Q4 2020 Earnings Call
If you require any further assistance. Please press start zero I wouldn't know like to hand, the conference over to your speaker today Brooks Hamilton of Alpha I.R. groups. Thank you. Please go ahead, it's there.
Good morning, Nagy for joining us for our B.C. bearing physical 2024th quarter earnings Conference call with me on the call today are Dr. Michael J., Hartnett, Chairman, President and Chief Executive Officer, and Daniel acres around Vice President Chief Financial Officer, and Chief operating Officer.
Before beginning today's call, let me remind you that some of the statements made today will be forwardlooking made under the private Securities litigation Reformat, It 1990, but.
Actual results may differ materially from does projected or implied due to a variety of factors.
For you to RBC bearings recent findings with the S.P.C. for a more detailed discussion of the risk that get in packs. The company's feature operating results in financial condition.
These factors are also described in greater detail and the press release and on the company's website.
In addition reconciliation between gap and non get financial information is included as part of the release and it's available in the company's website.
Now altering the color the Doctor heart.
So thank you Brooks and a good morning.
Next sales for the fourth quarter of fiscal 2020 $185.8 million versus 182.2 million for the same period last year.
Two per cent increase.
The fourth quarter fiscal 2020 sales of industrial products represented 36% of our net sales.
Aerospace products, 64% of our net sales.
Gross margin for the quarterly 76.6 million or 41.2% of net sales.
A record reflecting years of work on methods improvement.
Improvements and capitalization and mix management.
Compares to 73.0 million or 40, 40.1% for the same period last year, it 5% increase overall.
Operating income was 43 million be 23.1% of net sales.
<unk> was 56.3 million.
6.2% increase over last year.
The quarter started is the best of times and finish with the play good government interference in the economy and coded uncertainty.
We were able to execute a normal court quarter from an operating perspective by taking extraordinary measures to protect the health and wellbeing being of our employees.
By adopting strict procedures for environmental management.
Published by the center for disease control.
As a result, we were able to accommodate the needs of our customers operator plants in a manner where.
All these new they worked in his own of safe.
Sales for the industrial products were down at 1.9% from last year.
The prime variance from last year.
Natural resources markets of mining oil.
Sales to industrial after market, we're about to save his last year.
Just.
Less than 1% overall.
Aerospace and defense markets continue to perform well for the first two months or the period.
And demand lessons in March.
Quarter organic net sales would up 4.3%.
Aerospace sales were driven both.
I, both Oh, we in defense, which accounted for one third of the sales we classify aerospace segment.
<unk>.
2.1% from an organic basis essentially was up 7%.
Important contributors, we're helicopters arrow engine space and missiles.
Yeah certainty around today's 737, Max outlet continued but now had taken second priority challenges.
Industry uncertainty presented by the.
<unk> epidemic.
The major European producers appeared to gain their footing in may providing strong direction.
Action.
Rates.
Model.
To us we are now reworking our production schedules to integrate those corrections into production and sales plan over the next several quarters.
Regarding our first quarter of this whole 21, we're expecting sales to be in the range of 150 255 million.
We go.
Very substantial amount of order book.
Indeed, the issue opt in Iraq.
Occurs around.
Customer.
Credits.
Whether or not.
<unk>, whether or not the customers around time with the with their payments, which seems to be in the aerospace sector somewhat some whatever problem right now.
Altering the qual over to Dan for in more detail at our financial performance. Thanks, Mike.
S tree in April 4th quarter fiscal 2020 was 31 billion compared to 29.5 million for the same period last year increases mainly due to 0.8 million of additional incentive stock compensation and 0.8 million of additional person that we need a cost offset by 0.1 million about their savings that's a percentage of net.
S. G.N.A. was 16.7% fourth quarter of fiscal 2020 compared to 16.2% for the same period last year.
Operating expense for the fourth quarter 2020, what's expensive 2.1 million compared to expensive 3.2 million for the same period last year.
The fourth quarter of 2020 other operating expense.
Expenses, what the price mainly of 2.6 million of amortization of intangible assets.
C.O. point 8 million of restructuring to expand 0.1 million of other items offset by 1.4 million gain on the sale bar.
Being in Houston.
They're operating expenses for the same period last year consisted mainly of two point between doing any indication of potential assets and 0.9 million of restructuring expense.
Operating income was 43.5 million put fourth quarter of just put 2020 compared to operating income 40 point between going for the same period.
