Q2 2024 RBC Bearings Inc Earnings Call
[music].
Speaker 1: Greetings and welcome to the RBC Baroness fiscal 2024 second quarter earnings call.
Greetings and welcome to the RBC bearings fiscal 2024 second quarter earnings call. At this time, all participants are in a listen only mode.
Speaker 1: At this time, all participants are in a list and only mode. A question and answer section will follow the formal presentation. If anyone for 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.
<unk> 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.
Good morning, and thank you for joining us for RBC bearings fiscal 2024 second quarter earnings Conference call.
Speaker 2: Good morning and thank you for joining us for RBC Barring's fiscal 2020 4 2nd quarter earnings comp.
Speaker 2: With me on the call today are Dr. Michael Hartman, Chairman, President and Chief Executive Officer, and your VERSION Director, Vice President, and Chief Operating Officer, and Robert Solder, Vice President and Chief Financial Officer.
With me on the call today are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Percheron, Director, Vice President and Chief operating Officer.
Robert Sullivan, Vice President and Chief Financial Officer.
Speaker 2: Before beginning today's call, let remind you that some of the statements made today before looking and are made under the Private Security's litigation reform act in 1995.
Before beginning todays call, let remind you that some of the statements made today before looking and are made under the private Securities Litigation Reform Act 1995.
Speaker 2: Actual results may differ materially from those projected or implied due to a variety of facts.
Actual results may differ materially from those projected or implied due to a variety of factors.
Speaker 2: We refer you to RBC Bands recent filings with the SEC for a more detailed discussion of the risk that could impact the company's future opportunity results and financial could.
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.
Speaker 2: These factors are also described in greater detail in the press release and on the company's website.
These factors are also described in greater detail in the press release and on the company's website.
Speaker 2: In addition, reconciliation between GAP and non- GAAP financial information is included as part of the release and is available on the company's website. With that, I'll now like to turn a call over to Dr. Hartney.
In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release, it's available on the company's website.
With that I would now like to turn the call over to Dr. Hart.
Yeah.
Thank you, Josh and good morning, and welcome to everyone.
Speaker 3: I'm pleased to report that our net sales for the second quarter of fiscal 2024 worth $385.6 million.
I'm pleased to report that our net sales for the second quarter of fiscal 2024 were $385 6 million.
Speaker 3: and this represents a 4.4% increase from last year.
This represents a four 4% increase from last year.
Speaker 3: For the second quarter of 2024, our industrial products represented 67% of our sales and aerospace products 33%.
For the second quarter of 'twenty 'twenty four or.
Our industrial products represented 67% of our sales and aerospace products, 33%.
Speaker 3: As a footnote, over the past five years, revenue growth at RBC has been compounded at a rate of 16.8%.
As a footnote over the past five years revenue growth at RBC has been.
Has been compounded at a rate of 16, 8%.
Speaker 3: Gross margin for the quarter was $166.3 million, or 43.1% of net sales.
Gross margin for the quarter was $166 3 million or 43, 1% of net sales. This.
Speaker 3: This compares to 151.1 million or 40.9% for the same period last year, by 220 basis point improvement from last year.
This compares to 151.1 million or 49% for the same period last year or.
220 basis point improvement from last year.
Speaker 3: Clearly we are tremendously pleased with this performance. The gross margin expansion is derived from increased volumes in our aerospace products plant.
Clearly we are tremendously pleased with this performance. The gross margin expansion is derived from increased volumes in our aerospace products plants.
Yeah, thereby improving our absorption rates, coupled with synergy achievements from the Dodge acquisition improved price improvement overall on my most lines.
Our profitability.
We are ahead.
That's the plan and making good progress and expect to finish the year with gross margins in the low to mid 40% range.
Again, many thanks to the RBC teams for this performance.
We all understand well that excellence in customer care is the cornerstone of our success.
Speaker 3: Adjusted operating income for the period was 88.4 million, 22.9% of net sales compared to last year's 76 million, and 20.6% respectively, at 16.3% improvement.
Adjusted operating income for the period was $88 4 million 22, 9% of net sales compared to last years 76 million and 26% respectively.
16.3% improvement.
Speaker 3: Precash flow was $45.6 million. That reduction continues to be a priority. We have achieved a $490 million decrease in debt since the acquisition of Dodge in 2000, November of 2021, 24 months ago.
Free cash flow was $45 $6 million.
Debt reduction continues to be a priority we have achieved.
We achieved a $490 million decrease in debt since the acquisition of <unk>.
Dodge and 2000 and November of 2021 24 months ago.
Speaker 3: We've now have achieved a net debt to EBITDA ratio of 2.71 over the trailing 12 months down from 5.65 from fiscal 22.
We've now have achieved a net debt to EBITDA ratio of 2.71.
Over the trailing 12 months down from 565.
From from fiscal 'twenty two.
Speaker 3: RBC's record of EBITDA growth over the last five years now stands at 19.9%.
Army sees record of EBITDA growth over the last five years now stands at 19.9%.
Speaker 3: Adjusted EPS was $2.17 a share.
Adjusted EPS was $2.17 a share.
Speaker 3: Adjusted EBITDA was 122.1 million.
Adjusted EBITDA was $122 1 million.
Speaker 3: 31.7% of net sales compared to 108.8 million.
31, 7% of net sales compared to $108 8 million.
Speaker 3: 29.5% of net sales last year. A 12.2.
29.5% of net sales last year.
A 12.2% increase.
Speaker 3: Overall, we are proud of the continual improvements made in the execution of our business and are excited to see the robust acceleration and demand for our products from industry leaders in the aircraft, marine, and space industry.
Overall, we are proud of the continual improvements made in the execution of our business and are excited to see the robust acceleration in demand for our products from industry leaders in the aircraft Marine and space industries.
Speaker 3: We look forward to a March year end with revenues finishing between $155 and $1.6 billion range.
We look forward to a march ear, and whose revenues finishing beats.
Between 155 and $1.6 billion range.
Speaker 3: On the industrial businesses, during the quarter, the industrial gross was a negative 2.8%. Overall, against some pretty strong comps last year.
Well the industrial businesses.
