Q2 2025 RBC Bearings Inc Earnings Call
Good morning, and thank you for joining us for RBC bearings fiscal second quarter 2025 earnings call I'm, Ron <unk> director of corporate development Investor Relations and with me on today's call are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Berger on Director, Vice President and Chief operating.
Unknown Executive: Good morning, and thank you for joining us for RBC Bearings Fiscal Second Quarter 2025 Earnings Call.
Robert Moffatt: I'm Rob Moffatt, Director of Corporate Development and Investor Relations, and with me on today's call are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Bergeron, Director, Vice President and Chief Operating Officer, and Rob Sullivan, Vice President and Chief Financial As a reminder, some of the statements made today may be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors.
Sure, Rob solid Vice President and Chief Financial Officer as a reminder, some of the statements made today may be forward looking and are made under the private Securities Litigation Reform Act of 1995 actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC bearings recent filings with the SEC for more detailed discussion of the risks.
Robert Moffatt: We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. These factors are also listed in the press release, along with a reconciliation between GAAP and non-GAAP financial information.
That could impact the company's future operating results and financial condition. These factors are also listed in the press release, along with a reconciliation between GAAP and non-GAAP financial information with that I'll now turn the call over to Dr. Hart.
Mike Hartnett: With that, I'll now turn the call over to Dr. Hartnett. Hello guys, good day, good day. Okay.
Okay.
Okay.
Hello, Greg.
Great.
Yes.
Yes.
Thanks, David.
Yeah.
Hum.
Uh huh.
Mike Hartnett: Good morning, everyone, and thank you for joining us. I'm going to start today's call with a quick review of our financial results and I'll finish with some high-level thoughts on the industry and our outlook for the remainder of 2025. I'll then hand it over to Rob Sullivan for more detailed comments. Second quarter net sales came in at $398 million, a 3.2% increase over last year, driven by continued strong performance in our A&E segment, and what we believe was continued outperformance versus peers on the industry. Total A&B sales were up 12.5% year-over-year. with 17.3% growth on the Fed side and 10.3% growth on the commercial payroll.
Good morning, everyone and thank you for joining us.
I'm going to start today's call with review of our financial results and I'll finish with some high level thoughts on the industry and our outlook for the remainder of 2025.
I'll, then hand, it over to Rob Sullivan for more detail on all of them.
Second quarter net sales came in at 398 million three 2% decrease over last year driven by continued strong performance in our A&D segment and what we believe was continued outperformance versus peers on the investments.
Total <unk> sales.
Hi.
Year.
17, 3% growth.
Right.
Right.
On the commercial barrels.
Mike Hartnett: On the industrial side, the second came down 1.4% year over year with OEM down 2.5%.
On the industrial side, the segment came down one 4% year over year with OEM down 5%.
Mike Hartnett: aftermarket sales down 0.9% Before I go too deep into the court of the results, I wanted to spend a minute or two on the strength you're seeing, currently seeing, on the defense side of the game. Year-to-date sales stand at an impressive 26.7% organic growth versus last year. We are seeing exceptionally strong demand in our marine business where there is multi-year backlog that can drive. We are also seeing continued strong and urgent demand for our fixed-wing and missile-guided munitions category. With the current geopolitical backdrop, we are planning for the continuation of this demand through the remainder of this year into next.
Aftermarket sales.
Before I go too deep into the quarterly results I wanted to spend a minute or two on the strength you're seeing currently.
Business.
Year to date sales.
26, 7% organic growth versus last year.
We are seeing exceptionally strong demand.
Great.
Where there is multiyear backlog.
Sure.
We are also seeing continued strong urgent demand for fixed and digital banking.
Munitions categories.
With the current political backdrop weird spanning from the continuation of this demand.
The remainder of this year into next.
Yes.
Mike Hartnett: During the period, we saw unexpected headwinds from flowing strike, the impact of Hurricane Pauline. a later resulted in a plant shutdown in Asheville, North Carolina for over a week. These events impacted revenues by $4 to $5 million in the period.
During the period, we saw unexpected headwinds.
Thanks Bye.
Hurricane Sandy.
The later.
We felt that had a plant shutdown in Asheville North Carolina.
We.
These events impacted revenues by $45 million.
Yes.
Well now summer is over or moving to the performance during the period.
Mike Hartnett: Well, now summer's over, and we're moving to performance during the period. Gross margin in the quarter came in at $173.8 million, or 43.7% of sale. a 55% point increase. year-over-year. The biggest drivers of our margin expansion continue to be increased absorption of our aerospace defense capacity. ongoing synergies at DODGE in a wide range of smaller projects on a plant-by-plant basis that we continue to identify through the RBC Ops Management process. I'd like to acknowledge and thank our teams for this performance. They are the driving force behind the projects that deliver these results. They are the foundation of our culture of continuous improvement.
Gross margin in the quarter came in at $173 8 million.
Or 43, 7%.
At 55 point increase.
Year over year, the biggest drivers for our margin expansion continues to be increased.
Aerospace and defense.
<unk>.
Ongoing synergies.
A wide range of projects.
Yes.
He continues to identify at RBC.
RBC.
Russell.
I'd like to acknowledge and thank our teams for this department.
The driving force behind the projects and deliver these.
Results.
The foundation of our culture.
Okay.
Net income.
Mike Hartnett: Ned Incombe. of 67 million was up six. percent year-over-year, and that translated into an adjusted EPS of $2.29 per share compared to last year's $2.17 per share. Cash from Operations came in at $43 million. compares to $53 million last year, but the timing and scope of tax payments is the biggest factor in year-over-year comparison. We use our cash to continue to de-leverage the balance sheet with over $35 million of debt reduction in the quarter. taking our trailing network. to write approximately two times a turn.
67 billion was up six.
We spent year over year that translated into an adjusted EPS.
2.29.
<unk> per share compared to last year to $1 seven.
Sure.
Cash from operations came in at $43 million.
<unk> $2 53 billion last year.
So yes.
This is the biggest factor year over year comparison.
We use our cash to continue to deleverage.
Alex she over 35 million a.
Water.
Our trailing net leverage.
Judy right approximately two times.
Sure.
As a reminder, we are targeting $175 million to $300 million.
Mike Hartnett: As a reminder, we are targeting a $275 to $300 million debt reduction for the year, which will allow us to exit the year nicely below the 2x turn mark, leaving our balance sheet well positioned for further Acquisition. Moving to our outlook, on the A&E side, demand remains very strong. As a result of recent events, Boeing is playing an increasingly smaller role in our revenues, and we expect this to continue over the balance of this quarter and into next. And consequently, we are planning our business according to. When their strikes go in and how. how the plan to step up production of the 737 airplane is not at all clear to us.
For the year.
Which should allow us to exit the year nicely, although there too.
Art.
Using our balance sheet well positioned.
Sure.
Further.
Acquisition.
Interest.
Moving to our outlook.
The A&D side demand remains very strong.
As a result of recent events.
An increasingly smaller though in our revenues and we expect this to continue over the balance of this quarter and into next.
Yeah.
Consequently, we are planning our business accordingly.
Speaker Change: When their strike will end how are you.
Speaker Change: The plan to step up production.
Speaker Change: 737 airplanes.
Speaker Change: Not at all clear to us at this time.
Mike Hartnett: Of course, the production of the 787 ship remains unaffected. We do know that their backlog for 737 is substantial. Their customers need the aircraft, some desperately. We stand in a perfect position to support any production rate set by management. We expect clarification. The next few weeks on these matters regarding production rate. and our currently busy negotiating and inking contracts now that will support. Productions are rolling through 2030.
Of course, the production of the 787 chip remains unaffected we.
Speaker Change: We do know that their backlog for 737.
Speaker Change: Yeah.
Customers can get the aircrafts some desperately we.
Speaker Change: We stand in a perfect position to support any production rate set by management.
Expect clarification.