2019 on and adjusted basis operating income would have been 43 million for the fourth quarter of fiscal 2020 compared to adjust to operate income a 41.2 million for the fourth quarter and fiscal 2019.
Fourth quarter.
2020 Company report a net income with 33.8 million compared to net income 31.4 million for the same period last year on adjusted basis that income would have been 33.1 million.
Quarter 2020, compared when it tries to net income with 32.9 billion Saint period last year.
I knew that earns per share with $1.35 per share for the fourth quarter fiscal 2020.
Two $1.27 per share the same period last year.
<unk> for the fourth quarter fiscal 2020.
33 per share compared to my adjusted diluted E.T., a sort of dollars 33 per share for the same period last year.
Turn into cash flow that company generator 44.4 million in cash from operating activities and the fourth quarter just for 2020 compared to 29.5 million for the same period last year, and 55.6 million 155.6 million in cash from operating activities.
Fiscal 2020 compared to 108.5 million for the same curry last year.
Capital expenditures when 9.7 million in the fourth quarter, a fiscal 2020 compared to 12.1 billion for the same period last year.
12 month basis cap X. was 37.3 million compared to 41.3 million same 12 month period last year.
The fourth quarter of fiscal 2020.
We pay down 0.5 million to debt.
12 month period, we paid now 46 point between million a debt.
<unk> March 28 2020.
23 million and cash on hand, with 103.3 million I would now like to turn to call back to the opera <unk>.
Thank you.
And as a reminder to ask a question you would need to <unk> your telephone to withdraw your question press the pound or a hash key please standby, while we compiled the queuing day roster.
Yeah first question comes from the line of Michael.
The barter with key bank capital markets.
Hey, guys see bargain here can you hear me, yes, do you how you doing.
Good Thanks Hmm.
Can can we talk about the bridge to your one Q. 21 guide by and market you know, maybe just how much you expecting arrow down versus industrial.
I think they're <unk>, they're probably you know, we we haven't actually broken it out that way state, but but I I would guess or don't about the same.
So your your guy in the entire quarter down you know high May die keen you think that is appropriate way to model it for both sides of the business.
Yeah, Yeah, I think so yeah, we we have.
You know we.
It's it's a little it's a little.
Difficult to sort that true yeah right now in in in terms of of.
Of the industrial products.
Given the the short cycle nature of of those products.
So but on the other hand, we have all sorts of.
Additional programs that are facing in that.
Or a little bit you in some some of which are a little bit unique and we haven't seen before sort of <unk> setting some of that.
The so this we see in the short Psycho business. So.
So we're thinking that's probably down.
Less less than 15%, but we're using kind of a 15% number is ever guidance.
And so just signals for a minute I think you said you're prepared common see after market was down 1% overall, what what'd that look like in the back half of March and and how did April on the first part of May trend from an industrial distribution or the products go through distribution I'm the industrial side.
They.
<unk> the quarter was much stronger than I ever anticipated you know.
Course, you know you get to the end of March and you hear all the all the horror stories about the country closing down and you wonder exactly what that is going to mean to demand and we saw a really good demand through <unk> through most of the quarter.
To me it just seems to be tailing off in this in this last.
Six weeks here, but it's still it's still decent and it's you know it certainly within our guides.
And you said, there's some unique programs that are coming in can you give a little more commentary around that.
Yeah, well, we're we're seeing you know is.
Our our marine program is.
Submarines is is really showing some good strength, that's going to be up substantially. This year is probably going to be up a as much as 20% this year for us.
Ground defense is showing strength.
A whole defense sector, whether it's.
Whether we classified as industrial or or aerospace is is really strong we we have new program, which.
Offshore wind.
Which we've we've booked which cool which is brand new to us and.
And I I'm not sure that we had any shipments in the fourth quarter of.
2020.
We might have had a minimal amount of that product in that fourth quarter, but <unk>.
<unk> that program phases Internet in a nice way.
For the next to a few years and.
And we've picked up some.
[noise] some good.
Submarine businesses in in Europe that.
It was a little bit of a surprise and.
And in our semiconductor manufacturing businesses is is strong so.
You know if that.
Some of these some of these.
Elements are are recycling in it at exactly the right time for us.
That's that's good thank you.
I know you don't want to get too far ahead, but can we talk about the back council of your fiscal year, there's tough compston arrow and three queuing for cute. So just given what you know today about Oh, we market after market and the back all how should we think about revenue cadences. The year progress is back half lowered in the front half that got better.
Kind of what are your high level thoughts.
Oh, we're thinking the back half is gonna be stronger than the than the first cat.
