RBC Bearings INC Q3 FY2025 earnings call

• In Aerospace and Defense, mitigated impact from Boeing and Textron strikes, total segment had 10.7% quarter-over-quarter growth and 15.5% year-to-date growth; defense growth limited by capacity but demand is extraordinary, adding capacity through hiring, training, and plant building.
• In industrial, OEM business down due to oil and gas, but aftermarket in aggregate, cement, mining, etc. saw double-digit growth; excluding oil and gas, industrial sector expanded at 4.4% rate.
• Gross margin for the quarter was $175 million or 44.3% of sales, a 205-basis point increase year over year; adjusted net income was $73 million, up 34.7% year-over-year; free cash flow was $74 million, up from last year; repaid $100 million of debt, trailing net leverage at 1.8 turns; preferred dividend cancellation recaptured $23 million in annual expense.

Third quarter net sales were $394 million, a 5.5% increase from last year. The Aerospace and Defense segment saw total sales up 10.7% year-over-year, with commercial aerospace up 14.6% and defense up 3%. The industrial segment grew 2.7% year-over-year, with distribution and aftermarket up 8% and OEM down 8.2%. Total Aerospace and Defense sales contributed significantly to the growth, driving the overall positive performance.

• Fourth quarter revenues guided to $434 million to $444 million, representing year-over-year growth of 4.9% to 7.3%.
• Gross margins projected to be 44% to 44.5%, an increase of roughly 115 basis points year-over-year at the midpoint.
• SG&A as a percentage of sales expected to be between 16% and 16.5% range during the fourth quarter.

• Trade tariffs could impact the business outlook, including potential effects from tariffs on Mexico and China.
• Geopolitical factors and supply chain challenges in aerospace could affect growth.

Q: Peter Skibitski asked about oil and gas in industrial and increased quoting activity.

A: On oil and gas, it's an inventory correction as customers over ordered; increased quoting activity in industrial includes various markets but oil and gas is part of the correction.

Q: Steve Barger asked about aerospace growth.

A: Commercial Aerospace should have strong growth, with 15% current growth and potential to accelerate given 12-year backlog.

Q: Michael Ciarmoli asked about industrial growth, tariffs, and M&A.

A: Industrial ex oil and gas had 4% growth, tariffs have limited impact on RBC as it's mostly a made in USA company; M&A focus is on internal organic growth first, then reviewing candidates for fit with markets and management team.

Q: Ross Sparenblek asked about gross margins by segment and Dodge synergies.

A: Aerospace margins over 40.5%, industrial margins 46.5%; Dodge synergies expected to continue for the next ten years.

Q: Jordan Lyonnais asked about space growth in Defense.

A: Space had solid growth, around 40% year-over-year, rest of defense was balanced with strong missiles and guided munitions, fixed wing military.