ROLL - Earnings call transcript Q1 2020 | RBC Bearings Incorporated

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Operator

Good morning, ladies and gentlemen, and welcome to the Q1 2020 RBC Bearings Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would like now to turn the conference over to your host, Mr. Chris Donovan.

Chris Donovan

Good morning, and thank you for joining us for RBC Bearings Fiscal 2020 First Quarter Earnings Conference Call. call Dr. the on me today are With Michael J. Officer; Chairman, A. and Executive President Chief and Daniel Hartnett, President, Financial Vice Bergeron, Chief Operating Officer. Officer and Chief

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

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

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

Michael J. Hartnett

first XXXX same versus Thank for growth morning. Net that’s good was sales for the year, the last for period million fiscal quarter X.X% $XXX we start X% quarter FYXXXX. a you, increase. of a think and – Organic million $XXX.X for and X.X%, were respectable the

fiscal sales represented industrial for sales of our XX%. XX% net For the first with the at quarter, products aerospace products

last a Gross million period was X.X% EBITDA $XX compares year, of was a versus a to income million, margin for increase. $XX.X for $XX.X year, last This million same the X.X% increase XX.X% net year. X.X% $XX.X XX.X% $XX.X sales. quarter million or the million was last or over increase. Operating

excellent year quarter this performance an pleased for follows very are We the it for with the company. and

industrial period, year-over-year. in we’re up aftermarket against – X.X%. was down year, was down and over some Industrial X.X% expansion some and XX.X%, year ground OEM lost in down during are products During the comps. distribution we difficult pretty the X.X% the was about Last first quarter so that quarter, the the

defense quarter first been an up basis. as defense driven a XX.X% mitigated many side, of internalizing OEM This On was both aerospace today. organic were have the by Supply and XX.X%. and were certified on net the processes our external significantly and OEM Aero up sales internal aftermarkets. constraints result organic and

will new More of introduce will the growth contracts at sector in processes for the quarters we manufacturing to follow. the likely currently This capacity internalization double-digit continue foreseeable convert and additional reach. level as perform

aerospace FAA QX At may at this our If year, we base. demand our and the most calendar point subcontracting to or fiscal enter the support in certifications is businesses in second production accelerated, booked by its the receives our MAX quarter, beyond difficult XXXX. it are of XXX be

positioned to support to add customers’ FYXXXX should in and regard. future for We capacity be requirements continue our well this

$XXX $XXX side and million, we second produce be the expecting results quarter, X.X% rate sales organic over but more, to are our between have aerospace million capacity will growth Regarding which on largely sales, greater it’s turnout year. of can If a constraint. in it X.X% and in defense to we last

the financial of over to performance. detail Dan turn for now I’ll call more the

Daniel A. Bergeron

lower offset stock to SG&A kind to quarter mainly for $X Mike. million million $XX.X first items, same fees. of Thanks, of the other fiscal $X.X the million last by is due The professional compared million $XX.X for additional was increase XXXX and year. of period incentive $X.X of of million compensation

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

of XXXX fiscal period the was compared year. Other expense last $X.X operating of first expense expense quarter of to same million million for $X.X for the

of period amortization of other of million million other offset million $X.X items. intangible operating same assets, for operating amortization $X.X other in were million For $X.X by year of mainly expenses in of expense the items. Other mainly consisted offset by the first quarter of assets, fiscal of intangible XXXX, comprised $X.X last

XXXX nonoperating income compared first of of Operating million the quarter first were to to compared for year. last for for operating Other same expenses year. XXXX million of quarter income $X.X the $X fiscal $XX $XX.X the the period was fiscal million same million period last for

items comprised extinguishment of the for For other debt. XXXX consisted nonoperating of by nonoperating of expenses $X XXXX, million fiscal quarter first foreign of expenses $X.X offset of $X.X quarter fiscal first exchange million our the loss just early million of of loss, other primarily other and

first company net period basis, was $XX.X of income the on for the same of XXXX net million fiscal fiscal the to adjusted $XX.X year. $XX.X last same compared of income to the year. last million quarter And income an income for for For first period million reported the million net an adjusted of $XX.X of quarter XXXX, compared net

adjusted $X.XX Diluted first basis, the for compared earnings XXXX fiscal diluted $X.XX XXXX same share the fiscal per per year. per of was an for per share first share an to last On earnings diluted share compared share for quarter same the adjusted year. $X.XX share was the of quarter period last $X.XX EPS per of per for to period

