Q1 2021 RBC Bearings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the RBC bearings first quarter fiscal 2021 earnings conference call.
At this time, all participants' lines ARNA listen only mode.
After the speakers presentation, there will be a question and answer session.
Last question during the session you'll need to press star one on your telephone.
Please be advised that todays conference is being recorded.
Have you require any further assistance please press star zero.
I'd now like to hand, the conference over to your Speaker today, Mr. Brooks Hamilton Investor Relations. Thank.
Thank you. Please go ahead Sir.
Good morning, Nagy, joining us for RBC bearings critical 2021 first quarter earnings conference call.
With me on the call today are Dr., Michael J., Hartnett, Chairman, President and Chief Executive Officer, and Daniel Iberdrola, Vice President Chief Financial Officer, Chief Operating Officer.
Before beginning today's call, let me remind you that some of the statements made today will be forward looking in our made under the private Securities Litigation Reform Act Nice 95.
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 FCC for more detailed discussion of the risks that could impact the company's future operating results in 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 non-GAAP financial information is included as part of the really is available on the company's website.
Now I'll turn the call over to Dr. Horton.
Thank you Brooks and good morning, and welcome to.
RBC is first quarter fiscal 21 conference call.
Net sales for the first quarter of fiscal 2021 were 156.5 million versus 182.7 million for the same period last year.
Decrease of 14.3%.
For the first quarter of 2021 sales of industrial products represented 37% of net sales for aerospace products.
Yeah, 63%.
Gross margin for the quarter was 59.5 million were 38% of net sales.
This compares to 70.7 million or 38.7% at the same period last year.
Adjusted operating income was 29.9 million.
19.1% of net sales compared to last.
Here's number of 38.5 million or 21.1% itself.
Adjusted EBITDA was 43.8 million and 28% of net sales compared to 50.8 million in 27.8% net sales and the same period last year.
And we ended up quarter with 143.6 million of cash.
And 23.1 million of pets.
We entered this quarter with limited visibility and uncertainty due to the impact of.
And I am excited the economy and travel.
We continued our extraordinary measures to protect the health and wellbeing or employees.
Customers and vendors.
With our strict procedures for environmental management as guided by the C. D C.
[noise], we continue to upgrade all of our plants in a safe manner.
Experienced a few corn planting mandatory shutdowns that lasted.
Two weeks at most.
Sales of industrial products were down 13.3% from last year.
The prime variance from last year fell in the natural resources markets mining and oil and general industrial activity.
Sales to the industrial aftermarket were down 12.3% driven by.
The main industrial distributors in both the United States in Europe.
Few quarters back we discussed a few green shoots, which we started to see the benefit in Q1. This year, mainly in wind semicon military vehicles and high speed trains.
Aerospace commercial and defense first quarter 2021, net sales were down 14.9%.
Aerospace defense, OEM and aftermarket increased 11.9% offset by a decrease of 21.4% commercial aircraft OEM and aftermarket.
[noise] important contributors for aerospace defense for helicopters engines missiles and.
I mean for Jets.
The uncertainty around commercial aircraft travel due to the pandemic continues to put pressure on the commercial aircraft filters and their supply chain.
The major airframe producers appear to have a clearer view on the build rates over the next 12 plus months.
That in turn is setting our requirements to meet their expectations.
We continue reworking and fine tuning our production schedules and capacity to align our supply of our products to the new demand levels.
Regarding our second quarter, we're expecting sales to be between 140 $852 million.
And that is of course a.
A difficult number can project.
First of all it's challenging to guests with the GDP is going to be in the skinny.
And our second.
School quarter third calendar quarter.
I've seen industrial expansion numbers as high as 20% for this period.
Much of our business is in and out the same day never hits backlog.
It's.
Basically we really never have been any forecasting situation like this so trying we're trying to play the ball in the middle of the fairway as best we can and hence we came up with that with that guidance.
[noise] I'll now turn the call over to Dan promote more detailed on the financial performance.
Yeah. Thanks, Mike I asked you name for the first quarter fiscal 2021, 26.8 million compared to 30.1 million to the same period last year. The decrease was mainly due to 4.1 million of lower personnel related costs offset by 0.8 million of other costs.
The percentage of net sales as gene a was 17.1% for the first quarter fiscal 2021 compared to 16.5% for the same period last year.
