ROLL - Earnings call transcript Q3 2018 | RBC Bearings Incorporated

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Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 RBC Bearings Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

As a reminder, this call is being recorded. I would now like to turn the call over to Chris Donovan with Alpha IR.

begin. may You

Chris Donovan

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

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

reconciliation release In the is as information included and company's financial non-GAAP of GAAP on is part website. available and between the addition,

over I'll Now Hartnett. call Dr. turn to the

Dr. Michael J. Hartnett

RBC's you, versus the third morning. Thank good welcome call. last year, $XXX.X And period the same and sales Net $XXX.X increase. for quarter to were Chris, XXXX for fiscal conference million million XX.X% a

as for the was was a year-over-year continue to quarter XX.X% new the a margin last Industrial was or quarter by million Gross the and products to and diluted tool was on There for more came $XX.X of was of product rate, referred general to XX%. demand Free period the XXXX aftermarket million XX.X% XX.X% plane the distribution producing startup aerospace their XX.X% or Clearly, to performance was for this increase. in Mining, company. correspondingly of the oil flow and products $XX.X EPS XX.X% EBITDA ahead represented and exciting a for million benefits income industrial positive showed quarter demonstrated For engine we increase. very are gas, basis. XX.X% year, at of XX.X% machine of programs startups same overall call This lines. $XX.X XXXX, that now net up XX% awards. for are net million; another strength $XX.X Adjusted and fiscal sales year, revenues. quarter products for expenses semiconductor we relative a The OEM Adjusted operating compared cash for a machinery, in million quarter equipment tool the see last last with was component third our sales, the period. $XX.X begin $XX.X year-over-year and $XX.X up of $X.XX. new growth at sales. for the these and fiscal margin programs. third during million. million, and versus was this strong XX.X%, Industrial on exceptional reduced industrial better

showed sector a expansion. period. lumpy, was flat the while aerospace the were X.X% X.X%, for side, XX.X%. the OEM jumped revenues, and quarter, up defense defense Aftermarket On this often Aero

planned assuming additional to XXXX. for the for everybody there know, all add planes rates year That's may get you build is planes XXXX XXX engines. can particularly XXX the that an be single-aisle in the will year parts, this As step-up calendar And planned planes. another are

an volume this will taxed about impact In million already year terms $XX per of approximately. RBC revenue, infrastructure This industry-wide. adds very additional

of accordingly where to there'll this I'm are Mexico ongoing, more is period. capacity the accommodate be and and processes We sure some States, and, demand cases, this is Q&A insufficient. Europe adding in United support discussion facilities in external expanding This in and the in-sourcing

sales expecting of to million are we last to be X% $XXX between increase million compared X%. quarter, over fourth year; and to an our $XXX the $XXX million, period Regarding

without Of Canadian to revenue expansion ceased to nominally the any our probably the range. line, financial the million bringing course, closer now to $X.X this for to detail the have the contribution $X plant, Dan December, from more is XX% contributed which million performance. turn which production would call over overall on I'll in to XX%

Daniel A. Bergeron

due other third same million, $XX.X XXXX Thanks, items. million period stock Mike. increase the last incentive was quarter was personnel SG&A for $X.X year. of additional costs, million; for compensation; to $X.X million $X.X $XX.X mainly the of fiscal to compared higher The million of and

was the same SG&A $X.X for net of million of of Other same to fiscal sales, last operating year. quarter fiscal third As last of year. the XXXX, million, percentage quarter compared a expense third expense period $X.X to XX.X% for compared XXXX the the period for for of was XX.X% expense

consisted million been expenses third adjusted same million period operating for period comprised related was income a same Adjusted would Canadian the the XXXX $X.X for million the last Carolina period integration quarter income assets. for $X.X for $XX.X would other to in in of sales quarter an fiscal $XX.X the in For year. basis, year. of Operating XXXX, million of for quarter been expense in to operating compared Other of income $XX.X of XX.X% the of for million as and in amortization $X.X year restructuring and XXXX. same operating compared the our associated On to million manufacturing amortization the period our the were fiscal fiscal to with mainly last of have the the intangibles. have $XX.X operation, operating fiscal operations South operating income mainly for net restructuring of industrial third of third same XXXX third fiscal percentage $X.X intangible quarter XXXX, last million of compared costs XX.X% million of

