RBC Bearings(US:RBC)2020-02-04 20:33Financial Data and Key Metrics Changes - Net sales for Q3 fiscal 2020 were $177 million, a 3.2% increase from $171.5 million in the same period last year, with organic growth of 3.6% [5] - Adjusted gross margin was $70.9 million or 40.1% of net sales, compared to $68.1 million or 39.7% last year, reflecting a 4.1% increase [6] - Net income for Q3 fiscal 2020 was $30.5 million, up from $16.2 million in the same period last year, with diluted earnings per share at $1.22 compared to $0.65 last year [18][19] Business Line Data and Key Metrics Changes - Sales of industrial products represented 34% of net sales, while aerospace products accounted for 66% [5] - Sales of industrial products decreased by 7.5% year-over-year, primarily due to delays in marine products [8] - Aerospace sales increased, with OEM and defense up 14.7% on an organic basis, driven by markets such as airframe, aero engine, space, and missiles [10] Market Data and Key Metrics Changes - Sales to the industrial aftermarket grew by 13.2%, with a 0.9% organic sales component [9] - Weak markets included mining and oil and gas, while strong markets were in general distribution, semiconductor capital goods, ground defense, and international train [9] Company Strategy and Development Direction - The company is focusing on accommodating changes in production schedules due to Boeing's MAX rescheduling, which has impacted logistics and suppliers [7] - The trailing content per ship is expected to increase from approximately $120,000 to $160,000 over the next year as new contracts mature [11] - The company anticipates a sales range of $187 million to $191 million for Q4, with organic growth projected at 1.9% to 3.5% [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges due to Boeing's schedule changes but expressed confidence in accommodating these changes [7] - The company expects a net impact of $12.5 million over the next 12 months due to the MAX delay, with some offset from increased demand for older 737s [31] - Management sees potential for aerospace volumes to improve in the second half of fiscal 2021, with some offsetting volumes from defense [35] Other Important Information - SG&A expenses for Q3 were $30.7 million, up from $29.1 million last year, primarily due to higher personnel costs [14] - The company generated $46.6 million in cash from operating activities in Q3, compared to $21.1 million last year [20] - Capital expenditures were $7.3 million in Q3, down from $11.5 million last year [21] Q&A Session Summary Question: Can you provide more details about the Boeing 737 pause? - The impact on fiscal 2021 sales is about $40 million, netting to $12.5 million after considering increased production rates for the 777-777X [28][31] Question: Should we think your headwinds on the MAX will be more first half weighted? - Yes, the headwinds are expected to be more pronounced in the first half of fiscal 2021, with potential recovery in the second half [34] Question: Can you quantify the benefit from bringing F-35 work out of Turkey? - The benefit is significant, particularly from non-F35 programs previously produced in Turkey [36] Question: Are you seeing any recovery in the industrial side based on PMI? - Industrial distribution was up 13%, but excluding Swiss Tool, growth was about 0.9% [38] Question: What do you expect the free cash flow impact to be next quarter? - The company expects to be close to the top of its inventory build program, leading to good cash flow generation from operations [49]