Good morning. My name is John, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I'd like to welcome everyone to Timken's Fourth Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. Mr. Hershiser, you may begin your conference.

Thanks, John. And welcome, everyone, to our fourth quarter 2018 earnings conference call. This is Jason Hershiser, Manager of Investor Relations for the Timken Company. We appreciate you joining us today. If after our call you should have further questions, please feel free to contact me directly at 234-262-7101. Before we begin our remarks this morning, I want to point out that we have posted on the company's Web site presentation materials that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are the Timken Company's President and CEO, Rich Kyle and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from both Rich and Phil before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone an opportunity to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we described in greater detail in today's press release and in our report filed with the SEC, which are available on the timken.com Web site. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by The Timken Company. Without expressed written consent, we prohibit any use, recording or transmission of any portion of the call. With that, I would like to thank you for your interest in The Timken Company, and I will now turn the call over to Rich.

Thanks, Jason. Good morning everyone. And thanks for taking the time to joining us today. We posted another good quarter with revenue up 17%, earnings per share up 47% and EBIT margins up 250 basis points from the fourth quarter of 2017. Organic growth in the quarter remained robust at 9% year-over-year as we continue to capitalize on growing end markets, as well as deliver on our outgrowth initiatives. Tariffs and costs were headwinds, which we slightly more than offset through pricing and cost reduction initiatives. Inorganically, we grew 10% in the quarter with our recent acquisitions contributing at the EBIT margin level slightly higher than the company average despite the incremental amortization. Fourth quarter capped what was an excellent year for Timken. We moved the needle on all three facets of our strategy to outgrow our markets, drive operational excellence across the enterprise and create value for the generation of cash and the effective deployment of capital. Strategy is working and our progress continues. After growing revenue by 13% in 2017, we delivered another 19% revenue growth in 2018 with 13% of that being organic. Our organic results continue to run ahead of industry averages, fueled by our mix and our pipeline of outgrowth initiatives. We remain focused on differentiating our products, innovating with our technical and application capabilities and providing world-class service to bring our customers the best value for their bearings and power transmission needs. As a result, we are winning with OEMs. We are winning with end users through our distribution network. And we are expanding the diversity RFEs around the world. We continue to lead in our traditional Timken markets such as mine, metals, agricultural and rail, and we are strengthening our position in newer Timken markets, like wind, solar, automation and food and beverage.…

Okay. Thanks Rich and good morning everyone. For the financial review, I'm going to start on Slide 14. Timken capped an excellent 2018 with strong performance again in the fourth quarter. And you can see a summary of our results on this slide. Revenue came in at $910 million, up 17% from last year. Adjusted EBIT margins were 13.5% of sales, up 250 basis points year-on-year. And adjusted earnings came in at an even $1 per share, up 47% from last year and a record for the fourth quarter. Turning to Slide 15, let's take a closer look at our fourth quarter sales performance. We delivered organic growth of around 9%, reflecting continued strength across most end markets and sectors, plus the benefit of our outgrowth initiatives and positive pricing. Acquisitions added just over 10% to the top line. This includes the Cone Drive, ABC Bearings and Rollon acquisitions, all of which closed in the third quarter. And currency translation with negative in the quarter by around 2% due to a stronger U.S. dollar. Sequentially, sales were up 3% from the third quarter as a result of the acquisitions, offset partially by seasonally lower organic volume and negative currency. We also had two less shipping days in the U.S. in the fourth quarter as compared to the third. On the right hand side of this Slide, we outline organic growth by region, so excluding both currency and acquisitions. You can see that all regions were up in the quarter organically. Let me touch on each region briefly. In North America, our largest region, we were 8% with most sectors up in the quarter, led by growth and distribution, general and heavy industrial and aerospace. In Asia, we were up 13% as we saw continued strength across most sectors, led by…

Thank you [Operator Instructions]. We will now take our first question from Joe O'Dea from Vertical Research. Please go ahead.

