Q1 2024 RBC Bearings Incorporated Earnings Call
Alright.
Greetings and welcome to 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 Karl 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, Ryan Director.
The Chief operating officer, and Robert <unk>, Vice President and Chief Financial Officer.
Before beginning todays call, let 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 Actuaries.
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 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 GAAP and non-GAAP financial information.
That's part of the release, it's available 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 2024 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 at 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.
A 350 basis point improvement from last year.
Nearly we're tremendously pleased with the gross margin expansion overall that is a clear result of increased volumes in our aerospace.
Product plants, coupled with the impact of many components of synergy achievement from the <unk> acquisition.
Given this trajectory weeks.
I can report.
We plan now to <unk>.
We finished the year with gross margins in the low to mid 40% range.
I'm going 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 its intention to detail that make 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.
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 565 from fiscal 'twenty two.
So RBC is grown 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.
$7 million and 28, 4% net sales for the same period.
A 20% increase.
Overall, we are encouraged by the cultural fit now that exists between Dodge in the RPC and the environment of teamwork and commodity <unk>.
That has developed over the first 18 months since the acquisition and more importantly, the future that this coupling is created.
We look forward to finishing the year at about $1 6 billion.
Dollars in revenue.
On the industrial business during the period.
The industrial sector growth was four 7% against some strong comps last year.
Last year improved supply chain performance allowed shipments of late orders to customers, creating a Q1.
Q2, and 23 sales bolt.
That's behind Us now.
Dodge was a revenue leader in the industrial sector with a nine 4% expansion on a combined OEM and distribution sales.
Accordingly, 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.
Was 11 was up 11% jets missiles helicopters and meet and marine where the drivers.
Aftermarket was down three 3% mainly.
Mainly.
Fighter Jets.
We are finally shaken off the bad dreams of the pandemic and the continuing endemic problems of the major builders.
The demand drivers here as explained in past calls now are the large claim builders and their supply chain in support of production of Boeing and Airbus is 787, and 737 <unk> hundred 20, <unk> hundred 30 planes.
And also the private aircraft filters and of course, the many subcontractors who support the industry.
Currently we are building 737 materials at a rate of 38 per month.
New orders inbound enter or at a rate of 42.
Given the 730 on the 787, our current build rate numbers are three per month.
Building now.
Seven per month, we expect that order rate.
Very soon it's probably a little past due.
As is typical of these products today RBC generates 70% of its sales from sole source or single source positions.
In summary, let's go over the highlight reel.
Q1 sales were up nine 3% for the period.
EBITDA.
<unk> hundred 24 up 19, 5% adjusted.
Adjusted net income to $1 three up 19%.
Total year guidance revenues, one $6 billion gross margins expected to be in the low to mid forties.
Debt pay down since November 2021, and $450 million trailing EBITDA to net debt today is 284 from 565 in fiscal 'twenty to 70% of our revenues under.
And to replace 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 our primary resource.
For the product.
Another point to mention.
As our backlog numbers.
They are not particularly relevant.
Probably 70%, 75% of our revenues never pass through our backlog.
The aircraft business is done on a.
Where orders are.
Our received from a computer screen.
<unk> shipped as received.
And Dodge is working normally when they have a very small backlog.
If any and 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.
So regarding our second quarter of 2024, we're 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 S.
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 <unk> 3 million of restructuring costs associated with our California operations.
Zero point $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 <unk> 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 2024, excluding approximately.
Similarly, $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 was $20 5 million compared to $15 8 million 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.
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 $1 <unk> 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 for the $2 13 per share compared to $1 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 cap.
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 $3 4 billion as of July one 2023, and cash on hand was $56 $7 million.
Our net debt to adjusted EBITDA for the trailing 12 months is $2 84 compared to 3.06 at the end of fiscal 'twenty, three and 565 at the end of fiscal 2022.
I would 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.
And a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for 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.
No.
The margin that you guys printed this quarter I mean, it's just I mean, I'm sorry next monster margin.
So my first question is you know in hindsight like being able to generate margins.
At 43, 4% gross margin.
Within about almost two years of ownership of Dodge.
Hindsight.
Were you surprised.
One where you really surprised you can you got this much margin expansion in short period of time, and then number two can you.
Give some color in terms of where that surprised you to potentially come from I mean, this is a pretty meaningful change in profitability.
<unk> ability and I'm, just trying to get a time horizon for.
For a company thats, becoming larger like yours.
Sure well.
Yeah.
But let's let's put it this way Christine we're pleased that the margin expansion that we've been able to achieve with <unk>.
With the Dodge RBC combination since since November of 2021.
And are we a little ahead of our plan I would say we are.
Yeah.
Is there any one thing that.
With that we did.
To achieve that kind of performance.
There's really never ever one thing that you can do I mean, there is a hole there.