Speaker Change: The next few weeks on these matters regarding production rates.
Speaker Change: Currently busy negotiating and linking contracts now.
Speaker Change: Sure.
Speaker Change: Production volume through 2030.
Mike Hartnett: Using these assumptions, and with the strong results already delivered in the first half of the year, I believe our A&D business should be able to deliver low to mid-terms growth for the whole year. On the industrial side, I was pleased with the results we saw in the second quarter, including continued strength. grain, food and beverage, and power generation. All of our weakness is concentrated into a few landmarks. primarily earth oil and gas. as a result of inventory corrections during the period.
Speaker Change: Using these assumptions with the strong results already delivered in the first half of the year.
Speaker Change: I believe our A&D business.
Speaker Change: So the nature and scale.
Speaker Change: Year.
Speaker Change: On the industrial side I was pleased with the results.
Second quarter <unk>.
Speaker Change: <unk> continued strength.
Speaker Change: Grain food and beverage and power generation.
Speaker Change: All of our weakness was concentrated into new end markets.
<unk> oil and gas.
Speaker Change: As a result of inventory.
Speaker Change: During the period.
Mike Hartnett: I believe our industrial business can return to growth in the back half of the year as the drag for some of these end markets rolls off and our relentless focus on driving organic growth continues. Looking forward to next year, as we develop our operating budgets today, we see, number one, continued defense demand led by marine products. Boeing 737, full break. at the 38 rate, pushing towards 50 rate in 27. Strong and Increasing Demand for Jet Engine Components and Repairs. Space Products Playing an Increasingly Significant Role in Our Lineup of Revenues. Impactful synergies from Dodge acquisitions as we end the cooling and testing cycle and begin the reshoring of some products of RBC.
Speaker Change: I believe our industrial business can return to growth in the back half of the year is back for some of these end markets.
Speaker Change: Our relentless focus driving.
Organic growth.
Speaker Change: Yes.
Looking forward to next year as.
Speaker Change: As we develop our operating budgets.
Speaker Change: We see number one continued defense demand led by marine products.
Speaker Change: Boeing 737, all day.
Speaker Change: And the 38 rate pushing towards 50 rate.
Speaker Change: Strong and increasing demand for jet engine components.
Speaker Change: Strengthen strengthening industrial demand.
Space tropics, playing an increasingly significant role in our lineup.
Speaker Change: Impactful synergies from badge acquisition as we ended.
Speaker Change: Cycle and begin and begin the re shoring some products with RBC.
Mike Hartnett: and important and incremental expansion of our statements and work for European aerospace.
Speaker Change: An important incremental expansion.
Speaker Change: So for European Aerospace linearity.
Robert Sullivan: With that, I'll now turn the call over to Rob. Thank you, Mike. As Dr. Hartnett indicated, this is another strong quarter for RBC, despite the short-term and one-time challenges in the period. Net sales growth of 3.2% through a gross margin growth of 4.5% year-over-year, with 55 basis points of gross margin percentage expansion. This year-over-year margin expansion was primarily reflected in our industrial segment, where we continue to see strong execution and the benefits of Dodge Synergy's achievements. On the SG&A line, we continue our investments in our future growth. This includes investment in personnel costs for existing talent, as well as new resources, such as Salesforce additions to support the international expansion that we previously highlighted.
Speaker Change: With that I'll now turn the call over to Rob.
Speaker Change: To help us.
Rob: Thank you Mike as Dr. Hartnett indicated this was another strong quarter for RBC. Despite the short term and one time challenges in the period.
Rob: Net sales growth of three 2% drove gross margin gross margin growth.
Rob: Year over year with 55 basis points of gross margin percentage expansion.
Rob: Year over year margin expansion was primarily reflected in our industrial segment, we continue to see strong execution.
Rob: And the benefits of synergies achieved.
Rob: On the SG&A line, we continued our investments in our future growth. This includes investment in personnel costs for existing talent as well as new resources elsewhere additions to support international.
Rob: The highlight.
Robert Sullivan: In addition, we continued our investment in back office support, including IT and had incremental professional and travel fees during the period. This led to adjusted EBITDA of $123.4 million, up 1.1% year-over-year, and an adjusted EBITDA margin of 31%, which was down 66 basis points year-over-year against the top comp, but still above 2024's full-year 30.9% margin. Interest expense in the quarter was $15.6 million. This was down 22% year-over-year, reflecting the ongoing repayment of our terminal and revolver, lower rates on our variable rate debt, and the benefits from our interest rate and cross-currency swaps. The tax rate in our adjusted EPS calculation was 22.1%, reasonably consistent with last year's rate of 22.1%.
Rob: In addition, we continued our investment in back office support including hedging.
Rob: We had incremental professional and travel fees during the period.
Rob: This led to adjusted EBITDA of $123 4 million up one 1% year over year and an adjusted EBITDA margin of 31%, which was down 66 basis points year over year against the tough comp, but still about 'twenty 'twenty four is full year, 39% margin.
Rob: Interest expense in the quarter was $15 6 million this was down 22% year over year, reflecting the ongoing repayment of our term loan and revolver lower rates on our variable rate debt and the benefits from our interest rate and cross currency swaps.
The tax rate and our adjusted EPS calculation was 22, 1% reasonably consistent with last year's rate of 22.
Robert Sullivan: Altogether, this led to adjusted diluted EPS at $2.29, representing year-over-year growth of 5.5%. An impressive result given some of the short-term headwinds in the quarter. In terms of cash flow, through the first six months of fiscal 2025, we have generated $140.4 million in cash from operations, with free cash flow conversion of approximately 100% of that income. Our second quarter free cash flow was impacted by the timing of certain tax payments and the purchase of a building in Switzerland for approximately $8 million during the quarter, which was previously leased. A portion of this was financed with a 10-year mortgage at 2.2%.
Rob: Together this led to adjusted diluted EPS of $2 29.
Rob: <unk> year over year growth of five 5% an impressive result, given some of the short term headwinds this quarter.
In terms of cash flow through the first six months of fiscal 2025, we have generated $144 million in cash from operations with free cash flow conversion of approximately 100% of net income.
Rob: Our second quarter free cash flow was impacted by the timing of certain tax payments and the purchase of a building in Switzerland for approximately $8 million during the quarter, which was previous beliefs.
Rob: A portion of this was financed with a 10 year mortgage at two 2%.
Robert Sullivan: Our six month free cash flow has increased 14.5% year over year, primarily driven by net income growth results during the period. As usual, we use the meaningful portion of the cash generated to continue to de-leverage the balance. We repaid over $35 million of debt during the quarter with another large $32 million payment crossing the wire two days after the quarter's closed. If you include that payment, that takes our total year-to-date debt reduction to $128.7 million. And in terms of our free cash flow generation going forward. The October 15th automatic conversion of our Series A Mandatory Convertible Preferred Stock is not only slightly accretive to EPS, but it also removes the cash dividend payment, reducing our future total cash outlays by approximately $23 million on an annualized basis.
Rob: Our six month free cash flow has increased 14, 5% year over year, primarily driven by net income growth result results during the period.
Rob: As usual you used a meaningful portion of the cash generated to continue to deleverage the balance sheet, we repaid over $35 million of debt during the quarter with another large $30 million to $32 million payment and crossing the wire two days after the quarter's close if you include that payment.
Rob: Our total year to date production to $128 7 million.
And in terms of our free cash flow generation going forward.
October 15th automatic conversion of our series a mandatory convertible preferred stock not only slightly accretive to EPS.
Rob: Also removes the cash dividend payments, reducing our future total cash outlays by approximately $23 million on an annualized basis.
