Q3 2023 RBC Bearings Inc Earnings Call
Greetings and welcome to RBC Baring's third quarter fiscal year 2023 earnings call. At this time all participants are in listening mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad.
As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations. Please go ahead. Then blast yourlinh
Good morning and thank you for joining us for RBC Barring's Fiscal 2023 third quarter on these conference calls. With me on the call today are Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer, Daniel A. Bergeron, Director, Vice President and Chief Operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer.
Before beginning today's call, let remind you that some of the statements made today will be forward-looking and are made under the Private Security's litigation reform act of 1995.
Actual results made different materially from those projected or implied due to a variety of factors. We refer you to RBC Baroness for recent finalings with the SEC for a more detailed discussion of the risks that could impact the company's future, operating results, and financial condition.
These factors are also described in greater detail in the press release and on the company's website.
In addition, reconciliation between GAAT and non-GAAT financial information is included as part of the release and is available on the company's website.
With that, I'll now turn the call over to Dr. Hart.
Okay, thank you Josh and good morning everyone and welcome to the RBC's third quarter conference call.
So, net sales for our third quarter for fiscal 2023 were 351.6 million versus 267 million for the same period last year, a 31.7% increase.
For the third quarter of 2023, sales industrial products represented 70% of net sales with aerospace products at 30%.
Gross margin for the quarter was 146 million, or 41.5% of net sales.
This compares to 93.3 million or 35% for the same period last year.
Adjusted operating income was 71.6 million.
20.4% of net sales compared to last year of 46.3 million and 17.3% respectively.
Adjusted EPS.
diluted, came in at $1.64 a share.
Adjusted evitade was 103.3 million, 29.4% of net sales compared to 71.4 million, 26.7% of net sales for the same period last year.
During the period we paid down debt by another $60 million on the term loan.
and pre-cash flow was $54.4 million.
Turning now to some of our to our sectors.
On the industrial business, we saw in our seeing continued strength from the OEM sector.
with RBC Classic Industrial up by 14.1%.
driven by a semiconductor machinery, energy, and mining.
Both RBC and Dodge showed a 12.
plus percent growth in the industrial distribution revenues.
Overall industrials were up 11.8%.
with sector growth mitigated somewhat by Europe and some select OEM weakness.
On the aerospace and defense side, overall we saw an expansion of 13.2%, with Aero OEM up 26 plus percent.
Demand drivers here are the obvious candidates.
large plane builders and their supply chain coming to life. It's a production of Boeing's 737 and 787 ships rebound.
We are at the beginning of this recovery now in pandemic, pandemic, inventories showing less of an impact in production rate increases, our well-publicized.
We expect to see increased demand creating double digit growth.
from the plane builders for many quarters to come.
and we continue to add resources and planning to support increased build rates.
build rate driven demand as well as expanded work statements.
In total, RBC saw an organic growth in revenue of 12.7% during the period.
There have been some questions about backlog and much of our commercial aircraft business is done.
where the backlog isn't represented by the contract and the orders are published on a portal and we ship to those orders. So,
you know, probably 60% of our business there doesn't ever get into our backlog.
Regarding the fourth quarter, we're expecting sales to be $375 to $385 million.
This is becoming an increasingly difficult projection to make now post-dye acquisition.
which means half our sales are stock items where daily shipments are subject to daily orders.
as opposed to being defined by long-term.
Contracts where quarterly revenues can be well planned.
that puts kind of puts us into the business of economic forecasting.
And...
And we
We give the best we can.
That's when they call over to Rob for more detail on financial performance.
Thank you Mike. S-GNA for the third quarter of fiscal 23 was 56.8 million compared to 41.7 million for the same period last year. As a percentage in that sales, S-GNA was 16.1% for the third quarter of fiscal 23 compared to 15.6% for the same period last year.
Looking forward, SGNA is a percentage of sales as expected to be between 15.25, 15.75% of sales in the fourth quarter.
Other operating expenses for the third quarter total 18.9 million compared to 35.8 million for the same period last year. For the third quarter of fiscal 23, expenses included 17.4 million of amortization of intangible assets, 1.2 million of costs associated with the Dodge acquisition,
and 0.3 million of other expense.
