Q1 2022 RBC Bearings Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Q1 'twenty 'twenty 2 RBC bearings earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone and.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr will stack with Investor Relations.
Good morning, and thank you for joining us for RBC bearings fiscal 2022 first quarter earnings Conference call with me on the call today are Dr. Michael J, Hartnett, Chairman, President and Chief Executive Officer, Daniel a Burger on director and Vice President and Chief Operating Officer, and Robert Sullivan Vice.
<unk> and Chief Financial Officer before beginning todays call. Let me remind you that from the statements made today will be forward looking and are made under the private Securities Litigation Reform Act of 1095 actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC.
<unk> 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.
Factors are also described in greater detail on the press release and on the company's website and.
In addition, reconciliation between GAAP and non-GAAP financial information and it is included as part of the release and is available on the company's website now I'll turn the call over to Dr. Hartnett.
Thank you will and good morning, and welcome to all it seems like we're having these calls weekly now.
And it's just a pleasure to speak to everyone every week.
Net sales for the first quarter of fiscal 'twenty, 2 for $156.2 million versus $156.5 million for the same period last year, a decrease of 2%.
And had some delays and shipments and 1 of our divisions as a result of <unk>.
<unk> inspection, which is beyond our control so.
And that's where we are.
For fiscal quarter for the first fiscal quarter of 22 sales of industrial products represented 48% of net sales with aerospace products at 52%.
Gross margin for the quarter was $63.8 million or 48% of net sales. This compares to $59.5 million for 38% for the same period last year.
Adjusted operating income was $31.3 million, 20% of net sales compared to last year's 19, 1%.
Adjusted EBITDA was $45.3 million.
99% of net sales compared to $43.8 million and 28% net sales for the same period last year.
And we ended the quarter with 296 million and cash and.
And securities and $10.8 million a day.
Quarter was 1 where the industrial markets continue to show increasing strength.
Our industrial OEM businesses non marine.
Demonstrated a quarter to quarter balance of 42% over last year.
Demand was strong and virtually all components of the market, except oil and gas.
But the letters appears to be making a comeback now and the July quarter.
<unk> and the industrial aftermarket was almost as impressive with a 32, 6% expansion over last year.
We saw demand ranging from excellent to extraordinary and most markets are.
And we're looking forward to a strong second quarter from the industrial businesses and.
Expect a continuing but some moderation and demand through the balance of the year.
Our strong industrial markets, where construction and mining and industrial distribution.
Distribution semiconductor machinery.
As Shane tool wind and train.
Turning to aerospace and defense sector was up 18, 3% for the quarter.
Sequentially when normalized for production days it was about.
And that with the preceding period.
Aircraft OEM was down almost 22, 5%.
This can be almost entirely attributed to the slow ramp of the 737 Max programs through 'twenty, 1 and into calendar year 'twenty 2.
Yeah.
A problem that should resolve itself and the quarters ahead as Boeing steps through their monthly production rates from todays 17 per month.
To January of 2023 of 42 per month.
But we're now seeing increases in orders and shippable later in the year across all of our plants that service and supply both Boeing and Airbus.
Today, we are combing through over 200.
<unk>.
2000 and line items excuse me.
Bearings and assemblies, we supply to the industry to ensure we have materials logistics and staff in place.
Seamlessly support the next 2 years and build rate increases.
Regarding our second quarter, we're expecting sales to be between 158 and $162 million.
And I will now turn the call over to Dan and Rob for more detail on the financial performance.
And thank you Mike.
And since Mike has already covered net sales and gross margin and I will jump down to SG&A SG&A for the first quarter of fiscal 2022 was $29.8 million compared to $26.8 million for the same period last year the.
The increase was mainly due to higher personnel costs of $2.4 million and <unk> 6 zero.
<unk> $6 million and other items.
Percentage of net sales SG&A was 19, 1% for the first quarter of fiscal 2022 compared to 17, 1% for the same period last year.
Other operating expense for the first quarter of fiscal 2022 was $3.2 million compared to expense of $3.8 million for the same period last year for the for.
First quarter of fiscal 2022, other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets, and <unk> 6 million and restructuring costs and other items.
Other operating expense for the same period last year consisted mainly of $2.5 million and amortization of intangible assets $1.1 million and restructuring costs and <unk> 2 million of other items.