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

the ended cash. paid In the $XX.X quarter down of with million company million first the of and quarter $XX.X of debt fiscal XXXX,

I’d operator Q&A over now the turn session. the back call for like to to the

Operator

of Alembic Instructions] And from your the [Operator question Pete comes first of line Global. Skibitski

now open. is Your line

Pete Skibitski

a Can at would saw it that weakness? on that do sense across a you the industrial is And things comp in – of get in could fourth by or – think you of sense the worse board, OEs? point, quarter, the weakness Kind us normalize economic general maybe things perspective. maybe where you I maybe give

your So thoughts what is there?

Daniel A. Bergeron

distribution for mining; It’s discussed QX. were gas impacted. energy, Yes. industries mainly in which It’s general oil that major is and four and the semiconductor; same we us;

look the I Distribution, compared if up inventory industrial through distributors the push think so OEM that so that lot QX there’s had is actually the impacted a you X.X%, and side. I hard and quarter-to-quarter, months gone we business. the over OEM deleveraging QX our of the in last to restocking continue to four think industry on

We’re starting see to long-term orders QX. up picking actually our and QX into

on and activity so how within we’re And the and We the at going in quarter comes where the business out. it’s the in on on XX% quarter. to count industrial us, for of within out on our our count to revenue least an see out about quarter side

Pete Skibitski

Got it.

kind queue. the insourcing automation, strong first to And as is talk get to, talked had about you past hear You that ask about maybe more the great I’d quarter there the what Can you well back trends just that margin? about I’ll environment the so a the going Okay. one point margin pin to thing pricing and more of forward and love can of the on I’ll and benefits in driver in margin? one of down guys was good front.

Michael J. Hartnett

Yes.

of And I expansion from us. I these year. think in The all – major our progress the making key start-up in Pete. we’re of on Southern we programs a rest came getting think going and see on through processes margin margin really are approvals we’re on spending programs sites several programs the there. terms week in-source. to just could to back of major several I – have been several and that we And this California way the continue good the And for over have – execution with are that better, still in operations we need

in the And so that’s margins future. better going accrue to all

So the this margins and quarter strong nothing say, – seen you what do were they ain’t yet.

Pete Skibitski

news. That’s great

and over previously last the So talking you actually about are more you what talked insourcing guys even about year. had planned

Michael J. Hartnett

probably the HVOF elastomeric powder in the that it with just cad maybe yes, – you didn’t kinds of I processing, we’re and plate, we’re was bearings. look that insourcing coating, mean we chrome Well, think treatment, But nickel heat aluminum things the talk – mean, plate, at lubrication copper pigment detail insourcing I if plate, plate, needed. about

from pretty along we’re terms of with stuff all processes to certification of supply in the internal insourcing the far and the those OEMs of industrialization We’re that those and processes.

process the OEMs, but of I in is the think maybe which sort – And of accelerating that’s think tent. with So pole the through X/X we’re the I about long the way approval now.

we through think And more processes approved. December, – by I expect the approval. we’ll have way end of I’d the been the difficult X/X of be

approved have We it’s coming some which new cited. can’t in, equipment be until

approved third And quarter. be so processes those our probably that And fourth in quarter. in cited our will

It’s it’s big So deal. a significant.

Pete Skibitski

color That’s appreciate I great. Thanks guys. the for it.

Operator

Markets. question KeyBanc line next Steve your of the comes of And Barger Capital from

is line now open. Your

Steve Barger

Hi, good morning, guys.

Michael J. Hartnett

morning, Good Steve.

