Q2 2024 RBC Bearings Inc Earnings Call
[music].
Greetings and welcome to the RBC bearings fiscal 2024 second quarter earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Josh Powell with Investor Relations. Please go ahead.
Good morning, and thank you for joining us for RBC bearings fiscal 2024 second quarter earnings Conference call.
With me on the call today are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Bergeron, Director, Vice President and Chief operating Officer.
Robert Sullivan, Vice President and Chief Financial Officer.
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 90 95.
Actual results may differ materially from those projected or implied due to a variety of factors.
We refer you to RBC bearings recent filings with the SEC for a more detailed discussion of the.
Yes.
The company's future operating results and financial condition.
These factors 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 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 yard.
Thank you, Josh and good morning, and welcome to everyone.
Yes.
I'm pleased to report that our net sales for the second quarter of fiscal 2024 were $385 6 million.
This represents a four 4% increase from last year.
For the second quarter of 'twenty 'twenty four or.
Our industrial products represented 67% of our sales.
In aerospace products, 33%.
As a footnote over the past five years revenue growth at RBC has been has been compounded at a rate of 16, 8%.
Gross margin for the quarter was $166 3 million or 43, 1% of net sales.
This compares to 151.1 million or 49% for the same period last year or two.
220 basis point improvement from last year.
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 of 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.
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.
Free cash flow was $45 $6 million debt.
Debt reduction continues to be a priority we have achieved a $490 million decrease in debt since the acquisition of <unk>.
Dodge in 2000 and November of 2021 24 months ago.
We've now have achieved a net debt to EBITDA ratio of 2.71 over.
Over the trailing 12 months down from 565.
From from fiscal 'twenty two.
Army sees record of EBITDA growth over the last five years now stands at 19.9%.
Adjusted EPS.
Well, there's $2.17 a share.
Adjusted EBITDA was $122 1 million.
31, 7% of net sales compared to $108 8 million.
29.5% of net sales last year.
A 12.2% increase.
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.
We look forward to a march ear, and whose revenues finishing.
Between 155 and $1.6 billion range.
On the industrial businesses during.
During the quarter the industrial growth was a negative two 8% overall against some pretty strong comps last year.
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 4.4% year to date.
And we expect to be up in Q3, a few percentage points in this on this measure.
RBC classic industrial sales were up 1.7% during the same period.
And we had very little supply chain impact and the.
On the classic side of our industrial business.
On aerospace and defense commercial aerospace was.
It was up 24.9%.
The aerospace and defense sector was up 22.9% overall.
OEM defense includes components and assemblies for Jets missiles helicopters marine valves satellites and rockets.
Aftermarket was up 26, 1% the main drivers here jets helicopters and jet engines.
The aerospace market is now strongly extra 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 for Boeing and Airbus ships.
Also the private aircraft builders and of course, the many subcontractors who support the industry.
Okay.
Alright that currently.
OEM is building 737 ships, Eddie 30, 38 per month rate.
New orders to our B C. Our inbound at about a 42.
Ship per month rate and moving to a 47 per month rate soon.
On the 787, our current build rate numbers are approximately four per month.
And moving to seven per month order rate by October by April.
This is a it has a substantial impact to us.
Airbus is.
Is.
Is is pursuing the build rate of under 320 ships at about 70 ships per month as they exit 2024.
Yeah.
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.
In summary, let's go over the highlight reel for Q2 sales were up four 4% for the period EBITDA of 122.1 up 12.2% adjusted net income of 68.9.
11, 3%.
All your guidance revenues, one 1.55 to $1 $6 billion.
Gross margin is expected to be in the low to mid forties.
Debt pay down since November 'twenty, 'twenty, one is $490 million.
Trailing EBITDA to net debt today is 2.71.
And over half of our revenues are to replace products that are consumed in use.
Regarding our third quarter were 2024, we are expecting sales to be somewhere between 370 and $380 million range.
I'll now turn the meeting over to Rob Sullivan, our CFO.
Or some details on the financials.
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.
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.
For the second quarter of fiscal 'twenty 'twenty four other operating expenses included $17 6 million of amortization of intangible assets <unk> 3 million of restructuring costs and zero point $1 billion of other items for the second quarter of fiscal 2023. Other operating expenses consisted primarily of $16 8 million of amortization of <unk>.
Tangible assets $4 1 million of costs associated with the Dodge acquisition $2 8 million of other items.
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.
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.
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.
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 netting.
Net income attributable to common stockholders for the second quarter of fiscal 2024, it 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.
At year end.
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.
Adjusted basis diluted earnings per share attributable to common stockholders for the second quarter of fiscal 2024 was $2 17 per share compared to $8 93 for the same period last year.
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.
Capital expenditures were $7 5 million in the second quarter of fiscal 2024 compared to $15 2 million for the same period last year.
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 1.32 billion as of September 30th.
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.
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, a confirmation tone 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 sorry, Keith one of them in place, while we poll for questions.
Thank you. Our first question is from Kristine Lilly.
Morgan Stanley. Please proceed with your question.
