RBC Bearings (RBC) 11 Nov 222023 Q2 Earnings call transcript

Welcome to RBC Bearings Second Quarter Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Josh Carroll, Investor Relations.

begin. may You

Chairman, thank Operating fiscal and me joining for President Vice Financial J. us the Daniel Chief Executive Good Bergeron, and and A. second you Robert quarter Bearings Director, Hartnett, Michael Dr. XXXX today and With and earnings RBC Chief call Officer; Chief morning President are for President, Officer; conference Officer. on Vice call. Sullivan,

discussion be results statements forward-looking let call, of risks remind that impact made to me operating a and the today press factors. the company's greater Securities could RBC projected results of company's will materially the variety are Before future recent Reform beginning on today's the We to the those in you Private in condition. and release some also the you described Bearings' and implied are under may made detailed the These SEC detail Act factors financial of due from of with that or Litigation refer more XXXX. differ Actual filings for a website.

GAAP the non-GAAP Dr. reconciliation website. between on that, company's as now and is and the to addition, financial available the included information With will I part call In over of turn is release Hartnett.

Josh of $XXX.X million the year, XXX.X%. last sales you, for $XXX.X second the good introduction Thank the increase it were and welcome. to for through and versus Net Rob. Okay. of same here morning an turn I'll go everyone over and then million quarter period XXXX

XX.X% $XXX.X or of same was XX.X% million million, share. GAAP Gross the last $XX in EBITDA same was income sales with and compares of of period our net and was of million products operating for year. The was $X.XX sales. margin period year. million net to industrial compared respectively. or per XX%. XX.X% XXXX at compared million This second net sales Adjusted Adjusted XX.X% products sales last net of EPS quarter the sales the of $XXX.X EPS for year $XX.X for last Adjusted XX% quarter XX.X% aerospace million, our to XX.X% $XX.X $XX and sales of $X.XX. came net of represented

and we the and another cash We of debt of our entered Dodge good fiscal Sales the a organic year. XXX.X% sector period, term of the up last at for second X.X%, continued rate. industrial the paid loan growth for $XX.X balance on products industrial flow had XX.X% strength of million industrial $XX During the from free year. quarter products the with in outlook were down million. RBC's expanded

the was double-digit that aggregate, side of Weakness rate food oil general grain, gas, growth So, expansion and from the XX%. industrial markets from growth Europe of to average perform for on well. the reduced classic beverage, and distribution semiconductor, around Major and industrial machinery, mining, RBC somewhere coin. rate continue

drivers aerospace to levels aerospace Airbus prime here. Expansion XXXX, now second and were at defense. XX.X%. expanded quarter at Turning a of of Overall, were the XX.X%. Commercial net of production and rate up Boeing sales obvious the

with know business to parts The staff this sophisticated shipping within a have see capital variance. explains maintenance word on grades putting together We manufacturing disturbing most in multiyear requirements, a you quarter the in busy production in by defense products of As delay our remain at It's XX.X%. early in the normal A we sites a capacity of demand produce short aircraft to pandemic our our a and replacement the after lead historical Air and from quarter-to-quarter least future low rate the a contracted are expansion and result spares these are order readiness problems. on military of as needed support fleet delays the this important norms Boeing's of with all Times. back The order again government of that business, XX-week defense aircraft of Force deferred forms reported innings in very fall adding to to time. for continues materials platforms majors.

with So this national readiness for problem some priority. a will time. be defense us be should fleet Obviously,

we as So, recently weapon write to an in associated which inquiries have some other unusual used your congressmen. amount sophisticated converted of orders. munitions Recently, had rate have as products of with Ukraine for to well

and financial to to be performance. Regarding over million. quarter the are detail we now on for the third the million I'll And $XXX between sales call expecting $XXX Rob, turn more

quarter same period second for million, million the year. $XX.X compared was Thank to Mike. $XX.X you, last of fiscal XXXX the SG&A for

of a XX% the for sales year. the compared second SG&A percentage to XX.X% last period for quarter, As same net was

Looking same Other the million, forward, to million compared days SG&A $X.X year. production in with is $XX.X to the the XXXX as to closer expenses of a for sales. operating quarter period of sales be XX.X% fiscal expected second quarter percentage fewer of totaled third last XX% to for

second quarter expenses XXXX, million of $X the expense. of associated of and assets, of costs included of the For Dodge $XX.X other other million with fiscal acquisition intangible operating amortization $X.X million

