Q1 2024 RBC Bearings Incorporated Earnings Call
Alright, great.
Greetings and welcome to the RBC bearings fiscal 2024 first quarter earnings call. At this time, all participants are in a listen only mode.
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.
Is being recorded I would now like to turn the conference over to your host Josh Carroll with Investor Relations. Please go ahead.
Good morning, and thank you for joining us for RBC bearings fiscal 2024 first quarter earnings conference call.
With me on the call today, a doctor Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Paris, Right Director, Vice President and Chief operating Officer, and Robert <unk>, Vice President and Chief Financial Officer.
Before beginning todays call, let me remind you that some of the statements made today will be forward looking.
And are made under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected or implied due to a variety of factors.
We refer you to RBC bearings recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.
These factors are also described in greater detail in the press release and on the company's website.
Reconciliation between GAAP and non-GAAP financial information is included as part of the release.
On the company's website.
With that I'll now turn the call over to Dr. Hartnett.
Thank you, Josh and good morning to all and welcome to the RBC Conference call.
Well I'm pleased to report that our net sales for the first quarter of 2024 were $387 million.
This represents an increase of nine 3% from last year.
For the first quarter of 'twenty 'twenty four sales of industrial products represented 69% of our net sales with aerospace products at 31%.
As a footnote over the past 10 years revenue growth that RBC has been made at the compounded rate of 14, 7%.
Gross margin for the quarter is 167.9 million or 43, 4% of net sales.
This compares to 441.2 million or 39, 9% for the same period last year.
350 basis point improvement from last year.
Clearly we are tremendously pleased with the gross margin expansion overall that is a clear result of increased volumes in our aerospace.
Plans, coupled with the impact of many components of synergy achievement from the Dodge acquisition.
Given just trajectory weeks, we can report that.
We plan now to it too.
We finished the year with gross margins in the low to mid 40% range.
I want to take a moment here and thank the RBC teams for excellence and execution both in the plants in the offices.
As well as the top grades received for customer satisfaction.
And as you and your tireless attention to detail that makes the difference and create a strong preference for the RBC and Dodge branded products in the aircraft and industrial markets.
So thank you all for a job well done.
Adjusted operating income for the period was $85 3 million or 22% of net sales compared to last year of $68 3 million and 19.3% respectively.
A 25% improvement.
Free cash flow was a strong $55 million. This has allowed us to reduce debt by over $450 million since the acquisition of Dodge in November of 2021.
We now have achieved a net debt to EBITDA ratio of 2.84 over trailing 12 months down from 5.65 from fiscal 'twenty two.
So RBC is growing EBITDA at a compounded rate of 15.2% per year over the last 10 years.
Adjusted EPS was $2.13 a share a 19% improvement from last year.
Adjusted EBITDA was $120 4 million, 31% of net sales compared to 100 point.
<unk> 7 million and 28, 4% net sales for the same period.
A 20% increase.
Overall, we're encouraged by the cultural fit now that exists between Dodge in the RPC in the environment of teamwork and camaraderie.
That has developed over the first 18 months since the acquisition and more importantly, the future that this coupling has created.
We look forward to two of your finishing the year at about.
At $1.6 billion.
And revenue.
On the industrial business during the period.
The industrial sector growth was 4.7% against some strong comps last year.
Last year improved supply chain performance allowed shipments of late orders to customers, creating a Q1.
Our Q2 and 23 sales bolt.
That's behind Us now.
Dodge was a revenue leader in the industrial sector with a 9.4% expansion on a combined OEM and distribution sales.
Importantly, several of our target market sector. It sectors expanded at a double digit rate over the period. These include oil and gas food and beverage and forest products. We expect this to continue for the balance of the year driven by world events.
On aerospace and defense overall, we saw an expansion rate of 21, 2% with commercial.
Aero OEM up 26, 5%.
And commercial distribution up 35, 9%.
Defense was up seven 9%.
OEM defense was.
Well, it's a 11% was up 11% jets missiles helicopters and meet and marine where the drivers aftermarket was down three 3%.
Mainly oh.
Fighter Jets.
We have finally shaken off the bad dreams, if the pandemic and the continuing endemic problems of the major builders.
The demand drivers here as explained in past calls.