Robert Sullivan: This is roughly 9.5% of Fiscal 2024's total free cash flow. In the third quarter, when calculating EPS, we anticipate net income to be reduced by approximately $1 million of dividend cost and the diluted EPS to include approximately $1.8 million additional shares from the conversion. The full impact of the shares will be reflected in the fourth quarter when they are all outstanding for the full period. Looking into this third quarter, we expect revenues of $390-400 million, representing year-over-year growth of 4.3-7%. As a reminder, many of our plants, our fiscal third quarter includes fewer selling days due to holidays and is typically our latest quarter of the year.
Rob: This is roughly nine 5% of fiscal 2020 of course total free cash flow.
Rob: In the third quarter when calculating EPS, we anticipate net income to be reduced by approximately $1 million dividend cost and the diluted EPS to include approximately $1 8 million additional shares from the conversion.
Rob: All impacted the shares will be reflected in the fourth quarter. When they are all outstanding for the full period.
Rob: Looking into the third quarter, we expect revenues of 390 to 400 million representing year over year growth of 43% to 7%.
Rob: As a reminder.
Rob: Many many of our plants, our fiscal third quarter and Chris you were selling days due to holidays and is typically our lightest quarter of the year.
Robert Sullivan: Our guidance is calling for flattish revenue trends as compared to Q2 fiscal 2025 despite the selling day headwind and despite the aerospace OEM headwinds that Dr. Hartnett pointed out earlier. This is driven primarily by ongoing strength in the broader market and industrial sales that should be comparable to that of... On the gross margin side, we are projecting gross margins of 42.5 to 43.5%, which would be an increase of roughly 70 basis points year-over-year at this time. On the SG&A side, we expect SG&A as a percentage of sales to be in the 17% to 17.5% range during this third quarter.
Rob: <unk> is calling for flattish revenue trends as compared to Q2 fiscal 2025, despite the selling day headwind. Despite the aerospace OEM headwind did that Curt pointed out earlier.
Rob: This was driven primarily by ongoing strength in the broader market and industrial sales that should be comparable to that of Q2.
Rob: On the gross margin side, we are projecting gross margins of $42 five to 43, 5%, which would be an increase of roughly 70 basis points year over year at the midpoint.
Rob: <unk> side, we expect SG&A as a percentage of sales to be in the 17% to 17, 5% range during the third quarter <unk>.
Robert Sullivan: In closing, this is another strong quarter for RBC. We remain focused on leveraging our core strengths in engineering, manufacturing, and product development to drive both organic and inorganic growth, continued margin excellence, and high levels of free cash flow.
Rob: In closing this was another strong quarter for RBC, we remain focused on leveraging our core strengths in engineering manufacturing and product development to drive both organic inorganic and organic growth continued margin excellence high levels of free cash flow conversion.
Unknown Executive: Operator, please open the call for Q&A. And at this time, we'll conduct our Q&A session. To ask a question, please press star one on your telephone. A confirmation tone will indicate that your line is in the question. You may press star 2 if you would like to remove your question.
Rob: Operator, please open the call for Q&A.
Speaker Change: Thank you and at this time, we'll conduct a Q&A session to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate that your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue for.
Unknown Executive: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the button.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Michael Ciarmoli: Our first question comes from Michael Ciarmoli with Truist Securities, please state your name. Hey, good morning guys. Thanks for taking the questions.
Speaker Change: Our first question comes from Michael Sure Molly with Chewy Securities. Please state your question.
Speaker Change: Hey, good morning, guys. Thanks for taking the questions.
Speaker Change: Hey.
Yes.
Mike Hartnett: I guess the strike, combination of the strike implications, the hurricane, I think you called out the revenue impact, any way to quantify the impact that it may have had on gross margins? Yeah, I mean, there's obviously there's a way to do that, but... I can't do it here, here and now, you know, if you just, if you'll just look at the consolidated gross margin, it's kind of reflective of those parts of those products. So I've been just using the consolidated gross margin. or contribution, what that would have contributed to EPS. I think that's fair. Okay.
Speaker Change: I guess the strike combination of a strike implications the hurricane I think you called out the revenue impact anyway.
Speaker Change: Quantify the impact that may have had.
Adam: Adam gross margins.
Okay.
Adam: Sure.
Speaker Change: Yes, I mean, theres, obviously, theres a way to do that.
Speaker Change: I can't do it here right now.
Speaker Change: If you just if you just look at the consolidated gross margin kind of reflective.
Speaker Change: Those parts are those products so.
Speaker Change: I've been just using the consolidated gross margin.
Speaker Change: Greg.
Greg: Or contribution.
Greg: What it would what that would have contributed to EPS.
Greg: Okay.
Greg: Okay, Okay fair enough.
Michael Ciarmoli: Fair enough.
Michael Ciarmoli: And then, Mike, I think you said, you know, the exposure to Boeing was down even further now. I mean, does that incorporate Spirit as well? And are you at a position now? I know you guys always like to build strategic inventory and ship out of that strategic inventory. Are you – have you built too much? Is there going to be a destock period? I know the lead times are definitely still elongated for some of your products. But, you know, any color in terms of once, you know, maybe – I mean, I guess Boeing first has to get it.
Greg: And then.
Speaker Change: Mike I think you said the exposure.
Speaker Change: Boeing was down even further now I mean does that does that incorporate.
Speaker Change: Spirit as well and are you at a position now I know you guys always like to build strategic inventory and ship out of that strategic inventory are you have you built to March is there going to be a destock period I know the lead times are.
Speaker Change: Definitely still elongated for some of your products, but.
Speaker Change: Any color in terms of once maybe.
Speaker Change: I guess first I forget it.
Mike Hartnett: you know, get this sort of rate cap lifted. But any any thoughts on you know, if there's a D stock headwind once they start ramping again? I don't, I don't see it. I mean, we've, we've we're sort of down at the nadir of what we're, what we've been supplying that whole food chain in terms of, in terms of product. So, you know, I think, I think Once they get back into production and start heading towards that 38 number, I think they're going to pull a big vacuum on the system. Got it. That's helpful.
Speaker Change: This sort of rate cap lifted, but any any thoughts on if there is a destock headwind once they start ramping again.
Speaker Change: I don't I don't see it I mean.
Speaker Change: Uh huh.
Speaker Change: We're sort of down at the nadir.
Speaker Change: But we've been supplying that hole.
Speaker Change: Food chain in terms of <unk>.
Speaker Change: In terms of product.
Speaker Change: So I think I think.
Speaker Change: Once they once they.
Speaker Change: Get back into production and start heading towards that 38 number I think theyre going to pull a big vacuum on that system.
Speaker Change: Okay, Okay got it.
Speaker Change: That's helpful and then.
Mike Hartnett: And then just the last one. Urgent Demand for Fixed-Wing Munitions, you know, any, I mean, I guess just any more detail you can provide there if you're, you know, seeing more from Europe and NATO recapitalizing, is it just all flowing through kind of the domestic prime contractors, you know, maybe even what the pipeline looks like for some of these newer programs, I mean, we keep seeing a lot of new development platforms across a lot of different domains, you know, any detail there? Well, I think I think the detail there is that there's just, you know, A lot of these.
Speaker Change: Okay.
Speaker Change: The last one I mean.
Speaker Change: Urgent demand for fixed wing munitions.
Speaker Change: Yes.
Speaker Change: Any I mean, I guess, just any more detail you can provide there if you're seeing more from Europe and NATO recapitalizing. It just all flowing through.
Speaker Change: The domestic prime contractor.
Speaker Change: Even what the pipeline looks like for some of these newer programs I mean, we keep seeing a lot of new development.
Speaker Change: Platforms across a lot of different domains.
Speaker Change: Any detail there.
Speaker Change: Yeah.
Speaker Change: Well I think I think the detail there.
Speaker Change: No.
Speaker Change: A lot of these.