Okay.
Guys how are you.
Good morning Christine.
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.
Well, we'll try.
Let's see so.
When we look at it.
Yeah.
[laughter].
Well when we look at our our industrial end markets are you know overall, they're steady.
You know when I look at you know Dodges second quote you know your year to date on Dodge through up they're up two 2%.
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.
Hum between international and.
The supply chain the supply chain catch up that that happened last year.
That affects the comps in a negative way.
And when I look at the international piece most of that is timing based upon.
You know or big orders that were.
Received but product wasn't it wasn't completed in the quarter. So I think that I think that should normalize itself in the in the supply chain is pretty much.
That's pretty much normalized in and now those industrial end markets some 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.
Aggregate.
Food and beverage to give you three.
And the ones that are down or semi con.
Warehousing.
And construction and mining equipment makers.
So you know 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.
And to be you know.
Pretty much steady in the fourth quarter was last year, maybe up a few percent.
It's just you know it's hard to.
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 stew and stood around and comes up with some sort of an industrial projections on which of your business is going to do.
And I don't think anybody really does that well.
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.
Yeah, well the ones that are down.
Let me kind of semi con is fine and construction and mining is okay. It's not.
Senate Barnburner.
Warehousing is pretty weak profitability wise. So the ones that are up are stronger than the ones that are there.
Some of them some of them.
Our markets that are off a little bit.
To some extent, we're rationalizing our offering in some of those markets where the margins are.
Compressed.
And so you know over a longer period that'll that'll affect our a revenue line too.
It'll be it'll be a second order effect, but it will be in effect.
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.
A high bar for you guys. That's great performance can you talk about.
The drivers of this regarding the synergies you are able to extract from Dodge and I know you know the first years of the transactions generally more focus but are you starting to.
Do more of this shifting to low cost manufacturing and and trying to get more.
The next step of the synergy plan from the deal.
Yeah, Christine this is Dan.
For the.
Six months period, where we're up about.
700 basis points on EBITDA margin four Dodge.
Driven by.
A lot by the synergies.
Puts us at about.
$70 million to $80 million of synergy based on a run rate of 700 million in sales.
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.
He 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 kind of come in the next 24 to 36 months and have an impact on our growth on the top line.
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 benefits from those activities that's going to take two to three years. So we'll see a lot more of that impact in year four and your <unk>.
For us on our.
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.
The size of our company and our buying opportunities and.
Leverage in 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 from everything from.
Insurance to.
Different services that we have to acquire we have we're just a bigger company now and we have a little more leverage in negotiating contracts. So.
So a pretty happy where we are in the process right now.
I might add one other thing Kristine is that.
No.
The Dodge plants in the in the U S are pretty.
Pretty.
Full with with production.
Which makes it a little bit difficult for us to expand production for new products.
And to expand our lines and so.
In February our 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.
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.
For new product growth, which has been constrained by supply chain support.
<unk> allows us to.
Achieve economic benefits and in labor cost in on products that have been.
They have been under stress so.
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.
Thank you. Our next question is from.
Okay.
Alembic Global Please proceed with your question.
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.
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.
Things are you know things have slowed a bit in industrial organically it seems like but not.
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.
We deepen our recession I'm just wondering.
Given all the end markets that you touch and the visibility that you have just kind of your gut feel.
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 it I don't think were you know where we're going.
Gaining great great.
In any great way and we're not losing we were staying about even I mean, you can grow industrial.
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 you know we're building wind machines.
So that's how that's how we see it.
That sounds yes it.
That's fair no. It makes sense to me it makes sense to me and I guess.
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.
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.
You know when we when 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 you know.
How do we improve it and and.
And.
Synergize with RBC, you know all that well that sort of thing and I would say that took an endless amount of meetings.
So you know your product your product development isn't on.
On the forefront.
And so.
After the first year, where you started.
We started pulling out what new products they've been developing for the last five years that are all ready for commercialization in and found some.
So I'm very very promising ones and 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.
And the supply chain was unwilling to increase production because they were.
With whatever they were getting for the production they were making.
You know based on that we decided that hey listen.
This is a well these are well accepted product in the marketplace and if we produce more.
There is a there is a <unk>.
Market for them and so how do we produce more and the answer to that cut came that we need we need to open up floor space for production equipment for these particular.
Items, and so hence our a new plant in to Cathay is constructed and and off we go and so that's kind of you know I mean, we'll get we'll 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 you know it takes it takes some time to.
Go through the go through the motions and integrate.
And so we've we're beyond that now and we're into the.
We're into the growth mode.
That's great and I appreciate the color I'll get back in queue.
Okay.
Thank you. Our next question is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Good morning, guys.
Good morning, Steve.
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 is there. Some other structural differences between <unk> and the public competitors that make your platform more resilient.
Oh, we're just better than everybody.
[laughter].
We we service the same end markets you know it's.
In many cases there is this great overlap with the with some of our with some of our end markets and to some extent some of our.
Some of our products.
So you know I think.
You know.
I think we do an exceptional job.
And Dodge and in customer service and customer support and.