Are the large claim builders and their supply chain in support of production of Boeing and Airbus is 787, and 737 820, <unk> hundred 30 planes.
Okay.
And also the private aircrafts filters and of course, the many subcontractors who support the industry.
Currently we are building 737 materials at a rate of 38 per month.
The new orders inbound it or are at a rate of 42.
Given the 737.
787 of our current build rate numbers are three per month.
Building now.
And seven per month, we expect that order rate.
Very soon it's probably a little past due.
As is typical of these products today are b C generates 70% of its sales from sole sourced or single source positions.
In summary, let's go over the highlight reel.
Q1 sales were up 9.3% for the period.
EBITDA.
120.4 up 19.5% adjusted.
Adjusted net income of 2.13 up 19%.
So your guidance revenues $1.6 billion gross margin is expected to be in the low to mid forties.
Debt pay down since November 'twenty, 'twenty, one and $450 million trailing EBITDA to net debt today is 2.84 from 5.65 in fiscal 'twenty to 70% of our revenues.
And to replace two products consumed in use and we are normally number one market share supplier of our products.
And 70% of our business is either sole source or we are a primary source.
For the product.
Another point to mention is our backlog numbers.
They're not particularly relevant.
Probably 70%, 75% of our revenues never pass through our backlog.
The aircraft business is done on a.
Where orders are.
Received from a computer screen.
And shipped as received.
And Dodge is working normally.
When they have a very small backlog.
If any and the shipments are made subject to orders received.
For the most part it's it's a day or two within the receipt of that order.
Okay.
So regarding our second quarter of 2024, we are expecting sales to be somewhere between 380 and $390 million range.
And I'll now turn the call over to Rob for more detail on the financial performance. Thank you Mike.
SG&A for the first quarter of fiscal 'twenty, four was $64 7 million compared to $55 8 million for the same period last year as a percentage of net sales SG&A was 16, 7% for the first quarter of fiscal 2024 compared to 15, 8% for the same period last year.
Other operating expenses for the first quarter of fiscal 'twenty, four totaled $18 2 million compared to $20 9 million for the same period last year.
For the first quarter of fiscal 'twenty for other operating expenses included $17 5 million of amortization of intangible assets zero point $3 million of restructuring costs associated with our California operations.
And 0.4 million of other items for the first quarter of fiscal 'twenty. Three other operating expenses consisted primarily of $17 3 million of amortization of intangible assets and $3 8 million of costs associated with the Dodge acquisition, partially offset by 0.2 million of other income.
Operating income was 85 million for the first quarter of fiscal 'twenty four compared to operating income of $64 5 million for the same period last year, excluding approximately zero point $3 million of restructuring costs. Adjusted operating income was $85 3 million or 22% of sales for the first quarter of fiscal 'twenty 'twenty four excluding approx.
<unk> $3 8 million of acquisition costs adjusted operating income for the first quarter of fiscal 'twenty, three was $68 3 million or 19, 3% of sales.
Interest expense for the first quarter of fiscal 'twenty four it was $20 5 million compared to $15 eight for the same period last year.
For the first quarter of fiscal 'twenty four the company reported net income of $50 million compared to 37 4 million for the same period last year on an adjusted basis. Net income was 67 7 million for the first quarter of fiscal 2024 compared to $57 5 million for the same period last year net.
Net income attributable to common stockholders for the first quarter of fiscal 'twenty four it was $44 3 million compared to 31 7 million for the same period last year on an adjusted basis net income attributable to common stockholders for the first quarter of fiscal 'twenty four was $61 9 million compared to $51 8 million for the same period last year.
Diluted earnings per share attributable to common stockholders was $1 52 per share for the first quarter of fiscal 'twenty four compared to a dollar and nine cents per share for the same period last year.
On an adjusted basis diluted EPS attributable to common stockholders for the first quarter of fiscal 'twenty four was $2 13 per share compared to $8 79 per share for the same period last year.
Turning to cash flow the company generated $61 7 million in cash from operating activities in the first quarter of fiscal 'twenty four compared to 59 million for the same period last year.
Capital expenditures were $6 7 million in the first quarter of fiscal 'twenty four compared to $7 9 million of capital expenditures for the same period last year, we paid down $50 million on the term loan during the period, leaving total debt of 1.34 billion as of July one 2023, and cash on hand was $56 7 million.