And.
You know to the.
There's a there's there's a lot of there's a lot that has to happen in the world.
And I think you know people kind of understand you know where the aircraft cycle is and what has to be done in that whole in that whole world.
But the fact that Boeing you know raised at 25 billion has given them.
A tremendous competence in their in their build rates and and so.
They're giving us very strong direction with regard to what they want for product from us were encouraged by that.
Well <unk> reworking manufacturing schedule schedules.
Accordingly, you know if you look at.
If you look at Boeing's.
Investor Web page, which I I did this morning because.
They don't want to disclose anything that I shouldn't.
So I'm, saying pretty close to their web page.
You know, they're they're planning on 31 per month shipped built of 737 Max's.
They're very confident that until.
Chief certification.
August and and we're we're confident with them and.
And so that gives us a lot of a lot of direction with regard to how we should be running our plants and or whatever revenues are going to look like so I think that back half of years can be good.
And you would make those same comments for the industrial side of the business as well.
Must be a side of the business.
You know as long as I've been involved with this business, which.
Unfortunately is 30 years now every time, we've had a recession.
The industrial side of the business has.
Let us out in that short cycles industrial business has been the leader and I don't don't expect this is gonna be any change at all because these states open up.
And all these you know plants come back on line and all these.
You know all of the maintenance that has to be done and has been differed has to be.
It'd be cared for we're we're we're we we expect to see a good strong industrial towards cycle business.
Got it one more and I'll jump back in line I read the Delta reported their retiring they're 18 Triple Seven's early just thinking about that how does that impact your planning around the triple seven x.
Well.
Yeah, I look at the Triple Sevenx and Boeing's plan is to build.
You know five five triple seven series.
With one and a half being the x.
Her months.
Going forward you know beginning you know every month that their their plants are open.
They have 350, playing sound backlog, so somebody likes to ship.
I can't say I know exactly why.
But somebody likes to ship.
And and they've got you know like their rates they've got five years back on so.
I I I can't say I I know the complete I'm completely knowledgeable about the marketing aspects of the triple setup.
<unk>.
Understood. Thanks for the time yeah.
And once again to ask a question. Please press star than the number one from your telephone keypad. Your next question comes from the line of Michael Somali <unk>.
Hey, good morning, guys. Thanks for taking the questions here, maybe it could just stay on you know kind of that that's the second half 21 forecasts I guess I'm just a little bit confused you know it's we're we're seeing material you know rate reductions across you know commercial aerospace and.
Booting nearly all be Airbus platforms, it seems like.
Most of the appears out there are calling for Oh, we revenues to be down you know anywhere from 30% to 50% and if I. If I just run you know back at the envelope on your Shipset content rate, you know, where they were and where they're going it would seem to imply about 100 million dollar.
No revenue headwind when you think about where are the three twenty's going down too you know even if the 737 gets back to 30 didn't want it still coming off 42. The 787 gets caught the eight 350 so.
And that's not even accounting for any d. stock in in the supply chain can you can you just maybe you reconcile how you're you're really confident in the stronger second huh.
Yeah, I I think.
We're saying a stronger second half then first cat, we're not saying a stronger second half.
Comps relative to last year, let's make it just makes her that's clear right.
Okay. Okay. Okay. So so we're saying you know the first half is going to be what it is.
Maybe.
Reap more reflective of the first quarter than it was.
<unk> than anything else in the second half will be a better second half expected you know nice bounce in the industrial business, we expect the marine business to continue to strengthen right now we're capacities constrained in some of our read.
Helicopter businesses that was definitely capacities constrained.
You know Boeing hasn't built a 737 ship and.
January February March or April or May so they haven't haven't produced anything in those during those periods. So the fact that they're going up you.
You know build volume 231 ships per month.
Ah effective January is.
Means that.
Some hardware is going to have to flow.
And.
And so you know we're encouraged we're encouraged by that and right now that hardware for the 737 <unk>.
So okay.
The first and second quarter, we're we're not expecting to to flow much of that hardware at all.
Okay, and and what about you guys have any visibility as to what's been in neat.
Why chain you know not so much on the Max but you know certainly on the 320 787, D.A. 350, I mean, it would seem like there there is going to be some potential destockings that might exacerbate the rate reduction. Some notes platform do you guys have visibility there.
You know all we can do there is is make make our best guess, we don't have we don't have a great visibility we're planning on running.
The plan set of Destockings level.
[noise] for the next two quarters and.
And that's just the way it is.