Steve Barger

markets. you markets, coming aggressive from Are able the has shift new I’m that industrial do there going some share? are been question. negative so light, in the not end any with revenue year-over-year track or but Or to for end products competitors served to in getting seen some momentum? stick We’ve you any pricing think market

Daniel A. Bergeron

Steve. don’t have, No. think I we

really they’re distribution to about down bit but I on XX big – – and years and definitely in that Virginia-class light jump a think last But of we’re quarter subs, gas conference boat the our And have Offsetting size year a be down. XX growth. still XXXX. pressure markets we for with so put on Newport are nice to was was – which business plus And comp. one up News QX It’s them as year, it’s Marine going some all was to call going when this because and of these us. us. mining. just markets little are for oil had going of and growth of to and fairly we the a Both on that’s build it’s comings – for the to talked on is some

Steve Barger

Okay.

just would more to maybe a expect Or and double-digit in more about industrial aerospace? coming a the as are starting of standpoint, industrial? rate you should think like next that aerospace from moderate so quarter and mix down more quarter, about I you up? recovery How for see think revenue for growth I a And still

Daniel A. Bergeron

we’ll I defense. like on tough experienced we’ve growth industrial in think, once double-digit somewhat we’ll comps, aerospace and again, another industry and so QX down had have for be

Steve Barger

you big Got for – you. four talked Any about end you. those markets

through Or start to seeing the there moderate – are orders construction market are a equipment. is channel? you big some that We that historically? – Is seeing for you what construction

Daniel A. Bergeron

It’s again, haul starting we that. market business – a quarter. we’re booking back out the for and into not in heavy to little are get On folks QX. the that Liebherr, us. trucks mining us QX lead in would coming see Komatsu, normal and for it’s for items that than a Those Caterpillar, longer but huge And like be our in

Steve Barger

platforms, thing, cranes, work But Got aerial sort the big? that of you. as not

Daniel A. Bergeron

No.

Steve Barger

it. Got

Thanks. Okay. line. Back in

Operator

Merrill BofA of And next Liwag Lynch. your comes of from the line question Kristine

is line open. Your now

Kristine Liwag

Good morning, guys.

Michael J. Hartnett

Good Kristine. morning,

Kristine Liwag

MAX XXX in to and the you? the production have you On discuss Boeing a temporary ahead have pause currently mean that that and the And then you implied also, producing? the rate for volume were today, could that would you’re what program, if go

Michael J. Hartnett

Let’s see.

the our rate. XXX So we’re ship feeding current the month MAX XX – currently per at

little that rate other is XX. some don’t it more, some operations little is rate it that in way, noticed demand a that know operations And operations We in Some the but occurs a less. is. demand XX. operations, why is I what the

a they the in information it’s getting turn October. from on little that confusing. to from ship So expect that – The we’re Boeing,

turn more rate so October to they’re quarter up that telling and rate. have in get such know that quarter. And bring substantially no they sure supply such base to I’m to that. comment after But at I on ship know, the on ready I Now than

any that’s pushouts hope contracts schedules are signing to because let’s we’re sure loaded the soon, I’m us not pause, that’s – delay. So – expect it really we is the have be than and expect will there that would a offset more we doesn’t if new how we as case. going our If which to affect a that of

and So I fiscal of really for aerospace loaded is business think the kind XXXX. our of locked balance

Kristine Liwag

gears. helpful. maybe That’s switching And

quarter your stock’s with high. a to ended net and close record position the pretty cash You

pipeline well. strategic Can and you So currency are discuss if your use financial the there as then you what for you’ve to requirements? M&A? And want it got

Michael J. Hartnett

pipeline the M&A Well, is for good.

something so looks but at actually positive. look – And the second part small of complete quarter. is Whether options. question? it in pretty that And The anybody’s small actually we was or our to not large second and occurs M&A like it what we continue guess, looks – to your expect

Kristine Liwag

hurdles, strategic the invested some at hurdles, your looking are return What you’re of hurdles on sort or that capital financial metric? either

Daniel A. Bergeron

meet that have the us, business can at that our we Kristine have will north it and and can now. close – Kristine, and able we to to current it return Well, – be at we we our to it base. for a a current look deal, invested be for targets year on synergies to accretive of that little standpoint, little which we bring first in XX% in did customer from to Sargent products we’re exceed leverage same is the bring to times. levered three we when capital, on a up looking And across And

wouldn’t down The in we’ll scare we paid in told that us. And that and it So five Street years down pay we four.