Mike Hartnett: of Guided Weapons and Shoulder Mounted Weapons. I'll use. Bearings, Precision Bearings. and many of them are miniature bears. And there is. No, in those, because they're US made defense products, those miniature bearings have to be US made, since bearings, you know, US made bearings. And there's, there's There's that particular supply chain has atrophied. over the last generation. And now there's there's not sufficient production capacity for miniature bearings. to service the demand. And it's I mean, I'm not telling any secrets out of school here. But, you know, I mean, Defense Department's, you know, offering Special Incentives to Increase Miniature Bearing Production and we know about it, we're not participating in it for other reasons, but we are aware of it.
Speaker Change: Guided weapons and shoulder mounted weapons.
Speaker Change: Use.
Speaker Change: Airings precision bearings.
Speaker Change: And.
Many of them are miniature bearings.
And there is.
Speaker Change: No.
Speaker Change: Because the U S Mail defense products I was miniature bearings after the U S made been sparing.
Speaker Change: <unk> made barings and theirs.
Speaker Change: There is.
Speaker Change: That particular.
Speaker Change: Supply chain has atrophied.
Speaker Change: Over the last generation.
Speaker Change: And now there is not sufficient production capacity.
Speaker Change: Or miniature bearings.
Speaker Change: Two.
Speaker Change: To service the demand and.
Speaker Change: I mean, I'm not telling any secrets out of school here, but.
Speaker Change: I mean defense Department no offering.
Speaker Change: Pension special incentives to increase.
Speaker Change: Miniature bearing production and.
Speaker Change: And we know about it we're not participating in it for other reasons, but were not what we are.
We are.
Speaker Change: Aware of it.
Speaker Change: Okay.
Speaker Change: Thank you and.
Peter Skibitski: And our next question comes.
Speaker Change: And our next question comes from Pete's Kubicki with Alembic Global Please state your question.
Peter Skibitski: Peter Skibitski with Alembic Global, please. Hey, good morning, guys. Sorry if I missed it, but I know you quantify the Asheville impact at I guess industrial. Can you quantify how much the Boeing IM strike negatively impacted the second quarter? And, you know, maybe give us a sense of how we should think about the back half of the year, the kind of lingering impact? The End. Well, yeah, I think You know, for the back half of our year, our assumption is based on the Boeing. being in production and the supply chain. having the requirements for one month out of three.
Pete's Kubicki: Hey, good morning, guys.
Pete's Kubicki: Sorry, if I.
Pete's Kubicki: Sorry, if I missed it but.
Pete's Kubicki: I know you quantified the Asheville impact.
Pete's Kubicki: Industrial can you quantify how much the Boeing iam strike negatively impacted the second quarter in may.
Pete's Kubicki: Maybe you can give us a sense of how we should think about the back half of the year that kind of a lingering impact.
Okay.
Pete's Kubicki:
Speaker Change: Well, Yeah I think.
Speaker Change: Okay.
Speaker Change: For the back half half of our year.
Speaker Change: Our assumption is based on.
Speaker Change: The.
Speaker Change: Following.
Speaker Change: Being in production.
Speaker Change: The supply chain.
Speaker Change: Having the requirements for one month out of three.
Speaker Change: And.
Peter Skibitski: Is that the right number? I don't know. It seemed to be conservative when we made it. This is now November, and... you know, the strike looms, although it's maybe it'll make progress today as I read the journal.
Speaker Change: Is that the right number.
Speaker Change: No.
It seemed it seem to be conservative when we made it.
Speaker Change: But this is this is now in November.
Speaker Change: And.
Speaker Change: The strike looms, although it's maybe it will make progress today as I as I read the journal. So yeah. So so with boils into our numbers is operating one month.
Peter Skibitski: So, yeah, so, so what's boiled into our numbers is operating one month out of Okay, so you're assuming sequentially your commercial arrow revenue should be down in the third quarter? Yes. Okay. And then, um, just, I mean, you had some nice backlog increase sequentially, I think about 4.6%. What was a lot of that commercial aerospace and I don't know, maybe it was wide body orders? A lot of that would have been on the defense side, certainly aerospace defense segment heavy, but it would have been a lot of the defense side. Okay, got it.
Speaker Change: Okay. So youre assuming sequentially your commercial Aero revenue should be down in the third quarter.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: Just I mean, you had some nice backlog increased sequentially I think about four 6%.
Speaker Change: It was a lot of that commercial aerospace and maybe there's wide body orders.
Speaker Change: A lot of that would have been on the defense side, certainly aerospace defense segment heavy but it would have been a lot of business.
Speaker Change: Business.
Speaker Change: Okay got it that was.
Peter Skibitski: That was, well, heading into my last question, then. We've got this continuing resolution ongoing, right, for DoD, which is your third quarter. Have you seen, sort of, quarter to date, as we sit here in November, any slowdown in defense bookings that we can maybe surmise results from the CR? Yeah, I'm trying to I'm trying to think if we're seeing that, you know, our defense bookings are, for the most part, the significant part of those are with OEM. So they're not with the Department of Defense. So. You know, the bookings are, you know, firm contracts or purchase orders that are extended over often many years.
Speaker Change: Well heading into my last question then.
Speaker Change: We've got this continuing resolution ongoing right for D O D with <unk>.
Speaker Change: Which is your third quarter have you seen sort of quarter to date as we sit here in November any any slowdown in defense bookings and we could maybe surmise results from the CR.
Speaker Change: Yeah, I'm trying to I'm trying to think if we are seeing that our.
Speaker Change: Defense bookings.
Speaker Change: For the most part.
Speaker Change: The significant part of those are with Oems.
Speaker Change: So.
Speaker Change: They are not.
Speaker Change: With the department of defense so.
Speaker Change: You know.
Speaker Change: The bookings are firm contracts or purchase orders that are extended over often many years.
Uh huh.
Peter Skibitski: And I think what's reflected in our backlog is it's still 12 months. is up. Oh yeah, it's the poll, it's the poll. Okay, so... Yeah, no, we we're not we're not seeing it. We're not feeling it. Okay, got it. It's all full. Thanks so much, guys.
Speaker Change: And I think what's reflected in our backlog is still 12 months.
Speaker Change: It's both.
Speaker Change: Okay. So.
Speaker Change: Yes, no we were not were not seeing it we're not feeling it.
Speaker Change: Okay got it that's helpful. Thanks, so much guys.
Speaker Change: Okay.
Tim Thein: Our next question comes from Tim Thein with Raymond. Thank you. Good morning. Just the first one was on Rob's commentary there at the end, in terms of the outlook for the third quarter. I thought I heard him, Rob, you say that you expected industrial to be flat with the second quarter was at Did I hear that correct? I'd say, yeah, you know, sequentially, it should look a lot like YouTube, plus or minus. Okay, so all right, so that's, then you're seeing, if that were the case and not, you know, not to hold you to the penny, but that's, that's calling for year over year growth.
Speaker Change: Our next question comes from Tim Thein with Raymond James Please state your question.
Tim Thein: Thank you good morning, just the first one was.
Tim Thein: On Rob's commentary there at the end date in terms of the outlook for the third quarter I thought I heard.
Tim Thein: Ravi you say that you expected industrial to be.
Tim Thein: Flat with the second quarter was that.
Tim Thein: Did I hear that correct or.
Tim Thein: I see.
Speaker Change: Sequentially. It should look a lot like Q2 plus or minus.
Tim Thein: Alright.
Okay.
Tim Thein: So that's then than you are seeing if that were the case and not you don't have to hold you to the penny, but that's that's calling for year over year growth.
Tim Thein: Correct.
Tim Thein: Yeah, okay, got it. And I guess, you know, I'm interested in, maybe this ties back into the outperformance that you, that I believe you saw in terms of, you know, we haven't seen or heard from every one of your industrial peers, but I suspect that, you know, less than a point is probably better than what you'll see from others. And I'm just curious. you know, as you look to the third, your fiscal third quarter, the commentary from the, at least from the public bearing distributors, you know, doesn't, they're not calling for much by way of improvement.
Tim Thein: Okay got it and I guess you know intra.
Tim Thein: Interesting and maybe it ties back into the.