Okay, and then what about on the aerospace after market side. It seems like that's really.
Been under much more pressure you know just given that the airlines are sort of that 80, 90% produce capacity. You know you have any any visibility as to what happens to that piece of the business to the distribution talk.
[noise] [noise] I think that's gonna be soft for you know a considerable period I mean these these carriers.
Carriers have to be.
Flying there find their ships and.
In order in order to generate the merril requirements and they're <unk>, they're just not so we're not we're not expecting any great things from from that sector until.
Till the.
They start selling seats on these planes.
Okay, and then clarification you said I think in your remarks, you know an aerospace side you said the border Orderbook look good but payments I haven't really been coming in can you can you sort of just elaborate on that and what you're seeing from I guess your customers regarding maybe just more detail around my comment.
Sure.
Yeah, we have plenty of order book.
And.
And the question is who's at four.
And and how is he.
Was he paying as bill and and so some of these some of these people that are in the sub contracting supply chain.
Are struggling financially.
And so you know you you don't want to get them too far.
Too far removed from reality in terms of what they owe you a and so you have to sort of a lighten up on what you're willing to ship them until they until they.
There there.
There there account and.
So that's just added to a level of complexity that we don't normally have to deal with but we're we're in a in a very good.
Very sound position to deal with things like that.
Okay. Okay, and then just the last one all jump back in the queue. You know you guys over the past I guess in 12 24 months brought on a lot of capacity capabilities qualification played them pigmentation treating it's that.
The volume's in Aerospace go down as you were you know trying to alleviate along those bottlenecks how does that that impact you know you're margin profile on I mean, <unk> margins were phenomenal when the quarter, but you know do you see that extra capacity being a drag on to go forward basis.
[noise] short short answer is no.
I can give you a long answer unless you're not satisfied with no.
You mean, yeah.
I would love to know how your you know before being all that overhead yeah, you have any additional color that'd be great yeah.
Well.
You know get our B.C., you know by and large we you know we're a variable costs business.
So we bring in materials.
We we add value to them.
And we ship them to the customer and.
We ship them through the customer.
<unk> too.
Design that we're you know uniquely qualified to execute.
And so be you know if if the volume goes down.
Major expenses are materials.
And outside processing.
And that's typically.
Half of our manufacturing cost.
And and the other half is is.
Burden labor.
In the labor is burdened with overhead.
And.
And the largest component of of that overhead or you know factory salaries.
And benefits.
And.
You know as you if you adjust your [noise].
Population in the plant you adjust your.
<unk> structure.
And you ease up on your material input and as long as you have plenty of top line to work with everything will balance up 40 again.
And so that's basically how we run the business and we actually.
Budget.
<unk> the budgets for every plant every month to make sure that were.
That were.
[noise], we're we're executing in accordance with with good.
Good principles there so.
So we don't yeah. The the the fact that we've added <unk>.
Capacity in terms of floor space.
Oh, a lot of the plants we own.
[noise] capital equipment, well those were.
You know eight four out of a.
Dark cash flow.
There's no there's no that associated with those.
And the depreciation as a percentage of our sales is still something like three or 4%. It's it's small.
So you know that that aspect of the of the overhead is is a little tiny factor that actually.
Doesn't really.
Impact our impact our ability to.
To achieve our our margin levels very much at all so so <unk> you know basically what we have to do is we have to figure out what at what rate do we want to run the plan.
How much product that we want to make how much costs input do we want it.
We want to what cheap to make that product.
And you know given the fact that mixes now.
You know we've.
And executing these this next or.
For years and years, you know there's not there's not much there's not many secrets left in terms of what Americans are gonna be.
God.
Yeah, you might lead to leave a little bit more cost and the plant in in charge. It against margin. If you think you're you know you're into a short term.
Situation, where you know do there's gonna be growth in the second half of the year and you don't you don't have to go back and you know we assembled the band.
So.
On the other hand, if you don't see that happening for you.
Then you know what what you have to do is clear.
Got it perfect. Thanks, guys on <unk>.
Your next question comes from the line of beats the bit ski with <unk>.
<unk>.
Yeah. The morning, guys Echo Mikes comments on the great gross margin.
So Mike you've given first quarter revenue guidance and and.
You know basically said that the second half will be better than the first stab. So should we all expect basically that the second quarter revenue will be kind of the trough quarter for the year.
You know we haven't.
Yeah, we're we're still working.
A second quarter, you know projections right now and and we're not we're not expecting much.
And we're not <unk>, we're not expecting a big search and the second quarter.