Operating expense for the first quarter fiscal 2021, less expensive 3.8 million compared to expense of 2.1 million, but the same period last year for the first quarter fiscal 2021. Other operating expenses were comprised mainly of 2.5 million in amortization of intangible assets and 1.1.
Moving up restructuring costs and related items and 0.2 million of otherwise.
Other operating expense for the same period last year consisted mainly of 2.3 million any amortization of intangible assets offset by 0.2 million of other income.
Operating income was 28.8 million for the first quarter fiscal 2021 compared to operating income 38.5 million for the same period in fiscal 2020.
On an adjusted basis operating income would've been 29.9 million for the first quarter fiscal 2021 compared to adjusted operating income of 38.5 million for the first quarter fiscal 2020.
Other non operating expenses were zero for the first quarter fiscal 2021 compared to 0.2 million for the same period last year.
First quarter fiscal 2021.
There. So he was 0.01 other non operating expense could probably still point 1 million a foreign exchange offset by 0.1 of other items.
They're non operating expenses for the first quarter fiscal 2020, consisting primarily of 0.4 million a foreign exchange loss offset by 7.2 million of other items.
For the first quarter fiscal 2021, the company reported net income of 22.7 million compared to net income of 30.5 million for the same period last year.
On an adjusted basis net income would have been 23.6 million print first quarter fiscal 2021 compared to 30.5 million for the same period last year diluted earnings per share was 91 cents.
Per share for the first quarter fiscal 2021 compared to $1.23 per share the same period last year and on adjusted basis diluted earnings per share for the first quarter fiscal 2021 would have been 95 cents per share compared to adjusted diluted EPS of $1.23 per share for the same period last year turnaround.
Cash flow company generate 48.4 million in cash from operating activities in the first quarter fiscal 2021 compared to 40.1 million for the same period last year capital expenditures were 3.9 million into first quarter fiscal 2021 compared to 12 million for the same period last year and its Mike. So he said total.
Bad debt as of the ended June was 23.1 million and we had 143.6 million of cash on the balance sheets on now I'd like to turn call over to the operating for QNX.
As a reminder to ask a question you will need a press star one on your telephone.
Withdraw your question press the pound.
Please standby, while we compile the coupon a roster.
Our first question comes from Pete Skibitski with the lumber Global your line is now open.
Hey, good morning, guys nice nice quarter in light of the environment. We're all in here.
Thank you.
Yes. So so like you touched on Mike you guys have kind of the updated production forecast for Boeing and Airbus and I'm, just trying to get a better feel of you know did your first quarter did you see kind of you know the maximum commercial aero headwinds that you think you well, especially on the OE side, you just kind of.
You had those same headwinds the balance of this year than the comps could easy pretty early in fiscal 22.
Sure.
I do not slow down your production.
Quite the same way as we might see in the back half 21, if that if I'm being Claire.
Yeah well.
I think for the first quarter you know this all this happened in March right.
I mean does tend to have thing and so by March for me you you are literally moving into.
Your first quarter production rate.
And you can't be moving into your first quarter production rate. If you don't have your well all of your material inbound.
So basically at all or materials inbound.
And.
So then yes.
It's almost it's impossible to change the.
They reflect the change in demand in your production schedules and that's sort of time period.
So we ran the normal production schedules and.
And started planning.
How to run the balance at the year as that's possible given up.
You know.
Tremendous amount of calculus that we went through business by business, where the baseline is.
And and where our production rates should be set and.
And that kind of determines what our cost needs to be in order to maintain the margin performance that we'd like to maintain so.
All that churn.
Opened in the first quarter.
I don't know if I answer your question.
Well, so if we're thinking about the second quarter sequentially into the second quarter, you, you're not guiding down very much it's almost close to flat in the second quarter. So are you, saying commercial aero might be down more year over year to second quarter, maybe it offsets a bit from industrial getting stronger.
Yeah, I think industrial gets a little stronger commercial aero kind of back down an entre too.
Trial and and you.
Just just just our view on that I mean.
Yes.
It's really it's clear to everybody the carriers are going through a really rough patches road.
Everybody season.
And.
I think it's just it's clear that the people people are sick of being confined.
And they conquer be R&D whenever they get a chance.