Our net debt to adjusted EBITDAR for the trailing 12 months is 2.84 compared to 3.06 at the end of fiscal 'twenty, three and 5.65 at the end of fiscal 2022.
I'd now like to turn the call back to the operator for the question and answer session.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Yeah.
Our first questions come from the line of Kristine <unk> with Morgan Stanley . Please proceed with your question.
Hey, good morning, guys.
Good morning Christine.
You know the margin that you guys printed this quarter I mean, it's just I mean, I'm sorry, that's just a monster margin.
So my first question is you know in hindsight like being able to generate margins.
At 43, 4% gross margin.
We then about almost two years the ownership of Dodge in hindsight right.
Were you surprised.
Like one where you really surprised you can you you got this much margin expansion in short period of time, and then number two can you give.
Give some color in terms of where that surprised them potentially come from I mean, this is a pretty meaningful.
Change in profitability in such a short of a time horizon.
We're a company that you know becoming larger like yours.
Sure well.
Yes.
But let's let's put it this way Christine where we're pleased that the margin expansion that we've been able to achieve with <unk>.
With the Dodge RBC combination since our since November of 2021.
And or are we a little ahead of our plan I would say we are.
The is there any one thing that that that we did.
To achieve that kind of performance you know, there's there's really never ever ever one thing that you can do I mean, there's a whole.
There's a whole series of things that has to be done in terms of.
Oh, you know how to you know sort of tune up the performance of our business and certainly I'm looking at the price cost of your of your 80 20 items is really important thing to do for a straight out of the back right out of the base.
And I'm trying to understand.
If you have a large.
Revenue producer that has a smaller margin than is.
And it should have or that's acceptable what to do about it and so you have a lot of smart people and in the system that have a lot of good ideas on how to how to correct things like that and and so you have.
Lots of meetings with many people on issues such as that.
<unk> product line by product line and to to discuss.
What can be done in terms of operational performance what costs should be passed along to the marketplace because you've experienced.
You know some.
Pretty steep material charges from from suppliers over the years and they werent passed along and whether or not that particular product offered for sale is something you should even offer for sale I mean some products.
Linger when they when they should die and and so it's.
There's a there's a certain calling effect and that that imbalance.
Bruce the mix yeah.
And I think the other thing as you look at.
No all the cutting the entire customer base says you know various discount.
Discounts associated with how they buy the product.
And Oh, often those discounts haven't been.
Revisited in.
And in a decade and so the.
The re visitation of those discounts is another important part of the process.
Yeah, and and finally, having additional volumes going through our aircraft plants that have been sort of.
On standby since 2019 is extraordinarily helpful. So there's you know there's there's several there's several components.
Our working together for US right now that are.
But are very positive and.
And we're on it we're on a good path we're on a very good path.
Great. Thanks, Mike and then you know you mentioned the backlog is that a great read through for the business now, especially with the partnership aspect of the portfolio. So.
So first you know what have you had to do differently if any.
But the forecast.
And yet your demand signals do you know Youre planning your factory and then second you know how.
How accurate methodology been in hindsight.
Well you know, there's there's kind of two answers to that I mean for the for.
For the bulk of our business. This aircraft, it's it's pretty.
It's pretty easy to understand what you should be building and have available for immediate immediate delivery based upon your.
Do your contracts and and Boeing or Airbus is or Cessnas build rate and and so you stay pretty close to the build rate you understand what your bill of materials is for that particular airframe and you understand what you're obligated to in terms of the statement of work.
And.
You revisit that.
Monthly.
Do you make sure that you have materials inbound and that you have the right load against your plants. So that that product is available when it needs to be available and that's that's really.
The way that we got a supplier of the year a Boeing is that's that's our process.
You know when you look at Dodge starts is a little different that Dodge is very accurate.
You're very dependent upon being able to do a great job forecasting the demand and their market sectors.
And and so over the years they have independently developed.
A process of.
Being able to forecast the economics of a given.
Market sector, which then translates down to build rates for <unk>.
Items that are sold to that sector.
And.
When I was first introduced to there.
To their message I was really kind of skeptical about it could be done that way.
But they do they it can be done that way and they do an amazing amazing job.
