ROLL - Earnings call transcript Q2 2019 | RBC Bearings Incorporated

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Operator

Good day, ladies and gentlemen, and welcome to Second Quarter 2019 RBC Bearings Earnings Conference Call. At this time all participants are in listen-only mode. Later will conduct a question-and-answer instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I will now like to turn the conference over to your host, Chris Donovan with Alpha IR.

sir. begin, may You

Chris Donovan

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

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

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

Michael J. Hartnett

Net you for last were to Thank morning and for X.X% increase. $XXX.X all, a XXXX year, good second our the quarter $XXX.X welcome. the and versus period million sales million same

Excluding the X.X%. for Sargent was Canada sales quarter from last growth year, the the organic

XX%. income was over a of $XX.X sales to was versus XXXX, sales of for represented margin products same compares sales. last products period XX.X% XX.X% of $XX.X increase quarter aerospace last million, million million This a $XX.X million quarter year. industrial increase. or increase. was a adjusted XX% year, fiscal second Gross net or the million The XX.X% and Operating the EBITDA X.X% $XX.X our $XX.X of XX% last year, for

organic X% coming continuing was XX.X% for the Industrial very external, X.X% planned of distribution to and aerospace revenues showed see constraints, by generated overall principally OEM products expansions Canada. have continuing our to a gas, engine industrial quarter of the last both we're period we the plateau we And an demand year-over-year normalized for products. and and of second the and are growth organic second of Industrial continued products timing the the the we new rate. net up business, year. up mining machine and both basis. chain sales demand next the capacity, and and sales sites continue products. Aerospace results industry. markets with hamper year-over-year continued were the basis. strong aftermarket X.X% to was and in availability and aerospace rates for the online support oil quarter and buildup for when our OEM the pleased was So our on in equipment X% contract some demand existing and at gas by In industrial short-term where Supply a year show aircraft build by defense these to general driven up up internal In limits are strength. Mining, oil tool and on encouraged

reason to have We be optimistic.

programs leap of turbo from to MAX, and airframe, increase will are support past recently XX aerospace to signed be sector Technologies. – fan plans by gear the quarters over that growth, in the We and this where In a future platforms is of course, these Strike and in in new driven within getting double the several expected are digits event, any other new contracts XXXx this continue XXX, growth largely for Primary see the the volumes Joint both AXXX, continuing. XXX United Fighter and side of contracted in the we sight. tooling products, all problem with months engine busy we the progressive up and,

Regarding our to financial more compared between last million million, over to $XXX.X to period detail Dan, and third turn now year performance. between on million for $XXX the X.X%. quarter, I'll call expecting $XXX of over an to X.X% increase be the sales net are we of Canada, the

Daniel A. Bergeron

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

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

fiscal operations of other amortization mainly For million in operating million comprised basis, and of in fiscal expenses would the the for the assets. second period to Operating of compared our the $X.X quarter second $XX.X million been quarter have were fiscal operating fiscal of million for period for the of quarter was mainly income the income Canadian restructuring XXXX, $X.X million related the for XXXX, $XX.X year $XX.X consisted million On of second XXXX. the XXXX, operating second quarter XXXX. for of income intangibles. amortization the in Other $X.X of compared operating last operating of intangible million an expense same to income of same of to fiscal an $XX.X adjusted adjusted

the fiscal driven for the rate XXXX XX.X% second of rate an associated benefit was to the compared $X.X per Act last recorded share-based and benefit compensation reduction Tax XX.X%, based company benefit Jobs and quarter million million $X.X year. effective to the with of the same compared tax period compensation, year. The last in Cuts the mainly the by For year-over-year

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

was period generated $XX.X in for activities debt, paid the for from for as year. – In six-month million for second the XXXX expenditures the to second debt a company six-month period $XX.X last compared of compared the basis, the XXXX, XX, last the CapEx XXXX, operating of $XXX.X on last cash and to million. period XXXX, paid six-month million. for period year. quarter million $XX.X $XX.X was million fiscal to down year. in company and fiscal $XX.X down was of in Capital $XX.X $XX six-month Total Cash million million Turning year. million down On were XXXX, compared $X of the six-month hand quarter The to the for quarter six-month to sorry, last fiscal same for period. of And cash quarter cash second the million fiscal the million $XX.X compared $XX period operating for the same same same million activities flow. September period million, from the in paid $XX.X

for I the to Now turn operator the to Q&A. like would call back

Operator

George comes question [Operator Instructions] our from King. And you. Godfrey first Thank from CL

line is open. Your now

George Godfrey

gentlemen. Thank and a you. job on quarter, Good morning very the nice

Michael J. Hartnett

you. Thank

George Godfrey

Dr. item that Aero percentage of Dan, you revenue the segment? What to to Hartnett, OEM up – line but of you X% double you mentioned aerospace is OEM go digits. Aero expect

