RBC Bearings Incorporated (NYSE:RBC) Q2 2024 Earnings Call Transcript

RBC Bearings Incorporated (NYSE:RBC) Q2 2024 Earnings Call Transcript November 11, 2023

Operator: Greetings, and welcome to the RBC Bearings Fiscal 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations. Please go ahead. Deep Ball Groove Bearing

RBC Bearings Incorporated (NYSE:RBC) Q2 2024 Earnings Call Transcript

Josh Carroll: Good morning, and thank you for joining us for RBC Bearings fiscal 2024 second quarter earnings conference call. With me on the call today are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer; Daniel Bergeron, Director, Vice President and Chief Operating Officer; and Robert Sullivan, Vice President and Chief Financial Officer. Before beginning today's call, let me remind you that some of the statements made today will be forward looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Bearings recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.

These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website. With that, I would now like to turn the call over to Dr. Hartnett.

Michael Hartnett: Thank you, Josh, and good morning, and welcome to everyone. I'm pleased to report that our net sales for the second quarter of fiscal 2024 were $385.6 million and this represents a 4.4% increase from last year. For the second quarter of 2024, our industrial products represented 67% of our sales and aerospace products 33%. As a footnote, over the past five years, revenue growth at RBC has been compounded at a rate of 16.8%. Gross margin for the quarter was $166.3 million or 43.1% of net sales. This compares to $151.1 million or 40.9% for the same period last year, a 220 basis point improvement from last year. Clearly, we are tremendously pleased with this performance. The gross margin expansion is derived from increased volumes in our aerospace products plants, thereby improving our absorption rates, coupled with synergy achievements from the Dodge acquisition and price improvement overall on most lines.

Our profitability, we are ahead of plan and making good progress and expect to finish the year with gross margins in the low to mid 40% range. Again, many thanks to the RBC teams for this performance. We all understand well that excellence in customer care is the cornerstone of our success. Adjusted operating income for the period was $88.4 million, 22.9% of net sales compared to last year's $76 million and 20.6%, respectively, a 16.3% improvement. Free cash flow was $45.6 million, debt reduction continues to be a priority. We have achieved a $490 million decrease in debt since the acquisition of Dodge in November of 2021, 24 months ago. We've now have achieved a net debt to EBITDA ratio of 2.71 over the trailing 12 months, down from 5.65 from fiscal 2022.

RBC's record of EBITDA growth over the last five years now stands at 19.9%. Adjusted EPS was $2.17 a share, adjusted EBITDA was $122.1 million, 31.7% of net sales compared to $108.8 million, 29.5% of net sales last year, a 12.2% increase. Overall, we are proud of the continual improvements made in the execution of our business and are excited to see the robust acceleration in demand for our products from industry leaders in the aircraft, marine and space industries. We look forward to a March year-end with revenues finishing between $1.55 billion and $1.6 billion range. On the industrial businesses, during the quarter the industrial growth was a negative 2.8% overall against some pretty strong comps last year. At that time, improved supply chain performance allowed us to ship orders, which were late to customers, creating a bulge in revenues.

RBC Bearings Incorporated (NYSE:RBC) Q2 2024 Earnings Call Transcript

Packing Wheel Bearings On A Trailer Dodge revenues were down 4.4% year-to-date, and we expect to be up in Q3 a few percentage points in this -- on this measure. RBC classic industrial sales were up 1.7% during the same period. We had very little supply chain impact in the -- on the classic side of our industrial business. On aerospace and defense, commercial aerospace was up 24.9%. The aerospace and defense sector was up 22.9% overall. OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites and rockets. Aftermarket was up 26.1%. The main drivers here, jets, helicopters and jet engines. The aerospace market is now strongly accelerating with volumes increasing quarterly. The deman