For the third quarter of Fiscal 22, other operating expenses consisted of primarily of $23.5 million of costs associated with the DOG acquisition, $12.1 million of amortization of intangible assets, and $0.2 million of other items.
Operating income was 70.4 million for the third quarter of fiscal 23 compared to operating income of 15.9 million for the same period last year.
excluding approximately 1.2 million of acquisition costs.
The adjusted operating income was $71.6 million, or 20.4% of sales for the third quarter of fiscal 2023, excluding approximately $30.4 million of acquisition costs.
Adjusted operating income for the third quarter of fiscal 22 was 46.3 million per 17.3% of sales.
Interest expense for the third quarter of fiscal 23 was $20.9 million compared to $11.9 million for the same period last year. We anticipate total interest expense of between $21 and $22 million for the fourth quarter of fiscal 23 and an effective tax rate between 23 and 23.5 percent excluding discrete or unusual items.
For the third quarter of fiscal 23, the company reported a net income of $36.3 million compared to $0.5 million for the same period last year. On an adjusted basis, net income was $53.3 million for the third quarter of fiscal 23 compared to $40.6 million for the same period last year.
Net income available to common stockholders for the third quarter of Fiscal 23 was $30.6 million compared to a net loss of $5.2 million for the same period last year.
On an adjusted basis, net income available to common stockholders for the third quarter of fiscal 23 was $47.7 million compared to $34.8 million for the same period last year.
Diluted earnings per share was $1.5 per share for the third quarter of fiscal 23 compared to a loss of 18 cents per share for the same period last year. On an adjusted basis, diluted earnings per share for the third quarter of fiscal 23 was $1.64 per share compared to adjusted diluted earnings per share of a $1.20 per share.
for the same period last year.
Turning the cash flow, the company generated 60.9 million in cash from operating activities in the third quarter of fiscal 23, compared to 40 million for the same period last year.
Capital expenditures were 6.5 million in the third quarter.
compared to 14.9 million for the same period last year.
We paid down 60 million on the term loans during the period leaving total debt of 1.46 billion as of December 31st And cash on hand was 82 million Cumulatively since November 2021 we have paid 350 million on the term loan including a $20 million payment in January of this year
I would now like to turn the call back to the operator for the question and answer session.
Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
for participating in the speaker equipment and maybe necessary to pick up your handset before pressing the star key.
Our first question comes from line of Pete Skivitzki with a lab that global. Please resume your question.
a Pete Skivitzky with a lab that global. Please resume your question. Hey, good morning guys.
Hey Mike, maybe you can put your economist hat on for a moment But you probably see a lot of the macro guys out there are concerned that we could tip into a mild recession later this year Just wonder if you're seeing anything in your in your industrial end markets that might indicate that I know you touched on Europe , but Wondering if you're seeing anything else there
Well, Pete, on our industrial end markets, we're seeing, let me...
Right now we see a very strong picture from oil and gas.
A lot of demand, demand beyond our capacity, substantially beyond our capacity.
from the oil and gas sector. I suspect that's going to continue.
given what's going on with the world events. I personally am a favor fossil fuels.
And so this is one of my favorite market sectors.
So this is one of my favorite market sectors.
Thank you.
I'm getting down, I just.
We're also seeing strength from mining. Mining is challenging the same.
manufacturing capacity is oil and gas so we need to do a little bit of an expansion there.
Industrial distribution, very steady.
Some inventory adjustments are going on, but they're small. Small impact overall, not worth talking about.
construction of warehouses are down.
And you know, you all read the Amazon, at least.
And we were a...
A significant provider of hardware for those warehouses.
that demand which is runs between $15 and $25 million a year.
was completely out of our revenues in the third quarter.
and we don't expect them to be back in the fourth quarter.
That's the major shift for us.
We're seeing a little bit of weakness in semiconductor manufacturing, but that manufacturing capacity that we...
We're opening up is being used to...
Productively for industrial distribution where we were a little bit short on product to support that sector.
So I think overall we're just not seeing it.
on the defense side where it's
In some sectors it's unbelievably strong. We haven't seen shipments yet.