$X.X for million million fiscal XXXX second quarter operating fiscal income consisted and related million expense second for adjusted other in quarter quarter $X.X quarter intangible $XX million and of fiscal million to second items. for $XX.X operating second same Operating the was XXXX, of income the second basis operating of adjusted last of XXXX, for of operating period amortization period been the On other primarily the of assets, fiscal $X.X XXXX. million million for $XX of have XXXX, the Interest expenses was of compared of compared million quarter XXXX. to million compared $XX.X acquisition million, same items fiscal restructuring year. income would of $XX.X the of For of for fiscal $X.X the of an income $XX costs, costs to

share available compared $XX.X For year. to the a was period $XX.X an of net quarter XXXX, income the second million for period On fiscal net of fiscal compared Net common to to per of Diluted stockholders available quarter common adjusted year. compared for compared second diluted share XXXX fiscal to basis, adjusted the earnings share, year. the XXXX same a an a the fiscal income of company per compared basis, for second last $X.XX second quarter earnings million was the million, per $X.X loss million to million year. income last of last last was for of loss the the million, $X.XX period to net period earnings income second XXXX, for million, period of reported for $X.X fiscal million loss per diluted $X.XX quarter to adjusted to year. fiscal of adjusted share of On for quarter the the for same of $XX.X share share net last $XX.X was basis, same last $XX.X was of same $X.XX XXXX On an for quarter the stockholders compared for for per per same per year. period $XX.X the same XXXX the net second share,

last to of the $XX.X operating flow, for cash same to year. from million period XXXX, quarter fiscal in Turning generated $XX.X million the compared second activities the in cash company

$XX.X our loan capital applications we off continued for was the the capital compared expenditures timing as cash XXXX $X.XX strategic This of systems of reflects tax $XX in I traditional million $X.X XXXX now the during Our transition the down and to total paid which billion rolled question-and-answer back current session. RBC our We to ABB the the same in hand inventory impacted in the fiscal costs leaving expenditures quarter Xst would from hardware operator, was in million million. certain payments. by term to to operations addition our to investments of like for were debt of and second the TSA. IT to on the spend quarter Capital October $XX.X from on certain period cash the year. last turn call period and of million as

Our proceed. Goldman Instructions] is from Sachs. first with [Operator Ritchie question you. Joe Please Thank

everybody. Thank you. Good morning

Good morning.

Good morning.

Good morning.

curious and I And want I see kind on obviously a is how give put was in can us chain a for growth supply just industrial But supply Hey like Last also little about bit just you quarter evolving pretty we you to chain of the guys. update talked just you? what sector in A&D. issues. healthy up

And Yeah. every on us Sure a -- Joe. it's -- Well, problem. that supply continues there's work something we we to sensitive be in have to chain is places. continues -- to to have day. actually bite It

reverse to impact. continue its we to develop so And countermeasures

for the and titaniums and materials. thing materials are They're sophisticated our simple not is the most So difficult steels aluminum. part

of the a sometimes these be specifications on time extreme. weeks. past materials The lead XX And lot has moved out can

trying to your horizon, months planning So into planning six your horizon you're is just that another when your plants. means plan

on that. approved you now make from that defense certain prohibitions in were products to on supply So have There's the for adjustments past. China

difficult when it particularly there's makes suppliers many So that not these producers of of some components. more US

so in manageable, it's doubled. materials difficult. price And cases, in far materials And has many the but it's of these the

work in through that's the have we required of so that on margins. and contracts the to amount our And sure passing making we're normalize order economics to

get busy, So a certainly reason and and keeps get definitely it -- up it's it work. to to everybody definitely early

distribution. came vast which And revenues that good around Dodge, majority through. I segue you're context. into go the just helpful a putting from really in the pricing through the question, that That's that next my is know of

we I'm there's can any on pricing like, business What's if XXXX? you through expectation tell of side your curious, other your pricing so as today? is about calendar color And industrial coming us much year how specific for into head the

price what and we're certainly measure is changes in And this. of the unique we the it to in manufacturing -- I have reflect products. make that is marketplace. the -- inflation knows mean, it suppliers we to think not into right whole doing mean, that the baseline to that cost for all metrics the Well, it's our the I everybody changes sure monthly. I have and gets

about area an solve. definitely there's in one we different a past it's products to so had it's But carefully problem to manufacturing always thing So haven't years. consider,

peak on And, any to inflation market actually give set Do the a that Obviously, year to a up contracts see you're you start I is closer your are if we hopefully number. just quick mean, have acting anticipate just back the today Mike next to follow-on going deflation? one. on maybe well how getting to that pricing

any Just would that helpful. be around thoughts

if mean number we the You have… negative goes inflation then

of or your you couple like you'd your some things pretty the had with have of last No, pricing? this two-way around have price I'm Well, curious; it's deflation just in already a material that comment do with or you've significant back quarters. because yeah. OEMs, is give formulas distributors -- your of material more of to costs, a couple

