run the business.
As you know, the accounting really needs to follow how you run the business, that it was a good time to change the segmentation. There's obviously a lot of work involved, so what we will do that effective with the first quarter results. We do intend to file an 8-K with some historic information just to get everybody ready. With that, maybe I'll have Andreas talk about the evolution and the two businesses in a little bit more detail. Andreas?
Yeah. The change is really, I would say almost a natural consequence of how much the company has changed over the last 10, 12 years, which at the time was a bearings company after we had spun off the steel business, right? Bearings only. Today, 1/3 of the company, though, consists of what we call Industrial Motion products, systems and products and components, largely added through acquisitions. They were simply not there 12 years ago. Today, it's 1/3, and 2/3 is Bearings. Somewhere in the second half of last year, we adapted the internal organizational structure to basically these product lines, 2/3 Bearings, 1/3 Industrial Motion, in order to certainly also align between the internal structure and the products that we're putting out there into the markets between those two business groups we call them.
Yeah. The last comment I would make is, you know, when we haven't provided bottom line financial information, as we said, you know, last year Bearings was about close to just under 70% of revenue. Industrial Motion was just over 30%. I think when we file the historic results and come out with the first quarter, you will see two very attractive, high-performing segments with margins that are much tighter than our former Mobile Industries and Process Industries. I think more importantly, two segments that will compare very favorably against peers and competitors across both.
That's helpful. I definitely wanna touch on your comment about peers with Industrial Motion. Just going back to the prior comments on the outlook, it's great that the year's starting in stronger than expected. As you alluded to, there's obvious concerns, particularly in the financial markets right now, concerns on tightening lending standards. Phil, how should we think about the potential impact for Timken, its customers, the distribution channel? What are you looking out for given the recent events?
Yeah. Clearly the last week has been pretty tumultuous for the financial markets. We're obviously monitoring it very closely. We don't have any direct exposure to any of the institutions that have been affected or in the news as of late. I would say I haven't seen any material impact on our business. I think it's still early. We're monitoring it very closely but have not seen really any material impact on our business. I would just say it's just another element of uncertainty out there that we're gonna deal with that, you know, makes the, makes the outlook a little bit cloudier than normal. Again, you know, when we set our guidance, we were a little conservative on the back half because of some of that uncertainty.
You know, unfortunately, I think we're probably in a more uncertain environment today, if I could use that terminology, than we were even a couple months ago.
There are investor concerns around inventories just for all industrials right now, the OEM to distribution channel. How does Timken feel about its own inventories? Where's the distribution channel today relative to history? How should we kind of look at that as we go into 2023?
Maybe I'll start and If Andreas has any color, any additional color, he can add it. I would tell you know, clearly in 2022 and 2021, everybody, not just Timken, but customers, distributors, were trying to build inventory or were carrying extra inventory to compensate for supply chain challenges, to compensate for delays in shipment or ports that were closed. We were not dissimilar to a lot of other folks that, you know, built up inventory over the course of the last couple years. In the fourth quarter, started to take steps to, as supply chain challenges were starting to alleviate, as the situation was getting better on that front, take steps to, you know, optimize our inventory.
I wouldn't say we've, you know, we feel the need to destock significantly given the demand environment out there, but take steps to optimize our inventory. We took some inventory out in the fourth quarter. Would expect to continue to take a little bit of inventory out in 2023, which is part of our cash flow forecast. Actually, it'll be a little bit of a headwind on the bottom line just 'cause it'll be lower production volume than last year when we were building inventory. Contemplated in my earlier comments. With respect to customers, we'd say, look, distributors from what we can see, certainly added inventory in 2022. We don't expect them to continue to add inventory in 2023.
We do think 2023 will be more of a sell-through type of a demand environment versus 2022, which was sell-through demand as well as some inventory stocking. We do think that'll be a little bit of a difficult comp from that perspective year-over-year. Not we don't see a major destock on the horizon. Frankly, inventories from what we can see are actually lower than what they were in 2019 across distribution again, where we can see it. OEMs have said, you know, a lot of our customers are doing the same thing Timken's doing, which is, "Hey, we were carrying extra inventory to compensate for bottlenecks and supply chain challenges. As that's going away, we're gonna take steps to, you know, optimize the inventory," if you will.