This this whole thing has been.
[noise] has been a a exercise and dead reckoning.
You know dead reckoning.
Generally speaking guess, yeah, well, that's when you get on a sailboat in your sailing along in a fog you don't know where the Hell you are but you know where you started from.
So you keep taking a compass setting and every 15 minutes you you'd check your depth and you would just make an assumption on where you are in the map and after doing that for three or four hours, you don't know where they all year.
So.
That's dead reckoning, So I'd say after after the result of this.
<unk> 19.
He almost we almost have to run this company under a dead reckoning.
Proposition and take each quarter.
As it comes and and executed to the best of our ability.
And and we've pretty much re budgeted our entire year.
And we understand exactly where the years with the years looking like we're not ready to talk about that today.
And we re budget every quarter and now we were were read.
Thing.
Are mathematics around to each each one of those assumptions and taking the necessary actions in order to make to make it all come out right. So.
I don't think the second quarter is I I think the second quarter is gonna be look more like the first quarter, then it's going to look like the port fourth quarter.
Okay. Okay.
Okay. Yeah, I just wasn't sure if that had wins in commercial never in the rate reductions in commercial working out maybe <unk> was thinking maybe they wouldn't impact the first quarter marching we'd see it more more than said it was in the second quarter I guess that was my line of thinking [noise].
Okay isn't that just on on margins you spoke about that but yeah. If we went back to the last cycle I don't have the adjusted margins back that far but the gap Martin's came down you know six or seven points during the last cycle and and I I would think you know the rate reductions are steeper. This time around on the commercial side. So.
You know <unk> are you, saying you think margins can stay flat this year, even in a down environment or maybe you're expecting some modest degradation already thinking about that.
Yeah, I'd I'd say modest degradation I I don't.
Don't know what happened in the last cycle and they don't really want to think about it.
[laughter].
Yeah, you're right. It's this this is completely different cycles in the last cycle and and it's a lot of it is dependent upon what the government it's going to do next.
No what the Hell, they're gonna do.
So.
I think you know, we're we're we're restructuring things so that the margins.
Are gonna be.
Oh.
The record level that they were in the fourth quarter.
They can get back there over time, and we're just going to we're just going to give it a little time and see how this of this world develops.
And I think the margins will be reasonable and I think our cost structure is.
Under control I think our understanding of the of what our revenues look like is definitely under control.
And I don't think anybody's going to be disappointed in the result.
Yeah, you expect to be free cash flow positive I guess than not.
Yeah definitely yeah. Okay last question for me I don't know how much you can say about this but on the last call you mentioned some gains on some missile programs that one of your division secured I think it was related to you know there's there's different relationship between the U.S. in Turkey kind of the fall out from that can even when we talk about you know the size of that operative.
<unk> <unk> business that you gained.
And maybe which unit you know I came through.
Yeah, well actually it's it's probably in the $8 million to $10 million per year range and.
And it it's it's doing a nice it it's it's it's doing nicely to fill in some of the some of the loss in the in one of our commercial aerospace divisions.
Okay, Yeah, that's all incremental for fiscal 21 basically.
Well, it's it's it's substituting yeah, rather rather than making you know parts that we'd planned to make for one of their ships will be making.
This other this other material.
Okay, Great take a guess yep.
Your next question is a follow up question from the line of Michael's Karmali with <unk>.
Hey, guys. Thanks for taking a follow up just wanted to get any thoughts I mean, obviously evaluation to come in a bid here have you you know given any more thought to to Capitol deployment M. in a you know certainly the balance sheet looks looks pretty solid, but but how are you thinking about capital deployment. It may be more specifically Ah and the name.
Well I mean, we've you know we continue to.
Continue to look for the right.
[noise] the right partner and.
Right acquisition candidate that it would you know fit what we do and in some of them.
Fit nicely.
I think I think given given the you know.
The the whole situation that the world is it right now.
I think our our appetite to do something.
Large is.
Is is.
Has lessened.
Until we understand with the with the.
Prospects for these businesses are but there are some small there are some small intermediate size businesses that [noise].
It looked like good candidate.
[noise] God. Thank so yep.
[noise] [noise] there are no further questions at this time I would turn to call back over to management for any closing remark.
Well I think that that concludes our.
Fourth quarter and fiscal 2020 conference call. We appreciate everybody.
Participating today and <unk>.
Talk to you again in July.
Today.
Ladies and gentlemen disk includes today's conference call. Thank you for your participating you may know disconnect.
[music].