You know, we've got a sleepy supply chain that we're trying to wake up there and shake things out and make them happen.
And the aircraft build rates, you know what's happening there with Boeing and...
and Airbus and the 737-787 programs. So that's going to be...
a double digit growth sector for us.
for at least the next eight quarters.
That's very helpful. Let me ask my last one on commercial aerospace. BASE MYG just um – equal
it seems like there still is a lot of inventory sitting at Boeing with regard to the max and the 787 and they've kind of indicated to us kind of their
timeframe for getting rid of that inventory for delivering that inventory so are you are you guys still delivering kind of below their stated rate like for instance on the max
I think they're 31 a month now, but some of that is out of inventory. So I'm just wondering if you guys are still delivering on the max a ship set worth that more in line with 20 a month or so.
No, no, for us it's, and we study this pretty closely to make sure that we've got the right planning in place.
and you know steel is really hard to get now. So I mean you have to be out 12 months.
on your planning with steel.
So, you really have to be sharp on these numbers or you're going to create a problem for your customer.
So, it looks like every time we measure it.
were right in step with their production rate.
Okay, okay.
Okay, very helpful. Thanks guys.
Next question comes from the line of Christine LeWag with Morgan Stanley . Please resume your question.
Thanks, Mike. You kind of mentioned it seems like backlog is no longer a deleting indicator when we think about revenue growth. So when you kind of think about forecasting your business, what do you guys have to do differently? And how much conviction do you have that
you're going to see growth even with the risk of a mild recession.
Let's take the first question. What do we have to do differently? We actually do not have to do anything differently.
Here I go.
The thing that we've evolved to, Christine, is just to understand, for example,
When we do a contract with following a rear bus,
exactly what mix we have under contract. So we sign a contract with them, it's three years or five years or whatever it is, and we have a certain...
So we, we assign a contract with them. It's three years or five years or whatever it is. And we have, and we have a certain mix.
that's
And market share, maybe 100%, maybe 80%, something like that.
by contract for those ships.
And so because we're working against the portal and not against the backlog, it's really important for us to understand their production rates.
and their consumption rates of our product so that we can, you know,
product so that we can plan our plans to have.
more product in place as they relieve the product that we have to build their ships. And so that's basically...
You know, we've evolved to that over the last five years.
And I would say five years ago we were really terrible at this and now we're really, really good at it.
And we take that information and we actually go to a lot of the subcontractors that use our
...hardware.
our bearings integrated into a subcontractor produced.
system and then ship that to Boeing or Airbus.
and um
They're planning.
They haven't got to this level. Let's just put it that way.
And so we actually have to call our subcontractors and tell them when to put orders, not in all cases but in many cases.
went to put in orders in order to catch up in being positioned.
and not to get caught, sure.
because if they are caught, they're going to blame the bearing guy that they can't ship that piece of hardware they produced because they couldn't get bearing. So we don't want them to do that. And so we do actually look at their content and do that and help them with their planning.
And so that's kind of how we...
devolved to operate and
So what was the second part of your question?
In terms of confidence and terms of forecasting, I guess the underlying question to that second part is, with the changing of business being more book to ship, how sensitive is that to the economic environment? And would you still see that grow a for-the-model recession and how?
How confident do you feel not having a backlog to kind of support that view?
Yeah, I'm, you know, it depends on sector. We're very confident on aircraft, not out, you know, with...
with how to deal with the backlog situation. That's just standard operating procedure now. In terms of where we stand relative to an industrial mild industrial recession, we do provide help short-term testing within a flood insurance organization.
I don't see a mild industrial recession showing up in the oil and gas area any anytime soon.
If you look at Dodge, I mean they're really important markets.
are, you know, grain and aggregate and mining. And those are markets that they service principally through industrial distribution.
and you look at grain, you know wheat, corn and rice and and um
soybeans
you look at what's happening in the world, the demand there, I don't see that back in law.
That's food and the US feeds the world.
and now it has to feed it more with the problems in Ukraine and Russia.
And so I think their grain sector is going to be good.
When we look at the...
Construction sector, the aggregate sector.
And we talk to our salespeople.