I do think that's gonna be a recurring theme, likely in the first half of 2023. Not you know, we don't see a material destocker. We don't see inventory anywhere in the channel that would be bloated, if you will. I don't know, Andreas, anything you'd add?
Yeah, I mean, it really depends on, you know, if these turbulences in the financial industry would now have an impact on the industrial space out there. At least to this point, we have been with our customers, very bullish on the capital goods sectors, right? The electrification of the world drives mining, drives rail, drives heavy industries, drives renewables and wind and so on, and the order books are all there. We have seen a little bit, as Phil alluded to it, a little bit of what I call optimization, a little bit of rightsizing, but by far not any sort of inventory burn down or so. To some extent the opposite.
Distributors keep ordering as they wanna be able to serve the market and also make up for the service issues that we had in the past with the supply chain disruptions and so on. So far things have continued pretty well.
In markets like renewable, we're actually seeing stock, you know, restocking, because that was a market that was down the last year, now is accelerating and actually seeing inventory building in that sector. I mean, there's pluses and minuses, but it's I think it's in a pretty good spot.
Phil, just to hammer the point home, did you say inventory in the distribution channel is below 2019 levels?
Where we can see it. You know, while it's up, it was up during 2022. It's higher today than it was 12 months ago, but it's still not as high as it was in 2019, which kinda tells us, you know, we're not in a situation where we need any major destocking going on out there.
It's a good data point. I know we just spoke a lot about the quarter, but beyond 2023, based on what you can see here, what are some of the growth potentials just beyond maybe, PMIs, industrial production, trends that you're seeing and conversations you're having with customers just beyond maybe the next three months?
Yeah, great question. Andreas, do you wanna take that?
As mentioned before, I mean, first of all, we believe in the secular growth trends of the markets we're focusing on, and then we are focusing on markets with those growth trends again, right? Driven by, again, the infrastructure investment needs out there, rebuilding of infrastructure. Reshoring, nearshoring is part of the trend out here. Population growth, urbanization, different food habits in Asia and so on driving more food and beverage growth out there. The whole renewable sector, the whole electrification that we see out there is driving a number of markets that we are engaged in. The beauty of the business is, we are engaged in very fragmented markets.
Depending on the definition, it's like between 50 and 80 different markets, and we try to focus on those that come with these higher than average growth, trends out there. Those are the ones I mentioned before that, we think are going to midterm. Now, short-term financial issue, but midterm will continue to drive because the world needs to invest, it needs to renew, basically.
Yeah, I agree. I mean, I think when you look at, again, put, you know, what might happen in the second half aside, I think when you look at the next 10 years for industrials compared to the last 10 years, and you layer in energy conversion, as Andreas said, reshoring, nearshoring, automation, so the substitution of capital for labor, where you can't find labor, the age of the equipment. The need for more fuel efficient, sustainable solutions broadly across markets. You know, I think the next 10 years will be a better environment for industrials in the last 10. When you layer on the mix shift that's going on at Timken as we're mixing ourselves towards higher growth markets, you know, we clearly see, you know, a better next 10 years than even the prior 10.
The prior 10 wasn't all that bad. I think the next 10 can even be better.
One part of that story is actually renewables, and you alluded to it earlier with your comments. I think it's now around 10% of the business overall. It's been a fascinating story, based not just on the macro, but, you know, actually specific product offerings from Timken. Can you kind of explain to us what is in the renewable segment? What's driving it? How does the kind of backdrop you're seeing right now favor that vertical in your business?
Multiple trends out there. I mean, first of all, Timken was not the first in the particularly the wind sector out there. As we have been able to influence technologies to solutions that would be lasting, better and longer, notably tapered roller bearing solutions, we have been growing that segment enormously over the last 10 to 15 years. It's about technology. It's about providing power dense designs. It's providing cost-effective designs. The turbines have become larger, both onshore and offshore. We are in there with our technologies. Obviously, there's outgrowth there driven by the market requirements for renewable energy out there. There's also an aftermarket opportunity out there that we are expecting to come.