the could another extensions if said, a meantime, line opportunities model. would tuck-in So be in a lot really we we’re lot product to that – of nice at of current our also like that find deal, looking business great. Sargent And Mike are

Kristine Liwag

Thank you, helpful. very

Operator

from of Godfrey comes question of King. CL the line And your George next

open. now is line Your

George Godfrey

morning. Thank you Good the taking questions. for question. Two Thank you.

is, the be to factory argument, customers Airbus AXXX, for to sake just of volume AXXX and ramp the would XXX Boeing XXX? Boeing up versus reconfigure were The you difficult lose issue ship Or first would that it step if floors? time the for take to production the to one for on a your

Michael J. Hartnett

of AXXX Well, the as that And it XX% have on yes, move. also, would on the content MAX. the is much on probably We XXX substantial we – have the content. we content the on so have

So...

George Godfrey

production a versus was standpoint, difficult wouldn’t to in what to XXX. trying down pushing the be That’s up that From production get I at. it ramp

Michael J. Hartnett

both Actually, virtually that Many on. are. identical. the them what but a on ships are parts used parts are not, are much pretty of It’s lot of lot tooled we’re a

is And wouldn’t both on on And the is engine engine LEAP engine the so the difficult. presence presence XXX. ships. And it be substantial fan on have engines. obviously, we gear And the same both turbo the –

George Godfrey

September, space quarter ready to or space floor the And also the will in to the a would next have shop shop then the waiting OEM floor part equipment or equipment and be for it. – and I the By is, just and need on from second more constraints, be delineate to you equipment Got the infrastructure just space December of standpoint, wanted the certification. versus capacity between certified end go year? and do you’re now March to OEM certified? Or that more process you Thanks

Michael J. Hartnett

plants have of the XX-XX is equipment place. are processes built. installed. an on The XX% in The Well, basis, been

of OEM certified other representatives been them been have Some every week certified here already. already. More working have And than certify we in one-third have to the sites.

of need substantial and in expecting So It’s very I think we’ll we’re tool the – some kind the will of where machinery to have that some the we’re with issue which plants little be. weeks, the some eight – to push to same. over next bit plants have a contracts we be to of the more we convert of

George Godfrey

taking Got it. my Thank for you questions.

Operator

Michael Thank next of from line comes of the you. And question SunTrust. Ciarmoli

Your is open. line now

Michael Ciarmoli

questions. Hey, the good for taking guys. Thanks morning,

even burn I we about sustaining XXX. the like rate you picking potentially double-digit like sounds talking years any it’s impact inventory we best flattish take see down mean, up, XX? on it that Just how – have guys even going of the sounds two at get if it a back mean in to growth production are scenario to of to I rate if Boeing XXX. does the looking the certification, case,

Michael J. Hartnett

burn of because shipping mean the – two-year got or a four I – they months. I been four mean ships last that’s see down and they’ve of the I three – only the they’ve mean out have been for don’t just backlog out Yes. rate. been I only months

Michael Ciarmoli

– they’re they to mean they going to And year, next Boeing close – have fuselages. Spirit to if Well, said going even I going XXX mean October, all Aerosystems’ if plane. that’s regardless I they’re at have into to be that get what basically that’s – XX – of

going these – to is planes be So of there. to unfinished the is take process ability well. I airline’s going delivery product as to that mean slow the out Again,

Michael J. Hartnett

subcontracting together rate. that XX – because Yes. be production guys this can in Well, some the don’t stayed put together of base think back at I these fast

support have didn’t them the working of XX rate. Some capital the

Some to opinion didn’t going on that come everybody that had Boeing of I back how run operation. their strong. them they own were to mean believe their

together take And going a back is Dumpty so time glue. put lot to to and again Humpty some of

So get the – I if to year, be than back can it is they they’ll objective think Their obviously good. rate be. XX higher should so as next doing that,

got – We’ll to that the we going to some content back new get – double-digit they on have we’re tooled. and we’re much still of that in still I if other Frankly, rate, the be platforms suspect so range. are XX

Michael Ciarmoli

– and at mean because into XXX – I not mean as covered quarters, to coming is we that at little Is The of we a might growth the much XXX. is deliveries. that bit. in AXXX XXX Okay. rate, honestly I be XXX content. these rate, have quite mentioned terms you look just there’s looks delayed.