Operating income was $30.7 million for the first quarter of fiscal 2022 compared to operating income of $28.8 million for the same period in fiscal 2021 and on adjusted basis operating income would have been $31.3 million for the first quarter of fiscal 2022 compared to adjusted operating income of $29.9 million for the first quarter of 2000 and 'twenty 'twenty 1.
And sorry 2021.
For the first quarter of 2022, the company reported net income of 26.0 million compared to net income of $22.7 million for the same period last year on.
And on an adjusted basis net income would have been $26.3 million for the first quarter of fiscal 2022 compared to adjusted net income of $23.6 million for the same period last year.
Diluted earnings per share was $1 <unk> for.
Per share for the first quarter of fiscal 'twenty, 2 compared to <unk> 91 per share for the same period last year and on.
On adjusted basis diluted earnings per share for the first quarter of fiscal 2002 was $1.4 compared to <unk> 95 per share for the same period last year.
Turning to cash flow and 1 of our strongest quarters to date, the company generated $53.3 million and cash from operating activities and the first quarter of fiscal 2022 compared to $48.4 million for the same period last year.
Capital expenditures were $3.4 million and the first quarter of fiscal 2022 compared to $3.9 million for the same period last year.
Total debt as of July 3.2021 was $10.8 million and cash and marketable securities on hand.
$296.1 million.
I would now like to turn the call back to the operator for the question and answer session.
At this time if you have a question. Please press Star then on number 1 on your telephone keypad, we'll pause for just a moment and take a pause the Q&A roster.
And your first question comes from Pete <unk> Kubicki with Alembic Global.
Hey, good morning, guys long time no talk.
Yes.
Good day.
Yeah.
Yeah, and nice quarter I wanted to start out Mike I think you talked about delays in shipments from I think 1 unit because of source inspections could you guys maybe quantify how much revenue was impacted by that event and maybe aerospace.
Aerospace sales are industrial sales.
Yes, it was industrial sales and it was about $2 million.
Okay. Okay.
Got it and then.
On the aerospace aerospace is interesting because.
It was it had 4 quarters of down aerospace sales. So this should have better and easier comp quarter.
Thought maybe Mike you mentioned something about.
Fewer days in the quarter or did I hear that right or am I completely wrong on that yes.
Yes.
There's more there's more days and our fourth quarter, then there is and our first quarter. So when you normalize the 2.
About even.
Okay and the.
First quarter was the same number of days and the first quarter and fiscal 'twenty, 1 or no.
Yes, it's about the same yes.
Okay. Okay. Okay.
So are you seeing kind of some recovery and some of the and demand for some of the other platforms is just mainly to Max that was the <unk>.
The headwind this quarter.
Yes.
And it's mainly the Max I mean, the other the other platforms are.
And our.
Almost incidental.
And to what's going on here the Max the Max is really kind of a big deal because.
When we look at.
When we look I have to quote.
Industry analysts.
Numbers because.
Im kind of and insider on the aircraft stuff and I can't quote.
The exact and rights but.
The.
When I look when I look at what the industry expects.
Boeing to build this year, it's somewhere between 115 to 160 <unk>.
<unk> right through the calendar year.
And.
And I think that number is a good number.
And and next year is 300 to 340 sort of Thats the range.
Yeah and the.
A year after its 500.
And so.
The.
There's been a sort of a.
Our liquidation of Boeing's inventory, because if you look at our last.
Our first quarter last year.
We still have full order books, and we still have full plants and we were shipping shipping.
Shipping.
Orders too.
On to subcontractors and to Boeing.
We had on the books and so.
And that that inventory now is clearing the system and as well as.
And everybody else's inventories, including Boeing's.
So.
We're seeing.
This pick up and.
And demand to support the.
The builds next year of.
Sort of.
In our fourth quarter summit, some on our third quarter.
Frankly, I think we should be.
If life worked perfectly and it never does.
<unk>.
We should be starting our products.
Year ahead.
Their build rate.
Sure.
Simply because.
It takes 6 months.
To make it simple to make the bearings.
And of the 6 months, probably right now, it's 20 or 20 weeks to get the steel.
So we don't have a lot of time and make the bearing and sometimes for bearing has to get frequent flyer and to get all of that you're going on.
All of the outside processing and that has to be done and thats.