We have been feeding the installed base of the last 15 years, and as these turbines are getting to age and there may be certain elements of replacement out there, we're also expecting an aftermarket, the aftermarket business to grow out of particularly wind turbines. The other part of that is, here I talked about bearings. On the other side, we also see lots of Industrial Motion opportunities out there. Every wind turbine has multiple lubrication systems. There's couplings in there. There are linear systems in there. We are using the customer entries and contacts we have to also leverage them to bring in these other product lines into the same customer base. It's a, in multiple facets, a strong growth market for us.
You know, that's wind, so when you think about 10% of the portfolio being renewables, we've said roughly 80% of that 10%, if you will, is wind. The other 20% is solar. We make a tracking drive that would go into movable solar applications, both photovoltaic as well as CSP for utility scale solar installations. We have a great position in that market. That's a very global business for us as well, and that's another one where we do expect, you know, above GDP type growth and our ability to participate. Our content's stronger in wind. Obviously a lot more moving parts in a wind turbine than solar, we, you know, we are participating in both and feel really good about our technology and our opportunities to grow there as well.
Phil, maybe just to continue on the renewables theme, just the geographical exposure of that business, what are you seeing? We're seeing some initiatives out of China, obviously there's the IRA in the U.S., Europe. Are you seeing actual catalysts that is driving your order rates in that business?
Yeah. Andreas?
Yeah. Some of the catalysts I mentioned already before. Right now we see the stronger growth rate certainly in China again. I would assume that is also related to the time it takes to get new wind parks and installations approved and financed, right? Particularly on the offshore side, this is a very long cycle, three to five years. In Europe, certainly a lot of things were triggered by the Russia-Ukraine crisis a year ago, it just takes a little bit of time for projects to come through, right? The customer base in Europe is expecting that the demand for wind is growing a lot again from 2024 onwards, whereas we see that same trend very strongly already in China today.
The Americas would be on the same pace as Europe with projects being projected right now, and they're coming through, and then we would participate.
Yeah, you know, I think what we've seen in China there has been a market where it started with, you know, the government support for the industry, and then as costs came down, the industry is now more, you know, the cost of wind is now more competitive with fossil fuels, so then the market now is creating its own momentum. You know, we, over half of our businesses on the wind side is in China, but it's not Chinese customers, if you will. It's really serving our multinational customers that are just operating in China or selling into China. We sort of track that as a, as a China sale. You know, that's been true in Europe as well. There's been momentum in that market.
You know, the U.S. market's really never seen the same sort of momentum. I think that's where the opportunity lies. If, if we can see, you know, renewable really start to take hold in the U.S. through some of the incentives that are out there in the IRA, you know, Timken's extremely well-positioned. Particularly, our technology translates very well to large offshore wind installations. If we see, you know, an acceleration of growth in the United States in that area, I think Timken's well-positioned, not just from a technology standpoint, but from a manufacturing, just the fact that we're a large North American player to capitalize on it.
I think, you know, I think that, you know, we haven't seen it in the U.S. to the same degree, so you can't count your chickens before they hatch there. I do believe, you know, there's certainly opportunity there.
Great. Just asking about another vertical for Timken that seems new, that I don't remember Timken really talking about a couple years ago, is automation. It feels like you guys have done some acquisitions there. I'm just curious if you kind of talk about the automation side. What's the opportunity that Timken's kind of identified? What kind of growth are you seeing there, in terms of just, you know, cyclical, but also long-term that you're kinda keeping your eyes on?
Yeah. For Timken, and Neil pulled the slide up, which is slide 19. I think for Timken, we sort of break automation down into a, you know, few different categories. You know, a big piece of it is automatic lubrication systems, which we built that through acquisitions over the last several years. That is a business that actually provides a system to automatically lubricate machinery and equipment, essentially substituting capital in the form of the system for manual greasing of equipment. It's it capitalized on that trend toward automation as well as with labor issues can help alleviate that as well. That's one part of it.