During the quarter the industrial gross was a negative two 8% overall against some pretty strong comps last year.
Speaker 3: At that time, improved supply chain performance allowed us to ship orders, which were late to customers creating a bolt and revenues. Dodge revenues.
At that time improve supply chain performance allowed us to ship orders, which relate to customers, creating a bulge in revenues.
<unk> revenues.
We're down four 4% year to date.
Speaker 3: And we expect to be up in Q3 a few percentage points in this measure.
And we expect to be up in Q3, a few percentage points.
In this on this measure.
Speaker 3: RBC Classic industrial sales were up 1.7% during the same period.
RBC classic industrial sales were up 1.7% during the same period.
Speaker 3: And we had very little supply chain impact in the classic side of our industrial business. On aerospace and defense, commercial aerospace was,
And we had very little supply chain impact in the other.
On the classic side of our industrial business.
On aerospace and defense commercial aerospace was.
It was up 24.9%.
Speaker 3: The aerospace and defense sector was up 22.9% overall.
The aerospace and defense sector was up 22, 9% overall.
Speaker 3: OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites, and rockets.
OEM defense includes components and assemblies for Jets missiles helicopters marine valves satellites and rockets.
Speaker 3: Aftermarket was up 26.1%, the main drivers here, jets, helicopters, and jet engines.
Aftermarket was up 26, 1% the main drivers here jets helicopters and jet engines.
Speaker 3: The aerospace market is now strongly accelerating, with volumes increasing quarterly. The demand drivers here are, of course, the large plane builders and their supply chain, all in support of production.
The aerospace market is now strongly extra accelerating with volumes increasing quarterly.
The demand drivers here are of course, the large playing builders and their supply chain.
All in support of production for Boeing and Airbus ships.
Speaker 3: Also the private aircraft builders and of course the many subcontractors who support the industry.
Also the private aircraft builders and of course, the many subcontractors who support the industry.
Okay.
Parents currently.
Speaker 3: The OEM is building 737 ships at a 38 per month rate.
The OEM is building 737 ships at a <unk> 38 per month rate.
Speaker 3: New orders to RBC are inbound in about a 42.
New orders to our B C, our inbound and about a 42.
Speaker 3: ship per month rate and moving to a 47 per month rate soon.
Ship per month rate and moving to a 47.
For months right soon.
Speaker 3: on the 787. Our current build rate numbers are approximately four per month.
On the 787.
Current build rate numbers are approximately four per month.
Speaker 3: and moving to seven per month order rate by October , by April . This has a substantial impact to us. Airborne.
And moving to seven per month.
Right by October by April.
This is a it has a substantial impact to us.
Airbus is.
Is.
Speaker 3: pursuing the build rate of on the 320 ships at about 70 ships per month as they exit 2024.
Is is pursuing the build rate of on the 320 ships at about 70 ships per month.
And as they exit 2024.
Yeah.
Speaker 3: As is typical of these products today, RBC generates approximately 70% of its sales from sole source or primary source positions.
As is typical with these products today RBC generates approximately 70% of its sales from sole source or primary sourced positions.
Our customers Trust us.
Speaker 3: In summary, let's go over the highlight reel. For Q2, sales were up 4.4% for the period. Give it the A, 122.1, up 12.2%. Adjusted net income, 68.9, up 11.3%.
In summary, let's go over the highlight reel for Q2 sales were up four 4% for the period EBITDA of $122. One up 12, 2% adjusted net income of 68.9.
Up 11, 3%.
Speaker 3: Full year guidance, revenues $1.55 to $1.6 billion, gross margins expected.
Full year guidance revenues, one 1.55 to $1 $6 billion.
Gross margin is expected to be in the low to mid forties.
Speaker 3: Debt pay down since November 2021 is $490 million.
Debt pay down since November 'twenty, 'twenty, one is $490 million.
Speaker 3: Trailing EBITDA to net debt today is 2.71.
Trailing EBITDA to net debt today is 2.71.
Speaker 3: And over half of our revenues are to replace products that are consumed in use.
And over half of our revenues are to replace products that are consumed in use.
Speaker 3: Regarding our third quarter for 2024, we are expecting sales to be somewhere between $370 and $380 million range.
Regarding our third quarter were 2024, we are expecting sales to be somewhere between 370 and $380 million range.
Speaker 3: I'll now turn the meeting over to Rob Sullivan, our CFO , for some brief...
I'll now turn the meeting over to Rob Sullivan, our CFO.
Or are some details on the financials.
Speaker 3: Thank you, Mike. S-TNA for the second quarter of fiscal 24 was 60.5 million compared to 57.5 million for the same period last year. As a percentage in that sales, S-TNA was 15.7% for the second quarter of fiscal 24, compared to 15.6% for the same period last year.
Thank you Mike SG&A for the second quarter of fiscal 'twenty, four was $60 5 million compared to $57 5 million for the same period last year as a percentage of net sales SG&A was 15, 7% for the second quarter of fiscal 'twenty four compared to 15, 6% for the same period last year.
Speaker 4: Other operating expenses for the second quarter of fiscal 24 total of 18 million compared to 21.6 million for the same period last year.
Other operating expenses for the second quarter of fiscal 'twenty, four totaled $18 million compared to $21 6 million for the same period last year.
Speaker 4: For the second quarter of fiscal 2024, other operating expenses included 17.6 million of amortization of intangible assets, 0.3 million of restructuring costs, and 0.1 million of other items.
For the second quarter of fiscal 2020 for other operating expenses included $17 6 million of amortization of intangible assets <unk> 3 million of restructuring costs and 0.1 million of other items for the second quarter of fiscal 2023. Other operating expenses consisted primarily of $16 8 million of amortization of <unk>.
Speaker 4: For the second quarter of fiscal 2023, other operating expenses consisted primarily of 16.8 million of amortization of intangible assets, 4.0 million of costs associated with a Dodge acquisition, and 0.8 million of other items.
Tangible assets $4 1 million of costs associated with the Dodge acquisition $2 8 million of other items.
Speaker 4: Operating income was 87.8 million for the second quarter of fiscal 2024 compared to operating income of 72 million for the same period in fiscal 2023.