X% negativity quarter, But the X%, if inflation on to not come. last baseline X% Well, from if to it that it a be changes to it and $X.XX and whatever adjustment we're in we'll adjust If anticipating long negative $X $X.XX any time a adjustment from goes to we're for going down. inflation will goes up. was then see

Okay, understood. Thank you.

Steve Capital Our next Markets. Please with from question proceed. is KeyBanc Barger

Thanks. morning. Good

morning. Good

morning. Good

to the still your like and The October were take production I'd but industrial get X.X%. around readings XX%, on was Mike, cycle. PMI September industrial September

stronger. customers? at So lot you are production Just that about or listen a just both you growth even showing into they're planning, to cycle? your backdrop incorporating thinking still your are the look do you but that IP is how obviously How or

of that it's we're Steve, just the little their of complex own markets economic or answer Well, in. the these simple question strength markets weakness. all of a number with because And -- different a have

is. in look of we And these lot will customers agreements at supply what protect have long-term cases, outlook for side with their we a the And demand us. so that

got long-term business agreements is it PMI particularly into should a up thing? many mix by driven many produce given historically, has Boeing we in on For of a where the backlog. that plan. out ships index is because roll really basically other what lot side and then to we in month? Dodge and be a contracts that what's at an So, sort indexes, In business example, Dodge how rate cases, And running RBC business and has business, the our a that's and and of the economic all

little a side you be the RBC -- closer the you economy, have Dodge So just on little to side. the you're to a bit closer than are bit

products. the forecasted have models Dodge, have forecast give product inputs forward decide going yes, these whether each produce basically forecaster and And crazy believe demand, us a we the not with we line. demand load we to is for that of from we and should decide So or plants, should at we rate that what economic him or

on many Dodge. part on. thing. much much consumption that most the big sort upon how the consumption. And Food and is US much How Dodge materials side, how For a how beverage, of that's economic dependent for hugely aggregate, that's grain, driver going

we it. So that's how do

your are pretty expecting into Dodge moderate that is quarters what the robust, are you in see? to So, closer go side, thoughts knowing the of, it on that few as that's or you terms economy, as can seem the growth to rates, as going still next it far you does real

Yes.

low the for mean I think to the I we our too the industrial expect go double digits. of of for but don't I balance businesses fiscal balance year, to far, year, year, the like beyond because out think our like don't get the I in I fiscal to perform fiscal

low digits. Organically double

Okay.

Yes.

to a years. been track Got predict hard of of multiyear I expansion But know past aerospace if over to has pace the do couple it. the you're we And the commercial normalized in get you -- you I you rates business. to are too how but that growth know expecting, on aero contracts thinking like far do out, have commercial and don't about

are into for how XXXX thinking fiscal back half and XXXX about you? Just of you the

Well, second at the was in quarter, think the of are a number. Yes. growth level kind OEM XX% demonstrated I rate commercial the

think going be to a there we're living for I while.

XX those -- and those And it. improve shipping from was I well it expect Got defense this delays. the to -- you down and so of think some of because quarter, presumably, side

processing Yes. the we require of complicated make defense buy-offs. all and that sorts government sophisticated It's -- side, on outside very products

doesn't quarter. a happen it -- And in all so -- it just it's

Right.

more One jump back I'll in line. and Okay.

included half if cash costs. flow First free back and just flow cash I of integration was easier? CapEx the us, some free cash for it's flow tell and $XX that half what you know you transition cash in million. or Can operating the expect

it stand this up strategic mean put of timing that you, that their this alone first we systems coming million. inventory of kind to million. Dodge -- through. quarter me to [indiscernible] the I build then We had had And Steve. two $XX payments for TSA. close That's Let way pay continued the cost $XX we tax

in had we this payments tax one quarter. $XX tax So million QX. one have QX, in We'll of payment

to So spread it starts out.