Daniel A. Bergeron

hang second. on just George, a Well,

on George, basis, million. quarter, in was And $XXX.X total it an was So $XX.X the second million. aerospace organic

George Godfrey

is faster you Thank the an on you. constraints is you. you Got significance the up talk beyond mentioned anything external Thank engines did is other supply that up follow-up to the even factors. there And else specifically holding What production a But at rate? engines, go about of then there. it. is using some question

Michael J. Hartnett

Well, those airframe sort major the by processes, that there's as suppliers the is George, approved industry. handful provide people unique of of there you way the or these the are works, for people upon of given industry is these only smaller sometimes depending for of of a process, And a engine a a OEMs, lot handful know, that supplier process. processes than the and fewer

that need Now, processes these and that's, problem. one able say, overwhelmed the those product our the to today small we a product to incurring by complete industry of performed and we're and problem are are demand. our large, these people let's on And customer. common in right And with order that to to undercapitalized and companies shift now,

in several So be then processes we're – plant next volume through and year. Connecticut, through key we'll will through built and the in insourcing way quarter operational our a subsequent in next its fourth those which ramp a have quarters the of small here

quarter So more have that's gotten could we actually this issue. the if constraints. We products these It's have aerospace could impacted. through sold supply

do light it we're going and – of that. the end the the sure through of where tunnel we're to the so light bright see that So plant and to make didn't was built we we the because and confident at and we because go

George Godfrey

you questions. Thank my taking Understood.

Operator

from SunTrust. our Thank next Michael you. from And Ciarmoli question comes

Your line is now open.

Michael Ciarmoli

that Even, for taking thrown I to of thought the several or have Nice initiatives? quarters Maybe Hey a scope constraints you has sort insourcing. anything talked to originally expand quarter, it what you’ve any guys those results good on you’ve know capabilities. in expanded about a I you gentlemen. insource? but of now qualifications know had of thanks question. morning, out of Have have those where adding the beyond kind you stay row. and of couple for had incrementally – was just last tightened

Michael J. Hartnett

the gas We’ve really source No. that is our labs chain. and nice processes tuned properly. say had it’s equipment I explosion to Massachusetts supply we sure that been in make in plant some impacted the R&D was much sourcing stable. only mean, it’s wrinkle for of that I’d pretty refining – the

but was unexpected recovered. we And so that and –

Michael Ciarmoli

to sort ask too bottlenecks you’re be it curve? process tailwinds longer – your to it I’ve you once is there’s to kind once operations of assume rate get of in Or in-house? full you or savings that alleviating potential but get got on be learning you going is what think over more to run Is bring some that you could term clearly margin Okay. end, early the the these

Michael J. Hartnett

a making fact It’s Yes. and really destroy It’s a economy business scale is margins. – your you if an order of only scale, to – you that. lose that not in components it’s these

that product supply into breaking your you have can so up his you’ll end of supply you when the end-user sizes some an enough from that in lot ultimately pieces So he interruption providers, service these little maintain lines. production could

so some a that want that’s go don’t place that’s and to performance we today. And our impacting of

we facilities think we in get expansion margin some side of the result a of so as of we that, improved should on And flow. some see our other

Michael Ciarmoli

it. OE, any side we’ve what you Or seeing? Aero attractive was then lot color Got one a maybe give last mean, of been quarter you’re color the that’s I the any can on And I me. there just business, growing of the aerospace? of in the know maybe spent still a Any aftermarket strong. on side pretty growth aftermarket? on of – trends time for the

Michael J. Hartnett

the side builders. the unlike lot for in the supply smaller more aftermarket aircraft a those are global a are distributors of to the really less engine and OEMs aftermarket our aftermarket are chain the airframe of times, distributors that supply think supplying aerospace. side that to We of aerospace in and products and is handful of specialists the I the

Michael Ciarmoli

I’ll right, queue back Okay. guys. jump in All Thanks, perfect. here. the

Operator

from our you. Thank KeyBanc Steve next question from Capital. And comes Barger

is now open. Your line

Steve Barger

Hey, good morning guys.