So I think with that telling us is with the release of the vast vaccine by Pfizer or margin Derrick era or whoever else.
But the other 100 people that are working on it.
Later in the later in the quarter.
Later in the year, which I expect it looks like it's going to be sort of in October kind of timing.
As at the earliest.
You know things will things will get better faster.
Unfortunately, many of the carriers.
[laughter] failed the smaller.
And.
But the demand for aircraft capacity, we expect to see exceed it.
Supply.
So.
Just because theres not as many carriers and this and the people that are running the running the carrier lines.
Our our strength stressed financial.
So ticket prices will go up.
That will draw new money into the industry.
I think this is going to happen fast.
Certainly within the next six to nine months.
We expect.
Huge turnaround.
And then I think when you could get to the builders Boeing and Airbus, they're going to have the opposite problem.
Because they are the supply chains and damage.
And.
And their entry as mode right now trying to figure out which are their suppliers financially are going to survive.
And.
And how do we.
Hello, They work statements of work because the with they considered survivors.
And we know for sure and the discussions that we've had with.
With some of these big builders that we're in the winners Cal.
And so we expect a considerable expansion of our statement of work.
So.
In between between now and then.
We're going to.
You restructured our cost base to run at this new level to maintain you know some pretty pretty decent margins and.
And we expect towards the other ended this year.
See things improving on an accelerated basis.
That's great that's great couple of questions on it that's not to get back a few but I mean can you retain gross margins at 38% or above the balance of this year do you anticipate.
We're going out we're going to try to do that.
There's nothing.
There is nothing flashing at us to tells us that we can't.
Okay, and then we regard.
Sorry.
We have some very healthy businesses and.
And you know about 45% of the company that.
There are doing extraordinarily well expanding margins and growing so.
That's helpful base in our independent of any of this nonsense.
Yeah, Okay, and I, just on like sort of gaining share.
You know.
Will it come strictly from you know gaining statements of work or do you anticipate you now.
Buying distressed assets, you know either kind of on your own or maybe the Oems kind of ask you to pick up some distress players out there are you guys thinking about that.
You know we.
If we are seeing a distressed assets that are attractive to us we are seeing distressed assets, but they're not attractive.
So you know whether that whether that comes comms full circle is to be seen is well known another time.
We're not expecting that we arent, we are expecting to pick up statements of work.
Okay got it I'll get back in queue, let someone else. Thanks guys.
Yep.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.
Our next question comes from Michael Ciarmoli with true Securities. Your line is now open.
Hey, good morning, guys. Thanks for taking the questions nice nice quarter here in light of everything.
Mike I guess I, just got to try and figure out a little bit more on commercial aerospace I mean do you know even we just said a six to nine month downturn, we're hearing.
Multi year downturn it seems like.
Most of your customers are reporting that they are there for OEM build revenues are down you know far greater than their expectations in the 60% range. We're seeing inventory de stocking I know you know just as you know earlier is last quarterly call, which was May you guys were talking a little bit.
We're optimistic about Boeing and build rates and I'm I'm, just struggling to to the C or figure out where you guys are getting this confidence from I mean are you. It sounded like you were producing on normal schedules, but we've seen rates come down. So can you give us a sense of what you're producing astra across.
Some of your biggest programs like the seven the Max and.
I know you said arrow would be down but it just seems like some of these these OEM headwinds are going to be pretty persistent for some time.
Yeah, well, we're producing we're producing at a rate.
We're attempting to produce at a rate that's slightly lower than the.
The build rate that.
Yes, the builders.
Yes.
Advisers.
So.
Just just too because I know, there's some inventory in the system I'd like to get that inventory relieves out of the system I, just don't want to push more and more in there. So.
We basically restructured our costs plant by plant to operate.
Additionally, at those at those levels.
What do you what are the conversations like with your customers, whether it's a honeywell or Pratt for GE. I mean are you are they revisiting their purchase orders with you or because we've been seeing that some of the.
Larger suppliers are slowing down their inventory and their materials by pretty substantial number. So what are the conversations like with the customers right now.
Well, they're out there all different you know I mean, if you take honeywell or prep or GE or some of the large ones.
No you end up with a.
I supply contract with that.
And.
You know and Theres, a certain statement of work.
Certain parts in certain.
Bases.
Supply those parts and.
Compute periodically during the week they send you a barcode of what to send that.