we start see get back to the operating year. the we'll think I So as to half that cash escalate, of

So falls, said all was the things in back I some I you mentioned guess, half you that mean of the just tax that essentially those -- in well or XQ?

have two QX, had have In In QX, we'll one. we we'll one. payments. QX, In

it we just the and hard. So got hit was Dodge… timing The

Understood

away fall should …cost start November. in to off. Obviously, the TSA goes

the given you to expect just in would or you're rates growth running working half, And the about, cap? be build going on to just ahead the moderate still inventory Mike back talked

you making didn't a that bearing, your is Yes. and ship We're the of for liquidate mismatch, some of hard assembly the an result to some supply of you the assembly. working inventory seal build, if you're that you but can't get chain castings all get

of tie things capital. working some lot So can a simple up

Thanks. Understood.

Weber Seth from Wells is with proceed. question next Our Fargo. Please

Thanks How taking actually on Larry questions. are It's today. my guys. for Seth Stavitski for you? Hi,

Larry. Hi,

margins you wanted gross or than points the the about price we first expectations? better margins They ask the year gross cost your trajectory to sequentially. were I see up balance given for of Where going margins. basis XXX expected, of do about

think space. to strength see the in I some margin we'll gross continue

exceptionally strong think I an obviously quarter. was QX

then And tends as the days us be Third a stronger things to quarter a for moderate fourth production to quarter bit. fewer with tend the quarter well.

XX kind you is the so – you've couple mean last that... at But of for – thinking or of that Okay. quarters. are Is been I above or

Yes.

about where living we're these I that's think days.

neighborhood. It's the not in

Yes.

for sure, sure. For

you Last bit up little wanted some manufacturing know then on to Okay, thanks. up. And had quarter kind got just China. a I there. of follow guys issues jammed you I

can about Just dynamics the you the you're I and that there guess production talk there? dynamics seeing regional COVID with

back And a to to. now be think number. Right was shipments months Yes. not QX total it's about But we month QX, And QX back just to to Seth, as projecting in a in we're X.X back one I normal. sorry. In sales we're QX of – QX normal. missed big

Right.

Okay.

was quarter. And this million about it $X

Okay. $X million quarter? this

to the a contributor not top line. It's huge Yes.

Great.

Okay. Got you.

it pass I’ll Thanks, guys. Okay. Appreciate it. on,

Our Bank next Elizabeth America. proceed. with Please Grenfell from question of is

Hi, morning. good

Good morning.

for year and there? think year CapEx we into should next the going and How about from of then this out rest

Sure.

of quarter system we rolled TSA. of Dodge off the some So costs had this reflected that we those implementation as

you live continue we when in So back future. cadence out kind get that of our to between the that's into you X%, we're going back X% normal and to neighborhood think the as I

opportunities to there additional year for CapEx Are Dodge a weren't maybe related that ago? anticipated

and sales enough normalized neighborhood. question along pretty that their of much We're CapEx why. answer is sort – not usage far It's I'll of you tell to that X%

should far hand, and know like support found to On promising might X% and require enough that hole need with of going terms went I products capital – to changes. in sort other them. some but were that's of they bring X% don't big how And or rabbit We But live Dodge when along down ratio. research development. and to we that. within very got overall, the see that what to it we're developing the much go to think not something – of it's involved of We we sales sort in new forward we

is then the in Okay. margin there? when adjusted And expect that? behind question. drivers long term The of EBITDA target the mid-XXs. about sort one you to the you talk get other I And over you'll Can think us

the should We'll be guy speaking and mid-XXs that to Daniel? the it put that's

Yes.

this – is think I Dan.

we'd last toward and And this our we EBITDA. to operating for work see where can I the the think three integration first all months gross and came But the be continue NPAT, now all – on margins XX next so to toward number. think programs side margins been over appreciated thought our the that And to have have started. where EBITDA our our year talked on – gross to with should the doing from. we the you margin, start down things and all and we're of work the synergy over that I benefit mid-XXs we pretty income seeing years, well I'm about sure those that we'll not synergy four

Okay.

not is option or? mid-XXs an So,

ceiling not between that's probably two. like floor we'll that's Well, those somewhere the live more the and

All it. so Got Thank right. Thanks you. much.