Tim Thein: The outperformance that you.
Speaker Change: I believe you saw in terms of you know, we haven't seen or heard from every one of your industrial peers, but I suspect that's.
Speaker Change: Less than a point is probably better than what youll see from others and I'm just curious.
Is is you look to the third your fiscal third quarter the commentary from the release from the public.
Speaker Change: Bearing distributors definitely does they're not calling for much by way of improvement so.
Tim Thein: So I'm just curious in terms of, you know, what you guys are seeing, is this some of the benefits from Dodge paying off? is it maybe you're gaining a higher share of wallet with the distributors? Maybe you can just give some some color in terms of of what's driving this outperformance on the industrial you know, outperformance relative to our peers. Yeah, I mean, if you did, yeah, exactly. Okay, because I don't think it's our performance relative to our plan. It's, you know, I mean, I- I- I'd have to know more about why our peers are falling behind than, you know.
Speaker Change: I'm just curious in terms of.
What you guys are seeing.
Is there some of the benefit from Dodge paying off.
Speaker Change: Is it maybe you're gaining a higher share of wallet with the distributors. Maybe you can just give some color in terms of.
Speaker Change: What's driving this.
Speaker Change: Outperformance on the industrial side.
Speaker Change: The outperformance relative to our peers.
Speaker Change: Yeah, I mean, if you did yeah exactly yes.
Speaker Change: Okay.
Speaker Change: Because I don't think its outperformance relative to our plan.
Speaker Change: Got it.
Speaker Change: Yes.
Speaker Change: You know I mean.
Speaker Change: Hi.
Speaker Change: I'd have to know more about why our peers are falling behind.
Speaker Change: Then.
Speaker Change: No.
Tim Thein: We're a little behind our plan. So I didn't I wouldn't I didn't think it was our performance description of where we are, but Do you think that... That fits us. I don't know what their problem is. It wasn't flattering. Flattery. It was, I mean, I just, I don't, I don't think others are talking about. Industrial Revenue is down a point or less, but that was all. And I'm not asking, you know, I'm not asking you to speak for your peers. I'm just maybe I mean, just in terms of, to the extent you are seeing, you know, improvement, and again, maybe it's lagging your expectations, but I suspect it's better than what you'll see from others.
Speaker Change: We're a little behind our plan so I didn't I wouldn't I didn't think it was outperformance.
Speaker Change: Description of where we are but.
Speaker Change: Do you think that.
Speaker Change: It fits us it fits us.
Speaker Change: Don't know what their problem with your question.
Speaker Change: Thank you everyone a flattering flattery.
Speaker Change: Yes.
Speaker Change: I don't think others are talking about.
Speaker Change: Industrial revenue was down.
Point or less.
Speaker Change: It was all so.
Speaker Change: And I'm not I'm.
Speaker Change: I'm not asking you to speak for your peers I'm just maybe.
And then maybe just in terms of.
Speaker Change: If to the extent you're.
Speaker Change: You are seeing.
Speaker Change: Improvement it may get maybe it's lagging your expectations, but I suspect, it's better than what youll see from others. So it was just.
Tim Thein: So it was just, if you had any commentary around what you've seen internally and where you're, where you're, some of the initiatives you put forth and how those are progressing. Well, I mean, you know, there's... There's I would say that badges performance is is showing an improvement year over year. because last year in these quarters, our first and second quarter, we were still fighting with the tail of a supply chain problem. and that second quarter was the end of that tail. So, which effectively made those quarters last year a little bit stronger than they should have been because of products that needed to be shipped but couldn't be shipped because we didn't have all the parts that we needed to finish.
Speaker Change: If you had any commentary around what.
Speaker Change: <unk> seen internally and where you are.
Speaker Change:
Speaker Change: Where your some of the initiatives you put forth and how those are progressing.
Speaker Change: Well I mean, there's.
Speaker Change: I would say that performance is.
Speaker Change:
Speaker Change: It is showing a an improvement year over year.
Speaker Change: Because last year.
Speaker Change: These quarters are first and second quarter. We had we were were still fighting with the tail of our supply chain problems.
Speaker Change: And that second quarter was.
Speaker Change: The end of that tail.
Speaker Change: So which effectively made those quarters.
Speaker Change: Last year, a little bit stronger than.
Speaker Change: It should have been because of products that needed to be shifts, but couldnt be shipped because we didn't have all the parts we need to finish.
Tim Thein: various various assemblies. So, um, so, so now we're not, we don't have that difficult quarter to quarter comp. And so now it's more a pure, um, you know, operating, um, performance relative to market demand. Got it. Okay. And then just on the last quarter, you commented that the full year margin improvement may be closer to 100 basis points on the gross margin side. Is that still the forecast today? Yes, so forth. Yes. Okay. Got it. Okay. And last one, and I'll move on. You highlighted within A&D the marine segment. I think you've been calling on that for some time.
Speaker Change: Various various assemblies.
Speaker Change: So.
Speaker Change: So now we're not we don't have that.
Speaker Change: Quarter to quarter.
Speaker Change: So now it's more a pure.
Speaker Change: Operating.
Performance relative to market demand.
Speaker Change: Got it okay.
Speaker Change: And then.
Just on that.
Speaker Change: Last quarter, you had commented that the.
Speaker Change: The full year margin improvement, maybe closer to 100 basis points on the gross margin side is that still the forecast today.
Speaker Change: Yes.
Speaker Change: Yes, yes, Okay got it got it okay and last one and.
I'll move on.
Speaker Change: You highlighted within A&D that the marine segment.
Speaker Change: <unk> bin.
Speaker Change: Calling on that for some time any any I don't know if it's something for competitive reasons, maybe you're precluded from.
Tim Thein: I don't know if it's something for competitive reasons. Maybe you're precluded from divulging it.
Speaker Change: From divulging it but.
Tim Thein: But any context in terms of within that total company backlog, the size or even if it's just qualitatively the size of that marine backlog as you sit here today? Yeah, I mean, it's a meaningful part of that backlog, to the tune of, you know, a couple hundred million. Got it. Okay. Thanks a lot. Thank you and a reminder to everyone, to ask a question, press star 1 on your telephone keypad. To remove yourself from the queue, press star 2. Once again, to queue up for a question, press star 1.
Speaker Change: Any context in terms of you know within that total company backlog the size of it even.
Speaker Change: Even if it's just qualitatively that the size of that marine backlog as you sit here today.
Speaker Change: Yes, it's a meaningful part of that backlog.
Speaker Change: No.
Speaker Change: Oh $100 million.
Speaker Change: Got it okay. Thanks a lot.
Speaker Change: Thank you and as a reminder to everyone to ask a question press star one on your telephone keypad to remove yourself from the queue Press star two once again to queue up for a question press star one on your telephone keypad.
Ross Sparenbluck: Our next question comes from Ross Sparenbluck with William Blair, please. Hey, good morning, guys. Morning, Russ. Hey, maybe just starting with Dodge, you know, thinking through kind of the longer term growth outlook, the business has been stable. But it'd be great to hear where you stand on the R&D strategy and how we should be thinking about the timing of, you know, getting that new product muscle working. Yeah, well, we have We have several new product initiatives moving through from R&D into production. And so, you know, they're I think this year some of the first will probably generate a few million dollars over the full year period.
Our next question comes from Ross <unk> with William Blair. Please state your question.
Speaker Change: Hey, good morning, guys.
Speaker Change: Good morning Ross.
Ross: Hey, maybe just starting with Dodge thank them through kind of the longer term growth outlook. The business has been stable, but it'd be great to hear where you stand on the R&D strategy and how we should be thinking about the timing of getting that new product muscle working.
Yeah well.
Speaker Change: We have we.
Speaker Change: We have several new product initiatives moving through.
Speaker Change: From R&D into production and.
Speaker Change: And so there.
Speaker Change: I think this year some of it some of the first well will.