Operating income was $87 8 million for the second quarter of fiscal 2024 compared to operating income of 72 million for the same period in fiscal 2023.
Speaker 4: Excluding approximately $0.6 million of restructuring costs, adjusted operating income was $88.4 million, or 22.9% of sales for the second quarter of fiscal 24. Excluding approximately $4 million of acquisition costs, adjusted operating income for the second quarter of fiscal 2023 was $76 million, or 20.6% of sales.
Excluding approximately <unk> 6 million of restructuring costs. Adjusted operating income was $88 4 million or 22, 9% of sales for the second quarter of fiscal 'twenty four excluding approximately 4 million of acquisition costs. Adjusted operating income for the second quarter of fiscal 2023 was $76 million or 26% of sale.
Yes.
Speaker 4: Interest expense for the second quarter of fiscal 2024 was 20.1 million compared to 18.3 million for the same period last year. For the second quarter of fiscal 2024, the company reported that income of 51.7 million compared to 43.8 million for the same period last year.
Interest expense for the second quarter of fiscal 2024, it was $20 1 million compared to $18 3 million for the same period last year.
The second quarter of fiscal 2024, the company reported net income of $51 7 million compared to $43 8 million for the same period last year.
Speaker 4: out of the adjusted basis that income was 68.9 million for the second quarter of
On an adjusted basis net income was $68 9 million for the second quarter of fiscal 2024 compared to $61 9 million for the same period last year net.
Speaker 4: Naining some attributable to common stockholders for the second order of fiscal 2020.
Net income attributable to common stockholders for the second quarter of fiscal 2024 was $45 9 million compared to $38 1 million for the same period last year on an adjusted basis net income attributable to common stockholders for the second quarter of fiscal 2024 was $63 2 million compared to $56 2 million for the same period last.
Speaker 4: was 45.9 million compared to 38.1 million for the same period last year. On an adjusted basis, that income attributable to common stockholders to the second quarter of fiscal 2024 was 63.2 million compared to 56.2 million for the same period last year.
Speaker 4: At Looted Earnings per Share attributable to the common stockholders, with $1.58 per share for the second quarter of fiscal 2024, compared to $1.31 per share for the same period last year. On an adjusted basis, at Looted Earnings per Share, attributable to common stockholders for the second quarter of fiscal 2024, with $2.17 per share, compared to $1.93 for the same period last year.
At year end.
Diluted earnings per share attributable to common stockholders was $1 58 per share for the second quarter of fiscal 2024 compared to $2 31 per share for the same period last year.
On an adjusted basis diluted earnings per share attributable to common stockholders for the second quarter of fiscal 2024 was $2 17 per share compared to $1 93 for the same period last year.
Speaker 4: Turning the cash flow, the company generated 53.1 million in cash from operating activities in the second quarter of fiscal 2024 compared to 29.4 million for this same period last
Turning to cash flow the company generated $53 1 million in cash from operating activities in the second quarter of fiscal 2024 compared to $29 4 million for the same period last year.
Speaker 4: Capital expenditures were 7.5 million in the second quarter.
Capital expenditures were $7 5 million in the second quarter of fiscal 2024 compared to $15 2 million for the same period last year.
Speaker 4: or compared to 15.2 million for the same period last year.
Speaker 4: We paid down 40 million on the term loan during the period, which is partially offset by drawing 18 million on the revolver for the acquisition of spec line, leaving total debt of 1.32 billion as of September 30th, and cash on hand was 56.6.
We paid down $40 million on the term loan during the period, which was partially offset by drawing $18 million on the revolver for the acquisition of spec line, leaving total debt of $1 three 2 billion as of September 30th.
And cash on hand was $56 6 million I would now like to turn the call back to the operator for the question and answer session.
Speaker 4: I would now like to turn the call back to the operator for the question and answer session.
Speaker 1: Thank you. Ladies and gentlemen, we will now be conducting a question and answer.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
Speaker 1: If you would like to ask a question, please press star one on your telephone keypad. And the confirmation time will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, and they'd be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
I would like to ask a question. Please press star one on your telephone keypad on a confirmation tone will indicate your line is on the question queue. You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment and that would be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for questions.
Thank you. Our first question is from Kristine Lilly.
Speaker 5: Thank you. Our first question is from Christine Lueh with Morgan Stanley . Please proceed with your question. Good morning guys.
Morgan Stanley. Please proceed with your question.
Hey, good morning, guys how are you.
Good morning Christine.
Speaker 5: You know, maybe focusing on the industrial end market, we saw you know, a year over year decline in revenue and a sequential decline as well. Can you give more color regarding what you're seeing, regarding demand signals, your customers by the different end markets you're serving and how you expect the rest of the year to shape up?
Maybe focusing on the industrial end market, we saw a year over year decline in revenue and a sequential decline as well can you give more color regarding what you're seeing regarding demand signals.
From your customers by the different end markets, you're serving and how you expect the rest of the year to shape up.
Speaker 3: Well, we'll try. Let's see. So when we look at it. Yeah.
Well, we'll try.
Let's see.
So I know that.
When we look at it.
Yeah.
Yeah.
Speaker 3: Well, when we look at our industrial end markets, overall, they're steady.
Well when we look at our our industrial end markets you know overall, they're steady.
Speaker 3: You know, when I look at, you know, dodges second quote, you know, you're to date on dodge, they're up, they're up 2.2%.
When I look at you know Dodges second quote you know your year to date on Dodge through up they're up two 2%.
Speaker 3: So when I look at Dodge's second quarter, I mean, there's basically, it's a 50-50 split between international and the supply chain catch-up that happened last year.
So when I look at when I look at Dodge as second quarter I mean, there's there's basically.
It's a 50 50 split between.
Between international and and <unk>.
Supply chain to supply chain catch up that that happened last year.
Speaker 3: that affects the comps in a negative way. And when I look at the international piece, most of that is timing based upon big orders that were received, but product wasn't completed in the quarter. So I think that should normalize itself. And the supply chain has pretty much normalized. And now those industrial end markets summer up.
That.
Affects the comps in a negative way.
<unk>.