The exception to the rule, but still its the rule.
No.
Yes, I mean, we should.
I think the industry is a little bit delayed right now and turning on the volumes that they need to.
To produce the planes that are expected to be produced.
So.
So that debt.
That calculus falls on us to make sure that we understand what we are obligated to supply and when we're likely to supply it.
And so we're going through those planning routines now to make sure that.
And that we have the product.
And the aircraft builders need when they need it and.
And if you look at the step up.
I mean.
Those 30 planes to us.
Our 300 planes next year and 300 to $3.40 next year.
And that's probably.
It was $45 million to us and over over the course of 12 months and revenue.
So it's a big it's a big number for our plants to absorb.
And so we wanted to get way ahead of the game in terms of getting everybody into position to be able to.
Support that.
And then you look further at the Skyline chart and there is another 200.
And step up.
223, and so.
There is.
There is.
There's going to be a lot of.
A lot of demand and headed our way and.
For the last thing, we want is not to be able to execute it efficiently.
And service the customer on time.
Alright, I appreciate all the color.
I guess last 1 for me just looking at your defense revenue the last 3 quarters defense ex Marine and.
And I know you have a lot of you on the F 35, and stuff, but we have seen defense down for a few quarters and I know a lot of other suppliers have had some F 35 inventories that have had on kind of flush out as Lockheed has kind of slowed things a bit there on an interim basis. So is that and that what's going on for you guys. Maybe just some interim F 35 headwinds.
Or do you think you and me.
Do you expect it to step back up later this year and next year or 2.
Could you just sense of defense is kind of.
Getting some headwinds there just because of the overall budget flattening.
Well I see I see.
And then looking at the tables so.
And I think on aerospace OEM defense I mean.
Q1, and Q1 last year were only down 3.6%.
It's just not big numbers on total sales its $2020.6 million compared to $21.4 million.
On the aerospace and defense.
So it's a little lumpy with the F 35, and the new lot sizes lot coming through and some of the work that we're doing on the military helicopters.
But some of that's being offset by the strength on our missile programs and.
And.
And that we're working on with Lockheed and and others.
Okay. Thanks, very much guys.
Your next question comes from Michael <unk> with <unk> Securities.
Hey, good morning, guys. Thanks for taking the questions here and nice results.
Maybe just sticking on on Aero, what Pete was asking was there any I mean.
The step down.
I guess on a.
On a sequential basis.
For the Aero OEM.
And it's pretty significant.
It seems like a 14% step down maybe you mentioned and the working days and any other changes on some of the wide body platforms and you've got a lot of content on the 787 or any way to parse that out was it wasn't more engine was it more airframe content.
And it seems like that definitely snuck up on you.
There was supposed to be kind of sequential improvements and growth I mean, it just seems like a big move down.
Yes.
And it's.
It's all about.
Order order rates by Boeing and and.
And its subs and <unk>.
And I think right now they're trying to.
So the planes they built.
And liquidate assets in the middle.
Yes.
But if.
I would say that.
There.
Their priority to do that.
Maybe is more extreme than it should be and and it could affect there.
The ability to build planes and future if they don't turn on the supply chain.
Okay.
That's helpful.
What about anything on the aftermarket side.
I know, it's kind of a tale of domestic narrow bodies. You guys were again I think sequentially flat. There I mean are you seeing any noticeable changes on the aftermarket.
Distribution outside of apparel well.
Well.
Yes.
The aftermarket distribution side of the business.
And then.
And usually.
At this at this stage and the.
And the cycle.
The distributors.
It would be.
Okay.
Loading up their inventories.
Knowing that build rate increases we're going to be substantial.
And the market would be.
Buyers would be.
First.
With service levels.
And that would be normal at this at this stage and the cycle.
Not normal now as so many of the aftermarket distributors.
Our owned by.
And new owners.
And new management teams.
And.
They don't.
And don't have experience.
I don't have the experienced and cycle.
So what they should be doing with their capital right now they don't appear to be doing it.
So that the aftermarket in terms of distribution.
Yes.
No.
What does it look like and Scott will start.
Yes.
Q1, FY 'twenty 2 was around $12.2 million compared to Q4 and the longer quarter was $12.3 million.
Yeah. So it's kind of just tie ended up doing a little better than Q4, because it's more production days in Q4.