Just wanted to start on the '19 Outlook and just as we continue to hear about tremendous amount of uncertainty out there and just how you kind of gauge expectations in early February and thinking about within the guide where you see some kind of pockets of cushion, if you will, whether you think that's more on the revenue side of things based on the backlog, where do you think that's more on share price cost opportunities that you see here that are?

Well, I think there is certainly upside to the revenue outlook, I guess I would start there. I think coming off the 9% and we've got 4% to 6% for the full year. And as I said, we feel pretty good that we're going to start north of 5% in the first quarter and we're five-ish weeks already into that quarter. So we've got some tapering of growth in our outlook and I think that's prudent at this point to do. But certainly, I think there could be some upside there. We came in the last year guiding to we'd be over 100 basis points of price, we ended up a little over 150 basis points. We're looking at similar number this year. So I don't think there's probably quite as much upside to price, but it's going to be a good number, and I think we always have opportunity to improve on the cost side and the operating side. We've got a reasonable amount in there for outgrowth and usually those things are months and years in the works. So I don't think there is huge swing there from a market share standpoint. But certainly, I would say, we feel really good about first half of the year, really good.

And then on the free cash flow side of things; one, just to step up of anticipating in CapEx in 2019. What that's going toward is 4% more of a sustainable rate or is that more kind of one-time and project specific? And then also related to that, when we think about 80% conversion, what are you thinking on the working capital side and opportunities down the road to improve that conversion rate?

So on the free cash flow, I mean, obviously the step-up -- we expect a very strong free cash flow next year, north of $300 million, obviously with higher earnings and probably -- obviously and less working capital build certainly than we had in 2018. Speaking specifically to the CapEx, we've talked before about of averaging around 4%, although we have talked about the acquisitions coming in at a lower level than that. So somewhere between that 3.5% and 4% would be normal. And as you look at 2018, we do have some capital allocated to some capacity additions in Asia, as we've talked about adding some Process Industries capacity, specifically to serve some of the larger-sized bearing products globally. So that will be coming online. We've got some spending there for that and normal maintenance and then really a variety of other, what I would call, small capacity additions or margin expansion opportunities. So it's well within the range of what we've guided to in the past and what we've targeted in the past. And as we move forward, I think, 3.5% to 4% is probably a good number to think about CapEx for Timken going forward. And then on the working capital, because we do have a mid single-digit organic growth built into the plan -- built into the guidance, we would expect to add some working capital sort of commensurate with that and that would obviously go against the free cash flow slightly getting us down to that $300 million or as you said, about 80% conversion. We also have a one-time where we're going to make it a payout of some deferred compensation to a former executive during the year, which is a reasonably sizable number on the order of around $20 million that will -- that's in there as well. And otherwise, we'd be a little bit north of that number.

And then lastly, just a clarification, your comment around pricing, to confirm, did you say of the pricing that's assumed, basically half of that is already either in their through carryover or what's been announced?

Over a half and while there -- and I didn't include carryover in that, but more of it would be essentially as of the first of the year or negotiated for and agreed to for some time in the year than carryover. So there is a step up from what you would have seen, say, in the second half of 2018 and over half.

We'll now take our next question from David Raso of Evercore ISI. Please go ahead, your line is open.

First question related to the discussion about the confidence in the sales outlook. If you could indulge just a little bit with, when you say above 5% in the first quarter, I think we're all just trying to figure out how much can we assume things flow and you still feel comfortable that with the 5%? Can you help us at all with the cadence and I know the backlog numbers don't usually come out until the 10-K, and in general, the backlog, maybe not the most reliable aspect for the way your businesses run, but could you maybe indulge us with where the backlog is at the end of the year for each business?