There's a whole series of things that has to be done in terms of.
Of how to sort of tune up the performance of our business and certainly looking at the price cost of your of your 80 20.
Items is really important things to do for a straight out of the bay right out of the base.
And.
I'm trying to understand.
If you have a large.
Revenue producer that has a smaller margin than us.
And it should have or acceptable what to do about it and so you have a lot of smart people in the system that have a lot of good ideas on how to how to correct things like that and so you have.
Lots of meetings with many people on issues such as that.
Product line by product line too.
To discuss.
What can be done in terms of operational performance.
What costs should be passed along to the marketplace because we've experienced.
Some.
Pretty steep material charges from from suppliers over the years.
They werent passed along and whether or not that particular product offered for sale.
Is something you should even offer for sale.
Products.
Linger when they when they should die.
So it's.
There's a certain culling effect and that that imbalance improve.
Improve the mix.
And I think the other thing as you look at.
The entire customer base has various discount.
Discounts associated with how they buy the product.
And often those discounts haven't been revisited.
Revisited.
And in a decade and so.
The re visitation of those discounts is another important part of the process.
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 a 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 mentioned the backlog is that a great read through for the business now, especially with the partnership aspect of the portfolio.
So first you know.
What have you had to do differently if any.
To be able to forecast.
And yet your demand signal P&L.
Youre planning your factory and then second.
How accurate methodology been in hindsight.
Well there is.
There's kind of two answers to that.
For the for.
For the bulk of our business this aircraft it's pretty.
It's pretty easy to understand what you should be building in.
Have available for immediate immediate delivery based upon your contracts.
And Boeing or Airbus is or Cessnas build rate and so you stay pretty close to the build rate I understand what your bill of materials is for that particular.
Airframe and you understand what you are obligated to in terms of the statement of work.
And.
You revisit that.
Monthly.
And you make sure that you have materials inbound and that you have the right load against your plants. So as that product is available when it needs to be available index that's really.
The way that we got.
Supplier of the year at Boeing is.
That's our process.
When you look at Dodge data is a little different that Dodge is very.
Very dependent upon being able to do a great job forecasting the demand in their market sectors.
And so over the years they have independently developed.
A process of <unk>.
Being able to forecast the economics of a given.
Market sector, which then.
Translates down to build rates for.
Items that are sold to that sector.
And.
When I was first introduced to there.
So their methods.
Kind of skeptical about it could be done that way.
But they do it can be done that way and they do an amazing amazing job.
With <unk>.
Satisfying their customer base, and making sure that the right product is available to the right customer.
At the right time, and I think when you when you tour one of our plants will show you how.
Our plant with.
And offering of 10000 line items.
Makes every line item available every day for shipment to a customer.
With with sort of a minimal backup in inventory.
Yes.
Yes, it's very it's really a.
It's really an experience to see how they do that.
Yes, and then if I could sneak one last then.
In terms of your different end markets can you provide the trends that youre seeing and what do you see risks and opportunities regarding your full year outlook.
Yeah, well I mean, we're.
Okay.
Are we talking industrial or aircraft defense or all three.
Oh all of your pump fleet.
All of the above.
Aircraft as you know unless unless.
Something different happens, we're pretty much dialed in.
Right and in materials and.
Implant loading in plant staffing.
We know what the with the program is.
And.
At the end of this year, we're going to be running hard to keep up.
The way that's the way that looks.
But we will keep up but it's going to be demanding for us and several of our plants. So.
That's the aircraft story.
On the on the defense side.
The marine business is.
The.
One of the leaders in our defense program and.
And.
No.
We're we're busy building.
Submarine components.
222.
To service the Navy and.
And.
That's the number one defense priority is to build submarines and <unk>.
And we're a big supplier in that in that.
Category so.
Our contracts are multi year multi.
Multi.
Multi product multi millions of dollars and.
They are in place.
And our supply chain is working effectively.
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 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. 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 to understand because theres. 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 we see markets substantial growth potentials base based upon.
Demonstrated 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 double digit.
Either they've demonstrated double digit growth potential or they.
There is something.
Coming down the Pike like the infrastructure Bill Thats going to.
Encourage that that potential so.
Those are the markets.
Great. Thanks, Mike I 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 Dave.
Hey, Jeff just one follow up on gross margin.
It sounds like performance is a big part of the Great result, there just curious Mike I know you've talked about.
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 to the gross margin result.
Yes.
Peter I never broke it out.
I do know that.
<unk>.
A lot of our businesses, particularly Dodge it was very supply chain dependent.
And we saw.
Substantial price increases from our supply chain for materials.
<unk>.
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 <unk>.
For material increases.
No.
I mean, that's that's all I have to say.
Okay fair enough I appreciate it.
And then just shifting to SG&A you guys are running kind of 15 ish percentage of sales last year on SG&A and <unk>.