Yes.
Okay, Okay, what about last 1.
Sorry.
Yes.
But the repair side of the aftermarket is.
And it's been a pleasant surprise for us that's been.
And that's been strong and and it's.
Producing well.
Got it.
Last 1 you kind of brought up inventories there, but just a shift that maybe to industrial I think last quarter.
You noted that there was so much demand.
And kind of depleted inventory Russian and replenish did you called out the 2 the $2 million.
<unk>, but did you kind of see that that same piece of demand persists I mean, obviously you add.
And I add back for $2 million sequential uptick there and industrial but were you able to catch up on on inventory to meet demand or did you lose out on some revenue this quarter.
No.
Making it as fast as we can we can.
We can deliver.
And we do have some.
Fly chain.
Challenging getting getting raw materials, which we're working.
And correct Okay.
Thanks, guys I'll jump back in the queue.
Okay.
And again for any questions. Please press Star, then and our bottom line and your telephone keypad.
And your next question comes from Ken Newman with Keybanc.
Hey, good morning, guys.
Good morning.
And I wanted to step back to the Aero side, a little bit.
Good color in terms of the forward outlook for Aero, obviously with the build rate is kind of coming up into the second half.
I'm curious how do you weigh that against some of the slower ramps and the larger wide body platforms. As we think about the step up and the second half for Aero revenue versus the first half is that.
And I guess.
And that revenue for arrow be up double digits like 10% or is that.
Is the ramp via the the build rate going to slow down a little bit.
No it can be up double digits and the second half.
And.
Okay.
It needs to be up double digits, and the second half to support that.
And to build the Boeing build rate so.
Net.
And that's how we see it.
Let's hope lets hope for cards get played that way.
Right.
So I guess with that and mines.
And obviously, you put up really strong gross margins and the quarter.
And I'm curious, how sustainable a 40% plus gross margin should be for the remainder of the year.
And I kind of think about potential inventory builds and and just the expected step up on aero growth for the second half.
I think it will be lumpy journey quarters, but I think by the end of the year, we should be close or a little north of that 41%.
And.
A lot of that just <unk>.
<unk> on higher volumes any way to kind of parse out how much of that is better pricing or any color on price cost either for the quarter and just your forward outlook.
Yeah, well each each division.
So that we have has a.
Keeps the ledger on what price increases we've seen from on.
On materials and suppliers.
And what the price increases we instituted and.
And to the market.
To offset the price increases for materials and suppliers and we.
We always like to be a little bit ahead.
And also we put significant investment and and.
Bringing all these out side.
<unk> services inside for the aerospace business and 2021 and we still haven't seen the full benefit of that investment.
As of Covid, because it build rates dropped off so we should see win.
The aerospace business.
Picks up it picks up and the volume picks up we should see some nice improvement driven by this investment that we made over that 24 month period.
Right.
So.
And this will be my last 1 here just trying to put a finer point on price cost here I guess.
Obviously, the industrial aftermarket.
Sales were up as you were mentioning to Mike earlier.
And.
I'm guessing the pricing increases for those for those products within that channel are pretty instantaneous.
Can you help us kind of put a finer point on just how much price was a contributor to the sales growth and aftermarket for industrial versus just purely volumes.
Yeah, I'd say on the industrial side.
And especially in industrial distribution and our first quarter.
It wasn't price.
And on <unk>.
Industrial OEM and.
And some cases it is.
Other cases, it's the ability to pass through raw material.
And inflation that comes through and the way of surcharges savvy every segment's low different every customer is a little different and.
And every channel is a little different and there's just a lot of good efficiency happening and the industrial side of our business. When your business is up 30% to 40% here really absorbing your assets nicely.
Understood. Thanks for the color.
Yes.
Yeah.
Thank you and that is star 1 for any questions.
At this time there are no further questions I will now hand, the call back to Dr. Hartnett for closing remarks.
Well.
Thanks, Thanks for.
And for participating on the call today and.
We will be certainly talking to you again.
By early November and discussing our third quarter and our.
Second quarter.
And which were.
Anticipating another strong quarter.
Yeah.
As I said, we are expecting sales to be between 158 and 162.
And.
And Thats.
And that's looking.
Very positive.
That concludes today's conference. Thank you for your participation you may now disconnect.