All the cement plants are at 100% capacity.
and before the infrastructure bill really gets released for...
and commercialization. And so that looks to me like that sector has a net under it. And the other important part of that business is food and beverage.
and
And food and beverages, you know, it's just a staple.
as long as these machines are operating and producing cans and bottles and boxes.
and transmitting that material. We're a strong part of that.
a strong part of that business.
So, you know, I think that Dodge business is very low data in terms when you look at over the past years.
It's so much of, you know, this.
of what they do is a staple of life.
The revenues were impressively stable over many years. And then we'll call it, sorry, behind you. Yeah, when it comes to the aircraft business, I think you know what's going on there. That kind of speaks for itself.
And then our marine business is...
It's, you know, they're building. We have...
What do we have, 10 Virginia ships in our backlog?
and we're only showing one year.
Virginia ships but we have ten of them. It's a lot. And we're bidding another 10 or 12.
And we're also bidding Columbia.
So, you know, we have a serious problem in our marine business with regard to...
our capacity and our footprint. So we're trying to deal with that right now in terms of...
staffing and hardware and supply chain.
and
We've got a lot to do in that sector in order to accommodate the...
the objectives of the Navy.
Yeah, it seems like a good problem to have if you've got strong demand. If I could speak one more in, Mike, I mean, on gross margin. I mean, we looked at the quarter at 40.8% for the nine months trailing the quarter and for the actual quarter, it's also at 41.5%.
I mean, how much of this was, you know, like the synergies that you guys had outlined with the acquisition of Dodge? Can you give us an idea of where you are in that?
that synergy extraction and where gross margins could go from here. I mean, your historical target was like what one percentage point in gross margin each year. You reinvest 50 basis points. We have 50 you know in terms of the net. Is that how we should think about this or should there be more upside?
from the synergies, I mean, you know, this is a pretty big jump versus where you were last year.
Yes, Christine Hyde's Dan. So just to give you a range, you know, Dodge for last night, for the nine months ended.
December 21.
had an average gross margin around 35%, 36%. And for the nine months ended this December , it's around 42.8%. So it's about a seven to 8% jump in gross margin.
gross margin around 35%, 36%. And for the nine months ended this December , it's around 42.8%. So it's about a seven to 8% jump in gross margin. So.
That's not all synergy, but say half of that of more is synergy based on 700 million run rate sales. You know, you're talking 40 to 50 million dollars of improvement and gross margin over 12 month period since we owned Dodge.
So I would say on our low hanging fruit, it's going well on our synergy, on the integration of our sales team, it's going well, there's a lot of activity and I think that's reflected in our industrial growth rates compared to the competition who have already reported this quarter.
where their numbers are significantly under our growth rate. We are working on our manufacturing processes and our manufacturing footprint and on...
being a better source of intercompany activity between Dodge, TARBC and RBC to Dodge, and those two are kind of the long-polling to tend, so we should see the benefit from that activity in fiscal year 25 and 26. So I would say we are definitely ahead of schedule. And.
Things that we thought were going to be easy to get done aren't that easy and things that we thought would be very difficult to get done turned out to be a little easier than we thought at first. I think we're in pretty good shape.
easy to get done, aren't that easy? And things that we thought would be very difficult to get done, turned out to be a little easier than we thought at first. So I think we're in pretty good shape. Yeah.
Christine, I can add to that a little bit too. And do you know...
a little bit too.
We acquired Dodge in November of 2021.
and
And
We were at a run rate, an actual rate.
of sending the previous owner of Dodge $18 million a year to support
computer systems and other activities that couldn't be transferred day one.
We've had a team of dozens of internal people and consultants.
working on putting Dodge on the RBC.
computer network and
As of November 1st this year, that was mission accomplished.
and so that $18 million.
goes away.
So, um,
That was...
That was a big
project that
that had to be done in a failsafe matter to be, you know, to, um...
We could complete this acquisition. I think the second, you know, another area that we're working on is in manufacturing integration.
Some of the Dodge plants were very...
Full in terms of floor space.
in utilization and
And we needed to open up the Dodge floor space in some of those plants to capitalize new products.
or new manufacturing capacity for existing products.
where there was market demand but were unable to satisfy that market demand because of capacity constraints.