Speaker Change: Probably generate a few million dollars over the full year period.
Ross Sparenbluck: I mean, it's a normal start for a new product. So I would say that new products out of Dodge on an annualized basis. you know, next year. $5 to $10 million. Okay, so you feel like you're getting buy in from the workforce and is really starting to potentially snowball in the next couple of years. Yeah, well, I think, you know, it's a If we have identified the market demand, you know, well enough, and I think I think we have some pretty sharp people working that into the end of the equation. Yeah, I think this should be meaningful contributors.
Speaker Change: It's just it's a.
Speaker Change: It's a normal start threat for our new products.
So I would say that new products out of Dodge.
Speaker Change: On an annualized basis.
Speaker Change: Next year.
$5 million to $10 million.
Speaker Change: Okay. So you feel like you're getting buy in from the workforce.
Speaker Change: This is really starting to potentially snowball next couple of years.
Speaker Change: Yeah, well I think it's.
Speaker Change: Sure.
Speaker Change: If we have identified the market demand well enough and I think I think we have.
Speaker Change: Some pretty sharp people working net into the into the equation.
Speaker Change: Yes, I think there should be meaningful contributors.
Speaker Change: That's great to hear and then maybe just think about dodges warehousing business.
Ross Sparenbluck: It's great to hear.
Ross Sparenbluck: Maybe just think about Dodge's warehousing business. It's been a tougher couple of years, but seeing signs that Greenfield Activity is picking up, so anything to call on that performance, and then maybe anything around project activity that you might be hearing from your customers? You know, I think that side of the business showed some... social and positive effects here in this last quarter. So it's coming back slowly. Um, you know, we, uh, We're looking seriously at that. Market. And we're probably going to develop a new product line. to address it. which will probably take a few years in the development but should allow us to be a more significant player.
Speaker Change: Tougher couple of years, but seen signs of greenfield activity is picking up.
Speaker Change: Anything you can call them that performance and then maybe anything around project activity that you might be hearing from your customers.
Speaker Change: Oh, you know Thats I think thats.
Speaker Change: Out of the business.
Speaker Change: <unk> showed some.
Speaker Change: Social and positive FX here in this last quarter.
Speaker Change: So it's a.
Speaker Change: It's coming back slowly.
Speaker Change: You know we.
Speaker Change: Were looking seriously at that.
Speaker Change: Debt.
Speaker Change: Market.
Speaker Change: And we're probably.
Speaker Change: Going to develop a new product line.
Speaker Change: To address it.
Speaker Change: Which will.
Speaker Change: Probably take a few years in the development, but should should should allow us to be a.
Speaker Change: A more significant player.
Ross Sparenbluck: Okay, I don't want you to give away any of, you know, your strategy there, but is it still conveyor oriented? I can ask? Yes.
Speaker Change: Okay, I don't want you to give away any of our.
Speaker Change: And your strategy, there, but is it still conveyor oriented.
Speaker Change: I can ask.
Speaker Change: Yes.
Perfect Alright, and then just one last one do you want me to give away Ross.
Ross Sparenbluck: All right, and then the last one here is... What else do you want me to give away, Russ? The keys to your car. On the 787 and 777X ramp, phone was kind of breaking up, but thinking about the second half, margins, progressions, or aerospace, that was previously in the cards, conversations may still be in the works with Boeing on that, just any expectations there, maybe second half even, you know, fiscal next year. Well, you know, I think I think next year, we should be beyond these troubles. and into production and, you know, moving, moving into that 38 first curve.
Speaker Change: Yeah.
Speaker Change: The keys to your car.
Speaker Change: On the.
Speaker Change: On the 707 and Triple Southern next ramps, so I'm, just kind of breaking out but thinking about the second half margin progressions or aerospace that was previously in the cards conversations may still be in the works with Boeing on that just any expectations. There maybe second half late in fiscal next year.
Speaker Change: Well I think I think next year, we should be beyond these troubles.
And into production and it.
Speaker Change: Moving moving into.
Speaker Change: Into that 38%.
Ross Sparenbluck: month ship build rate. That's our expectation and that's in terms of what we're rolling together for operating budget. That will sort of be the basis of our operating budget next year. Unknown Speaker 0.0.0.0. You know, clearly Boeing, you know, had published. a Objective of moving into the 50s before they had the problems that they had last year They certainly need to do that. At one point, they had an objective of 60 ships per month. They really need to reboot that objective, given their backlog and the need of their customers, and the needs of their supply chain.
Speaker Change: Monk ship build rate.
Speaker Change:
Speaker Change: That's our expectation and that's in terms of what we're rolling together for operating budgets.
Speaker Change: It will sort of be the basis of our operating budget next year.
Speaker Change: Clearly Boeing.
Speaker Change: Ed.
Speaker Change: <unk>.
Speaker Change: A objective of moving into the fifties before they had the problems that they had last year.
Speaker Change: They certainly need to do that at one point they knew they had an objective of 60 ships per month.
Speaker Change: They really need to reboot that objective given their backlog.
Speaker Change: And the needs of their customers.
And the needs of their supply chain I mean, there is some.
Ross Sparenbluck: I mean, there's, you know, the supply chains are are in pretty tough shape. A lot of them are, if you survey, you know. exactly the financial health. of a lot of Boeing and Airbus's suppliers. It's not good. and we know that because we sell them products. We try to collect our receivables based upon what we sold them, and so we know who's having a tough time. Got it.
Speaker Change: <unk> changed our.
Alright.
Speaker Change: Pretty tough shape.
Hello.
Speaker Change: A lot of them are.
Speaker Change: Get through very well.
Speaker Change: <unk>.
Speaker Change: Exactly the financial health.
Speaker Change: A lot of Boeing and Airbus as suppliers.
Speaker Change: It's not great.
Speaker Change: And we know that because we sell them products.
And we try to collect our receivables based upon.
Speaker Change: What we sold them and so we know Ruth we know what's happening.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Got it.
Anything to call out there I guess are on maybe your willingness to look for incremental market share gains with Boeing feels like diversification might be the better angle at this juncture.
Ross Sparenbluck: Anything to call out there, I guess, on maybe your willingness to look for incremental market share gains with Boeing? Feels like diversification might be the better angle at this juncture. Can you say that again, Russ? I mean, I know you guys want to maybe diversify away from Boeing a bit, but if you saw low hanging fruit on potential market share opportunities, I mean, would you move in that direction? Yeah, there's there's there's a lot of low hanging fruit. I mean, Boeing is going to be a Survivor, there's only two of these guys in the whole world right now that are, you know, practical producers and you know, we like both of them.
Speaker Change: Okay say that again Ross.
Speaker Change: I mean.
I know that you guys wanted to maybe diversify away from building a bit but if you saw the low hanging fruit on potential market share opportunities I mean, when you move in that direction.
Speaker Change: Yes.
Speaker Change: Theres a lot of.
Speaker Change: Low hanging fruit I mean, Boeing is going to be.
Speaker Change: The survivor Theres only two of these guys in the whole world right now that are.
Speaker Change: Practical producers and.
Speaker Change: We like both of them and we have projects big projects in the in the breach with the with both companies and.
Ross Sparenbluck: And we have projects, big projects in the in the breach with with both companies and Summer, summer, you know, reaching Reaching Harvest. Let's put it that way. Got it. Very helpful.
Speaker Change: Some are some are reaching.
Speaker Change: Uh huh.
Speaker Change: Reaching harvest, let's let's put it that way.
Speaker Change: Got it very helpful. Thank you guys.
Unknown Executive: Thank you guys.
Speaker Change: Yes.
Speaker Change: Our next question comes from Ron Epstein with Bank of America. Please state your question.
Ron: Our next question comes from Ron. Bank of America. Hey, good morning, guys. What are you seeing out there in sort of the M&A world? How are properties priced? Is there anything on the market? Does the stress that the Boeing strike has maybe caused some suppliers? Has that opened up some opportunities? Yeah, we, uh...