[music].
Good morning, ladies and gentlemen, and welcome to the Q1 'twenty 'twenty 2 RBC bearings earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please.
Press Star then zero on your Touchtone telephone as a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr will stack with Investor Relations.
Good morning, and thank you for joining us for RBC bearings fiscal 2020.2 first quarter earnings conference call with me on the call today are Doctor, Michael J, Hartnett, Chairman, President and Chief Executive Officer, Daniel a Burger on director and Vice President and Chief Operating Officer, and Robert Sullivan Vice.
<unk> and Chief Financial Officer before beginning todays call. Let me remind you that from the statements made today will be forward looking and are made under the private Securities Litigation Reform Act of 1095 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 on the press release and on the company's website. And addition reconciliation between GAAP and non-GAAP financial information and it is included as part of the release and.
And is available on the Companys website, now I'll turn the call over to Dr. Hartnett.
Thank you will and good morning, and welcome to all it seems like we're.
We're having these calls weekly now.
And it's just there and pleasure to speak to everyone every week.
Net sales for the first quarter of fiscal 'twenty, 2 for $156.2 million versus $156.5 million for the same period last year, a decrease of 2% we had some delays and shipments and 1 of our divisions as a result of.
First inspection, which is beyond our control so.
That's where we are.
For fiscal quarter for the first fiscal quarter of 22 sales of industrial products represented 48% of net sales with aerospace products at 52%.
Gross margin for the quarter was $63.8 million or 48% of net sales and this compares to $59.5 million or 38% for the same period last year.
Adjusted operating income was $31.3 million, 20% of both net sales can be compared to last year's 19, 1%.
Adjusted EBITDA was $45.3 million.
99% of net sales compared to $43.8 million and 28% net sales for the same period last year.
And we ended the quarter with 296 million and cash and securities and $10.8 million a day.
And.
Quarter was 1 where the industrial markets continue to show increasing strength.
Our industrial OEM businesses non marine Derma.
Demonstrated a quarter to quarter balance of 42% over last year.
Demand was strong and virtually all components of the market, except oil and gas.
But the letters appears to be making a comeback now and the July quarter.
<unk> and the industrial aftermarket was almost as impressive with a 32, 6% expansion over last year.
We saw demand ranging from excellent to extraordinary and most markets are and where.
Looking forward to a strong second quarter from the industrial businesses and expect a continuing but some moderation and demand through the balance of the year.
Our strong industrial markets, where construction and mining industrial.
Industrial distribution and semiconductor machinery and.
As Shane tool wind and trained.
Turning to aerospace and defense. This sector was up 18, 3% for the quarter.
Sequentially when normalized for production days it was about <unk>.
And that with the preceding period.
Aircraft OEM was down almost 22, 5%.
This can be almost entirely attributed to the slow ramp of the 737 Max programs through 'twenty, 1 and into calendar year 'twenty 2.
Yeah.
A problem and that should resolve itself and the quarters ahead as Boeing steps through their monthly production rates from todays 17 per month.
To January of 2023 of 42 per month.
But we're now seeing increases in orders and shippable later in the year across all of our plants that service and supply both Boeing and Airbus.
So today, we are coming through over 200.
<unk>.
2000 and line items excuse me.
Bearings and assemblies, we supply to the industry to ensure we have materials logistics and staff in place.
Seamlessly support the next 2 years and build rate increases.
Regarding our second quarter, we are expecting sales to be between $150.862 million.
And I will now turn the call over to Dan and Rob for more detail on our financial performance.
And thank you Mike.
And since Mike has already covered net sales and gross margin I'll jump down to SG&A SG&A for the first quarter of fiscal 2022 was $29.8 million compared to $26.8 million for this.
Same period last year the.
The increase was mainly due to higher personnel costs of $2.4 million and <unk> 6 zero point $6 million and other items as a percentage of net sales SG&A was 19, 1% for the first quarter of fiscal 2022 compared to 17, 1% for the same period last year.
Other operating expense for the first quarter of fiscal 2022 was $3.2 million compared to expense of $3.8 million for the same period last year.
For the first quarter of fiscal 2022. Other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets, and <unk> 6 million and restructuring costs and other items.
Other operating expense for the same period last year consisted mainly of $2.5 million and amortization of intangible assets $1.1 million and restructuring costs and <unk> 2 million of other items.