And when I look at the international piece most of that is timing based upon.
Or big orders that were.
Received but product wasn't it wasn't completed in the quarter. So.
I think that should normalize itself in the in the supply chain is pretty much.
That's pretty much normalized and now those industrial end markets some are up.
Speaker 3: pins, summer down, but overall they're pretty steady. And the ones that are up.
And some are down but overall, they're about they're pretty steady.
And the ones that are up for oil and gas.
Speaker 3: aggregate, food and beverage to give you three. And the ones that are down are semi-con, warehousing.
I agree to get food.
Food and beverage to give you three.
And the ones that are down or semi con.
Warehousing.
Speaker 3: and construction and mining equipment.
And construction and mining equipment makers.
Speaker 3: So, you know, one is offsetting the other, and the whole thing seems to be steady. We expect the industrial business to be up a few percentage points in the third quarter on a quarter-to-quarter comp basis, and to be, you know, pretty much steady in the fourth quarter with last year maybe up a few percent. It's just, you know, it's hard to.
So one is offsetting the other and in the whole thing seems to be steady we expect the industrial.
Business to be up a few percent.
Percentage points in the third quarter on a quarter to quarter comp basis.
To be.
Pretty much steady in the fourth quarter was last year, maybe up a few percent.
It's just it's hard to.
Speaker 3: project that given, you know, what the Fed is doing, and what you hear for GDP growth and what you see for employment figures, and then all that has to be sort of put into the stool and stirred around and comes up with some sort of an industrial projection on what your business is going to do. And I don't think anybody really does that well.
Project that given you know.
With the fed and that is doing.
And what did you hear for GDP growth and what you see for employment figures and then all of that has to be sort of put into the stool and stir it around and comes up with some sort of an industrial projection on what's your business is going to do.
And I don't think anybody really does that well.
Speaker 5: Great, it's really helpful context. And looking at the margins, is there a margin differential between oil and gas, aggregate and food beverage that are doing well versus the ones under some pressure like semiconductors warehousing, construction and mining equipment? Like is there one that's more profitable than the others in terms of a?
Great Thats really helpful context.
Looking at the margins is there a margin differential between oil and gas aggregating food beverage start doing well versus the ones under some pressure like semiconductors warehousing construction and mining equipment like is there one that's more profitable than the others in terms of.
Overall bucket perspective.
Speaker 3: Yeah, well, the ones that are down, semi-condu-fine and construction of mining is okay. It's not-
Yeah, well the ones that are down.
Semi semi con is fine and construction and mining is okay. It's not.
Speaker 3: than a barber, but warehousing is pretty weak profitability wise. So the ones that are robbed are stronger than the ones that are, that some of the,
Senate Barnburner.
Oh, but warehousing is pretty weak profitability wise.
So the ones that are up are stronger than the ones that are.
Some of them some of them.
Our markets that are off a little bit.
Speaker 3: To some extent, we're rationalizing our offering in some of those markets, where the margins are...
To some extent.
Rationalizing our offering in some of those markets, where the margins are.
Compressed.
Speaker 3: And so, you know, over a longer period, that'll affect our revenue line.
And so you know.
Over a longer period that will that will affect our revenue line too.
It'll be it'll be a second order effect, but it will be in effect.
Speaker 3: It'll be a second-order effect, but it'll be an effect.
Speaker 5: Thank you for the color. And if I could sneak a third one in, if we look at gross margin, I mean, gross margin at 43.1% in the quarter, 43.2% adjusted is a pretty high bar for you guys. That's great performance. Can you talk about
Great. Thank you for the color and if I could sneak a third one in if we look at gross margin gross margin at 43, 1% in the quarter 43.2, adjusted is a pretty high bar for you guys. That's great performance can you talk about.
Speaker 5: The drivers of this regarding the synergies you're able to extract from DODGE, and I know, you know, the first two years of the transaction is generally more plant focused, but are you starting to do more of the shifting to low-cost manufacturing and trying to get more of the next step of the synergy plan from the deals?
The drivers of this regarding the synergies you are able to extract from Dodge and I know the first years of the transactions generally more focus but are you starting to do.
Do more of this shifting to low cost manufacturing and and trying to get more.
Uh huh.
The next step of the synergy plan from the deal.
Speaker 6: Yeah, Christine, I stand for the...
Yes, Christine this is Dan.
For the.
Speaker 6: six-month period, we're up about 1,100 basis points on EBITDA margin for DODGE driven by a lot by the synergies. That puts us at about, you know,
Six months period, where we're up about.
700 basis points on EBITDA margin four Dodge driven.
Driven by.
A lot by the synergies.
Puts us at about.
Speaker 6: 70 to 80 million a synergy based on a run rate of 700 million in sales.
$70 million to $80 million of synergy based on a run rate of $700 million in sales.
Speaker 6: done pretty quickly and get in place. I think the ones that we're working on that are longer poles in the tent that are going to contribute over the next two to three years.
So I'm pretty quickly and get in place.
I think the ones that we're working on that are longer hauls and the 10 that are going to contribute over the next two to three years.
Speaker 6: is cross sound with our sales teams, which is starting to really pick up nicely on the industrial site. We're starting to see a lot of good activity there. So we should start seeing that come in the next 24 to 36 months and have an impact on our growth on the top.
It is cross selling with our sales teams, which is starting to really pick up nicely on the industrial side, we're starting to see a lot of good activity. There. So we should start seeing that come in the next 24 to 36 months and have an impact on our growth on the top line.
Speaker 6: We continue to work on in-sourcing product into our U.S. plants and into our Mexican facilities. And that's more of a long-term goal force, so that's going to get the benefit from those activities that's going to take two to three years. So we'll see a lot more of that impact in your four and your five-fours on our...
We continue to work on in sourcing product into our U S plants and into our Mexican facilities and that's more of a long term goal for us. So that's going to get the benefit from those activities that's going to take two to three years. So we will see a lot more of that impact in year four and five.
For us on our.
Speaker 6: So I think we're a lot further ahead in the process than we thought we would be and I still think we have some really good activity to come along and We're just starting now to try to take advantage of
Projections here. So I think we're a lot further ahead in the process and we thought we would be and I still think we have some really good activity to come along and we're just starting now to try to take advantage of.