With satisfying their customer base, and making sure that the right product is available to the right customer.
At the right time, and and I think when you when you tour one of our plants.
We'll show you how.
You know our plant with.
And offering a 10000 line items.
Makes every line item available every day for shipment to a customer.
With with sort of a minimal backup in inventory.
Yeah.
Yeah, It's it's very it's really a.
It's really experience and experience to see how they do that.
Yeah, and then if I could sneak one last then so in terms of your different end markets can you provide the trends that you're seeing and what do you see risks and opportunities regarding your full year outlook.
Yeah, well I mean, we're.
Yes.
Yeah.
Are we talking industrial or aircraft defense or all three.
Oh all of the above.
All of the above well aircraft as you know unless unless.
Something different happens, where we're pretty much you know dialed in.
Right.
And and materials and the implant loading in plant staffing.
We know what the what the program is.
And and and at the end of this year, we're gonna be running hard to keep up and that's the way that's the way that looks.
And but we will keep up but it's it's going to be demanding for us and in several of our plants. So.
That's the aircraft's story you know on the AR on the defense side.
You know the the marine business is sort of the you know the.
One of the leaders in our defense program and.
And.
So we're.
We're we're we're busy building.
Submarine components.
Two two.
To service the Navy and.
And.
You know that's that's the number one defense priority is to build submarines and <unk>.
And where we are a big big supplier in that in that.
Category so.
You know our contracts are multi year multi.
Multi.
Multi product multi millions of dollars and.
They're in place.
And our supply chain is working effectively and things are starting to move move through the plant just.
Just just the way we like to see so I think I think that's.
That volume will continue to increase as we start building.
More assemblies and and shipping more assemblies. So we accept expect to see good growth in that sector going forward for the rest of the year.
And then on the industrial side you know there are several there are several important markets for us.
In the industrial business and we've been doing a lot of a lot of study on this too to understand.
Because there's so many industrial markets that we service.
Which are the markets that are really.
Really material to us and which are the markets that have a substantial growth potential and.
And we see markets substantial growth potentials base based upon.
<unk> demonstrated a consumption of our products and food and beverage.
Forest products oil and gas.
Mining and materials in aggregate.
And those are those are.
Those are material markets for us.
Have we feel a a double digit.
Either they've demonstrated double digit growth potential or they there there's something you know.
Coming down the Pike like the infrastructure Bill that's going to.
Encourage that that potential so.
Those are the markets.
Great. Thanks, Mike appreciate it.
Okay. Thank you Christine.
Thank you our next questions come from the line line of Pizza Kubicki with Alembic Global. Please proceed with your questions.
Hey, good morning, guys nice quarter.
Thank you Pete.
Hey, Jeff just one follow up on gross margin.
It sounds like performance is a big part of the great.
Out there just curious Mike I know you've talked about you know pricing power.
Being a tailwind for you due to inflation I'm kind of a relative basis relative to other factors how much was pricing helpful too to the gross margin result.
Yeah, I I just.
You know Peter I never broke it out.
I I I do know that you know.
A lot of our businesses, particularly Dodge it was very supply chain dependent.
And and we saw you know.
Substantial price increases from our supply chain for materials.
And.
And I know the pricing that we put through to the marketplace to.
To the best of our ability to at least neutralize what we saw for for material increases.
So.
I mean, that's that's all I have to say.
Okay fair enough I appreciate it.
And then just shifting to SG&A.
We're running kind of 15 ish percentage of sales last year in SG&A and <unk>.
16, seven here in the first quarter and you're guiding into the sixth season and second it just seems like something kind of flipped here on SG&A.
I don't know, if it's an R&D bump or something but.
Can you give us some color there on what's been going on and it's as you expected to kind of continue.
Through the midterm.
Yeah. So you know what we're seeing through SG&A is again, just some investment in organic growth.
Throughout the different cost centers, we should see some leverage on that as we enter into the second half of the year.
But in terms of you know what falls down to the operating income EBITDA line, if you're looking at adjusted EBITDA.
Quarter over quarter, even versus Q4, you're seeing 40 basis points of increase so it's not all getting caught up in SG&A, it's slowing down.
Yeah, Okay, no that makes sense.
Last one for me why did you guys decide for the first time to give full year revenue guidance.
