Key Takeaways RBC Bearings' Aerospace/Defense revenues surged 38.8% year over year in fiscal Q2 on strong market demand.RBC's backlog reached $1.06B, supported by solid execution and rising commercial aerospace orders.Defense revenues jumped 73.3%, driven by higher demand for bearings in marine and missile applications.RBC Bearings Incorporated (RBC) is experiencing persistent strength in aerospace and defense markets. Solid momentum in the commercial aerospace market, driven by strong growth in orders from ...

Company Overview - RBC Bearings Incorporated (NYSE:RBC) specializes in manufacturing precision bearings and components for industrial, aerospace, and defense applications, competing with industry giants like Timken and SKF [1] - The current market capitalization of RBC is approximately $14.28 billion, with a trading volume of 139,036 shares [2] Stock Performance - The current trading price of RBC is $451.73, reflecting a slight increase of 0.56 or 0.12%, with fluctuations between $444.39 and $460.16 on the day [2] - Over the past year, RBC has experienced a high of $465.80 and a low of $290.56, indicating significant volatility [2] Analyst Insights - Deutsche Bank has set a price target of $527 for RBC, suggesting a potential upside of 17.14% from the current trading price [1][5] Insider Trading Activity - Representative Gilbert Ray Cisneros, Jr. recently sold shares of RBC, with the transaction valued between $1,001 and $15,000, indicating a potential shift in investment strategy [3] - In addition to RBC, Representative Cisneros has engaged in other trades, including selling shares of Spotify Technology, Alphabet, and Stifel Financial, while purchasing shares in First Watch Restaurant Group, TKO Group, and Logan Energy, suggesting a strategic reallocation of his investment portfolio [4]

Group 1: Aerospace Sector - The aerospace sector's valuation has risen above historical levels, with a current NTM EV/EBITDA trading at approximately 18 times, up from about 16 times at the beginning of the year, outperforming the S&P 500 index by a median premium of about 15% [2][3] - Strong air traffic has been a key driver for this valuation increase, highlighted by record passenger screenings by the TSA [2] - Despite some initial concerns regarding supply chain challenges and tariffs, the sector's valuation quickly rebounded as negative impacts did not materialize [2] Group 2: Defense Sector - The valuation multiples for major U.S. defense contractors have improved, with the current NTM P/E median at about 20 times, up from approximately 17 times at the beginning of 2025 [4] - The expansion in valuation multiples is partly due to alleviated concerns over potential defense spending cuts, as these cuts have not occurred [4] - Key government funding initiatives, including approximately $24 billion for the Iron Dome and $150 billion for overall defense, have provided support for the sector [4] Group 3: Space Sector - The space sector has experienced significant volatility, with the NTM EV/Sales median peaking above 10 times in September before dropping to about 4 times in November, and currently recovering to around 6 times [6] - Major IPOs in the sector, such as Voyager and Firefly, initially saw rapid market capitalization growth but have since declined below their issue prices due to investor caution [6] - Companies like Rocket Lab and Planet Labs are highlighted as strong performers, trading at approximately 35 times and 11 times NTM EV/EBITDA, respectively, supported by operational success and a new business model focus [6][7]

Core Insights - RBC Bearings delivered Q3 results that exceeded Wall Street expectations, driven by strong revenue growth and non-GAAP earnings [1] - The Aerospace and Defense segment showed significant order momentum, contributing to the company's robust performance [1] - CEO Mike Hartnett noted that strong customer demand, particularly from submarine and aircraft engine programs, led to record-high backlogs [1] Financial Performance - Revenue reached $455.3 million, surpassing analyst estimates of $450.3 million, reflecting a year-on-year growth of 14.4% [6] - Adjusted EPS was reported at $2.88, beating analyst expectations of $2.73 by 5.3% [6] - Adjusted EBITDA stood at $137.9 million, with a margin of 30.3%, also exceeding estimates [6] - Operating margin remained stable at 21.5%, consistent with the same quarter last year [6] - Market capitalization is currently at $13.6 billion [6] Backlog and Growth Drivers - Approximately $500 million of the backlog is attributed to VACCO, with the remainder driven by strong growth in Aerospace and Defense [6] - The company is experiencing steady underlying demand in its industrial distribution segment, despite a sequential decline [6] Capacity Expansion and Future Outlook - CEO Mike Hartnett emphasized a business-by-business approach for planned capacity expansion, particularly in marine and aerospace programs [6] - CFO Robert Sullivan indicated that margin benefits from renegotiated contracts are expected to be realized immediately after shipments begin under new terms [6] Analyst Insights - Analysts raised questions regarding the backlog increase, the impact of critical minerals, and the use of artificial intelligence in operations [4][5] - Management clarified that critical minerals have not posed issues, and AI is currently utilized for engineering support without affecting staffing levels [6]