Speaker 6: the size of our company and our buying opportunities and leverage in the SGNA section of the P&L. So we're going to start seeing some nice activity there over the next 12 to 24 months when everything Well, that's taking from, you know, insurance to more and more immediately.
The size of our company and our buying opportunities and leverage and the SG&A section of the P&L. So we're going to start seeing some nice activity there over the <unk>.
Next 12 to 24 months when everything from.
Insurance to.
Speaker 6: different services that we have to acquire, which is the bigger company now, and we have a little more leverage in negotiating contracts. So we're pretty happy where we are.
Different services that we have to acquire which the bigger company now and we have a little more leverage and negotiating contracts. So.
So we're pretty happy where we are in the process right now.
Speaker 3: Yeah, I might add one other thing, Christine, is that, you know, the Dodge plants in the US are pretty, pretty, pretty full with production, which makes it a little bit difficult for us to expand production for new products.
I might add one other thing Kristine is that.
You know.
The Dodge plants in the U S are pretty.
Pretty.
Pretty full with with production.
And it makes it a little bit difficult for us to expand production for new products.
Speaker 3: and to expand our lines and so.
And.
To expand our lines and so.
Speaker 3: In February , our new plant for Dodge will be completed in Tecate, where we're adding 100,000 square feet and moving.
<unk>.
In February.
Our new plant for that will be completed into Cathay.
Where we're adding 100000 square feet.
And moving some of the Dodge operations into <unk> to open up floor space in the United States.
Speaker 3: into Tecate to open up floor space in the United States for new product lines. And so we're pretty excited about that. It has...
For new product lines, and and so we're pretty excited about that it has it not only opens up floor space in the United States for the.
Speaker 3: It not only opens up source-based the United States for the for new product growth, which has been constrained by supply chain support, but it also allows us to.
For new product growth, which has been constrained by supply chain support.
<unk> allows us to.
Uh huh.
Speaker 3: achieve economic benefits in labor costs and products that have been under stress. So, yeah, I think there's, we have big hopes for that new plan.
<unk> economic benefits.
And in labor cost in.
On products that have been.
They have been under stress so yeah.
Yeah I think there is there is a we have we have big hopes for that new plant.
Great. Thank you for the color guys.
Yes.
Speaker 1: Thank you. Our next question is from Pete Skobitsky with Alumbic Global. Please proceed with your question.
Thank you. Our next question is from.
Okay.
Alembic Global Please proceed with your question.
Speaker 7: Hey, good morning, guys. Nice performance. Thank you, Pete. Hey, Mike, I was wondering if I could ask you a big-picture question, just because, you know, in an industry, you do touch so many end markets. You know...
Hey, good morning, guys nice performance.
Thank you Pete.
Hey, Mike I was wondering if I could ask a big picture question, just because you're in industrial you do touch so many end markets.
You know.
Speaker 7: Obviously we've seen kind of ISMs be below 50 here in the US for about a year now.
Obviously, we've seen kind of ism's be below 50 here in the U S for about a year now and people think Europe is already in a recession.
Speaker 7: People think Europe is already in a recession.
Speaker 7: But things are, you know, things have slowed a bit in industrial organically, it seems like, but not, you know.
Things are you know things have slowed a bit in industrial organically it seems like but not.
Speaker 7: So your factories were full still. So just what does that feel like to you? Does it feel like we're kind of in the late part of a cycle or do you think all the federal spending is kind of offsetting it for you guys? How does it feel like to you? You know, are we deep in a recession? I'm just wondering.
Sure. So your factories were full sell so I was just wondering what does it feel like to you does it feel like we're kind of in the late part of the cycle or do you think all the federal spending is kind of offsetting it for you guys. How does it feel like to you.
Are we deepen our recession I'm just wondering.
Speaker 7: given all the end markets that you touch and the visibility that you have, just kind of your gut feel.
Given all the end markets that you touch and the visibility that you have just kind of your gut feel.
Speaker 3: Well, I think right now we're kind of drifting with the tide in terms of economic demand and the industrial. I don't think we're gaining great, great, great...
Well I think I think right now we're kind of drifting with the tide in terms of you know.
Economics to meet demand in the industrial I don't know.
You know where we are.
Gaining great.
Great.
Speaker 8: in any great way and we're not losing. We're staying about even. I mean, you can grow industrial if you can grow your market share and if you have some interesting new products to introduce. So to some extent, you have to make your own wind. And so we're building wind machines. And so that's how we see it.
In any great way.
We're not losing we were staying about even I mean, you can grow industrial.
If you can grow your market share and if you have some interesting new products to introduce.
So to some extent you have to make your own wind and.
And so we're building wind machines.
So that's how that's how we see it.
That sounds yes it.
Speaker 7: That's fair. No, it makes sense to me. It makes sense to me. And I guess um...
That's fair no. It makes sense to me it makes sense to me and I guess.
Speaker 7: To the extent you have new products, I imagine maybe you guys are lightening up on pricing in certain areas because it's a little bit of a disinflationary environment, but I guess to the extent that you have new product introductions.
To the extent you have new product I imagine maybe you guys are lightening up on pricing in certain areas, because it's a little bit of a disinflationary environment, but I guess to the extent that you have new product introductions.
Speaker 7: I don't know how widespread they are, but maybe that gives you an opportunity on price. Is that the way to think about it?
I don't know how widespread they are but maybe that gives you an opportunity on price is that the way to think about it.
Yeah, well you know we have.
Speaker 3: When we bought that two years ago, I think the first order of business is to get your fingernails into the business and figure out how to improve it.
Yeah.
We bought that two years ago.
We are.
I think the first order of business is to kind of get your get your fingernails into the business and figure out.
How to improve it and.
And how to synergize with RBC, you know all that well that sort of thing and I would say that took endless amount of meetings.
Speaker 3: and how to synergize it with RVC and all that sort of thing. And I would say that took an endless amount of meetings. So your product development isn't on the forefront. And so.
So.
Your product your product development isn't.
On the forefront and and so.