Operating income was $30.7 million for the first quarter of fiscal 2022 compared to operating income of $28.8 million for the same period in fiscal 2020.1 on.
And on adjusted basis operating income would have been $31.3 million for the first quarter of fiscal 2022 compared to adjusted operating income of $29.9 million for the first quarter of 2000, and 2021 sorry 2021.
For the first quarter of 2022, the company reported net income of 26.0 million compared to net income of $22.7 million for the same period last year.
And on an adjusted basis net income would have been $26.3 million for the first quarter of fiscal 2022 compared to adjusted net income of $23.6 million for the same period last year.
Diluted earnings per share was $1 <unk> for <unk>.
Share for the first quarter and fiscal 'twenty, 2 compared to <unk> 91 per share for the same period last year and on adjusted basis diluted earnings per share for the first quarter of fiscal 'twenty 2 was $1.4 compared to <unk> 95 per share for the same period last year.
Turning to cash flow and 1 of our strongest quarters to date, the company generated $53.3 million and cash from operating activities and the first quarter of fiscal 2022 compared to $48.4 million for the same period last year.
Capital expenditures were $3.4 million and the first quarter of fiscal 2022 compared to $3.9 million for the same period last year total.
Total debt as of July 3.2021 was $10.8 million and cash and marketable securities on hand.
$296.1 million I would now like to turn the call back to the operator for the question and answer session.
At this time if you have a question. Please press Star then the number 1 on your telephone keypad well pause for just a moment take a pause the Q&A roster.
And your first question comes from Pete <unk> Kubicki with Alembic Global.
Hey, good morning, guys long time no talk.
Okay great.
Yes, nice quarter I wanted to start out Mike I think you talked about delays in shipments from I think 1 unit because of source inspections.
Could you guys, maybe quantify how much revenue was impacted by that event and maybe was it.
Aerospace sales on our industrial sales.
Yes, it was industrial sales and it was about $2 million.
Okay. Okay.
Got it and then.
On the aerospace aerospace is interesting because.
It wasn't you know you would had 4 quarters of down aerospace sales. So this should have better and easier comp quarter.
I thought maybe Mike you mentioned something about <unk>.
Fewer days in the quarter or did I hear that right or am I completely wrong on that yes.
Yes.
There's more there's more days and our fourth quarter, then there is and our first quarter. So when you normalize the 2.
About even.
And the first quarter was the same number of days and the first quarter and fiscal 'twenty, 1 or no.
Yes, it's about the same yes.
Okay. Okay. Okay. So is that so are you seeing kind of some recovery and some of the and demand for some of the other platforms is just mainly the Max that was.
The headwind this quarter.
Yes, it's mainly the Max I mean, the other the other platforms are.
And our.
Sure.
Almost incidental.
And to what's going on here the Max the Max is really kind of a big deal because.
When we look at.
Well, we look I have to quote.
Industry analysts.
Numbers because.
And kind of and insider on the aircraft stuff and I can't quote.
The exact items, but.
The.
When I look when I look at what the industry expects.
Boeing to build this year, it's somewhere between 150 and 160 <unk>.
Max's right through the calendar year.
And.
And I think that and I'm just a good number.
And and next year, it's 300 to 340 sort of Thats the range.
Yeah and the.
A year after its 500.
And so.
The.
There's been a sort of a.
Our liquidation of Boeing's inventory, because if you look at our last on.
Our first quarter last year.
We still have full order books, and we still have full plants and we were shipping shipping.
Shipping.
Orders too.
And subcontractors and to Boeing.
We had on the books and so.
And that that inventory now is clearing the system and as well as.
And everybody else's inventories, including Boeing's.
So.
We are seeing.
This pickup and.
And demand to support the.
The builds next year.
Sort of.
In our fourth quarter summit summit, and our third quarter.
And frankly, I think we should be.
If life worked perfectly and it never does.
<unk>.
We should be starting our products.
Year ahead.
Their build rate.
Sure.
Simply because.
It takes 6 months to make it simple to make the bearings.
And of the 6 months, probably right now it's 2020 weeks to get the steel.
So we don't have a lot of time and thanks for bearing and sometimes for bearing has to get frequent flyer to get all that.
All of the outside processing and that has to be done and that's the exception to the rule, but still its the rule.