It's really it's really well recognized.
And so.
So we don't.
We don't test anybody's loyalty.
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 a leader.
A company that the customers can trust and that's kind of where we are and I think that's accruing to our benefit.
Yes.
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.
Yeah, Yeah, I think Q2 margins in industrial look very similar to what you saw in Q1.
Sustained strength there.
Okay.
Sure.
Saying all of this is primarily Dodge synergy.
I think the Dodge synergies absolutely driving their growth.
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.
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.
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.
Yes, yes, the stories that the industrial margins are still around 45% Mark.
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 <unk>.
<unk> build rates and I suspect, we'll 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'll continue to see that grow from there.
I know in the future periods.
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 spec line 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 answered for aerospace customers.
That's their business.
They basically have the same customer basis RBC.
A 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.
<unk>.
So the acquisition gave us more plant capacity.
And a very high demand environment.
And it gave us a trained workforce and made our lines more important to our largest customers.
Yeah.
So this really hit all of the must haves for an acquisition for us.
That's that's our acquisition checklist right there.
And so.
The.
The owners.
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 Hum, we don't have anything in the immediate crosshairs.
You know we have a we.
We have concepts and ideas and theories.
And and where we're studying with studying the.
The current Oh.
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.
Uh huh.
Tapping the brakes here a little bit.
Not getting too overzealous.
Well I'll tell you right 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 and do we have enough floor space.
Because you just.
If you if your business in aerospace is going to jump <unk>.
25% next.
Next year.
You can't you can't put everything in place to support that kind of a job. 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.
I'll tell you the truth, we're standing on our tip.
Tippy toes in terms of.
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.
Yeah, I'd say that we're gonna be.
Next year, it looks like a very strong year for us.
In the Aerospace defense segment.
There is 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 vivek srivastava on for Joel.
My first question is on your SG&A as a platform sale.
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 stepped down toward going forward any any indication on what should be a more 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 that werent.
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 great.
Great.
Freeing up more floor space.
But just maybe in the medium term as this new client comes through.
Should we be thinking about maybe some productivity headwinds and sort of any elevated cost you would point out because of the plants coming up.
Yeah.
What day.
The Ducati 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.
And the floor space over the next 12 to 24 months.
It should fall.
Our normal capex.
So.
Great that's helpful and maybe just a bit more medium to long term question Jeff.
<unk> projects.
Seeing a lot of activity in the projects, which are breaking ground.
Right now just any color you can provide on what is your content. Good question. Joseph total plant cost when do you see some of the benefit stock Melania order, especially on the industrial side would.
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 plans I'm. Just curious if you can you have some color you can provide on when you should start seeing orders from these projects targeting.
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.
And it's I think that's the oldest.
Of the bills that is has been its been approved and.
I'd say its the.
<unk>.
The impact that that bill is head on.
The economic environment, so far.
Four.
Everybody is it seems to be very minimal.
So we do expect that.
Once that spending does it.
Hit the markets.
And and.
And when we look when we look around it for example, the aggregate market we see that.
Yeah.
For the most part much at much of the U S is running at full capacity today. So.
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.
Yeah.
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.
That's that.
Yeah, we're not seeing.
It's dependent upon where you are in the in the country.
We're in a.
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.
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 close to a 100 new.
Engineers from.
His college graduates and 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.
Thats 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 the.
Newport News and electric boat on quoting new boats and new Virginia's in 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.
The midpoint I'm getting consolidated op margin and 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.
So a challenging quarter with the holidays.
Just which reduces our margin profile, but Q4.
Look strong on that front. So so that's kind of where we're looking to shape up for the year.
Yes, there's one segment or the other you've taken outsized to 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 it will 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.
Just 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 the <unk>.
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.
Yeah.
Well 24.
On the aerospace and defense side.
This is gonna be.
Extremely strong for us.
And.
We have.
Eight 8% to 10 plants that are servicing that debt that business with different products and when we look at where right now we're going through our FY 'twenty.
<unk> 25.
Our budget review and we're in the process of.
Wishing 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 secret sauce of events and so we're in our second tour turn on.
Revenue outlooks by plant based upon driven by.
Content and driven by normal in and out business to establish.
What the 20.
25 baseline is for aerospace and defense.
Units.
It looks it looks to me like everybody is up 20%.
And.
With 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 in other places it is very difficult so.
You know, there's there's a lot of you.
Operational.
He served two two.
To pass through.
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.
Is 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.
We have 90 days more more information on how the economies treating our industrial businesses.
Much knowhow, it's treating the aerospace and defense businesses.
So we adjusted accordingly.
Got it.
Industrial is a bit softer.
Certainly not.
Shocking, but maybe that <unk> taken out a little bit of that.
The guidance compared to 90 days ago, that's a fair and that's more than offset maybe a little stronger arrow environment, yes, but that's all.
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.
I appreciate all the good questions and look.
Look forward to speaking to you again.
It probably early February.
Good day.
Yeah.
This concludes today's conference.
Small care lines of course, Paul Thank you for your participation.