same period quarter for period share million basis, would was quarter per period to share period last last million year. diluted the for last same third quarter the been XXXX of for net for $X.XX $X.XX the compared share XXXX third year. Diluted reported to of year. adjusted compared for the the of of company income income the adjusted net fiscal compared share have the earnings of per to of $XX.X million On of $XX.X For the per third of compared an same quarter income income On $XX.X earnings was year. basis, adjusted XXXX, million per fiscal the third per last share an for EPS per share to net fiscal fiscal net diluted for $X.XX same XXXX $X.XX $XX.X

debt. in from fiscal fiscal $X.X XXXX compared generated operating activities for the basis, $XX.X session. quarter same with third the basis $XX.X of cash the call flow, On XXXX $XX.X period million to fiscal cash the in operator the operating million to quarter in Turning down period a compared $XX.X the the I'll On year. period of period, company company back the to year-to-date $XX.X of million activities ended the the now $XX.X same year-to-date year. nine-month the year. the quarter company to the million last $XX.X the compared same were expenditures third $XX.X last to basis, year-to-date year. Q&A and On company for for million capital a compared Capital In quarter million a the turn cash the million generated in third cash. to paid last down million million for debt from to of million paid same of XXXX, $X.X of expenditures $XX.X begin million period were for last

Operator

Bank of of Liwag Kristine from comes America. question first Our

Your line is open.

Kristine Tan Liwag

Hey, guys. Good morning.

Dr. Michael J. Hartnett

Good morning, Kristine.

Kristine Tan Liwag

side rate see not engine wondering, aside you have production in to of shortage Mike, in supply the with from go as seeing would today? few mentioned delay I aerospace builds having these remarks that that prepared your through the kind chain. of increases XXXX, for what a OEMs already is of announced we're months we there to commercial planned, the bottleneck rate was

Dr. Michael J. Hartnett

I our situation industry don't definitely on want effect of speak – just But Well, services situation literature. is the It RBC the an is know for having I specifically for the to engines, revenues. Kristine. I to it's because read straining. engine

complete on engine-related issues, probably the of basis. have talking business. I'm approved I'm industry in but many And don't And to having – our I issues. outlook. suppliers a lots demand more these And capacity that focused it's on go understand product. are QX the approve timely kind there airframe the our to definitely that We have more process the make some than of really suppliers engine-related the effect support on is side processes that cases clear airframe the we to have to of outside to

Kristine Tan Liwag

be prepared implied in money then order your to And gross revenue do doing this see. to in-sourcing increase? you've incremental have rate you're that as annual on you you $XX How enough get million make business? a tool also to what's to spend mentioned, capacity. that the margins I much in sure that you have And for mentioned

Dr. Michael J. Hartnett

Kristine, you everything. want know to

I think mix. question, yes, our first airframe typical it's

business So way our it's long we good and and maybe of into of of processes representative sort now little bit kind we've cetera. techniques better It's because us. our a produce for what and a margin et gone automation improving

our us. to working expand particularly And margins. we're focus so, stable that's And a on the always for big mix,

gotten get working some to capacity in-source to very what on we approvals are have plating we're here, are our And organizing order good. well, margins of those in plating; to – approvals and and expand more in-sourcing for we capacity. So and internal we've do do currently already programs

treating on We treating an our industry some Heat in-sourcing is heat of capacity. bottleneck. definitely are working a

a to the basically on put capacity, to prevent used in-sourced lot Fuel ceramic components have coat, Velocity of is corrosion. which their HVOF airframe Oxygen for We technique our High coatings

been the we We've a year those expect and to us. a lot receive of received recently to Boeing, approvals later makers in-source approvals And that's from so, for requirements. the from engine in bottleneck

there right the various are active pinched that being question is there those now. support we're us So for on throughput on ability upon to here and of us. based And working very divisions in we're industry no the areas