So.
Yes, I mean, we should I.
I think the industry is a little bit delayed right now and turning on and the volumes that they need to.
To produce the planes that are expected to be produced.
And so.
So that that debt.
And that calculus falls on us to make sure that we understand what we are obligated to supply and when we're likely to supply it.
And so we're going through those planning routines now to make sure that.
And that we have the product.
And the aircraft builders need when they need it and.
And if you look at the step up.
I mean.
And those 30 planes to us.
Our 300 planes next year and 300 to $3.40 next year.
And that's probably.
It was $45 million to us and over over the course of 12 months and revenue.
So it's a big it's a big number for our plants to absorb.
And so we wanted to get way ahead of the game in terms of getting everybody into position to be able to.
Support that.
And then you look further at the Skyline share and there is another 200.
And step up.
223, and so.
No.
There is.
There is.
There's going to be a lot of.
A lot of demand and headed our way and.
The last thing we want is not to be able to execute it efficiently.
And service the customer on time.
I appreciate all the color.
I guess last 1 for me just looking at your defense revenue and the last 3 quarters defense ex Marine and.
And I know you have a lot of you on the F 35, and stop but we have seen defense down for a few quarters and I know a lot of other suppliers have had some F 35 inventories that have had to kind of flush out as Lockheed has kind of slowed things a bit there on on an interim basis. So is that and that what's going on for you guys. Maybe just some interim F 35 headwinds.
Or do you think you and me.
We expect it to step back up later this year and next year or 2.
And you just sense of defense is kind of.
Getting some headwinds there just because the overall budget flattening.
Well I see I see.
And then looking at the tables so.
I think on aerospace OEM defense I mean, okay.
Q1, and Q1 last year were only down 3.6% right, but it's just not big numbers on total sales its $2020.6 million compared to $21.4 million.
On the aerospace on defense.
So it's a little lumpy with the F 35, and the new lot sizes lot coming through and some of the work that we're doing on the military helicopters.
But some of that's being offset by the strength on our missile programs and.
That we're working on with Lockheed and and others.
Okay. Thanks, very much guys.
Your next question comes from Michael Mueller with tourists Securities.
Hey, good morning, guys. Thanks for taking my questions here and nice results.
Maybe just sticking on on Aero, what Pete was asking was there any I mean.
The step down.
I guess on a on.
On a sequential basis.
For the Aero OEM was pretty significant.
It seems like a 14% step down maybe you mentioned and the working days.
Any other changes on some of the wide body platforms and you've got a lot of content on the 787 or any way to parse that out was it wasn't more engine and was it more airframe content.
And yes, it seemed like that definitely snuck up on you.
There were supposed to be kind of sequential improvement and growth I mean, it just seems like a big move down.
Yes.
It is.
It's all about.
Order order rates by Boeing and and its subs and <unk>.
And I think right now and they're trying to.
And now the planes they built.
And and liquidate assets in the middle.
Yes.
But if.
I would say that.
There.
Their priority to do that.
Maybe is more extreme than it should be and <unk> and it could affect their.
And the ability to build planes and future if they don't turn on the supply chain.
Okay.
That's helpful.
What about anything on the aftermarket side.
I know, it's kind of a tale of domestic narrow bodies. You guys were again I think sequentially flat. There I mean are you seeing any noticeable changes on the aftermarket.
Distribution.
Apparel well.
Hello.
Yes.
The aftermarket distribution side of business and.
And then.
Usually.
At this at this stage and the.
And the cycle.
The distributors.
It would be.
Okay.
Boding up their inventories.
Knowing that sales rate increases, we're going to be substantial.
And the market would be.
Buyers would be.
First.
And with service levels.
And that would be normal at this at this stage and the cycle.
Not normal now as so many of the aftermarket distributors.
Our owned by.
And new owners.
And new management teams.
And.
They don't.
And don't have experience.
I don't have the experience and the cycles.
So what they should be doing with their capital right now they don't appear to be doing it.
So that the aftermarket in terms of distribution.
Yes.
No.
What does it look like and you've got the chart for.
For Q1, FY 'twenty, 2 was around $12.2 million compared to Q for the longer quarter was $12.3 million.
Yeah. So it's kind of just tie ended up doing a little better than Q4, because it's more production days in Q4.