We're number two in the world now with the acquisitions we've done over the years and the organic growth we've generated there. Now number in the world. More recently, you know, some of our products are now found in industrial robots on the left. That would be precision drives that would sit in robotic arms, robotic shoulders, elbows, hips even. We make 7th Axis linear motion products to allow the robots to move up and down the assembly lines. We're in automated warehouses with some of our Industrial Motion products as well as autonomous vehicles, both bearings and motion products, and certainly surgical robots as well. It's a growing trend. It's a place where our technology translates very well. It's more precision product. It's more highly engineered product.
I think that's another one where it's gone from essentially zero to roughly 8% of the portfolio today, including automatic lubrication systems. It is a broad sector, if you will, that we expect to grow, you know, above GDP obviously for the next several years.
Maybe just to piggyback off of a comment you made about doing some acquisitions there. You've been fairly active in M&A. I think you're completing three acquisitions over the last 12 months, closing another one in the coming months. Can you just talk about what these recent acquisitions provide, both strategically and how we should think about that financially for 2023?
Sure. Well, I'll start first with maybe more broadly the capital allocation philosophy at Timken, and then we'll get into the acquisitions over the last 12 months, and I'll ask Andreas to comment on some of those. You know, broadly, when we talk about differentiating, you know, as I think about high-performing industrial companies, we should differentiate on our technology, on our customer service, on our operational execution, and on our capital allocation, and I think that's one area where Timken has performed very well. This slide sort of depicts the different priorities for capital allocation. Starts first with generating strong free cash flow, having a strong balance sheet. We've guided to around $400 million of free cash flow for 2023.
We ended 2022 with net leverage below the midpoint of our targeted range, so lots of opportunity to continue to deploy capital. As we think about deploying, it starts first with organic growth, operational execution, R&D, et cetera. Our dividend, which I talked about earlier, and then M&A, you know, as kind of the third prong, followed by share buybacks. M&A has been, you know, an integral part of the transformation of The Timken Company, and it started first with focusing on industrial bearing markets, and then accenting those or augmenting that with attractive Industrial Motion non-bearing power transmission products, whatever term you wanna use that essentially sit in the same systems, strong strategic fit, close adjacencies, and enable us to create a lot of value. I think we'll continue doing it.
We built the Industrial Motion business essentially through acquisition, followed by, obviously some strong organic growth afterwards. You said, Mike, the last 12 months, you know, fast-forward a couple weeks, we will have done, hopefully done four acquisitions. Spinea about a year ago, which was a precision robotics, drive manufacturer complementing an existing business we have within Cone Drive, which we acquired in 2018. Really scaling our Cone Drive business with Spinea, very attractive technology, very attractive, market presence, et cetera. We followed that up with GGB, which I'll ask Andreas to comment on in a moment, and ARB, both bearing acquisitions. We're not opposed to doing a bearing acquisition where it makes sense.
In a couple weeks we should close on Nadella, which will take our linear motion business, which was an an acquisition we made in 2018 with Rollon, and add significant scale and synergy opportunity with Nadella, now making us an even bigger player in that market with, you know, significant synergy and growth opportunities. Maybe Andreas talk about some of the bearing stuff.
Yeah. If you wanna go to page 12 again? The picture that tells more than 1,000 words here. It's quite fascinating to see how the space is coming together and the revenue synergies between these businesses is really playing out nicely for the long run. We're focused on components and systems between the driving element and a driven element in the industries that we are participating in. That is typically an electric motor and then the other end you may have a generator or a pump, a compressor, ventilator or so. In between, you find bearings, you find housed units, housed bearings, you find lubrication systems, you find belts, chains, couplings, brakes, gear drives, precision drives, and so on. Two things in here, maybe just adding to Phil's.