Yes. The 10-K backlog will be up a lot. And as a percentage and in dollars and as we always caution, don't bank on that exactly, because there's a lot of apples and oranges in that number. But I would say, the backlog is up year-on-year. It's up sequentially. We're going to grow sequentially from the fourth quarter. January was up sequentially from December, I would say all of that is normal will be north of 5%, as I said. We will expect it to go up again sequentially modestly from the first quarter to the second quarter, which again would be normal seasonality. And then obviously, we will update it when we get there, but what's in this guidance is that the second quarter would be the high point organically for the year for both revenue and EPS. And then we would see some modest softening in Q3 and Q4 again fairly similarly to what we saw before. So north of 5% and obviously, we just came off 9% and I wouldn't see a year-on-year step up from the 9% certainly when you look at the comps, but the backlog orders January all support that number, and I would put that very low risk with 7, 8 weeks left in the quarter.

And just in case I missed to this, the second quarter you said the organic sales growth -- the growth rate would be higher than the first quarter? Are you just speaking [Multiple Speakers]…

No, sequentially, I would expect that we will -- sequentially, we would go up from Q4 to Q1, sequentially, again, up Q1 to Q2, you will less than what we would have gone up Q4 to Q1, which is usually where our big step-up is, and then a sequential decline from there. So we are guiding 4% to 6% and we're north of 5% for the first quarter and that puts us to get out to the year at the high end or above that range to start the year.

Yes, I mean, I was just trying to think about to derisk guide a little bit how much you have upfront. So, I mean, sort of a cadence of up 7%, then up 5%, up 4.5%, 3.5% kind of gets to 5% and I think we're all just trying to gauge -- I think your business has a little more longer cycle aspects to it than a lot of people just sort of gauge it as all short cycle, but your confidence in the first half and your visibility, can you give us some indication where any risks to some businesses where historically you've seen production schedules change dramatically that at this stage what you're hearing from your customers feels a little more secure than maybe other moments of uncertainty?

So, I think -- first, I would say, your point on late cycle markets is accurate, and as you look at our Slide 9 with industrial distribution and general industrial over there, those tend to be a little later cycle. They also tend to mix this up. And again backlog is good. Orders through January are good. As you get into specific question where we have seen cuts and changes that we wouldn't have foreseen, again, I would say, we're in pretty good shape for the next two to three months. I mean, it's more of a question probably for the later second quarter and beyond that. I mean, where that's happened before -- automotive, heavy truck and off-highway would be the places where those markets can move, and again, we've got some conservatism in the second half baked in into that, but continued year-on-year growth.

And last question, I'll pass the baton, a small nitpicky on the fourth quarter. The interest expense surprised me negatively. Phil, can you help us a bit of trying to think to a run rate, interest expense on why it was so high in the fourth quarter?

So it really goes back to the acquisitions that we closed on the third. We did put some financing in place for the three acquisitions just given the amount of money that we spent and only really caught a little bit of the interest in the third quarter, just given the timing. So I think as you're looking at 2019, if you were to take the fourth quarter interest expense and annualize it, you'd be roughly in the ballpark of what would be a good estimate for 2019.

We will now take our next question from Ross Gilardi of Bank of America. Please go ahead, your line is open.

Maybe on, we can start off with Mobile and your ability to get to the 12% margin, and some of the price increases that are out there. I mean, are they being supported in the market? I mean, some of the bigger OEM customers that you have seemed to be struggling a little bit on price-cost and I'm just wondering if you're seeing increased pushback on some of these price increases in the market, maybe demand softens up a little bit around the edges?

Yes. I think Ross, as we've talked before, when it comes to OEMs, I would say, we always have pushback even if they know our steel costs are going up and their steel costs are going up. So it's never an easy commercial discussion, but we -- I think we've done it two years a row in '17 and '18 where we have moved price not so much in Mobile in '17, but more in '18 and now again in '19 where we have done it and managed to pick up share as we've gone along and done that, and feel pretty confident that we're going to be able to do it again in '19. I would also say though on Mobile margins, price is important to getting those margins to 12%. the volume while more modest in the last couple of years is also important. And then there's also a mix factor in there. And that mix includes rail and that also includes the '17 and '18 acquisitions which have mixed this up in Mobile. And then I also say that we have a fair amount of -- while we have a fair amount of cost increases coming out, we also have a lot of self-help offsets on the cost side from the ABC Bearings acquisition bringing on a low-cost manufacturing plant with capacity for us the two Eastern European plants, productivity improvements and some of the capital that we put in last year. So it's not at all price.