So you don't you don't really have any backlog on that stuff.
You know you just electronically authorizations for ship.
Right.
So part of the industry the big Big guys worked that way.
Boeing doesn't work that way, particularly but a lot of the lot of the big subs do and then there is other subs that are smaller and they work.
Contracted contract where they have a.
We give them a.
Pricing delivery and they give us a purchase order to deliver at that price at a certain time now those people that.
That in that second category.
We actually.
For the most part with the it's a very confused lot of people.
Who don't know what order or went or rich or whether they should be.
Whether they should be.
What mass they should be applying based upon boeing's guidance.
So we tried it we try to advise them what they should be ordering.
When it should be delivered if they have orders that are in excess of what we see as their true requirements. We moved those orders out later into this year and sometimes into next year.
Okay.
Okay, and then got what.
What about just on the a couple of quarters ago, you kind of data your view on.
How the Max rates would would kind of dovetail with the ramp but a triple sevenx.
We've obviously got the triple Sevenx being delayed and.
Can you give us a sense of just those two programs alone where you are in the Max I. Thank you not one point it.
Certainly the direction from Boeing looks a little multi clearly, but maybe they produce two hundreds next year, but where are you guys on the Max It sounded like you were more optimistic last quarter that you were going to get to that 31, a month rate certainly that's been pushed a 22, so what's the thoughts what that platform.
Yeah, I think the last time, we talked about that with with.
Some split.
Yes, the medical that's assisted he was in February.
And.
Then.
In his prepared dynamic.
This is where they expected some extra run and this is where the expected to triple seven in the Triple seven extra Ron This is our content and therefore this was the net result, so so all of that's changed I mean, so right now. It's we're just we're just seeing up too.
Two of Boeing has projected for Max build rates and triple Sevenx build rates and we did our.
Manufacturing and sales plan in accordance with those rates.
X.
What we believe was it was just too much inventory in the system.
Okay, Okay, but it sounds like I mean, even on the last time when we re spoken may it sounded like you know.
I mean, they were certification by August 31, sorry, just sounds like that it's lower volumes and you know trying unplanned sitting right here.
Okay. Okay.
All right I'll jump back.
Yes, I think I think it's a big picture thing I mean, it you know people start traveling in the air carriers.
Get refinanced or healthier or whatever whatever happens there I mean this whole this whole thing turns around and if that doesn't happen. Then this thing doesn't journal.
And unbelieving it turns around and it turns around and a big way.
Got it got it alright, thanks, guys.
Yes.
Thank you.
Our next question comes on Pete Skibitski with Alembic Global Your line is now open.
Okay short list today, so Mike I was going to ask you what drove the strong growth in defense sales in the first quarter, but and it almost sounds like it was across the board and except for submarines. My thought is that maybe submarines really ramp in the second half for you is.
Would you agree with that in any color you would add.
Yeah, Dan he does submarines or in industrial right and put the quarter.
They were up.
Around 1.3%, Yeah, we'll see the ramp on marine and the second half of our year because the block nine.
I mean, the block five nine ship you know, it's all done in and in house. So we'll start working on on those ships over the next.
Nine nine months and that definitely will have a double digit growth on that portion of the business.
For us.
Okay, that's great that's correct.
And then I want ask one question about the segments. Since you guys put the Q out, which would which was great. The ball bearings segment, you had 29% growth in aerospace and defense in the quarter, even with kind of a tough comp and I'm just wondering what kind of in particular drove that type of growth in that segment.
Yes, it's mainly our thin section bearing and on the industrial side of it it's.
Driven by semiconductor and on the.
Aerospace side, it's driven by space.
My space, Okay. Okay, and then just last one for me on the industrial side, you guys have touched on it but even coming into the first quarter.
You thought you'd see I'm kind of easier comps in the back half of the year in industrial and a return to growth there.
And we saw a better PMI in June but is there anything led you guys the change that view.
No I think you know, we finally started to see the first three weeks to July.
The incoming orders starting to pick up which is a good sign as Dr. Horton instead of low earlier, our industrial side of the business two thirds of its in and out in the quarter.
So its little hard to forecast that side of the business.
But we're starting to see it come back and that's being driven by semiconductor, it's being driven by high speed trains.
In our European the entity that are going into China, it's being driven by.