I know the reason, but I'm just curious.
So you're thinking there and I guess.
Yeah, we're we're still.
The thing I assume kind of double digit growth at AMD.
And.
I don't know mid single digits or so in industrial is that kind of the way youre thinking.
Yeah. That's that's the way we're thinking you know it. It's just that every every year, we get into this situation, where we have you know our second quarter and our third quarter are typically weak quarters for us just because of the number of days the number of vacations never holidays, and so on and so forth and so we ended up explaining.
That to everybody AD nauseum right and so we thought that it would be better just to just to say hey look at relax full year. It looks healthy. We've got you know we've got two quarters that they're typically white weak and we know that and we usually have a and we're expecting to have a very powerful.
Fourth quarter, bringing us, bringing us to those to those kinds of numbers. So.
We just wanted to sort of take a more offensive position on unexplained ing you know with the with the year, how the year has laid out.
Yeah, I hear you make makes sense thanks, guys.
Yep.
Thank you our next question.
That's come from the line of Barger with Keybanc capital markets. Please proceed with your.
Yes.
Hey, guys good morning.
No sorry, I have a gross margin question too.
For the year, you said low to mid 40% range, which is incredible because that obviously includes 44, 45%.
That would be a huge win relative to $43. Four this quarter. So can you talk about what the upper limit is when you say low to mid 40%.
You really want me to do that Steve.
[laughter].
I'm going to let Rob do that because he he he.
He.
He had he said he's always he's always pulling out my collar.
Yeah look Steve I mean, if you look even versus where we were at the end of Q4 and now where we are into Q1 I mean, we're seeing some significant step up in gross margin.
You know we feel 43 is a comfortable spot for us at this point you know obviously you've seen our playbook you know we will continue to push the limits, where we can but that's you know that's kind of why we were saying low to mid <unk> at this point.
Got it okay well.
Segment margins to come in the Q, but with a 52% incremental operating margin this quarter, one or both of the segments must have been exceptional can you tell us which was a real outlier.
Yeah, you'll see industrial gross margins were about 45% this quarter. So we havent even seen the full benefit of what aerospace is going to bring to the table as those plants start to push even higher so that's where we have some some upward mobility.
Got it and and on the industrial side another bearing company. This week took guidance down saying its industrial distribution and it's off highway customers are destocking, even though they think that underlying demand will stay positive are you seeing any similar issues across the Dodge portfolio.
And do you expect the industrial industrial segment.
Main positive from a growth standpoint, each quarter in this year.
Yeah, how did I know you're going to ask that question.
Cause I cover.
[laughter].
So you know I I you know.
After reading through the transcripts of of the other bearing companies I thought that we should we should investigate the destocking issue ourselves internally because.
I Havent heard very much about it and normally I would here you know I would get it.
At least one or two panic phone calls if that were occurring so we don't see that occurring we do see.
What's happened was last year.
Supply chain was still fragile.
And people were worried about getting the product that they needed to run their plants.
So there was a lot of panic buying.
So we had a backlog of.
Many many tens of millions of dollars that.
Yeah.
Shipped.
As soon as we took the order it was late so it was past due that the minute they take the orders and so we didn't have the product available because it wasn't.
It wasn't produced and yet.
Yet we had this this order that we could ship anytime so because of the panic buying so this year.
Buying the sort of I think people have more confidence in the performance of their supply chain. So we don't see that.
At all that level of panic buying and things are definitely back back to normal we suspect that's really what's going on.
I understand so are you happy with your own inventory position relative to what you see for demand across both aerospace and industrial.
Oh, Yeah, you, yes, we are.
I think we have a little bit too much inventory and we're going to we're trying to glue to bleed that down and.
You know, we we got caught up in the supply chain.
Problem too, where you know too much material came in because we haven't had to go to several sources and then they all solve their problems and sent it in so we'll be we'll be bleeding inventory down for the for the most part for remote for much of that for much of the year and particularly in the industrial businesses the aircraft business.
Maybe just the opposite materials or material lead times are out out too.
From what's normal a 40 week material lead time to now it's 60, and maybe even more 70 weeks.
So yeah.
We are we are taking.
Sort of a more aggressive position to bring in safety stock of of key materials to make sure that we don't disappoint our customers.