So we're in the process of moving some of their processes.
to Mexico.
and to open up the floor space so that they can in-source some of their materials from outside suppliers and increase the
through-put capacity for those products.
You know, where the edges constrained, it seems that our BC had a pretty cost effective.
solution for that. So this year we'll be opening up some of the floor space and some of their dodge plants by using
the Mexican, our Mexican resources.
And I think the final thing we did.
is in November we ran a manufacturing seminar.
for 125 to 150 people.
in Tennessee for manufacturing management and manufacturing engineers.
We're selected from our 40 plants with the purpose of
presenting and exchanging best practices.
2 And, um…
Whenever we've done this for the RBC Classic Business,
it's produced.
Amazing results in productivity.
and each plant seems to be competitive with the other plant with regard to absorbing new technology or new techniques.
in improving their operation.
So we expect to see a nice benefit from...
from that seminar.
Great. Thank you for all the color, Dave.
The next question comes from the line of Steve Barger with Keybank. Please proceed with your question.
Thanks Mike, you sound pretty optimistic about end markets on both sides of the business, but orders were down 19% sequentially. Can you talk about what parts of the business that came from and has that deceleration extended in the 4Q?
Steve, the biggest impact on the backlog was our marine business. So for marine in September , our backlog was $118 million and in December it dropped to $91 million. So that's a $26-$27 million drop. And the reason is because we only reflect in backlog.
what's shippable in the marine product line in the next 12 months. But the gross backlog, the marine's total backlog that's shippable past 12 months is $179.9 million compared to September of $170 million. So it's actually up $10 million.
So, it kind of, when we put it in the total backlog, 25 million has a pretty big impact on the overall backlog. It's just mainly due to the timing of shipments on our submarine business and how we account for that.
And the dodge was down about ten.
September , Dodge was about 100 million in backlog and they were down to 85 million. So their supply chain was freeing up in their capacity and they're catching up to their past dues that they had in backlog. So those are the big two contributors.
Nothing else really notable from an end market standpoint as to what decelerated.
No, it's not, Steve, it's not decelerating, it's accelerating. We have...
We're adding to our legal staff because we have so much contract, so many contracts that have to be inked and negotiated.
staff because we have so much contract, so many contracts that have to be inked, negotiated and so...
There was, you know, we booked $100 million worth of new contracts between December and January . I suspect those even haven't even hit the backlog yet.
Nice.
And then your comment on the 50 million in synergy in the past year or so, if I'm remembering right, the original target was 70 to 100 million over five years. So now that you've had this for a while, has that changed the upside target? I guess in terms of either time or dollars, how are you thinking about what's possible?
I think we're still, you know, target in that range. And as Mike said, and what I said a little earlier on some of the long poll in the tense, the manufacturing integration that we're doing, it just takes a little longer. You have to...
Pull machines out of one plant, set them up in another plant, teach that plant how to make the product.
Go to food testing. It could be six to seven months. Make sure it's acceptable to the marketplace and then be able to supply it to the marketplace.
So, and I think every year we'll just continue to see the activity between the Dodge sales team and the RBC Classic sales team continue to increase where RBC Classic focuses more on OEM type activity and Dodge focuses more on distribution activity.
Got it. And if I could just get one more in, it seems like most companies are working on some sort of digital strategy.
Do you guys have any initiatives underway at RBC designed to maximize sales efforts or optimize manufacturing from a data collection and standpoint? Yeah, sure. We do it on both sides on the front end. Dodge uses the front end of their
the warehouse consortium that they're part of and it's called PT Place and that's where independent distributors and customers can come through and electronically place orders and get them delivered in 12 to 24 hours. RBC always had eShop our front end.
where our independent distributors also can come online and guarantee shipping in 12 to 24 months to keep them going. We've been making more advances on the manufacturing side on digital data collection, data mining to better run the plants. If you walk through one of the plants now and took a tour, you'd see a lot of...
visual screens, a lot of activity at each manufacturer and cell. We've selected information from the machines, from the operator, and where they are compared to the standard that they're running. So I think that part of it's actually become more and more important to our business as we move forward.