Speaker 3: After the first year, we started pulling out what new products they've been developing for the last five years that are ready for commercialization and found some very, very promising ones. We also found that in some of their product cases, their sales were constrained by the ability of their supply chain to increase production.
After the first year, we started.
We started pulling out.
New products they've been developing for the last five years that are all ready for commercialization in and found some <unk>.
Some very very promising ones and we also found that.
And in some of their product cases, their sales were constrained by the ability of their supply chain to increase production.
Speaker 3: and the supply chain was unwilling to increase production because they were happy with whatever they were getting for the production they were making.
In the supply chain was unwilling to increase production because they were.
With whatever they were getting for the production they were making.
Speaker 3: So, you know, based on that, we decided that, hey, listen.
So based on that we decided that hey listen.
Speaker 3: You know, this is a well, these are well accepted product in the marketplace. And if we produced more, there is a market for them. And so how do we produce more? And the answer to that came that we need to open up floor space for production equipment for these particular...
This is a well these are well accepted product in the marketplace and if we produce more.
There is a there is a market for them and so how do we produce more and the answer to that cut came.
We need we need to open up floor space for production equipment for these particular.
Speaker 3: items and so hence a new plant in Tegate is constructed and you know off we go and so that's kind of you know I mean we'll get we'll get get dodged cooking but it's you know it wasn't the first order of priority and it usually never is with a new acquisition you know it takes it takes some time to you know to go through the go through the motions and integrate
Items and so hence our.
Our new plant in to Cathay is constructed.
And and off.
If we go and so that's kind of you know I mean, we'll get we'll get get Dodge cooking, but it's.
It wasn't the first order of priority in it and it usually never is with the new acquisition. It takes it takes some time to get to.
You go through the go through the motions and integrate.
Speaker 3: And so we've, you know, we're beyond that now, and we're into the, we're into the growth mode.
And so we've.
Beyond that now and we're into the grid.
We're into the growth mode.
That's great and I appreciate the color I'll get back in queue.
Okay.
Speaker 5: Thank you. Our next question is from Steve Barger with KeyBank Capital Markets. Please proceed with your question.
Thank you. Our next question is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Good morning, guys.
Good morning, Steve.
Speaker 9: Your industrial segment outperformed some of the other public-bearing companies on the top line this quarter. Do you think that's all in-market exposure, or are there some other structural differences between Dodge and the public competitors that make your platform more resilient?
Your industrial segment outperformed some of the other public bearing companies on the top line. This quarter do you think that's all end market exposure or are there. Some other structural differences between Dodge in the public competitors that make your platform more resilient.
Speaker 3: Oh, we're just better than everybody.
Oh, we're just better than everybody.
[laughter].
Yeah.
Speaker 3: Uh, you know, I, I, we, we service the same end markets, you know, it's, uh.
We we service the same end markets you know it's.
Speaker 3: In many cases, there's this great overlap with some of our end markets and to some extent some of our products.
In many cases there is this greater overlap with the with some of our some of our end markets and to some extent some of our.
Some of our products.
So you know I think.
Speaker 3: I think we do an exceptional job at Dodge and in customer service and customer support, and it's really, it's really
I think we do do an exceptional job.
Dodge and in customer service and customer support.
It's really it's really well recognized.
Speaker 3: And so we don't we don't test anybody's loyalty.
And <unk>.
So we don't.
We don't test anybody's loyalty.
Speaker 3: And in times like this where you're sort of drifting with the industrial tide, you definitely want to be a leader in a company that the customers can trust. And that's kind of where we are. And I think that's accruing to our benefit.
And in times like this where you're sort of drifting with the industrial tide.
You definitely want to be you definitely want to be the leader.
The company that the customers can trust and that's kind of where we are and I think that's accruing to our benefit.
Yes.
Speaker 9: Well, and it certainly seems to be accruing to the margins. You know, incremental margin in 1Q was 52%. Industrial margin was up 570 basis points to almost 27%. As I look at this quarter, consolidated incremental was 75%, which is pretty amazing. Did you see a similar result in the industrial segment in 2Q, margin-wise?
And it certainly seems to be accruing to the margins you know incremental margin in <unk> was 52% industrial margin was up 570 basis points to almost 27%.
As I look at this quarter consolidated incremental with 75%, which is pretty amazing did you see a similar result in the industrial segment in <unk> margin wise.
Speaker 4: Yeah, the Q2 margins in industrial look very similar to what you saw in Q1. Sustained strength there.
Yeah, Yeah, Q2 margins in industrial look very similar to what you saw in Q1.
<unk> strength there.
Okay.
Sure.
Speaker 9: We're saying all this is primarily Dodge synergy.
Saying all of this is primarily Dodge synergy.
Speaker 4: I think the Dodge Synergy is absolutely driving their growth at the 1,100 basis points that Dan talked about earlier, 1,100 percent. But the RBC industrial products margins have done well as well. So it's really been across the entire segment that we've seen a lot of strength in industrial.
I think the Dodge synergies absolutely driving their growth the 100 basis points that Dan talked about earlier is 100%.
But the RBC industrial products margins have done well as you know as well so it's really been across the entire segment and we've seen a lot of strength in industrial.
Speaker 9: Got it. And just, you know, with the industrial environment becoming increasingly dynamic, and Mike, you referenced that we're kind of drifting along, is there any chance that you'll give us segment margins in the release so we can have more informed conversations on the earnings call?
Got it.
Just with the industrial environment, becoming increasingly dynamic and Mike you referenced that were kind of drifting along is there any chance that youll give us segment margins in the release. So we can have more informed conversations on the earnings calls.
Speaker 4: Yeah, we can we can certainly look at that. You know, it's obviously in the queue every quarter, but we can look at breaking it out in future releases for you. Yeah.
Yes, we can we can certainly look at that it's obviously in the Q every quarter, but we can look at breaking it out in future releases for you.
Yes sure.
Okay.
Speaker 4: Yeah. Yeah. The story is that the industrial margins are still, you know, around the 45% mark.
Yes. The story is that the industrial margins are still around 45% Mark.