Kristine Tan Liwag

are increase would that have can meet in-source understand, in rate just these long that your are you margins run? eventually so increases? the So initiatives, Or the things to these you to in-sourcing these

Dr. Michael J. Hartnett

let's on us outside this put on at outside, and his to the doesn't Well, cost. it them for that we us it supply the buy Currently, guy way. makes it the

processing he's companies these substantial. a be from of makes margin can very the supplying, some that he margins depending and processes So upon

expect as to So would well see a margin improvement, a capacity we increase. as

Kristine Tan Liwag

very Great. Thank much, guys. you

Dr. Michael J. Hartnett

Yes.

Operator

from next Drexel Hamilton. Pete Our of question comes Skibitski

open. is line Your

Peter John Skibitski

Good morning, quarter. guys. Nice

Dr. Michael J. Hartnett

Pete. you, Thank

Peter John Skibitski

start Mike, the rate. tax let lower with me effective

nice result expecting other so changes generate Are pretty cash. deployment going rate, any a maybe that from directional in you difference? an tax absolute stay from more get forward outlook, got the as a your to just to will an a You've little maybe of any strategy And lot flat effective now a absolute cut basis, basis CapEx of clarity you capital your could on that? or more kind

Dr. Michael J. Hartnett

going not it's but it's lot, the Pete, some. are because flow going to project-driven. to it's to change these all predict change a exactly hard And

a ground we're just to to the new the road in quite and So process. lot incorporate some far In approvals cases, the have down incorporate these of we're some processes, have cases, process. incorporated and facilities breaking for

kind some there it's add augment bulge a need mixed. rate. depending no CapEx of cap and a to year be what So rate spend And we – there's definitely capacity that all our there our is upon both of happens. historical But facilities. – XX% We'll this of there'll question probably

Peter John Skibitski

Okay.

the like free cash So incremental your from predominant that the use lower of tax rate. sounds

a bulge, as year a get you described You'll of or for two. it CapEx a bit

Dr. Michael J. Hartnett

That's right.

Peter John Skibitski

Okay.

give Okay. on update about environment? you an can M&A the How – us

Dr. Michael J. Hartnett

paid mean, see to can we where getting in we're leverage the lot day down terms of the all debt down. of ratio when point we're a Yes. it's and I paying

various And model on these So very product in we today structure. very our that sight small nice to sizes. complementary and line our come some are acquisitions of acquisitions – have business

a they a us that bit on little the of those like up in leg we our So should position market. give

it. the on the And acquisitions We we sight one one But right quality. up. have show Sargent. those sooner size work fit line to the or continue we right to we will later of look continue for and of And don't the on today. of right They're the

Peter John Skibitski

great. Sounds

a I last ask Is quarter. that all to great. project? Sounds that program do also the impact want over Vanguard now from is lingering or

Dr. Michael J. Hartnett

staffed be Yes, I know kind and It's ever of settled properly but if will down. accordingly. that's functioning it's – it over, don't

Peter John Skibitski

Got it.

Okay.

industrial feels longer sector industrial. the many industrial While pick on the what you industrial year-to-date like in was it starting last, the sense close guys, I'm to too up can I you're side, give the in not? revenue And I'm easy analysts. if or comps there should are for just super-growth peak me of then really economy to if But the you guessing a anywhere is how if you just on, much in more for wonder

Dr. Michael J. Hartnett

demand the QX Well, expected. in than stronger – real was we

It wanted time A quarter. every product shipments our in year-to-year. see they us mean, I it quarter, the once Okay? on. about planned this pulling And third and and into last quarter, or cases, business. so happens judged they're seldomly customers, happens fourth was inventory earlier. their stuff from the I in many maybe years they're I product where that the in that normally wanted six turns which forget hit infrequently, they're that trying to third years metrics five very is in fourth all that quarter, that happened

they're usually situation. so delaying And that

we fourth fourth what to predict have is our So, our we the – is we quarter algorithms that terms quarter? – that demand. So outlook, question is, in did to of have don't accelerated we good happen in going

our have of demand. – sort normal We predict algorithms

So backlog we took for place it our did fourth was accordingly. our algorithm in we quarter, just normal in and we what our laid

