RBC Bearings Incorporated (RBC) Earnings & Analysis

Latest quarter

RBC Bearings reported fiscal second-quarter revenue of $524.6 million, above the $516.2 million consensus. Adjusted earnings per share were $3.74, also above the $3.55 consensus. Revenue rose 15.2% from $455.3 million a year earlier, while reported diluted earnings per share increased to $2.96 from $1.90.

The company said sales grew in both its Industrial and Aerospace & Defense segments. Its filing attributed the overall increase to higher volumes through its plants, favorable contract renewals and inflation-related adjustments. Commercial aerospace sales rose 17.4%, supported by orders from equipment manufacturers and aftermarket expansion.

RBC reported gross margin of 45.6%, up from 44.1%, and operating margin of 25.1%, up from 21.5%. The filing said higher plant volumes and contract renewals contributed to the gross-margin increase, while tariff refunds also helped. Free cash flow rose to $85.7 million from $71.7 million. CFO Robert Sullivan said the company repaid $96.0 million of debt during the quarter, including the remaining term-loan balance.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Michael Hartnett said commercial aerospace and defense sales both grew, although production capacity constrained them. He said those constraints were easing as new equipment came online, and that customers across aerospace, defense and space were requesting accelerated deliveries and longer-term commitments. Hartnett also said space revenue grew 78.0% in the first half of the fiscal year.

For Industrial, Hartnett said sales grew across markets including aggregates, metals, food and beverage, semiconductors and grain. He reported growth in both equipment-manufacturer and distribution revenue. CFO Robert Sullivan attributed the quarter’s gross margin to higher volumes through production facilities, contract renewals and favorable product mix.

In response to questions about the second half, Hartnett said RBC had added machinery, trained employees and prepared its supply chain to increase capacity. He said marine production was behind plan: “we have had some difficulties in the supply chain.” Those difficulties led RBC to bring some complex processes in-house, he said, and the company expected to catch up particularly in the fiscal fourth quarter.

Hartnett said holidays and customer certification releases complicate third-quarter shipments. He said some shipments might move into the following quarter, but that it was hard to tell how much. Asked about the backlog increase, Sullivan said it was broad and mostly related to aerospace, including marine and other aerospace contracts.

On competition for industrial replacement parts, Hartnett said product availability helps RBC serve customers that need parts quickly after machinery fails. COO Daniel Bergeron said the company continues to assess opportunities to bring supply-chain work in-house, though that is not the main focus of its acquisition strategy. He described RBC’s priorities as: “Pay down the debt, invest in organic growth, and continue to look for M&A.”

Guidance

Sullivan said RBC had raised its full-year gross-margin expansion outlook in the previous quarter and still considered the revised goal achievable. He said the company was monitoring cost pressures and working to stay ahead of them.