Financial Performance - Net sales for the three-month period ended September 27, 2025, increased by 14.4% to $455.3 million compared to $397.9 million in the same period last fiscal year [129]. - For the six-month period ended September 27, 2025, total net sales increased by 10.8% to $891.3 million compared to $804.2 million in the same period last fiscal year [131]. - The company expects net sales for the third quarter of fiscal 2026 to be approximately $454.0 to $462.0 million, representing a growth rate of 15.1% to 17.1% compared to the prior year [126]. Segment Performance - The Aerospace/Defense segment saw a significant increase of 38.8% in net sales, including approximately $24.7 million from VACCO, while the Industrial segment increased by 0.7% [124]. - Total net sales in the Aerospace/Defense segment for Q2 fiscal 2026 were $198.8 million, a 38.8% increase from $143.2 million in Q2 fiscal 2025 [151]. - The commercial aerospace markets saw a 21.6% increase in sales, with OEM sales reaching $96.5 million in Q2 fiscal 2026 [151]. - Defense markets experienced a 73.3% increase in sales, with OEM sales of $62.5 million in Q2 fiscal 2026 [151]. Income and Profitability - Net income attributable to common stockholders for the second quarter of fiscal 2026 was $60.0 million, a 23.7% increase from $48.5 million in the same period last fiscal year [130]. - Gross margin for Q2 fiscal 2026 was 44.1% of net sales, up from 43.7% in Q2 fiscal 2025, with a gross margin increase of $26.8 million [134]. - Gross margin for the first six months of fiscal 2026 was impacted by $3.3 million in restructuring costs related to inventory rationalization efforts [159]. Expenses and Costs - SG&A expenses for Q2 fiscal 2026 were $77.4 million, or 17.0% of net sales, compared to $69.5 million, or 17.5% of net sales in Q2 fiscal 2025, reflecting an increase of $7.9 million [136]. - Other operating expenses for Q2 fiscal 2026 totaled $25.4 million, a 39.6% increase from $18.2 million in Q2 fiscal 2025, including $20.7 million of amortization of intangible assets [139]. - Interest expense, net, decreased to $13.4 million in Q2 fiscal 2026 from $15.6 million in Q2 fiscal 2025, a reduction of 14.1% due to debt reduction efforts [141]. Cash Flow and Financing - The Company generated $208.4 million from operating activities in the first six months of fiscal 2026, an increase of $68.0 million compared to $140.4 million in the same period of fiscal 2025 [188]. - Cash used in investing activities increased to $307.4 million in the first six months of fiscal 2026, primarily due to a $275.0 million acquisition of VACCO [190]. - Cash provided by financing activities was $154.0 million in the first six months of fiscal 2026, compared to cash used of $89.0 million in the same period of fiscal 2025, driven by $200.0 million in proceeds from the Revolving Credit Facility [191]. Debt and Leverage - As of September 27, 2025, the company had cash of $91.2 million, with $368.0 million outstanding under the Term Loan and $200.0 million used from the Revolving Credit Facility for the VACCO acquisition [166][174]. - The company has a maximum Total Net Leverage Ratio of 4.50:1.00 under its Credit Agreement, which may be increased by 0.50:1.00 for 12 months after a material acquisition [171]. - Approximately 57% of the Company's debt bears interest at a fixed rate as of September 27, 2025, after accounting for the interest rate swap agreement [198]. Acquisitions and Growth Strategy - The company has completed 30 acquisitions since 1992, including VACCO, which broadened its end markets and customer base [123]. - The company plans to increase aftermarket sales of replacement parts to enhance revenue continuity and profitability [128]. - The company anticipates continued growth in its commercial aerospace business, which experienced a 21.6% increase in net sales for the three-month period ended September 27, 2025 [125]. Currency and Interest Rate Management - The Company entered into a Cross Currency Swap on August 12, 2024, with a notional amount of CHF 69.4 million ($80.0 million USD) to hedge against foreign exchange rate fluctuations [186]. - The Interest Rate Swap, effective December 30, 2022, has a notional amount of $600.0 million with a fixed rate of 4.455% and a maturity of three years [183]. - Approximately 11% of the Company's net sales were impacted by foreign currency fluctuations for both the three-month and six-month periods ended September 27, 2025 [199].