Has that had a material benefit to margins yet or is that more on the come?
It all accrues. No, no, it's accruing the margins.
You know, it's, it all has an impact. It all has an impact. Exactly right. By reducing, you know, touch labor, increase in your efficiencies, and obviously for customers being able to go online, place an order, and be able to get their delivery in 12 to 24 months, a week, and base hours. Sorry. Sorry.
minute of the operating day.
And so you need a screen like this to tell you if there's a problem, if the machine is idle, it's on setup, and...
so that the manager can dispatch technicians or other talent to...
to remedy the problem.
Great, thanks guys!
question comes from the line of Seth Weber with Wells Fargo. Please resume your question.
Hey, good morning guys. Thanks for the question. I wanted to go back to the growth of the strong growth margin in the quarter. Can you just give us any color on what you're seeing, you know, the pricing environment and price cost?
what your expectations are for price cost going forward and then just
whether you expect to retain price increases in a inflation starts to come down. Thanks.
Well, I mean the pricing environment is...
is positive.
and
I think I've said enough on that. And so has the inflation. Yeah, and in the contracts that we typically negotiate have a
have an inflation index or some metrics tied to some standard Bureau of
economic standard that allows us to change pricing if there's a change in material cost or if there's a change in labor cost.
or something else have the change in volume. So it's a...
To some extent, that's why we have a backlog in our...
To some extent, that's why we have a backlog in our... In our...
contract
the legal side of our contract management because
These contracts now are more difficult and timely to manage.
Okay.
I guess maybe just historically in a deflationary environment have you given back pricing or have you historically helped out pricing increases?
I can't remember a single case where we've given anything back.
Okay.
Now, maybe there is one, but it's just not coming up. And then maybe just pivoting for a minute. Just not. You know, you guys have talked about adding capacity and adding resources and things like that. Can you just...
level set us kind of where you are, where you're adding some of these.
and just like how we should think about your.
You know, with this ramp, I guess, I don't know if it's through next year or just sort of how we should be able to think about your ability to produce higher volumes going forward. Thanks.
Yeah, well, first of all, you know, for the third quarter, our S-GNA was a little higher than normal simply because...
There's, you know, production and sales are usually down because of the number of production days but SG&A is like constant.
There's production and sales are usually down because of the number of production days, but S-GNA is like constant fixed cost.
through a quarter. So, you know, we expect that to normalize into the mid-15s by the end of the fourth quarter.
We pretty much stay there, it's a matter of.
getting on top of your cost base and as we increase our
sales and production in a given quarter.
We may revisit what we're spending on SGNA and let the company earn more SGNA credit.
But we're not going to, you know, we're just not going to dump in the SGNAs and hope that it gets absorbed. They have to earn it.
So everybody understands that and that's the way it works.
Okay, so, amid 15 percent.
S-G-N-A level is it's good way to think about the business going forward. Yeah.
All right, thank you very much, guys.
question comes from the line of Michael Stierimoli with drillis. Please receive any questions.
Hey, good morning guys. Thanks for
taking the questions here. Like just to sum this growth margin, and what we saw on the quarter, and obviously, you know, piecing together what you just said, everything accrued. So it sounds like on a go-forward basis, I mean, I don't wanna get out in front of our skis here, but, you know, it sounds like you've got a new floor here on growth margin, so should we be thinking about anything that might push these more?
Just on aerospace, I understand what you said, and earlier this week we heard Spirit kind of spill the beans. I guess they're going to 38 on the max, then 42. In October , presumably, you're kind of at those rates or prep in and kind of aligned.
Oh yeah, yeah, I mean, okay, you know.
Spirit spilled the beans. I had the beans right here, but I didn't spill them. Perfect. Just on, I know we've been trying to get at this. You mentioned, you know, God, you know, not a lot of back like I guess, and I think you talked about the daily orders. I mean, are you noticing anything from those daily ordering trends of late?
daily orders for dodges in the month of January .
The strength of those orders surprised us.
Okay. And that was a pleasant surprise. So, again, I have to, I'm forced to do the job that Chairman Powell does for a living and try to figure out what the next two months are going to be like.