Very good thanks for the time I'll pass it along.
Thank you our next questions come from the line of Michael Cerasoli with Truest. Please proceed with your questions.
Hey, good morning, guys.
Gross.
Before I dig into the gross margins a little bit more just I may have missed it what was the year over year.
Growth rate for industrial OEM and distribution, if you guys have that.
Yep.
So industrial.
Yeah.
Was that actually down nine 2% year over year.
Industrial distribution was up 12, 7%.
Got it.
Perfect.
Just back to the margins and I guess, maybe I'm trying to attack it another way.
You talked about 41 to 41 and a half this quarter you know sort of sequentially you've made some really big improvements on down revenues.
I know you talked about the aerospace volumes, but with Aero was down.
Did anything change.
Quarter to quarter or did you have a lot of contra.
Contracts are pricing flow through or Mike I think you mentioned kind of calling the portfolio and taken out some product lines, but it just seems to get gross margin leverage on weaker sales sequentially seems pretty pretty surprising too. So maybe anything kind of jump out recently.
Sure.
Well you know I, you know I think the.
Yeah, just just to go through my my list of of of the obvious.
Certainly we talked about the volumes in the aircraft business is that.
That's going to help us more and more and more of this year.
Secondly, you know we have we.
We have several processes that we've.
That we were working on in 2019 and right right before the pandemic.
And.
And we were.
Early on the learning curve for those processes.
And so we've had from 2019 to now.
Now 2000, 2023 to mature those processes and achieve.
And to introduce volume and that's happened in a few in a few plants where the.
Where is it.
Where the designs were very complex and required a you know a disproportionate learning curve to get it to the pro forma.
Gross margin that the that we were we were targeting and and so that you know that that.
Two or three years, where the.
Where the.
The volume demands were off.
Where it was very helpful to maturing those brought processes when the volume demand for on and you have immature processes, you don't have the resources to mature them because you're you're.
<unk>.
You're busy trying to ship product to a customer who needs to incorporate that product and what he's producing so that timeframe was very helpful.
Okay.
And then also I think we've been so we've in sourced components that are there.
At Oh over the period, just accrue to our accrued to the benefit of the margin.
Okay I wanted to actually ask the status of the in sourcing you know kind of what inning are you in there I know I think you talked about at $1 200 million of savings. So it sounds like you're starting to see some of that benefit.
Yeah. When we were you know that's a that's a long road and but that's one of the that's one of the spokes in the wheel and and and we're working it we're not we didn't say 200, though we you know yeah yeah.
You've got our synergies of 72 to 100.
Yeah.
Yeah, I thought there was 200 million.
Product.
Source that you could potentially start sourcing internally I thought that's what it would no I got the synergy side of it but I thought you had flat.
200, and well make certain point.
Well, there's there's a pool of you know 200 plus.
Choose from.
Right.
And not all of it fixed but sometimes yeah, yeah got it.
Last one on the year I think you were still calling or last quarter double digit aerospace revenue growth and high single for industrial as part of that one 6 billion or are those still directionally correct.
Yeah that that mess that math works.
Okay.
I think there's I think there's.
Oh.
Go ahead.
Yeah, I I think industrial is maybe.
R R.
Our goal has always been two times, GDP and and I think that's kind of.
Where that debt.
It fits.
Yeah.
Got it perfect. Thanks, guys I'll jump back in the queue.
Thank you as a reminder, if you would like to ask a question. Please press.
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Our next questions come from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions.
Hi, Thanks This is chip.
The last of on for Joe.
Maybe just wanted to zoom in on the industrial side in particular view on that.
Thanks, RBC industrial looks like.
Sort of mid single digits, and the classic RBC Industrial Park.
Just any color on what drove that decline how how does that go with them and the classic business going forward in the coming quarters.
Yeah.
And Bertrand I'd say on the on the industrial side the classic RBC on the OEM side. It was mainly driven by semi con wind machine tool holders and college.
Warehousing.
And I live on the heavy truck.
So I think those we just had a really hard comp to last year and I think some of these markets are coming back and we should see some improvement in the second half of the year.
Got it.
Then maybe just looking at the next quarter's guidance.
The low end of the scans, what suggesting that.
Probably decelerate from here. So just wanted to understand what underpins a lawyer in topline guidance assumptions, especially on the industrial side.