Core Insights - RBC Bearings Incorporated is a significant player in the industrial, defense, and aerospace sectors, focusing on high-quality bearings and components [1] - The company reported earnings per share of $2.88, surpassing estimates of $2.73, indicating strong profitability and effective cost management [2][6] - RBC's revenue reached approximately $455.3 million, exceeding the forecasted $450.3 million, showcasing robust sales performance [2][6] Financial Performance - Net sales for the second quarter of fiscal 2026 were $455.3 million, reflecting a 14.4% increase from the previous year [3] - The Aerospace/Defense segment experienced a remarkable 38.8% growth, while the Industrial segment saw a modest 0.7% increase [3] - The company's gross margin for the quarter was 44.1%, indicating strong financial health [4] Valuation Metrics - RBC's price-to-earnings (P/E) ratio is approximately 52.73, reflecting investor confidence in future earnings potential [4] - The price-to-sales ratio is about 8.06, indicating the market's valuation of RBC's revenue [4] - The enterprise value to sales ratio is around 8.57, and the enterprise value to operating cash flow ratio is approximately 45.18, suggesting the company's ability to cover its enterprise value with operating cash flow [5] Financial Stability - The debt-to-equity ratio of 0.31 indicates a balanced approach to financing [5] - A current ratio of 3.33 demonstrates strong liquidity, suggesting the company is well-positioned to meet its short-term obligations [5]

Financial Data and Key Metrics Changes - Second quarter net sales were $455.3 million, a 14.4% increase year-over-year, driven by strong performance in aerospace and defense segments [3][4] - Consolidated gross margin for the quarter was 44.1%, up from 43.7% in the same period last year, with adjusted EPS at $2.88 compared to $2.29 last year [3][9] - Free cash flow for the period was $71.7 million, with a conversion rate of 119.5%, compared to $26.8 million and 49.4% last year [11] Business Line Data and Key Metrics Changes - Aerospace and defense (A&D) sales increased by 38.8% year-over-year, with commercial aerospace up 21.6% and defense up 73.3% [4][9] - Industrial business was up 0.7%, with industrial distribution increasing by 3.3% while the OEM sector decreased by 4.7% [6][9] Market Data and Key Metrics Changes - Backlog increased to $1.6 billion from $940 million in March and $860 million last year, with expectations to approach $2 billion by year-end [4][19] - Demand across the A&D sector remains strong, with over 90% of the backlog attributed to A&D [18] Company Strategy and Development Direction - The company is focused on expanding manufacturing capacities in marine and aircraft plants to meet increasing demand [5][6] - The strategy includes integrating Vacco and driving operational efficiencies while maintaining a focus on organic growth [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for A&D products, with production rates for submarines and commercial aircraft at unprecedented levels [6][21] - The outlook for margin expansion is positive, with expectations for continued growth in both A&D and industrial sectors [21][54] Other Important Information - The company finalized an amendment to its credit facility, extending the revolver until 2030, and plans to pay off the term loan by November 2026 [11] - The company is leveraging AI in engineering and manufacturing processes to enhance productivity and problem-solving capabilities [60] Q&A Session Summary Question: Can you provide details on backlog growth and its drivers? - Approximately $500 million of the backlog increase is due to the Vacco acquisition, with the remainder up more than 20% year-over-year, primarily in A&D [18][19] Question: What is the current capacity utilization for aerospace plants? - Capacity utilization for the airframe business is at 100%, with plans to add capacity and shifts to meet demand [21] Question: What was the growth in Aero OEM and distribution? - Commercial OEM grew 27.9%, while commercial distribution was flat, down 2% [24][25] Question: How is the company addressing potential margin expansion with Vacco? - Vacco is currently running in the mid-20% margins, with expectations for operational synergies to improve margins over time [26][28] Question: Is there any impact from critical minerals or rare earths? - There has been no impact from critical minerals, but there was a previous issue with the availability of exotic stainless steels, which has since improved [56] Question: How is AI being utilized in the company? - AI is being used to enhance problem-solving and engineering processes, providing quick and effective solutions [60][62]

Core Insights - RBC Bearings reported quarterly earnings of $2.88 per share, exceeding the Zacks Consensus Estimate of $2.74 per share, and showing an increase from $2.29 per share a year ago, resulting in an earnings surprise of +5.11% [1][2] - The company achieved revenues of $455.3 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.88% and up from $397.9 million year-over-year [2] - RBC Bearings has consistently outperformed consensus EPS estimates over the last four quarters, achieving this four times [2] Earnings Outlook - The future performance of RBC Bearings' stock will largely depend on management's commentary during the earnings call and the sustainability of the stock's price movement based on recent earnings and future expectations [3][4] - The current consensus EPS estimate for the upcoming quarter is $2.77, with projected revenues of $460.47 million, and for the current fiscal year, the EPS estimate is $11.55 on revenues of $1.84 billion [7] Industry Context - The Manufacturing - General Industrial industry, to which RBC Bearings belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges ahead [8] - The correlation between near-term stock movements and earnings estimate revisions suggests that tracking these revisions can provide insights into future stock performance [5][6]