I call that like the the So share growth last behind too, Is – to you the mean content sounded market rate? it expansion. double-digit from be supporting driver are gains, going

Michael J. Hartnett

market Yes, content Yes. share it’s right. and It’s gains the exactly expansion.

Michael Ciarmoli

And better sequentially? four you on just Can quarter, you one about quarter from you industrial. sequentially to give last last us give the sense us key and just – OEM which ones it. a Got the talked which one markets. got got Can this then worst

Daniel A. Bergeron

I’m the I have numbers of of me. I talked can’t. but just sorry. QX have And ones last we don’t front in QX. have I’d last I just front quarter year in me. No, about, it’s the

Michael Ciarmoli

mean, sequentially ordering we I trends. believe the – But that it. Got do Okay. everything

line pretty mentioned think you sight. I you’ve some got good of

semi mean trying I a markets? that has really end those of any in but nothing erosion been out? time, any seen pretty jumps haven’t having You

Daniel A. Bergeron

No.

so it fell we’re starting fact, QX, again, see matter We’ll point more but QX it’s in impact to starting QX. won’t to more positive. a and up semi As

Michael Ciarmoli

Okay, Perfect. will the a in I queue. Thanks lot, okay. back guys. jump

Operator

the you. from Instructions] Sullivan Seaport Global. your And Thank [Operator of question comes from Josh last line

now is open. line Your

Josh Sullivan

good Hey, morning.

Michael J. Hartnett

Josh. morning, Good

Josh Sullivan

Just on the shipping various rates you aerospace XXX side, to mentioned. follow-up on the

I products guess inventories? pretty there Or are per for from think products, – be these – month. you this these is point? these month, cycle large per your I’m at XX preproduction low needs to inventory any at, to products? said do Are products carry XX getting what that’s off still XX I that short anywhere burned And

Michael J. Hartnett

the position, maintain inventory try of on an position production – most ship that in we’re the so answer to we can stock try there’s them these many inventory Yes. a goods so to think – on from we items I’m the of plant on to maintain that line is that. finished an that line trying we MRP and have floor. items, to flexibility

see down don’t I issue. any Now burn

are issue – enough. they the if it the sooner looks think be inventory more positions I is, more to and the if than turn when it’s later, on like rather MAX and and likely they deep

Josh Sullivan

And in of per that still dynamic? then can I I the tightness mean do XX get think see here. a this your do year mentioned out think Or you Even last month challenge. getting markets that quarter you you XX next the was year?

Michael J. Hartnett

hearing there. the I the shortages XXX can to mean current awful a of the in it, still support see suspect I have there. here – they don’t system get But rate. we’ll not if that lot capacity they have it We’ll that build get that get happens. I on I’m and I’m how there’s subcontractors an on do believer there. the

Josh Sullivan

then that that seeing area any applications? some the for thoughts What traditional you switching detail. are you Is markets guys take Are an to industrial have this the you meaningful PCDs at just where bearing over on market? And of gears Thank Okay. PCD your share point? side.

Michael J. Hartnett

PCD? a What’s

Daniel A. Bergeron

understand. we sure not I’m

Josh Sullivan

in energy Yes. to particularly The some coming crystal are bearings the applications. market synthetic that

Michael J. Hartnett

and Maybe read No. are. about go see YouTube what I’ll the I’d love things to to hell those them.

Josh Sullivan

it. Got you for the Thank time.

Michael J. Hartnett

Yes.

Operator

showing turn to Thank no over I’m at you I so questions this time. now call much. like Dr. to And further Hartnett. would the

Michael J. Hartnett

participation interest to you to the call today. speaking in October. Bearings again in and RBC your thank Well, look again And Okay. you we your for in forward

Operator

conference much for you And who this participated concludes call. your in Thank today’s today’s and conference. presenters, so thank everyone you

disconnect. You may now

RBC Bearings (RBC) 3 Aug 192020 Q1 Earnings call transcript