Michael J. Hartnett

Steve. morning, Good

Steve Barger

I I transfer Sorry, that you growth. to say comments. goes comment double-digit side? to of what response I question OE, back prepared another think the Did on you’re most the in you seeing heard in missed Aero demand on industrial

Michael J. Hartnett

Dan I’ll We didn’t that comment but on let that. comment No. on

Daniel A. Bergeron

we was book up XX.X% going on organic always, order grew GDP. that year-over-year is X%. QX industrial Industrial we business industrials the X.X%. grow at OEM distribution Xx that discussed still the in think for the always as And up us and Stephen, was at an on strong basis, and we can Yes. like basis

And industrial on in to that on so side. X% growth range GDP keeps X% the coming

Steve Barger

gas, tariffs are the – the equipment hearing been any the to do optimistic, ending cause those feels over Obviously, oil know market’s it’s right that about additional any point demand equipment customers? are trading to, oh, past to let construction now? and customer good cycle’s few like reporting settlement Whether So or the to have and how hear. you companies what The specific like seem weeks, or us things thoughts fairly or can that’s you going you’re destruction. mining from you

Michael J. Hartnett

don’t hear negative. On the we anything industrial side,

want that, We produce. we’re in than people have some to able more cases who product

– So addressing we’re that. that’s

In it’s hard be. that fact us bearings the terms given XX% to to China, all than of the for those tariffs is expensive coming the tariffs, from used XX% not like are they of more

so some those And of suppliers. that's big a for hurdle

Steve Barger

of those more bearings some can end that get? industrial are markets would like than Which they

Michael J. Hartnett

Oil Construction and and mining. gas.

Steve Barger

Okay. in that did a year-over-year mix? – quarter, incremental margin quite the drive your Or was revenue In best the you margin on seen incremental growth how margin Was a rate? and while. lower better we've sequentially

Michael J. Hartnett

because let’s mix that of don't margins plants. are broken we investments just see took – the bit each to it's and us our just lot into it coming of I little secondly, very had bit favorable is a down better there's but, in home thirdly, it Everybody low, Canada last were put roost a we've been than why little were have And it out mix. a And is which efficiency way. the in year. you Well, out know, of some pieces, the environment their can those a you automation you pricing Canada of and they so taking one and helped of plant know

Steve Barger

Yes.

like expect So go structural Along into back right? minus performance, that half. it as Mainly, with we changes, pricing? of seems can the we or plus kind there're

Michael J. Hartnett

margins. obvious, it's be There that not there I'm on mix may not of headwinds now see It's margins. right any headwinds thinking more any calculus see of mix. don't don't a We we some but on

Steve Barger

because the expect margins better historical out good. the so at end have that's looking Okay. free years. new same at you take but been level, flows and solid added stand-alone at I there as they capacity over running you for base cash the that last as absorption of right do are you the high a are Well, I on guess you good Free capacity? the having things you business any and constraints know now? a add six range are there, flow to margin diluted Or see business programs basis contribute that level that cash the and

Michael J. Hartnett

No. They are solid citizens.

Operator

Lynch. Liwag And from Bank America of comes our question Kristine next from Merrill

now is line Your open.

Kristine Liwag

manufacturing? Do versus today? change, mean kind something you something and bigger point Bearings you've forward, the had acquisition hindsight, RBC as delevered percentage of you Since sheet. and your in you've closed like going assets of well? appetite your component you deployment hydraulics than XX aerospace and business acquire Sargent your with have XXXX, what's In outside bearings to historically got into balance traditional market I Sargent Sargent, more of for more appetite you've a with now the your more larger or in margin guess think about acquisition success gross capital how legacy I how has the

Michael J. Hartnett

for Well, lot businesses look of investment There's month. month larger, issue lot because of no we something books at active we there's selling us each certainly Kristine. a a have there an and bankers each very appetite

the very how and people, laid Who's of we we and we States have they of majority a and certainly people read components Who I common broad the So base we much and so these is and with make lot we has the customer common the understand customer that tight a looking they well. what and because think it's base, in terms that we're United these books that behave like the but for not a negotiated there's something understand exactly so a we us – conditions know being population

look for common we we for customer a middle and base strong look team. So management that