But, you know, that's January was very positive. We're still constrained at Dodge on very high margin products.
that just can't get our leg over the wall on it. And so I think we're gonna be there for.
It just can't get our leg over the wall on it. I think we're going to be there for another year.
Okay. Okay. Last quick one for me, I think you mentioned so you're up and maybe some specific OEM weakness that you saw anything, anything notable with with certain OEMs or just just kind of isolated.
Yeah, for Europe , I think the OEM weakness that we saw is pretty much in the machine tool
Okay. Yeah, in China, in China, which is mainly machine tools.
Got it.
Got it. OK. Perfect.
Thanks.
Our next question comes from a line of Joe Ritchie with Goldman Sachs. Please proceed with your question. What is the Leagues algorithm?
Thanks. Good morning, everybody. Good morning, Rob.
So it sounds like Dodge orders accelerated in January . I'm curious as I was just trying to back into it, but what was Dodge revenue for the quarter, and what was it up or downed organically?
So, Dodge's revenue in the third quarter was $174.8 and it was up 8% from last year.
organically.
Okay, okay, great. That's helpful. And so I'm just curious and I know that
You know, it is putting your your your pal hat on a little bit, but a lot of the industrial, you know, Companies that we cover some of them are kind of flashing, you know yellow On their businesses, you know down turning or seeing some D-stock from their distributors
I recognize that, you know, two thirds of your industrial sales now go through distribution. So I'd be curious if you're, you know, what you're seeing on the distribution side. I know that you called out a little bit of destock. And then how are you thinking about that as we progress through calendar year 2023?
Well, you know, I think.
I think the fourth quarter calendar quarter for the distributors.
is normally an unusual quarter. And we normally see...
seasonality in that quarter.
because the distributors are trying to meet some working capital target.
that they had in order to achieve their bonuses for the year. So they really, they really...
to achieve their bonuses for the year. So they really clamp down on...
and their hardware purchases.
Typically, the business can't really run effectively there, so you usually see a pretty good snapback in the fourth quarter.
And I think that was the January effect.
and probably is going to continue through February .
Got it. Okay. That's helpful. If I could maybe sneak one more in. Your defense business you called out. I saw on the queue some of the client there was in due to revenue recognition. Is there any dollar amount of being kind of quantified? How much of the.
You know, the down revenues were a timing impact. Yeah, we have to.
We don't have that number in front of us, but I know on the defense side.
I know that
some of the operations in order for us to ship
A lot of our product, it has to be bought off by a government inspector.
And sometimes our product isn't ready until...
The third or third week, sometimes the fourth week of the month, and it's hard to get the government inspector into your plant when it's was the third week of the month and the month is December .
So we had definitely had some of that going on.
We had definitely had some of that going on. It's about two to three million.
Thanks, guys.
Our next question comes from a lot of Elizabeth Gratel with Bank of America. Please resume your question.
Hi, good morning. I was hoping you could give us a little color on your expectations for revenue growth in the fourth quarter. I think your guide implies somewhere lower, obviously, than it was in the third quarter. I was just wondering what that's attributable to where you're seeing.
Is the slowdown on the item you mentioned earlier or somewhere else? It's pretty much the fact that we're not going to see any revenues out of that.
sector where they were building.
warehouses as fast as they could build warehouses. As a matter of fact, last July .
You know, those same people were visiting us, asking us what would take the triple our capacity.
And so...
You know, that's kind of a boomer bus area and it's busted right now and that's sort of 15 to 25 million a year annualized.
It doesn't have particularly good margins, so frankly we don't really miss it.
Okay. And then you said there's some past dues that were the Dodge work through. How many past dues are still in tour? Okay.
The level of pass-do is done, it's just going to back lock.
Yeah, their backlog is passed too. You know, those are orders that, you know, about 85 million left in backlog at this point. Those are orders that are shipable, the championship for reasons that we can't get supply chain organized.
Okay, okay, got it. Great. Thank you very much. Thank you. Fair enough further questions in the queue. I'd like to hand the call back to Dr. Hartman for closing remarks.
Okay, well I appreciate all the interest in the call today and
I look forward to speaking to you again. I guess that'll be in May. So.