So our in positions inventory terms if our are quarter, of sort know, category requirements fourth start you into right a in I fulfillment. god people A-minus them. now bless mean, of accelerating

definitely So our didn't able support we'd we to be it but it, cook numbers. into

Peter John Skibitski

then, think from still believe, down I I okay. I your business, Okay, last industrial was like year organically the XX% peak. prior And remember

Dr. Michael J. Hartnett

Right.

Peter John Skibitski

down prior a from Are peak? quite year-to-date you still bit the

Dr. Michael J. Hartnett

have measure. and something I'd to That's back go

I up think we're there. getting

Peter John Skibitski

Got it.

two Year-to-date, roller roller if as reporting particular and the the you had bearings strong look add pretty those well outstanding ball ball year-to-date Last one bearings the at actual guess, as Okay. as Fair double I have enough. segments, revenue growth, segments, color bearings digits. me. from bearings Can we any the drivers segments? to in

Dr. Michael J. Hartnett

Industrial bearings offering. mainly general oil Yes. mainly and industrial segment, driven and the it's by product it's general driven the semiconductor In roller, ball And gas. and by

Peter John Skibitski

Okay.

Very great. Okay, Thank you, guys. helpful.

Dr. Michael J. Hartnett

Yes.

Operator

Our King. CL next question Godfrey of comes from George

open. is line Your

George J. Godfrey

taking for Good quarter. morning, thank and Nice you my questions.

Daniel A. Bergeron

George. Hey,

George J. Godfrey

Hi there, Dan.

want the to be CapEx. clear Just on

expansion. So increase, the million on a support XX% Is the probably like that number right? $X CapEx to

Daniel A. Bergeron

it's probably high Yes, but a side, on it's... little the

George J. Godfrey

Okay.

Daniel A. Bergeron

number. safe ...a

George J. Godfrey

come newer And eventually. they a on move or then, the come as will programs production up margin initial newer the in higher for than parts expecting definitely in haven't been I the you margins But down margins these platforms, understand ramp you at curve? cost because lower will higher ramp as the the to are place legacy takes you able

Daniel A. Bergeron

at curve a is you making about in margin. high tell come never I that. they Well, in stuff. I'll mean, all manufacturing hitting maturity the the

George J. Godfrey

Okay, okay...

Daniel A. Bergeron

these in programs you'd Normally, be you it. difficult what make on do to to sometimes have what to the and do to versus make it startup of can terms surprising have expected you

life right and tuned, variances, a to a So place, the all it's have wheels equipment affordable. at cycle that's matter getting the working it getting of capital in getting the the through cutters and the to produce rate

that. of programs, sweet which And to starting very very are spot that at at sort we're good beginning maturity large, now And write-down, we're good it. we're have very their hit right in right we're and challenging. right, we production are so, very it's of And initial basically lab and start-up fine-tuning. have that, at the for with pleased other we programs rates, And the curve they're the some that

George J. Godfrey

at QX? me what Got you tell the head end was of the it. count Can

Daniel A. Bergeron

with you ring you but number. on me, that a have George, don't count and follow-up today with I I'll head give the

George J. Godfrey

very the Great. color. much Thank you for

Operator

Steve Markets. question next Our of KeyBanc from comes Barger Capital

line open. is Your

Steve Barger

morning, good guys. Hey,

Dr. Michael J. Hartnett

Hey, Steve. good morning,

Steve Barger

that tell us growth, XX% On for much the versus the of was price can how volume? industrial side you

Dr. Michael J. Hartnett

price. much wasn't There

Steve Barger

volume. mostly So

Dr. Michael J. Hartnett

It's mostly volume.