And then on Process, guiding margins flattish, I mean, do you kind of see stabilization here with an eventual push higher, I mean, you mentioned some amortization and some new capacity in Asia. Could you help quantify what those two factors, maybe you're -- and is a fair way to look at it by stripping those out like what the underlying margin you're assuming? In 2019, is it actually going up?

Yes, I mean, I would say, Ross, I think you've hit it. So in Process, we've always said, once we're north of 20%, I mean, we'd rather grow and stay north of 20% than necessarily run those margins of the size they could possibly go just because we probably end up shrinking. But really saw strong margin expansion in Process in '18 as you saw and as we look to '19, little bit of the opposite of Mobile. So while the acquisitions mix Mobile up on the EBIT line, the acquisitions without that amortization actually mixing Process down a bit on the EBITDA line, the acquisitions are mixing Process flat to up. So it's positive from that perspective, but when that purchase accounting amortization comes in, that is a slight mix down; we do have more tariffs obviously in Process than we do in Mobile. And then the other thing to keep in mind too is relative to capacity. I mentioned in my remarks, we invested in Mobile a couple of years ago, we're sort of reaping the benefits of that now. We've actually got some new capacity coming online in Asia in 2019. That will help facilitate growth in Process Industries. So it's absolutely a great thing. But as you know when this capacity comes online, it does have to ramp and while it ramps, it can be a little bit of headwind for us. So while we expect strong volume, strong pricing, positive price-cost in Process once again with the M&A and the capacity in particular will be a little bit of offsets to that and that's we're guiding to roughly comparable to 2018, and could there be some upside to that margin, sure. If we didn't have the M&A or the new capacity, would it be higher than that, absolutely. But we feel really good about what we're doing in the portfolio in Process and in our ability to sustain those margins for years to come [indiscernible]

That capacity -- can you quantify [Multiple Speakers], just can you quantify that capacity increase into like, what does it due to your supply? Is it 5% capacity increase or whatever the number is? and is any of it pre-sold? I mean, is that associated with a couple of big customers where you've got a commitment to buy a lot of that output already? Or can you just sort of put -- are you just putting in place and assuming the market is going to grow?

I would say more the latter. We've had a consistent CapEx strategy where we've invested in '15 and '16 when we were not growing organically and again, maybe a little bit more of that was cost, but it was also capacity related. We're coming off two strong years of organic growth. Looking at a third year of good organic growth and I would say this is putting capacity and to assure that we could have a fourth and a fifth as well. So, certainly, some of it would be pre-sold, to use your term, like in wind, we certainly have some contractual arrangements out there that we're working on that would consume some of this capital. But a lot of Process Industries is not on contracts and a lot of the distribution business is not. So I would say it's more consistent with where we believe our markets are going long term. The one other comment I was going to add, Ross, in my prepared comments to follow up on Phil's comments on the mix, in my prepared comments I said our corporate mix is very good, I think, both to support our organic revenue as well as our margins within Process. As Phil said you get that acquisition impact, you also have -- we're expecting a very good year in wind and as we said before, wind is good from a corporate EBIT perspective, but also mixes Process Industries down a little bit on the flip side that industrial distribution is going to have a good year as well, but wind is is a factor in that as well.

We will now take our next question from Chris Dankert of Longbow Research. Please go ahead, your line is open.

I guess thinking about Asia more holistically -- obviously, great growth in the quarter. You provided some of the detail around that. I guess, is it worth breaking out China specifically versus India and some of the other regions. Just how you're thinking about it, more granularity into in the '19. Just kind of what the drivers are there exactly.