Our wind projects that were working on and it's being driven by military vehicles, which are in the industrial segments, which are helping.
Pushed to the volumes for us.
That's great that's Craig actually one last one for me on the backlog.
Backlog did decline even kind of the book to Bill was 0.7.
Which which is low for you guys and I know we've talked about in an outside of a business.
You know anything unusual there in that decline in terms of you now more risk cutting into the second quarter or third quarter or do you feel like everything that we.
The decline in backlog is kind of you know im confident with everything we've talked about thus far on the call.
Yes, no I think.
Yeah go ahead go ahead.
I think it's aligned with everything we said in the call I think it's certain portions of the longer lead time items on aerospace as Mike has talked about well were pushed around our cancelled and but that was offset by increased volumes, we picked up on defense.
Okay.
And it's never industrials are never a big component of our of our back.
Okay. Okay. So if we if we do start to see better revenue in industrial and second quarter third quarter that might not necessarily show up in backlog at a time.
Right unless that all popped in the last month the quarter [laughter] right. Okay. Okay.
Okay, great. Thanks for the how fast.
Yep.
Thank you.
Our next question comes from Steve Barger with Keybanc capital markets. Your line is now open.
Morning, guys.
Hey, Mike.
To your comment about 40% to 45% of the business, that's doing well right now how how's your visibility into the back half do does it feel like those are are pretty firm lines of business for the next two three quarters.
You're talking about the industrial side of the business.
Yeah, you had made the earlier comment about the 45% of the business, it's doing well I think it was in response to a gross margin.
Yeah, I seem to say Oh, yes.
Excellent.
It is that primarily the defense stuff that you've already mentioned or what are some of the product lines that are looking good from a visibility standpoint.
Well, it's certainly marine.
Certainly helicopter defense.
Let's see helps us in there.
Yeah, we have wind in there.
Semi conductor.
Yes.
Yeah space and.
Missiles.
Are you seeing distressed competitors on the industrial side in any comments around specific opportunities to bid on new business.
Well, we've seen distressed competitors on on the aerospace side some time.
And that right that that continues to give us opportunity to to bid on business on the industrial side the.
People that we compete with by enlarge our.
All big balance sheet players and.
And they seem to be able to get through periods like this.
With.
Little pain.
Okay.
And do you guys have a long track record of improving your operations over time, just given the slowdown when do you see opportunities internally to make structural or procedural changes to the operating model that you couldn't do in normal times.
Yeah, absolutely, we're going to we're going to compile combine some of our plant operations, which we wouldn't do.
When there.
Too busy and we've completed one and we're working on a second one this quarter. So yeah I mean, we're trying to.
Center, we've reduced the rooftops.
Right. So you would expect that to flow through the income statement. This year then.
Yes.
It would be material.
No.
Okay.
And what about I think in the past couple of quarters, you've talked about wanting to in house some.
Certifications from third party suppliers is that still underway.
Yes, yes, it certainly is underway it's.
I would just delayed a little bit we're waiting for.
The auditors from from.
From the various agencies, including our own Oems to come and.
Sign off our processes that are.
No.
Hey.
Processes are in place the ready to be audited.
And we'll be ready to be.
Commissioned and they will they will impact our.
Our with levels in our margin.
Improvements to immediately.
Okay.
And then just last one for me free cash flow, obviously strong right now with lower Capex and working capital management.
Revenue I mean, sorry inventory has come down that much seph revenue continues to decline mid teens do you have an inventory target or or an idea of how much you could unlock from working cap.
Yeah, I mean, we we.
And our current operating rates.
You know.
Basically the discussion that we had about the first quarter or that the materials were inbound and there's not much you can do to turn that around in the short term. So we ended up with excess materials excess with.
As we brought the plant operating expenses and throughput rates down. So you know will liquidate out those those materials as time goes on and tournament finished product.
Then in terms of finished goods, yeah, we need to.
We need to pare down our finished goods level and there may be maybe.
10 or $20 million with.
Liberation overall and in that did that package.
Okay. Thanks.
Okay.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Dr. Horton for any closing remarks.
Okay, well that.
Some of it sounds like where we are right now and I appreciate everybodys.
Attention and interest in the in the call today and look forward to speaking to you again.
Later in the here.
Good day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
[music].
Yeah.