Steve Barger

fiscal go forecasted, earlier price increases you are does than If customers Yes. for into product that give you previously XXXX? as room wanting

Dr. Michael J. Hartnett

It's the the particularly the in industrial rule, side. on exception more

Steve Barger

you'd raise The exception that to able prices? be

Dr. Michael J. Hartnett

you a sell customer if he you it Well, that and inventory; under agreed in under contract price price your or and the wants sooner sheet sold pretty it's it fourth quarter and it to in have ordered much the the it's them. at it's

on he it people to you get there's late, the plant, Then – things he On materials Christmas. that's to but exception have hand, the through rush to to the do if extraordinary charge to work an we're came other acceleration fee, the him rule. have it ordered and going in,

Steve Barger

it. Got

customers that pulled this construction in? equipment Is are OEM seeing verticals for product machines forward, that are wanting those which For factory you or production?

Dr. Michael J. Hartnett

Everywhere.

above. All between PMI mean, When from the – gets Land of the to goes the I of XX, us Oz. that's XX for

Steve Barger

Right.

Dr. Michael J. Hartnett

right zone. maintaining becomes replenish mean, inventories. be availability And is the one to out level material, often outstanding the products goes – able it it's a I And really doesn't your enough in raw demand raw material that your of very for inventory soon getting the inventory ultimately and replacement that producing into dry at positions. our problem the just to

made some to we've accelerate that need so strategic So our could production it we position when substantial on a raw we material buys to.

Steve Barger

or some you when Are to chain you sensing weakness hitches supply accelerated any buys? in go the out do

Daniel A. Bergeron

Yes.

Steve Barger

Is just alloys specialty the...? or is where that

Daniel A. Bergeron

Yes, for – alloys sure. specialty specialty it's it's

Steve Barger

you Can infer...

Dr. Michael J. Hartnett

these of accelerated buys. we're the one That's doing reasons

Steve Barger

Right.

Just have to you on the make sure floor. product the

Dr. Michael J. Hartnett

Right.

Steve Barger

anything infer this accelerate aftermarket rates you the Does cycle? OE Is anything both Could in at at and about similar to that you? point it... mean having

Dr. Michael J. Hartnett

market. OEMs. really service, a – for of or lot replacement aftermarket Well, We're can't the seems to that we a – It's it service aircraft replacement distribution industrial it. equipped distribution many call we And wouldn't of just small lot bias just is that that do plus the what customers. we small it's not the not normally route

hell I that XXXX market on that and assumes be the in at of law the the think this very that consumer. to broad-based law impactful. RBC, a times multiply out going doesn't tax way it's tax is just I XX,XXX new calendar look think to the I And that going has companies, stock new So I effect impacted manufacturing what's this resurgence. very the think when And scare of happen I

Steve Barger

Right.

that so had accelerated and said you deals. million just Are pipeline line and and point, are for guess deals, of seeing M&A, you I desire of the as you those think sell? about million any to $XX for And or on types small $X to you entrepreneurs sight

Dr. Michael J. Hartnett

in It's million – $XX zone. it's – yes. million $X the It's actually to

these or have acceleration we're or see categories. any anyways. investment to I So not bring mean, entrepreneurs. be those that in we wouldn't mean, banker in are think originally that would now, a I And we would us. broker great seeing I few an a it somebody that –

have of it. And happening, so don't we knowledge that's if

Steve Barger

Thanks it. the time. for much Got very

Dr. Michael J. Hartnett

Okay.

Operator

There I'd Dr. Hartnett over call are no any further questions. the to remarks. turn just closing back for

Dr. Michael J. Hartnett

thank to Well, Okay. interest you all again been business. to our your and talk the you. speak it's again our questions I And And we'll for year. in your later about pleasure

Operator

thank today's have disconnect. conference. a And all and you program. you may Ladies great the participating for day. in conclude does Everyone, gentlemen, This

RBC Bearings (RBC) 6 Feb 182018 Q3 Earnings call transcript