Yes, I would say, as you know, we listed China on the chart that Rich reviewed just because we wanted to list some of the larger markets and some of the markets that are probably getting the most questions. I mean, we expect really solid growth in China, as you saw, up mid-single digits and then probably similar, I would say, comparable in India as well. And the reason why we want to put China on there is obviously a lot of talk about China, Rich covered it in his remarks, but our mix is relatively unique in China relative to some of our other competitors, and we are not as heavily exposed to be on-highway, we are more exposed in the industrial markets and some of the heavy capital goods like wind and metals and those markets continue to trend upwards. So while there's certainly a lot of uncertainty in China and a lot of negativity particularly around on-highway cars and trucks, our mix really sets up well for 2019 and gives us confidence that we expect to be up mid-single digits in China and then in India, we're a little bit broader in some of our end market exposure in India and expect another up year there as well.

We are a little more Mobile in India and a little more Process in China, so rail, heavy truck, off-highway equipment in India. And that's a little bit of us and that's also a little bit of the market, it's not a huge metals market. It's -- and the wind market is smaller. So I think -- with that market mix a little bit heavier in Process Industries, but both good growing markets, not only in 2019 but long term for Timken.

And then, I know you guys commented a bit in the prepared remarks about capital deployment allocation. But with the stock where it's at and kind of M&A being somewhat expected at the moment, can you just put a finer point on how you're thinking about buyback versus M&A where the opportunities are, what the pipeline looks like that type of thing?

I'll take the buyback part first. We think buybacks are a very attractive use of our capital and bought back a fairly sizable amount of shares in the fourth quarter as a result of that. I think it's a good option today and would -- at a higher price frankly as well. So certainly, we've done a lot of buyback and I would expect over time we would continue to do a lot of buyback. As I said in my opening comments, as we start the year coming off just buying back 2.3 million shares, almost 1 million in the fourth quarter. I would expect our buyback to start out the year slow as we see how the year develops. If we get to anything that we're looking at it from an M&A perspective, we certainly balance both the short-term and -- as well as the long-term accretion and return, and where our stock has been, it puts a pretty high bar out there as we've talked about in past for M&A. Then on the pipeline, we still are active in working our pipeline. Certainly, our focus so, I would tell you, is on making the three acquisitions that we just did at the end of 2018 as successful as the three that we did in 2017. And they're off to a good start, but that is a greater focus of ours at the moment than adding another one.

We will now take our next question from Joe Ritchie of Goldman Sachs. Please go ahead, your line is open.

This is Ashay Gupta on for Joe. So, great color on like the organic growth cadence so far, but maybe just extending that to the margin question as well. So you've got 100 basis point margin expansion guide and I just want to understand how you're thinking about it in the first half versus second, could you get like better growth in the first half, but probably a higher tariff headwind, so maybe some color there would be helpful.

Yes. It's put that in the -- by segment. So Mobile to be 12% for the full year, we need to be above 12% for the first half. So we're looking for a sequential step up from where we finished the fourth quarter to start the first quarter and probably a little bit in the second quarter, but I'd just say, higher in the first half than the second half on Mobile. Process would not look for meaningful variability through the year, but certainly from a corporate standpoint because of Mobile little bit higher in the first half.

And I guess just as a follow-up, maybe you could comment on what you're seeing from an inventory level standpoint, both at your like OEM customers as well as distributors, and if you've noticed like a destock that happened in 4Q.

I would say when we look between what happened at the end of the year and to start the year in total, our customers were playing inventory a little tight and we see that fairly regularly in the quarters and a little bit more at the end of the year. From a broader perspective versus what happened on December 20th versus January 10th, I would say, inventory in the channels we believe is in a very appropriate place for modest growth. So don't see a big boom from the restocking or a big threat of a reduction.

We will now take our next question from Steve Barger of KeyBanc Capital Markets. Please go ahead, your line is open.