<unk> 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 its an R&D bump or something but.
Could you give us some color there on what's been going on in the past you expect to kind of continue.
Through the midterm.
Yes, so what we're seeing through SG&A is again, just some investment in organic growth throughout.
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 what falls down to the operating income EBITDA line, if you're looking at adjusted EBITDA.
Quarter over quarter, even versus Q4, Youre seeing 40 basis points of increase so it's not all getting caught up in SG&A, it's flowing down.
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 youre thinking there and I guess.
Yes, we're still expecting I assume kind of double digit growth at A&D netting out and.
I don't know mid single digits or so at industrial is that kind of the way youre thinking.
Yes, that's the way we're thinking it's just that every every year, we get into this situation where we have.
<unk>.
Our second quarter and our third quarter are typically weak quarters for us just because of the number of days number of vacations and number of holidays, and so on and so forth and so we ended up explaining that to everybody AD nauseum right.
So we thought that it would be better just to just to say hey look at relax full year looks healthy. We've got we've got two quarters that that are typically weak and we know that and we usually have a and we are expecting to have a very powerful fourth quarter, bringing us bringing us to them.
To those kinds of numbers so we.
We just wanted to sort of take a more offensive position.
On explaining.
With the year, how the year has laid out.
Yes, I hear you make makes sense thanks guys.
Yes.
Thank you our next question.
That's come from the line of Steve Barger with Keybanc capital markets. Please proceed with your.
Thanks.
Hey, guys good morning.
No just wondering Steve 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 <unk> 43 for 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.
I do.
[laughter].
I'm going to let Rob do that because he.
Hey.
He is 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.
We fueled 43 is a comfortable spot for us at this point.
Obviously, you've seen our playbook you know we will continue to push the limits where we can.
But that's that's kind of why we're saying low to mid.
At this point.
Hi.
Got it okay well.
I know segment margins come into 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 here.
Yeah, Youll 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 this year.
How did I know youre going to ask that question.
Does that cover it.
Okay.
Yeah.
So.
After reading through the transcripts 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.
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.
Our 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.
That were.
Shipped.
As soon as we took the order it was late.
It was past due that the minute they take the orders. So we didn't have the product available because it wasn't.
It wasn't produced and.
Yet we had this disorder that we could ship anytime so because of the panic buying so this year.
<unk> 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 Thats really whats 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.
Yes, yes, we are actually I think we have a little bit too much inventory and we're going to we're trying to allude to bleed that down and.
We got caught up in the supply chain.
Problem to where too much material came in because we had had to go to several sources and then they will solve their problems and centered in so we'll be we'll be bleeding inventory down for the for the most part.
For much of the for much of the year and particularly in the industrial businesses. The aircraft business is just may be just the opposite.
<unk> material lead times are out.
Two.
From what's normal 40 week material lead time to now it's 60.
And maybe even more 70 weeks.
So we.
We are we are taking.
Sort of a more aggressive position to bring in safety stock 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 <unk> with <unk>. Please proceed with your questions.
Hey, good morning, guys.
First of all in incremental gross margins.
Before I dig into the gross margins a little bit more.
I may have missed it what was the year over year.
Growth rate for industrial OEM and distribution, if you guys have that.
Okay.
So industrial OEM.
It's actually down nine 2% year over year.
Industrial distribution was up 12, 7%.
Got it.
Perfect.
Back to the margin.
Yes, maybe I'll try and attack it another way.
You talked about 41% to <unk> 41, and a half this quarter.
So sequentially, you've made some really big improvements on down revenues.
You talked about the aerospace volumes, but with Aero was down did anything change.
The quarter did you have a lot of <unk>.
Contracts are pricing flow through or Mike I think you mentioned China.
Calling the portfolio and taken out some product lines, but it just seems to get this gross margin leverage on weaker sales sequentially seems pretty pretty surprising to some maybe anything kind of jumped out recently here.
Well.
I think the.
Yeah just.
Just to go through my list of.
The obvious.
Certainly we talked about the volumes in the aircraft businesses.
Thats going to help us more and more and more of this year.
Secondly, we have.
We have several processes that we have.
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.
<unk>.
2000, 2023 to mature those processes and achieve.
And introduce volume and that's happened in a few in a few plants where the.
What are the where the.
Where the designs were very complex and required.
A disproportionate learning curve to get it to the pro forma.
Gross margin that the that we were targeting and and.
And so that.
<unk>.
Two or three years.
Where the.
Where the.
The volume demands were off.
Very helpful to maturing those processes when the volume demand for on and you have immature processes, you don't have the resources to mature them.
Because you are.
<unk>.
You are busy trying to ship product to a customer who needs to incorporate that product and what he is producing so.
So that timeframe was very helpful.
Okay.