But I think on the range you know when we look how many production days are in the quarter compared to the first quarter Theres less amount of production days. So it kind of hits, both the industrial side and the aerospace <unk> defense side of the business.
And then it all depends what big projects that were shipping on the defense side on the marine end on aerospace like the F 35 projects like that and they can be lumpy quarter to quarter. So in that range is pretty wide.
To forecast some of that and we kind of have the same impact in Q3 because of the holiday season.
And then in Q4.
An extra five to seven production days, so you're you're shipping you know an extra five to seven days of product for food can businesses. So its kind of like when when things normalize year over year. It's always that you shape. The fact, when you're when we're not a steep growth periods you don't see it but now the dodges integrated four year.
Now we go back to more normal kind of routine that we have with seasonality mainly driven by production days.
Thanks for that and then maybe if I can squeeze one one last one just a more longer term question on the industrial business, you've talked about two times GDP grow with him always trying to like I think some of the smaller green shoots across the businesses maybe highlight some of the green shoots that they had a thing you are in that.
The business right.
And the environment.
The upcoming two quarters.
Yeah, well you know I think I think we talked about where we saw.
Quarter to quarter.
Uh huh.
Growth in our in some of our markets and that was food and beverage.
Forest products oil and gas mining.
Mining in aggregates those are all very strong markets for us and and so in part what we have to do is make sure that.
Our resources are selling and field resources are aligned are properly aligned with those markets. So that we.
We can benefit and their growth and.
You know this this is probably.
Some organizational tweaking that has to be done to achieve that on the oil and gas side.
We you know, we're pretty pretty much capped out on capacity manufacturing capacity to service that oil and gas market right now and so we were working to add capacity.
Which.
You know in our industry that.
It takes a little while because its machinery and the machinery has to be built.
And and so we would expect to see additional capacity online for that business bye.
By late our late fourth quarter.
So to sum it to some extent that's one sector. That's that's a material.
Our real sector for us.
In terms of scale that.
Some capacity constraints.
I'll add one more to it and just to give you an idea of some of the green shoots that we work on a one.
One is the space industry. So in 2021, we shipped to around $4 million of product into space last year, we shipped and $10 million and just the first quarter of this year, we shipped 4 million so.
And that's over about 15 different RBC facilities participating in that market.
That's just one of many.
Green shoots that these guys are working on how to drive volume.
Great. Thanks.
Thank you our next questions come from the line of Jordan <unk> with Bank of America. Please proceed with your question.
Hey, good morning.
Good morning, Mike.
I just had a quick question with the step up coming for the aerospace OEM production rates.
Would you guys be able to give more details on ship set value or any increased content you guys are expecting.
Yeah, we don't publish our ship set content, but we are picking up market share on different platforms on both the commercial side and the defense side.
Our bigger ships for us would be like the 737 787, the 777 ex the F 35 and of course, we have a significant content on army marine programs on the Virginia and Columbia subs.
Subs for the Newport News at electric boat.
Got it alright, thank you.
Thank you our next questions come from the line of Kristine <unk> with Morgan Stanley . Please proceed with your questions.
Hey, guys. Thanks for letting me back into the queue. So maybe now that we've had a few you got about a few quarters of dogs already almost three years and the leverage is approaching manageable levels indulge with integrated.
What's your appetite to restart the M&A pipeline and you know historically you guys have wanted it to be 50% Aerospace defense, 50% industrials.
What's your appetite today, and what does that pipeline look like.
But obviously with those with those ratios improving to that extent and and they'll continue to improve through the balance of this year.
No our appetite for an acquisition in the aerospace defense as it.
It is good and so we're looking you know we're looking where.
We need to look and trying to evaluate what are what's what's the right.
What's the right partner to them.
It's a quart and and so does it.
That's a that whole processes.
Is starting over again now.
Great. Thank you.
Yeah.
Thank you ladies and gentlemen, there are no further questions at this time I would now like to turn the call back over to Dr. Hartnett for any closing remarks.
Okay well.
Thank you and.
And.
I appreciate I appreciate all the discussion today on an RBC I hope you, we got a chance to explain our business, a little bit better and and what the what the future looks like.
And we'll see.
Speak again in November .
Good day.
Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.