One is the revenue synergies with OEM customers. Look, the hardest thing for a startup company or a small company is to find new customers out there, right? Well, we come up here with tens of thousands of customers in the world, and we open up Australia and countries to those businesses, right? Then on the distribution side, it takes quite a bit of upfront investments to be a player in the distribution business. E-shops and logistics capabilities and so on. Typically what we do is we open up our distribution channels, which is close to 1,000 authorized distributors in the world to those businesses. That is an additional revenue synergy for them, typically coming at higher price and higher margins. Put this all together, these businesses are basically cross-pollinating each other.
When you think about you mentioned, warehousing automation systems, you find bearings in there, you find housings in there, you find lubrications, you find linear, you find lots of these components in there. The same in food and beverage, the same in wind, the same in certain off-highway equipment, stationary equipment. As these platforms are coming together, we're having more and more of those revenue synergy opportunities left and right. Since customers are trusting us, and they're trusting our technologies and our brand and our service and so on, we're having good opportunities to also expand these other product lines into basically the same customer base, which is all about, again, the power transmission industry.
That's helpful. Just to follow up with Nadella closing, how should we look at the rest of 2023? Is it more of digesting these four acquisitions? Will you still be active? How should we kind of look at the rest of the year when it comes to the M&A profile?
Yeah. I think the right way to look at it is we will continue to work the pipeline, we will continue to be active. To your point, you know, as I said, in the coming weeks, we would expect to close on Nadella. When we issued our guidance in early February, we did not include Nadella in that. We did at that time said we thought M&A would add around 3.5 points of growth to the top line. You know, think of Nadella, if it closes, you know, early second quarter, let's say, could add another couple percentage points, if you will. We'll have a lot we'll be digesting, we certainly have the bandwidth and capabilities to continue working the pipeline.
Obviously with M&A, you can't predict when it's gonna hit, timing, et cetera. You gotta just keep working it and systematically attacking it. I would expect, you know, over the course of the rest of the year, you know, it's highly likely we'll do at least one more. You know, maybe not in the second quarter, but certainly over the course of the rest of the year.
Phil , as the CFO, how do you balance the pipeline and the opportunity to do this strategic M&A with the idea of doing share repurchases? The reason why I bring that up is ’cause you're now breaking out Industrial Motion, which I think investors will applaud. The reason is there was a big transaction a few months ago for a very high multiple for a business that is in the Industrial Motion space. I guess the counterpoint, Phil, is, well, if there's multiples for Industrial Motion at much higher levels than where Timken is trading, how do you value doing these acquisitions or just saying our multiple is actually at a discount relative to these public transactions, we should just be buying back our shares?
Yeah, no, it's a great question. Look, I mean, the M&A for us is all about, you know, making Timken a better company. As I said, you know, we believe we can continue to do M&A, we can continue to buy back stock, and we, you know, we can lean in one direction or the other as the opportunities are there, as the attractive opportunities present themselves. I would tell you, we'd expect to continue to do both. I look at M&A and say for the long term, you know, makes Timken better. We're buying companies that are enhancing our growth profile, that are dampening our cyclicality, that are enhancing our margin profile, generating really strong returns on invested capital, you know, making Timken better for the long term.
You know, share buyback can, you know, certainly provide some short-term benefit, take advantage of opportunities. You know, if the M&A is not there, you can lean into buyback. Last year, I'd say we leaned into buyback, bought over 3 million shares, about 4% of our float, which was the most that we had done in a couple of years. We saw a good opportunity, and we leaned in a little bit. You know, with GGB and now Nadella, you know, we've leaned in more on the M&A the last six months. I think we have the opportunity to continue to do both. It's really all about generating strong performance through cycles.
When you talk about multiples, our view remains that if we continue to perform consistently, continue to work to make the portfolio better every day, perform better every day, you know, that, you know, continue to post performance like this, coupled with a strong, you know, return on invested capital, and, you know, our view is the multiple will take care of itself over time.
Fair enough. Not every public bearings operator and supplier are the same. There are some well-known companies out there, even one that's gonna be attending the conference. One of the key differences is, I think, the auto exposure. It feels like Timken over time has really lessened and found ways to kind of narrow that auto exposure. Can you talk about the process there? You know, where do you see that auto business going? What's the potential impact as that industry kind of transitions more from ICE to EV?