Speaker 4: Aerospace margins picked up this quarter, less than a point, but they're definitely up, which is the trend that we were looking for as the plans continue to pick up the capacity with the increased build rates. And I suspect we'll continue to see that as well. We should see the aerospace gross margins at this quarter on an adjusted basis, we are at 40. And I think we'll continue to see that grow from there in the future periods.
Aerospace margins ticked up this quarter.
Less than a point, but theyre definitely up which is the trend that we were looking for as the plants continue to pick.
Pick up the capacity with the increased build rates and I suspect, we will continue to see that as well.
We should see the aerospace gross margins this quarter on an adjusted basis. We were at 40 and I think we will continue to see that grow from there.
I know in the future periods.
Speaker 9: Got it. Yeah, it would be great to get that data in real time with the rest or at least just so we can update our models before the call. Thanks.
Got it yes, it would be great to get that data in real time with the rest or at least just so we can update our models before the call. Thanks.
Thank you. Our next question is from Seth Weber with Wells Fargo. Please proceed with your question.
Hey, Good morning, guys. This is Larry on for Seth This morning.
Just wanted to I was wondering about the <unk> acquisition, if you could give a little bit a little bit more color on that and what your expectations are for <unk> going forward.
Oh sure.
Well just to just to kind of reframe. This spec line spec line.
<unk> produces lines spherical plane bearings and rod ends for aerospace customers.
That's their business.
They basically have the same customer basis RBC.
Very similar products in some cases identical.
So we're comfortable with their markets their manufacturing methods, we're very aligned here with with spec line and how they how they ran the business.
So the.
Position gave us more plant capacity.
And a very high demand environment.
And the.
It gave us a trained workforce and made our lines more important to our largest customers.
So this really hit all of the must haves.
Or an acquisition for us.
That's that's our acquisition checklist right there.
And so.
The.
The owners.
Okay.
Decided to retire and.
And we're looking for a home for their business.
We learned about it.
And so that's that's sort of the background story behind the acquisition.
Got you I appreciate that color and you mentioned your net debt now down to about two seven times.
And I know you guys had a bent towards aerospace and defense.
I'm looking to bolster that business or are you still are you guys still looking in.
What does the pipeline look like for you guys in terms of.
The acquisition pipeline.
Well, we're certainly still looking.
We don't have anything in the immediate crosshairs.
You know, we have a we have concepts and ideas and theories.
And.
We're studying with studying.
The current.
Candidates.
But we you know theres nothing.
Immediately actionable.
Okay got you and then just turning to aerospace and defense.
You guys are doing.
First quarter growth rates.
Above 22% and you guys mentioned the increased build rates.
Are you expecting growth to accelerate in the back half of the year or should we kind of think about it.
No.
Tapping the brakes here a little bit.
Not getting too overzealous.
Well I'll tell you right now.
We're going through a process with all of the all of the companies but.
Particularly paying attention to the aerospace and defense companies.
On a five year plan.
And with their content is per shift and how many ships and so on and so forth and do we have enough floor space.
Because you just you know.
If you if your business in aerospace is going to jump.
5% next.
Next year.
You can't you can't put everything in place to support that kind of a jump. If you don't have it already and we're right now we're exceeding where we are where we were in 2019 before the pandemic.
And so we know we know we're good to go in terms of what our current steady state demand is.
Ill tell you the truth, we're standing on our tip.
Tippy toes in terms of.
Okay.
The capacity that we have the number of people that we have so on and so forth to support to support what we see.
Coming into coming into our order book.
No.
Yeah, I would say that we're going to be.
Next year, it looks like a very strong year for us.
In the Aerospace defense segment.
<unk> unless some world event happens that throws.
Does the whole thing into a tailspin.
We're going to be we're going to be substantially strong next next year in those markets.
Okay, Great really appreciate the color guys. Thanks.
Thank you. Our next question is from Joe Ritchie from Goldman Sachs. Please proceed with your question.
Hi, Thanks This is <unk>.
Rostov on for Joe My first question is on your SG&A as a platform.
It definitely came in much better than the previous guidance just curious what caused the upside surprise.
How much of it was driven by synergies perfectly.
And then just very quickly the stock comp also step down going forward any any indication on what should be a model stock comp expectation.
Yeah, absolutely so.
There was some favorability that we experienced in certain fringe costs and timing of different items that had come in in Q1.
Repeating in Q2.
So that offered some improvement on the SG&A as a percentage of sales there was the temporary.
The reduction in stock comp expense I expect Q3 stock comp to be $4 3 million.
Compared to the $3 seven we saw this quarter.
So you know we had favorability in some of the variable costs.
And which really drove the nice quarter.
As we've discussed so as we put out there in the release as a percentage of sales next quarter, we're thinking somewhere between $17 17 five.
That's helpful and maybe just on the new plan.
That's.
Freeing up more floor space.
But just maybe in the medium term as this new plant comes through how should we think about maybe some productivity headwinds and sort of any elevated cost you would point out because of the plants coming up.
Yeah.
The <unk> plant that Dr. Hart was talking about.
We don't expect to see a real disruption there are big cost impact to capitalize that plan and it's <unk>.
For space over the next 12 to 24 months.
It should fall.
Normal capex.
So.
Great that's helpful and maybe just a bit more medium to long term question Jeff.
I got projects, we are seeing a lot of activity in the projects, which are breaking ground.
Right now just any color you can provide on what if you have other.
Good question Craig of total cloud costs, when do you see some of the benefit stock linear order, especially on the industrial side.
It would be helpful.
I'm sorry can you can you clarify the question.
Okay.
Yes, absolutely.
Large projects like over 1 billion projects, we have about 900 billion.
Such projects being announced now.
A lot of semiconductor production lot of EV battery LNG plants.
Curious if you can you have some color you can provide on when you should start seeing orders from these projects.
Thank you.
European Ed.
Well I think I think the industry is still waiting to see orders from the infrastructure Bill which would be.
Substantially important too to the to our business.
And it's I think that's the oldest.
Of the bills that is has been has been approved and.
I would say it's.
The.
The impact that that Bill has had on <unk>.
The economic environment, so far.
Four.
Everybody.
It seems to be very minimal.