I wanted to go back to the $7 million impact that you had mentioned on the EBIT bridge, it sounds like you -- that was a headwind from lower absorption due to high inventory build last year. Any color on how you expect those headwinds to kind of flow into 2019 and what you can do to mitigate those costs?

Yes. So I think it was -- we just wanted to point out there, Ken, that obviously we talked about managing inventory through the year. We've built through the fourth quarter last year and actually took a little bit out -- not a lot, but it take a little bit of inventory out in the fourth quarter and that produced the bulk of that difference that you see as well as kind of normal inflation on the manufacturing line. So as I said, going into '19, we do expect some inventory build commensurate with the organic growth that we expect. So that will be a little less of a build certainly in '19 than we had in '18. So we've -- I got to overcome that, but as Rich mentioned, with some of the cost reduction initiatives that that were put in place in our plants around the world, we would expect to offset a fair amount of that impact, if you will, and then still deliver the 100 basis points margin expansion with the volume, some of the mix benefit as well as positive pricing.

I would say too, my comments from seasonality, that '17 would have been a little bit of the outlier where we would typically not build inventory in the fourth quarter of a year, but in the case of '17 with what we saw happening in the market, we thought it was in our best interest to do so. I think '18 is more indicative of what we would see '19, which would again with assuming our outlook calls and that we're slightly down in the second half. We would typically be flat to down a little bit in inventory in the fourth quarter and I think that would be more indicative of what we're thinking in 2019.

Got it. And then from a capital plan, could you just remind us what you're doing -- at least a little bit more color in terms of the efficiency initiatives. Is there more room for automation or other rapid payback programs and just how you're thinking about capacity and labor in general? Are you running overtime at times or can you get everything out with normal production hours?

I would say we are running efficiently today. We are, I think, expecting within Mobile, as I said earlier, to leverage some of the things that we did through the course of last year and run more efficiently in the plants that we have, and then also generally our increased volume is coming out of improved cost position plants, such as our two newer Eastern European operations. In regards to your question around capital, I would say, we definitely have opportunities. We've been doing that fairly systematically and I think all of that is accounted for in our long-term outlook of 3% -- 3.5% to 4% CapEx as a percent of sales. I don't see us jumping that up dramatically to take advantage of automation opportunities, but certainly as you will get a chance to go through our factories and see where we put capital in the last 10 years versus where we're running assets that are older than that, you would see improved technology of things like vision, inspection, technology, more robot, material handling, fewer operators in general and, yes, it definitely presents opportunities for us, but we have found in general a systematic approach to that has been the best way and we feel very confident that what we are doing today in our footprint, we can compete and win in the marketplace and make good returns.

And then just one last quick one from me, you mentioned the M&A pipeline remaining pretty active. Just curious, any change to the private market multiples given some of the public market concerns that we're hearing out there?

Certainly, as recently as what we did in the third, fourth quarter of last year, I would say, no. And I would say, can't really comment on that because we haven't seen much happened here in the last two or three months that we've been involved in. So I think that we would have to see how that plays out through the course of the year.

And now take our next question from Justin Bergner from Gabelli & Company. Please go ahead, your line is open.

Most of my questions have been answered, but just to start, would you be able to give a little bit more color on the individual acquisitions, particularly the larger ones, how they're performing maybe breakout sales in the fourth quarter?