Maybe I'll take the first part around the transformation of the auto exposure, then I'll ask Andreas to talk about where the business is going from here. It is mainly our on-highway exposure is mainly bearings. Virtually none of our Industrial Motion product targets the automotive market. You know, that was a deliberate decision we made, you know, 10+ years ago, almost 15 years ago now to say, "Look, it's a very difficult market to play if you try to be everything to the industry. If you want to be in every position on a car, or a truck, it's going to be a very difficult place to play.
You've got a finite number of customers with enormous purchasing power." We had gotten to a point technologically speaking, where, you know, most bearings that go into an automobile outlast the automobile. I mean, that's just a fact. For us, we made a decision to say, "Look, we're gonna get more focused in automotive. Participate where we see that we can bring value to the customer, where the customer sees the value, so it can make sense for us, and let's take those resources and energy and people and allocate those more toward the industrial market. The intention was not to shrink the company. It was to lessen our auto exposure and then reallocate that to Industrial Motion or industrial bearings as the case may be. It's been a success. It's enabled us to, It's really accelerated the growth for Timken in the industrial markets.
I think it was, yo u know, back 10 years ago, those were tough decisions we had to make, 10, 12 years ago. What you see today is a company that's a multi-billion dollar bearing business where the, you know, OE exposure to auto and truck is only 10%. Many of our competitors that are larger would have, you know, exposures of 30%, 40%, 50%, even more than that. It's, it is a differentiator for Timken. It's part of the reason why our financial performance is above many of our competitors. I'll ask Andreas to maybe talk about where he sees the business going from here.
Indeed, first of all, let me repeat a little bit. I mean, this is, in our view, one of the major differentiators to the other five large global players there, right? Our automotive exposure here is down to 7%. We like that. We are in the premium space here. This is where not only we can add value to the premium builders of automotives and so on, but also we can extract some value back to Timken, right? We basically went over the last, again, dozen years through a huge strategic transformation, right? We converted $1.5 billion of automotive business to $1.5 billion of Industrial Motion business at significantly higher margins. That is a very big differentiator from the space there. We are only two-thirds bearings company anymore, right?
To your second question, in terms of EVs, that automotive business that we have is not in engines at all. It's not in transmissions almost at all. Those parts that are going to get replaced by the electrification of the vehicle is not a Timken matter at all, basically. Where we are is in, for example, the U.S., you know, light truck, wheel ends and so on. Interestingly there, the technology changes to an extent that the vehicles, first of all, become a bit heavier again because of the battery, right? The Ford Lightning, for example. There's even more Timken technology in there again. There's still certain reduction ratios in the drives of electric vehicles, right?
That is where we have good opportunities and good projects out there because that is high tech, and we are engaged with the industry in those applications again. Bottom line for us, the electrification is almost a non-event from an overall sort of business content perspective. At the same time, we are participating with technologies, which is a good thing for us because we have a chance to re-engineer ourselves in again, whereas the parts, certain parts of it were more commoditized.
Perfect. I'm just gonna sneak one more in, Phil.
Sure.
On, on something that separates Timken from the pack. Last year, Timken actually priced above inflationary costs. You got your margins up and was able to outpace inflationary costs. Some suppliers were just trying to keep up with costs. Just how should we think of Timken's pricing as we kind of roll through 2023 with that price versus cost relationship?
Yeah, I mean, I think the short answer is I'd expect. I mean, thanks for the compliment, first of all, but a lot of that was catching up for 2021, where we were a little bit behind. I appreciate we did get caught up to a large degree in 2022 through the pricing that we did. I think we would expect to continue to price as needed to, you know, maintain our margin profile, offset our cost increases. You know, we do expect inflation to remain higher than historic levels, so it's going to require more pricing than historic levels. You know, we're going to continue to get it. You know, we talked about at least 2% positive, net positive price in the guide.
We're obviously trying to do better than that if we can, but, feel very confident that we'll be able to do at least 2%.
Perfect. We'll leave it there. Thanks, everyone, and thank you, Timken.
Thanks, Mike.
Thank you.
Appreciate it.