Ron Epstein: Yeah, Hey, guys.
Ron Epstein: Thanks, guys.
Ron Epstein: What are you seeing out there and sort of the.
Ron Epstein: The M&A world.
Ron Epstein: Empower properties priced using or anything around the market does the distress that the Boeing strike just maybe caused some suppliers has that opened up some opportunities.
Ron Epstein: Yeah.
Ron Epstein:
Ron Epstein: Yeah.
Ron Epstein: Yeah, we.
Ron Epstein: Yeah.
Ron: We see things coming to market on the M&A world all the time, and we, you know, particularly in the A&D side of the business, and we try to understand whether or not we should participate in the option, and sometimes we do and sometimes we don't. What we're seeing is a hungry and competitive private equity interest in aerospace companies, if you can believe that. So, the competitive nature of these businesses that are, you know, attractive to us. is, is, is, has been, has been difficult. And some of these businesses come with big problems to solve. So whoever gets involved with any one of these acquisitions, in many cases, needs to have a big toolbox because.
Ron Epstein: We see things coming coming to market on the M&A World All the time.
And we.
Ron Epstein: Particularly in the A&D side of the business and we.
We tried to understand whether or not we should participate in the auction.
Ron Epstein: And sometimes we do and sometimes we don't.
Ron Epstein: What we're seeing is.
Ron Epstein: Hey, hungry and competitive private equity.
Ron Epstein: Interest in aerospace companies, if you can believe that.
Ron Epstein: So the competitive nature of these of these businesses that are.
Attractive to us.
Ron Epstein: Is is has been.
Ron Epstein: It has been difficult.
Ron Epstein: And some of these some of these businesses come with.
Ron Epstein: With big Big problems to solve so whoever gets involved with any one of these acquisitions in many cases needs to have a big toolbox because.
Ron: A lot of tools. To fix them. Yeah, that makes sense.
Ron Epstein: A lot of tools to fix them.
Speaker Change: Yes that makes sense and then maybe another question.
Ron: And then maybe another question. Maybe along sort of similar lines, but different. I think it became very evident yesterday when Huntington Ingalls reported that they're having all kinds of issues. Are there opportunities specifically for you guys in your kind of the naval supply chain to help? I mean, it seems like that and market in particular is really struggling to execute. And you know, I don't know, for a company that's a good executor, is there is an opportunity there for you guys to, to do something pick up share, either organically or inorganically, because of all the troubles that are happening in that naval supply chain.
Speaker Change: Maybe along sort of similar lines with different.
Speaker Change: I think it became very evident yesterday, when Huntington Ingalls reported that they are having all kinds of issues are.
Are there opportunities specifically for you guys in your kind of the whole supply chain to help I mean, it seems like that.
Speaker Change: End market in particular is really struggling to execute.
Speaker Change: And I don't know for a company that's a good execute or.
Or is there is an opportunity there for you guys to do something pick up share either organically or inorganically because of all the troubles that are happening in that mail supply chain.
Ron: Well, we certainly looked at it, Ron, and, you know, I'd say right now our focus is on executing our current order book and trying to bring up our production rate. Actually, we have to double our production rate as quickly as possible to meet the objectives that the Navy has and the rest of the industry has for our products. So we've been really busy doing that. We have. We have talked to some of the Some of the people that, you know, have complained that the industrial base isn't big enough or strong enough. to support the build-out.
Speaker Change: Well, we certainly looked at it Ron.
Speaker Change: And I'd.
Speaker Change: I'd say right now.
Speaker Change: Our folks are.
Speaker Change: Our focus is on <unk>.
Speaker Change: Executing.
Speaker Change: Our current order book and trying to bring up.
Speaker Change: Our production rate actually we have to double our production rate.
Speaker Change: As quickly as possible to meet the.
Speaker Change: The objectives that the Navy has and the rest of the industry has for our product. So we've been really busy doing that well.
Speaker Change: We have.
Speaker Change: We have talked to some of the.
Speaker Change: Some of the people that have complaint complain that the industrial base isn't big enough we're strong enough.
Speaker Change: Two.
Speaker Change: To support the build out.
Ron: And we've offered to build a plant on the waterfront in Connecticut and barge things over to Groton. you know, equip it with the appropriate machinery and so on and so forth. And, you know, We could do it, but there wasn't a lot of interest expressed. That's unfortunate. Yeah. All right. Well, thank you. Thank you.
Speaker Change: And we've offered to build the plant.
The waterfront in Connecticut in barge things over to <unk>.
Speaker Change: Groton and.
Speaker Change: You know equip it with the appropriate machinery, and so on and so forth and.
Speaker Change: You know.
Speaker Change: We could do it but there wasn't a lot of interest expressed.
Speaker Change: It's unfortunate.
Alright. Thank.
Speaker Change: Thank you.
Speaker Change: Yep.
Speaker Change: Thank you and our next question comes from Joe Ritchie with Goldman Sachs. Please state your question.
Joe Ritchie: And our next question comes from Joe Ritchie with Goldman Sachs.
Vivek Srivastava: Hi, this is Vivek Srivastava on the phone show. Thank you for the question. My first question is on the industrial and market. You talked about industrial sales next quarter, comparable to 2Q. This would imply about 3% to 4% organic growth. So just trying to understand, number one, what is driving that confidence? And do you expect both original equipment and aftermarket to return to positive growth next quarter?
Speaker Change: Hi. This is <unk>. Thank you for the question. My first question is on the industrial end market you talked about industrial sales next quarter comparable to Q.
Speaker Change: This would imply about 3% to 4% organic growth. So just trying to understand number one what is driving that confidence and do you expect bought or additional equipment and aftermarket returned to positive growth next quarter.
Vivek Srivastava: So on the. Just to understand your question, you know, the kind of the end markets that we're seeing good activity on is mining, multi-industrial food and beverage. warehousing, both on the, all of them on the OEM side and the MRO side. And we're still seeing softness on on some of the mining side of the business and I'd aggregate and those end markets. So it's a mixed bag now. Oil and gas, we're expecting we should see that starting to come back maybe in our fourth quarter or first quarter. Same with semiconductor, which is starting to show signs that we could see some positive movement in Q4, Q1.
Speaker Change: So on the.
Speaker Change: Just so I understand your question and you know the kind of the end markets that we're seeing good activity on mining.
Speaker Change: Multi industrial food and beverage.
Speaker Change:
Speaker Change: Warehousing both on the.
Speaker Change: So all of them on the OEM side and the MRO side.
Speaker Change: We're still seeing.
Speaker Change: Softness on on.
Speaker Change: Some of the.
Speaker Change: Mining side of the business.
And.
Speaker Change: Aggregate and.
Speaker Change: Those end markets so.
Speaker Change: It's a mixed bag now oil and gas we're expecting we should see that starting to come back maybe in our fourth quarter or first quarter.
Same with semiconductor, which is starting to show signs that we could see some positive movement in Q4 Q1.
Speaker Change: But.
Vivek Srivastava: But it's just our average are different markets on the MRO side that are actually driving some of our growth.
Speaker Change: It's just our average.
Speaker Change: Our different markets on the MRO side that are actually driving some of our growth.
Vivek Srivastava: Very helpful. Moving on to pricing, just trying to understand how much of your list pricing you put on in January and how you think about that. And then you've talked about contracts in aerospace and defense. Any color on contracts coming up for renewal? And what's the view on pricing there? Well, I would say this is as it relates to aircraft and defense. A lot of the contracts that we have. with various people. were signed in 2019-2020. and between 2020 and today. The producer price index is up 32%. And so these new contracts that we're negotiating.
Speaker Change: Very helpful moving on to pricing just trying to understand how much of your.
Speaker Change: List pricing.
Speaker Change: Put on in January again, how you think about that and then you have talked about contracts.