So we do expect that.
Once that spending does it.
Hit the markets.
And.
And when we look when we look around it for example, the aggregate market we see that.
For the most part much at much of the U S is running at full capacity today.
So new plants will have to be built to <unk>.
Produced cement and asphalt and aggregate in order to absorb that absorb that capital.
<unk>.
And produce the end items that.
So improved the roads improve dams and improve the infrastructure that.
That spending is meant for so we're really at the at the beginning of that.
Entire phase.
This is this is what it must have felt.
This is this is it must have felt this way and $19 58 when Eisenhower.
Announced.
The building of the Interstate highway system.
I'm sure everybody. Thank you everybody was waiting for that money to be spent.
Great.
Thank you. Our next question is from Ron Epstein with Bank of America. Please proceed with your question.
Hi, Good morning. This is George your line is on for Ron.
Could you guys give more detail on what youre seeing for labor, but talent acquisition, our attrition rates so high.
Where that's at.
Yeah, we're not seeing.
It's dependent upon where you are in the in the country.
We're in.
You know.
Have you on the East coast.
Light in light in the Midwest heavy on the West Coast.
Heavy in the South east in terms of production facilities.
We're not seeing any problem with.
So that's unusual relative to.
The labor, we're probably seeing more problems that are unusual in California with with regard to guard too ridiculous legislations, but we're not seeing the problem with labor and.
Typically.
Year to year, we will bring in.
Most to a 100 new.
Engineers from.
This college graduates.
Train them into.
Into bearing makers and assembly makers and valve makers.
So on and so forth and.
And we're having no problem recruiting recruiting at that level today.
Great. Thank you and then.
Just one other one could you give an update on what youre seeing so far.
For the marine exposure.
That's going are you guys expecting to see any of the benefits from the supplemental orcus funding.
Yeah right now we're.
Very busy working with <unk>.
<unk> Newson electric boat on quoting new boats, and new Virginia, and new Columbia's.
Lot of activity that business is growing at double digit for us.
And we expect it to for the next 12 months.
Great. Thank you so much.
Thank you. Our next question is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Hey, Thanks for taking the follow up Rob I, just wanted to make sure I understand your commentary on margin sustainability relative to the <unk> guide at the midpoint I'm getting consolidated op margin in kind of the mid 20% range like historical levels versus the 22% plus in the first half.
Is the guide conservative, whereas one of the segment is going to have a seasonal step down or some headwind in the quarter.
The third quarter is always a tricky one right because we lose a number of production days its not unusual to see a little bit of headwind on that front, but as I alluded to last year from a gross margin or last quarter that from a gross margin perspective, we felt 43 with a targeted and I still believe that.
So.
It's a challenging quarter with the holidays.
Just switch.
<unk> is our margin profile, but Q4 it.
It looks strong on that front. So so that's kind of where we're looking to shape up for the year.
There's one segment or the other you are taking outsized hit from fewer days in <unk>.
I mean.
It depends on the location so no not really it's pretty much across the organization.
Yes, Steve This is David I think it would be it would be more impact on classic RBC, because we actually closed down a lot around the holidays and.
So if you look at the six months.
We'll be right on track to where we were prior in the first six months of the year.
Got it thank you.
Thank you. Our next question is from Tim Thein with Citi. Please proceed with your question.
Great. Thank you.
Good morning, I guess the first one is.
In terms of going back to the aerospace discussion can you just give us maybe a little bit more color in terms of your expectations in the back half of the year and into 'twenty for a lot of discussion just in terms of that.
Production ramp, which is which is clear, but maybe just some discussion on <unk>.
Aftermarket what youre seeing there.
As the supply chain.
Issue has been a constraint for you at all or just what are you seeing there and then again kind of your expectations into the back half of the year I needed 24.
Well 24.
On the aerospace and defense side.
<unk> is going to be.
Extremely strong for us.
And.
We have.
Eight to 10 plants that are servicing that debt that.
That business with different products and when we look at where right now we're going through our FY <unk>.
25.
Our budget review and we're in the process of.
Establishing what our revenue outlook is for <unk>.
Unit per business unit.
And we usually we usually start that process in October and then refine it in November and December so that we can put plant budgets together by January and then we know how much we can we can spend on SG&A by February.
That's it that's the secrets of events and so we're in our second tour turn on Rev.
Revenue outlooks by plant based upon driven by content and driven by normal in and out business to establish.
What the.
25 baseline is for aerospace and defense.
Units.
It looks it looks to me like everybody is up 20%.
And.
With rare exception, where they're up maybe a little bit more so it's really going to depend on.
To some extent how much we're able to produce.
Can we get the labor.
What are we.
In some places in the country, that's not so difficult and other places it is very difficult. So.
You know, there's there's a lot of.
No.
Operational.
E Sir.
To pass through.
<unk>.
In order to put it all together, but it's going to be a very strong year and so in some of our some of our businesses right now if we had double if we could double the capacity we would double the sales.
I mean, you just can't you just can't turn that up that fast.
Yeah got it got it Okay and then this is probably.
<unk> finally, but in terms of the just the full year net sales expectation.
Was there any change from the language changed a little bit from last quarter.
Subsequent to that you acquired spec line, which obviously doesn't give you a whole lot.
For the remaining months of the year, but have your full year net sales expectations changed at all from last quarter.
Well I mean, we're 90 days deeper into the year. So we have 90 days more and more information on how the economies treating our industrial businesses, we pretty much know, how it's treating the aerospace and defense businesses.
We adjusted Accordingly.
Got it.
Australia is a bit softer.
Currently.
Not shocking, but maybe that that's taken out a little bit of that.
The guidance compared to 90 days ago that is a fair and that's more than offset maybe a little stronger arrow environment, yes.
That's right.
Okay alright, thank you.
Yes.
Thank you there are no further questions at this time I would now like to turn the call over to Dr. Hartnett for any closing remarks.
Okay, well that concludes our conference call for the.
For our second quarter and I appreciate everybody participating.
We shared all the good questions and.
Look forward to speaking to you again.
It probably early February.
Good day.
This concludes today's conference.
Paul to your lines at this time, thank you for your participation.