Financial Performance - Net sales for Q2 fiscal 2026 were $455.3 million, a 14.4% increase from $397.9 million in Q2 fiscal 2025, with Aerospace/Defense up 38.8% and Industrial up 0.7%[4] - Net income attributable to common stockholders for Q2 fiscal 2026 was $60.0 million, a 23.7% increase from $48.5 million in Q2 fiscal 2025[4] - Diluted EPS for Q2 fiscal 2026 was $1.90, up 15.2% from $1.65 in Q2 fiscal 2025; adjusted diluted EPS was $2.88 compared to $2.29 last year[4] - Net sales for the three months ended September 27, 2025, were $455.3 million, a 14.5% increase from $397.9 million for the same period in 2024[28] - Net income attributable to common stockholders for the three months ended September 27, 2025, was $60.0 million, compared to $48.5 million for the same period in 2024, reflecting a 23.5% increase[28] - Adjusted net income attributable to common stockholders for the three months ended September 27, 2025, was $91.2 million, compared to $67.0 million for the same period in 2024, marking a 36.0% increase[30] - Net income for the six months ended September 27, 2025, was $128.5 million, compared to $115.6 million for the same period in 2024, reflecting an increase of 11.1%[35] Margins and Expenses - Gross margin for Q2 fiscal 2026 was 44.1%, compared to 43.7% in the same period last year; adjusted gross margin was 44.9%[4] - SG&A as a percentage of net sales for Q2 fiscal 2026 was 17.0%, down from 17.5% in the same period last year[8] - Adjusted gross margin for Q3 fiscal 2026 is anticipated to be in the range of 44.0% to 44.25%[16] - SG&A expenses are anticipated to be between 17.0% and 17.25% of net sales for FY2026 Q3[35] Cash Flow and Assets - Free cash flow for Q2 fiscal 2026 was $71.7 million, significantly higher than $26.8 million in Q2 fiscal 2025, with a conversion rate of 119.5%[4] - Net cash provided by operating activities was $208.4 million for the six months ended September 27, 2025, compared to $140.4 million in the prior year, marking a rise of 48.5%[35] - Cash at the end of the period was $91.2 million, an increase from $36.8 million at the beginning of the period, representing a growth of 147.3%[35] - Total assets increased to $5,110.8 million as of September 27, 2025, up from $4,685.2 million on March 29, 2025, representing a growth of 9.1%[33] Backlog and Future Expectations - Backlog as of September 27, 2025, was $1.6 billion, up from $1.0 billion as of June 28, 2025, and $0.9 billion as of September 28, 2024[15] - The company expects Q3 fiscal 2026 net sales to be between $454.0 million and $462.0 million, representing a growth rate of 15.1% to 17.1%[16] - The company anticipates continued growth in the aerospace and defense markets, driven by increased demand and operational efficiencies[25] Capital Expenditures and Liabilities - Capital expenditures for the six months ended September 27, 2025, were $32.4 million, up from $25.2 million in the same period of 2024, indicating a growth of 28.6%[35] - The company reported a total current liabilities of $375.1 million as of September 27, 2025, an increase from $315.3 million on March 29, 2025, which is a 19.0% increase[33] Interest and Tax - Interest expense for Q2 fiscal 2026 decreased to $13.4 million from $15.6 million in the same period last year due to debt reduction efforts[11] - The overall tax rate applied to adjusted pre-tax earnings was 22.0% for the three-month period ended September 27, 2025[30] Segment Performance - The aerospace and defense segment reported net external sales of $198.8 million for the three months ended September 27, 2025, a 38.9% increase from $143.2 million in the same period last year[29] - The industrial segment generated net external sales of $256.5 million for the three months ended September 27, 2025, slightly up from $254.7 million in the prior year[29]

Core Viewpoint - Growth investors seek stocks with above-average financial growth, but identifying such stocks can be challenging due to their inherent risks and volatility [1] Group 1: Company Overview - RBC Bearings is highlighted as a recommended stock with a favorable Growth Score and a top Zacks Rank [2] - The company has a historical EPS growth rate of 25.7%, with projected EPS growth of 15.4% this year, significantly outperforming the industry average of 6.6% [5] Group 2: Financial Metrics - Current year cash flow growth for RBC Bearings stands at 8.3%, exceeding the industry average of 2.1% [6] - The annualized cash flow growth rate over the past 3-5 years is 21.3%, compared to the industry average of 9% [7] Group 3: Earnings Estimates - The Zacks Consensus Estimate for RBC Bearings' current year earnings has increased by 0.1% over the past month, indicating a positive trend in earnings estimate revisions [9] - The combination of upward earnings estimate revisions and a Growth Score of B positions RBC Bearings favorably for potential outperformance [11]