And also I think we've been so we've in sourced components that.
Over the period, just accrue to our accrued to the benefit of the margin.
Okay I wanted to actually ask on that the status of the in sourcing.
What inning are you in there I know you talked about at $1 $200 million of savings. So it sounds like youre starting to see some of that benefit.
Yes.
<unk>.
That's a long road and.
But thats one of the that's one of the spokes in the wheel and.
And we're working on it we're not we didn't say 200, though.
Again, our synergies of 72 to 100.
Yes.
Yeah.
I thought there was $200 million.
Product that Dodge source that you could potentially start sourcing internally.
No I got the synergy side of it but I thought you had flat.
200 <unk>.
Point.
Yes, there is a pool of.
200, plus.
Choose from.
Right and.
And not all of it fixed but some does.
Okay got it.
Last one on the year I think you were still calling or last quarter double digit aerospace revenue growth high single for industrial as part of that one 6 billion are those still directionally correct.
Yes that math that math works.
Okay.
I think.
Okay.
Go ahead.
Yes, I think industrial is maybe.
R R.
Our goal has always been two times GDP and.
And I think that's kind of.
Kind of where that debt.
It fits.
Got it perfect. Thanks, guys I'll jump back in the queue.
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Our next question is coming from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions.
Hi, Thanks. This is <unk> on for Joe.
Maybe just wanted to zoom in on the industrial side in particular view on that.
Thanks RBC industrial.
It looks like sales decline sort of mid single digits.
Classic RBC.
<unk> Park.
Just any color on what drove that decline how does that growth in the classic business.
Going forward in the coming quarters.
Yes. This is Dan <unk> on I would say on the on the industrial side of the classic.
<unk> on the OEM side, it was mainly driven by semi con wind machine tool orders in 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.
And then maybe just looking at the next quarter's guidance.
The low end of the Stanford, suggesting that Shannon.
Probably decelerate from here, so just wanted to understand what underpins.
Lower and top line guidance.
Especially on the industrial side.
So I think on the range.
We look how many production days are in the quarter compared to the first quarter theres less amount of production days.
It kind of hits, both the industrial side to end the year aerospace and 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.
<unk>.
Forecast some of that.
And we kind of have the same impact in Q3 because of the holiday season.
And in Q4.
We have.
An extra $5 to seven production days so.
We're shipping an extra five to seven days product for for your businesses. So its kind of when things normalize year over year. It's always that you shape. The fact, when you're when we're in it.
Steep growth period, you don't see it but now the dodges integrated four year.
Now we go back to a 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 last one just a more longer term question on the industrial business, you've talked about two times GDP growth always.
Always trying to make.
Some of the smaller green shoots across the businesses, maybe highlight some of the green shoots that are helping your industrial business right.
Environment, and how the upcoming make two or three quarters.
Thanks.
Yeah well.
I think I think we talked about.
Where we saw.
Quarter to quarter.
Growth in our in some of our markets.
That was food and beverage.
Forest products oil and gas.
Mining in aggregates those are all very strong markets for us and.
So.
In part what we have to do is make sure that our.
Our resources are selling and field resources are aligned are properly aligned with those markets. So that we can benefit in their growth and.
This this is probably <unk>.
Some organizational tweaking that has to be done to achieve that on the oil and gas side.
We were 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.
In our industry that.
It takes a little while because its machinery and machinery has to be built.
And so we would expect to see additional capacity online for that business bye.
By late.
Late fourth quarter.
So to some to some extent thats one sector that fits our material sector for us.
In terms of scale that.
It has some capacity constraints.
I'll add one more to add on just to give you an idea of some of the green shoots that we work on.
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.
Such as one of many.
Green shoots at these guys are working on how to drive volume.
Great. Thanks.
Thank you. Our next question comes from the line of Jordan <unk> with Bank of America. Please proceed with your question.
Hey, good morning.
Good morning, Brian .
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% to 777 ex the F 35 and of course, we have a significant content on army marine programs on the Virginia and Columbia.
Hubs 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.
Maybe now that all we've had a few you guys have had a few quarters of Dodge already almost three years and the leverage is approaching manageable levels and Dodge is integrated.
What's your appetite to restart the M&A pipeline.
Historically, you guys have wanted to be 50% aerospace defense, 50% industrials.
What's your appetite today, and what does that pipeline look like.
Well, obviously with those with those ratios improving to that extent.
And they'll continue to improve through the balance of this year.
Our appetite for an acquisition in aerospace defense as it.
It is good and so we're looking we're looking where.
We need to look and trying to evaluate what.
What's the right.
Okay.
What's the right partner to them.
To court and.
So.
That's that whole processes.
Is starting over again now.
Great. Thank you.
Yes.
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 RBC I Hope you got a chance to explain our business a little bit better and.
And what the future looks like.
And we will.
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.