proceed. Please from Alembic Our is next Pete question Global. with Skibitski

Hey, good quarter. morning, guys. Nice

Pete. Good morning,

the be quarter? to Just both have you the revenue? the lower days want versus sequentially clear, are to expecting in And of many quarter second third how fewer does segments be

is factory Dodge Christmas So the a little quarter Yeah, normally five, we is fourth than little them shuts we closed have on down It's the so have less facility a the is not days. We're and on for the average between different we quarter divisions. a shipping, third right? classic four, over holiday. open. that we different. pick Most up New do way not in There's Year's. seven Every the longer of around no quarter Thanksgiving where RBC down part Dodge are vacations.

in probably days, days two of time. in thing shipments went catch had just other days impacts a trying And that period one we stand lost up. we're we probably is few of QX impacting ABB. live new normalized lost to four So, which production to October. that we over a SAP production And to We our from the that live and all system and up our shipments production we on went

this wide So that's for is around. why time our QX sales range so

or it up the mean, it QX by days and average end by add of days looks we of the it end December. when it at quarter could you on multiply both by I of you what XX but idea you say where XX yeah, divide six-month gives you – like out look kind see coming together. them And if we'll our So

Okay.

there Okay. terms are we're Has and I your ask want quarter. government defense, of quarter? continuing where all working wait now for year softness in adjusted you in with third And maybe down days would, your going federal on improves? a fewer the sales until calendar be fiscal at even resolution for the in in quarter the defense then to visibility just the to another next to this quarter – if improved right expecting be we Is third before situation still revenue it have for a would defense third you

metrics. issue. – aircraft making with the the mean, that's is of fact think The I in doesn't normal was production work the delays my that, issue I about bigger platform probably comment just well really – very readiness sophisticated editorial Well, quarterly was products XX% the the

just to in that submarine that of to Pete didn't to business, And on QX. perform level we the top wanted our touch

have so to the And shipments right. moving they

recover that of was in to hoping some whole $XX.X the QX. we're Aerospace But So quarter & million. for Defense

it's not So like a segment. $XXX million it's

Understood. Yeah. Yeah.

lower. all-in And then for a What's just Okay. today? as me. been one your last I've interest of rate little trending

want sure to I So right. I pegged had just make that

Sure.

term the current rate X.X% loan, X-month spread. the plus on the a LIBOR the So is moment

then pays So the take And X%. on convertible then bond it's a it and poor the dividend the it mandatory is. on And -- a it's dividend fixed X.XXX%. of

Okay.

Thank guys. you Okay.

our interest If financing to transaction. XX% three pieces you close the along the up with swap, on add fixed you Dodge see can we're rate of those

Thank Great. you.

Our [Operator is with from Please next Michael Ciarmoli Truist Securities. proceed. Instructions] question

Pete for Hey, Osterland question. is my good morning. on for taking Mike. This Thanks

dynamics on free you level end the ask the discussed and chain provide debt expecting by around of and the that working what some update I to given paydown cash First, capital year? an just of of the generation. you're targeting you're Could supply wanted flow fiscal

Sure.

November, we million said cumulatively we end last fiscal So were of paid targeting million if recall this you quarter. We've starting through the year. from this by $XXX had $XXX

we're back what So loosens working in there. up on as capital half track working that's the year the right of we're towards. the still And

labor you -- kind dig there. helpful. in remarks, of Very prepared in then so mentioned Thanks. just just to And wanted I your Okay. also

attrition? you Where to difficulties a hires there concentrated? any been net are still? get And need add any have many elevated to or those Just how finding qualified sense do of workers

taking a level. Yeah. over dozen labor the plants. areas, across people. half it's have on we a XXX difficult don't is Well, XXX hard but just rate probably some inventory I like low. probably a I'm unemployment Yes, is have talent. very find rough rate number, the to it's hire certainly, In a to employment

And last so And build making your part progress. we're scratching innovative in plants, of order hard we're was what question? the doing things pretty and to but the

a Just kind of... attrition if you were you're seeing any elevated

We're seeing that. really. not Not

helpful. Thanks. Very Okay.

are at no Dr. further like I over questions to conference time. for turn this There would the to closing comments. Hartnett back

Well, RBC and Okay. think Thanks. enjoyed the today the look that's and with of I status our the Bearings to meeting call forward questions February. enjoyed you again in

Thank you. does conference. today's This conclude

You may disconnect thank your your and time for you lines at this participation.