Okay, Okay, what about last 1.
Okay sorry.
Yes.
But.
And the repair side of the aftermarket as.
And that's been a pleasant surprise for us that's been.
It's been strong and and it's.
Producing well.
Got it.
Last 1 you kind of brought up inventories there, but just the shifts that maybe to industrial I think last quarter.
You noted that there was so much demand you had kind of depleted inventory rushing to replenish did you you called out the 2 the $2 million headwind, but did you kind of see that that same piece of demand persist I mean, obviously.
And if I add back that $2 million sequential uptick there and industrial but were you able to catch up on on inventory to meet demand or did you lose out on some revenue this quarter.
We're making it as fast as we can we can.
We can deliver.
And we do have some.
By chain.
Challenging getting getting raw materials, which we're working.
Okay, Okay perfect.
Perfect. Thanks, guys I'll jump back in the queue.
Okay.
And again for any questions. Please press Star then our bottom line and our telephone keypad.
And your next question comes from Ken Newman with Keybanc.
Hey, good morning, guys.
Good morning.
I wanted to step back to the Aero side, a little bit.
Good color in terms of the Florida outlook for Aero, obviously, with the build rate and kind of coming up into the second half.
I'm curious how do you weigh that against some of the slower ramps and the larger wide body platforms.
We think about the step up and the second half for Aero revenue versus the first half is that.
Yes.
Could that revenue for ARLP up double digits like 10% or is that.
The ramp via the the build rate going to slow down a little bit.
Oh, no it can be up double digits and the second half.
And.
Okay.
And it needs to be up double digits, and the second half to support that.
To build the Boeing build rates so.
Net.
And that's how we see it.
Let's hope, let's hope the cards get played that way.
Right.
So I guess with that and mines.
Obviously, you put up really strong gross margins and the quarter.
And I'm curious, how sustainable a 40% plus gross margin should be for the remainder of the year.
And I kind of think about potential inventory builds and the expected step up on aero growth for the second half.
I think it will be.
Lumpy journey quarters, but I think by the end of the year, we should be.
Close or a little north of that 41%.
And.
There's a lot of that just.
Absorption on higher volumes any way to kind of parse out how much of that is better pricing or any color on price cost.
For the quarter and just your forward outlook.
Yeah, well each each division.
So that we have has a.
Keeps the ledger on.
On what price increases we've seen from on materials and suppliers.
And what the price increases we instituted.
And to the market too.
To offset the price increases for materials and suppliers and we.
We always like to be a little bit ahead.
And also we put significant investment and and.
Bringing all these out side.
<unk> services inside for the aerospace business and 2021 and we still haven't seen the full benefit of that investment.
As of Covid right, because it build rates dropped off so we should see wind.
The aerospace business.
Picks up it picks up and the volume picks up we should see some nice improvement driven by this investment that we've made over that 24 month period.
Right.
So.
This will be my last 1 here just trying to put a finer point on price costs here I guess.
Obviously, the industrial aftermarket.
Sales were up as you were mentioning to Mike earlier.
And.
I'm guessing the pricing increases for those for those products within that channel are pretty instantaneous.
Can you help us kind of.
Put a finer point on just how much price was a contributor to the sales growth and aftermarket for industrial versus just purely volumes.
Yes, I'd say on the industrial side.
And especially in industrial distribution on our first quarter.
It wasn't price.
And on industrial OEM and.
And some cases it is.
Other cases, it's the ability to pass through raw material.
And inflation that comes through and a way of surcharges.
Every segment's low different every customer is a little different and.
And every channel is a little different and Theres, just a lot of good efficiency happening and the industrial side of our business when your business is up.
30% to 40% here really absorbing your assets nicely.
Understood. Thanks for the color.
Yes.
Thank you and that is star 1 for any questions.
And.
At this time there are no further questions I will now hand, the call back to Dr. Hartnett for closing remarks.
Okay well.
Thanks, Thanks for.
For participating on the call today and.
We will be certainly talking to you again.
By early November and discussing our third quarter for.
Our second quarter with.
Which were.
Anticipating another strong quarter.
I think.
As I said, we are expecting sales to be between 158 and 162.
And.
And Thats.
And that's looking.
Very positive.
That concludes today's conference. Thank you for your participation you may now disconnect.