– the would our a site the priority are that complicated, lives that's on third the that be month a to the lower So those It sites closer and geography. say more visit characteristic in nice we – that I didn't make that's would first line-up. if just third already so might had but the be each it that's we

Kristine Liwag

see margin Great. XX doing the the new XX we you planned and better of the that should should trending I margins, points in bit you a program about year And said above And little what of second mean capabilities that mix? the basis mean points. Or Does should for the thought? think are you this point half? with quarter are your starts, some in the basis than quarter getting XX you've this or expansion sequential basis saw gross is better the you that for we trend year in pressure rest full

Daniel A. Bergeron

margins. we see in think on headwinds half any second don't I Well, the

anything So better and overall, good probably that plant they than making the it performance. level, is probably on progress the have well, that teams very at more ever say we executing dependent I'd have they're their mix else. are than

So and we with meet and should them work has day them of go every their terms execution next improvement manufacturing priority with them in be and of what with every meet outstanding. been the kind over and month every day

very pleased I’m So with it.

Kristine Liwag

Thank Great. you.

Operator

you. next from Skibitski Global. Pete Thank our Instructions]. question And from comes [Operator Alembic

line now open. is Your

Pete Skibitski

Hey, guys. quarter might execution. coming have Hurricane morning, the operations. was had that so I guys, the about good on into Nice think There it Carolina South concern, your the Florence impact some

or facilities have think there. three I four you

kind during of relatively indolent, those facilities think, completely did units there it at make results through quarter? but they’re I the unscathed did it the all Florence to impact or

Michael J. Hartnett

Yes.

problem Florence way of completely off. so other that got the she made was. as it get didn’t We We more didn’t and day electrical just out, of be shut and Florence Florence quarter. did a a than but spikes landfall everybody the ruin problem went the we down it one before that expected It would impact a wasn’t turned equipment plants

Pete Skibitski

revenue any didn’t So just one you day, it? from lose

Michael J. Hartnett

Right.

Pete Skibitski

Mike. Hey, Okay.

tell maybe were interesting not I’m in my competitive China bearing maybe a Did – an that the comment of that’s if them tariffs Is actually are that But that to suppliers. some suppliers understanding they true. of IP was, but issue? me kind trying if comments, have wrong, commoditized earlier, You’re most make think very your true? not largely

Michael J. Hartnett

They are our have We the haven't in too don't asking by and end years. to some lines us now, the that commodity but we commodity anymore. are We we even IP significant large suppliers. and right of customers don't – at like bottom have we or them level product the tooling supply supplied see

a do business you to do supply buffet to who want who do with it's you of and want So them

Pete Skibitski

Interesting. Got it.

Okay. are curious you – think about I guess revenue areas. point? how I'm this quite in mining to are prior you just one a Can prior levels peak how in follow-up. oil last just were year, talk guys you and gas? yet from back bit off at you close on those peak I

Michael J. Hartnett

who see, getting were I working us. are to have where but and customers do new close and new were with gas pretty oil we products we

going yet. growth So of also but can on some they introduce think continue business. some as and there the close side go on not same we're mining, time. into to growth to side just the up to us of to And And organic the we're give on pretty volumes hoping get we at also marketplace and that are I that getting new the continue help products to nice business continue some the

Pete Skibitski

later that with And is it any earnings from last Dan, out do reporting be or today, one. the to info? you XX-Q maybe segments operating have

Daniel A. Bergeron

XX-Q for about will hours. The Yes. three be on

Pete Skibitski

much so thanks guys. Okay, great

Operator

further back any remarks. showing this and time. I now for further call would turn no the Dr. to at Hartnett you questions like to I’m Thank

Michael J. Hartnett

participating quarter, RBC story today, And be you to again talk thank Okay. good day. at I'd our for and after like third to we'll to Well, our Bearings. to happy listening everyone

Operator

program. in thank participation concludes today you today's Ladies conference. and for your gentlemen, This

Everyone, You may a day. all disconnect. great have

RBC Bearings (RBC) 2 Nov 182019 Q2 Earnings call transcript