RBC Bearings(RBC) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2019 were $171.5 million, up from $166.9 million in the same period last year, representing a 6.5% organic growth when excluding sales from discontinued businesses [7] - Gross margin increased to $68.1 million or 39.7% of net sales, compared to $64.8 million or 38.8% last year, a 5.2% increase [7] - Adjusted operating income rose to $36.6 million, up from $34.4 million last year, representing 21.4% of sales [7] - Adjusted EBITDA was $47.9 million, accounting for 27.9% of revenues [8] - Net income for Q3 2019 was $16.2 million, down from $23.8 million last year, while adjusted net income was $28.5 million compared to $25.7 million last year [18][19] - Diluted earnings per share were $0.65, down from $0.97 last year, while adjusted diluted EPS was $1.15 compared to $1.05 last year [19][20] Business Line Data and Key Metrics Changes - Industrial products accounted for 38.4% of net sales, while aerospace products represented 61.6% [7] - Industrial OEM sales increased by 9.9%, while distribution and aftermarket remained flat compared to last year's Q3 [8] - Aerospace and defense sales grew by 6.4% on an organic basis, with Aero OEM alone up 9.1% due to increased build rates [10][11] Market Data and Key Metrics Changes - The industrial sector showed a 6.7% year-over-year organic sales growth rate, with a 10.7% increase year-to-date [8] - Mining, oil and gas, machine tool, and general industrial equipment continued to show strength during the period [8] - Year-over-year comparisons are expected to become tougher as historical growth rates normalize to about 2 times GDP [9] Company Strategy and Development Direction - The company is expanding its manufacturing capacity by adding 150,000 square feet across four plant sites to support growth in aircraft products [12] - Key aerospace platforms for growth include the 737 MAX, A320, 787, 777x, and the Joint Strike Fighter [13] - The company aims to internalize processes that are currently outsourced, which is expected to reduce costs and improve efficiency [31] Management's Comments on Operating Environment and Future Outlook - Management noted that supply chain constraints have impacted operations, but they are optimistic about overcoming these challenges [10][51] - The company expects sales for Q4 2019 to be between $178 million and $180 million, compared to $175 million last year [13] - Management anticipates that the aerospace and defense sectors will continue to grow, despite some short-term challenges [60] Other Important Information - SG&A expenses for Q3 2019 were $29.1 million, up from $28.2 million last year, primarily due to higher personnel costs and additional incentive stock compensation [16] - The company generated $21.1 million in cash from operating activities in Q3 2019, down from $28.5 million last year [21] - Total debt as of December 29, 2018, was $114.6 million, with cash on hand of $81.7 million [22] Q&A Session Summary Question: Can you remind us of the content for airframe for a narrowbody and a wide body? - Management indicated that the new manufacturing space is to support growth and that they can identify product demand by plant [25][26] Question: Are there any areas where you're focused on new market opportunities within industrial? - Management mentioned developing products for Caterpillar that do not require lubrication, which is an exciting opportunity [28] Question: What is the organic growth rate embedded in the Q4 guidance? - The organic growth rate is expected to be about 2% to 3% [33] Question: How much of a slack is there in the supply chain? - Management stated that they are delivering on time for 98% of customers, with some struggles for the remaining 2% [47] Question: What are the expected impacts of the new manufacturing capacity on margins? - Management expects that the new capacity will not create a headwind and should be covered by additional revenues [52] Question: Are there any tariff issues negatively impacting revenue? - Management confirmed that they are managing tariff issues and have material pass-through clauses in contracts to mitigate impacts [64] Question: How does the supply constraint compare between airframe and jet engine verticals? - Constraints are mainly felt in the airframe sector, while the engine side is performing well [66]