Actually, we break them out. We've got the sales for the three of them. Let me touch on each of them. So, ABC Bearings, really a play for didn't bring a lot of new product, brought certainly some new customers and some increased exposure to India. But really, it was a fast way for us to accelerate our manufacturing and product presence and market position in India; brought to us capacity that was not utilized and it's a fast-heavy integration into our bearing business with a focus on growth and cost opportunities and we will see benefits from that as soon as the second quarter of this year, as we get it a couple of quarters behind us. So that's ABC Bearings. On the Cone Drive standpoint, mix -- they serve multiple markets there. I would say, first, we were very interested in getting a position in the solar business. The first four months of the solar revenue was way above anything they've done historically and well above what we had modeled when we did the deal and the outlook for 2019 is also above. They have a small robotics position that they've invested heavily in prior to our acquisition, that has quite a bit of upside in revenue, got a modest plan there but what we've seen of that since the acquisition from the inside, I think makes us even more excited about the potential of that than what we saw from the outside. The core of the Cone Drive business in the U.S. is double-enveloping worm gears, right in the heart of Timken markets of oil and gas, industrial distribution, et cetera, done an enormous amount of sales cross training there, really excited by the product line. We know that product line for so many years. Cone has…

Great, thanks for that detail. So it seems like your view on '19 is at least as positive for Cone and Rollon today as when you acquire those assets.

Yes, more so. I would say, Justin. The run rate revenue on them is growing and is above what we would have shown here when we bought the companies, and as Rich -- I think the most positive thing ism they're growing, they're innovative, EBITDA margin significantly accretive to Timken and then even accretive at the EBIT margin level and that's just -- and they're generating cash and it's just positive all the way around at this point.

And then just two quick questions, if I may, the add back between GAAP and -- GAAP EPS and adjusted EPS, it all relates to sort of restructuring type cost that doesn't include any non-pension, right?

it's actually -- in the current quarter, the two biggest things, Justin, would have been the pension mark-to-market charge in the quarter of about $10 million pre-tax and then we also had the acquisition-related charges. So when we buy -- when we made the acquisitions, we've got right inventory up and things like that, and when that turns, it's unusual in nature, so we typically adjust for it to take it out of the adjusted earnings.

Okay, as for first quarter 2019?

2019 will be a little bit of carryover on the acquisition-related stuff and then the rest would be normal restructuring.

And then lastly, the acceleration in wind in 2019, is that market or is that more sort of project wins and your ability to outgrow the market?

Both, good market in China and we are more than holding our own and we've been I think steadily increasing penetration and so sum of both.

We will take our final question from George Godfrey of C.L. King. Please go ahead, your line is open.

I just had one question. You're targeting free cash flow to be 100% of net income, not -- probably not this year but probably goes to 2020 and the outlook for this year, very positive with organic growth, margins are going to expand. And I heard your comments about how you're thinking about the capital allocation and the share buyback, but my question is, given where the stock is and free cash flow $300 million this year and market caps about $3.2 billion, I don't understand why you wouldn't get more aggressive on buying back the stock at this price if revenue margins outlook, free cash flow so strong, it just seems like a really opportunistic time to do so to be much more aggressive than opportunistic and budget? Thanks.

Thanks, George, for asking. Yes, so I think it's a great question. I think as we look at it, we allocated a lot of capital last year to the three acquisitions we talked about. And so when we think about our capital allocation framework, it hasn't really changed. We'll start first with, let's invest in the business, maintain a strong balance sheet, I mean, that's obviously very important to us to keep the balance sheet strong. And then as we look at -- we have the ability to -- we're going to continue to pay our dividend obviously and then look to do M&A or buyback as we see opportunities. And I think given what we bought back last year, we'll continue to look at it as we move through the year. But given what we bought last year and what we bought in the fourth quarter, I think as Rich said, our approach at least to start the year is going to be, let's continue to allocate cash to debt reduction, continue to look at bolt-on M&A and then continue to evaluate buyback as we move through the year. So we've been, and I think probably the word that would describe our capital allocation approach for the last five years has been balanced. And we've been balanced across all those tenants, if you will. I think that will continue. And on the heels of buying back 2.3 million shares, don't forget we've got CapEx this year coming up, we got to pay the dividend and then what's left over, we'll evaluate and put it to its highest and best use, if you will.

There are no further questions at this time.

Thanks, John. And thank you everyone for joining us today. If you have further questions after today's call, please contact me. Again, my name is Jason Hershiser, and my number is 234-262-7101. Thank you, and this concludes our call.