Speaker Change: Aerospace and defense any any color on contracts coming up for renewal.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Well.
Speaker Change: I would say this is as it relates to aircraft and defense.
Speaker Change: A lot of.
Speaker Change: The contracts that we have.
Speaker Change: With various people.
Speaker Change: Where were signed in 2019 2020.
Speaker Change: And between 2020 and today.
Speaker Change: The producer price index is up 32%.
Speaker Change: And so.
Speaker Change: These new contracts that we're negotiating.
Vivek Srivastava: reflect that change. The old contracts that we have. where the prices were set years ago. Many of them don't have the adjustment needed in order to reflect the change in the PPI. But the new ones do, and new prices have been readjusted.
Speaker Change: Reflect that change.
Speaker Change: The old contracts that we have.
Speaker Change: Where the prices were set years ago.
Don't have many of them don't have the adjustment needed in order to reflect the change in the PPI.
Speaker Change: But the new ones do.
Speaker Change: And the new prices have been readjusted.
Vivek Srivastava: That's very helpful.
Speaker Change: That's very helpful.
Vivek Srivastava: Just last question quickly on your backlog within industrial. Any color on how your industrial backlog is trending, maybe compared to 2019 levels? And do you see like some risk of that backlog still normalizing? Or you think backlog in industrial is now more normalized? You know, the big takeaway I would tell you on the industrial backlog, that's worth considering in 2019, was just that during the supply chain crisis, Dodge carried a much heavier backlog than they do today. So Dodge has gotten back to a much more normalized lower backlog. It's really not an overly meaningful part of our backlog today, which really reflects, you know, their normal book in turn type of business, which you would expect.
Speaker Change: Just last question quickly on on all your backlog within <unk> any color on the Hollywood and that backlog, it's trending maybe compared to 2019.
Speaker Change: Do you see like some risk of that backlog extends all the way to think.
Are you seeing backlog in Australia.
Speaker Change: Right.
Speaker Change: The big takeaway I would tell you on the industrial backlog that's worth considering that 2019 was that during the supply chain crisis Dodge carried a much heavier backlog.
Speaker Change: Than they do today, so Dodge has gone back to a much more normalized lower backlogs really not.
Speaker Change: A really meaningful part of our backlog today, which really reflects.
Speaker Change: Hi, there.
Speaker Change: Normal book and turn type of business, which you would expect.
Vivek Srivastava: And that's also reflected on the classic RBC, so on the industrial. The market's the same way. Live in and out business.
Speaker Change: And that's also reflected on the classic RBC so on the industrial side.
Speaker Change: The markets behave the same way.
Speaker Change: Logged in and out business in the quarter.
Vivek Srivastava: Very helpful. Thank you.
Speaker Change: Great. Thank you.
Steve Barger: Thank you, and our next question. Barger with. Thanks.
Thank you and our next question comes from Steve Barger with Keybanc capital markets. Please state your question.
Steve Barger: Thanks, Good morning.
Steve Barger: Good morning. On the industrial side, the 4-ish percent growth you expect for industrial and 3Q certainly seems positive. The comp and 4Q is similar. So is that a reasonable year-over-year run rate from here, meaning you think the inflection has happened in industrial for your business and you're back to construction? I just want to be clear. So what I said was that, you know, sequentially, it could look a lot like, you know, Q2, you know, plus or minus. So, you know, with the fewer days, that could mean down ever so slightly. So we didn't say 4% next quarter.
Steve Barger: Let's see.
Steve Barger: On the industrial side.
Steve Barger: Four ish percent growth you expect for industrial and <unk>, certainly seems positive comp in <unk> is similar so is that a reasonable year over year run rate from here, meaning you think the inflection as happened in industrial for your business and you're back to consistent growth.
Steve Barger: Sure.
Steve Barger: I wanted to be clear so what I said was that sequentially. It could look a lot like.
Steve Barger: Q2.
Steve Barger: Or minus so you know with fewer days that could mean down ever so slightly so we didn't say, 4% next quarter I just wanted to.
Steve Barger: I just want to, you know, dollars. You don't mean dollars, I mean growth. Yeah, we do expect sequential growth, but we didn't say 4%. sequential growth in growth rate, not dollars. I understand, but you're not saying sequential growth in dollars, you're saying the growth rate gets better. Got it. Just wanted to make sure. Okay. Yeah.
Speaker Change: Thank you Greg.
Speaker Change: You don't mean dollar growth rate.
Speaker Change: Yes, we do.
Speaker Change: We do expect sequential growth, but we didn't say 4%.
Speaker Change: Sequential growth in growth rate.
Speaker Change: Industrial and industrial.
Speaker Change: No I understand but you're not saying sequential growth in dollars Youre, saying sequel.
Both rate gets better got it just wanted to make sure that everybody understood. Okay. Yes.
Mike Hartnett: Um, And what percentage of the portfolio do you classify as defense now across the two segments? And what percentage of the portfolio, Mike, would you consider as exceptionally strong maybe running 20% plus? we're looking up that number for you. Okay. So just within aerospace and defense segment, defense is about a third of the total in that segment. A third in aerospace, okay, but you have some defense. No, no, we have that. We have it all in aerospace. Okay. Got it. Okay. And Mike, and for the second part of that question, you had talked about some of the lines of business being exceptionally strong right now.
Speaker Change:
Speaker Change: What percentage of the portfolio do you classify as defense now across the two segments and what percentage of the portfolio.
Speaker Change: Mike would you consider as exceptionally strong maybe running 20% plus.
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
Speaker Change: You were looking at that number for you.
Okay.
Speaker Change: So just within aerospace and defense segment defense is about a third of the total in that segment.
Speaker Change: Third in aerospace, Okay, but you have some defense and industrial as well.
Speaker Change: No no we have that.
Speaker Change: We have it all in aerostat and develop okay.
Speaker Change: Got it okay.
Speaker Change: Okay.
And Mike.
Speaker Change: The second part of that question you had talked about some of the lines of business being exceptionally strong right now.
Mike Hartnett: What percentage of the overall portfolio would you consider exceptionally strong? It's RBC, traditional RBC. The traditional RBCs at A&D, which used to be 60% of revenues before we acquired. So it's 30% of the total revenues is exceptional. 30% got it. That's that's great.
Speaker Change: What percentage of the overall portfolio would you consider exceptionally strong.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: A big priority.
Speaker Change: It's RBC traditional RV industrial yes.
Speaker Change: Traditional rbc's A&D, which was used to be 60% of revenues before where you quite got you. So.
So it's 30% of total revenues is exceptionally strong.
Speaker Change: 30% got it.
Michael Ciarmoli: And just one last one. I heard you say four to 5 million related to to the weather impact in the one plant, you were able to mitigate the strike impact with strong demand from other customers. What would revenue have been in three q x strike? At what build rate? Yeah, what build rate? I guess the build rate that was occurring prior...
Speaker Change: Great.
And just one last one I heard you say $4 million to $5 million related to the weather impact and the one plant.
Speaker Change: You were able to mitigate the strike impact of strong demand from other customers.
Speaker Change: Revenue have been in three Q ex strike.
Speaker Change: At what build rate.
Speaker Change: Yeah.
Speaker Change: Yeah, what build rate.
Speaker Change: I guess the build rate that was occurring prior to the strike.
Robert Moffatt: This is Rob Moffatt. I don't think we're going to get into hypotheticals on the third quarter, especially forward looking. Oh, I was actually looking for 2Q what it would have been because I you only lost a couple of weeks of production to But you made up your impacts on the Boeing side, right? You had the original impact from the January doorplug blowout. Then you had the strike itself. Then you had the hurricane. There's just too many variables to really narrow that down and answer a high level. Gotcha. That's okay. Thanks.
Speaker Change: Steve This is Rob market I don't think were going to get into hypotheticals on the third quarter, especially since it's.
Speaker Change: Forward looking.
Speaker Change: Well I was actually looking for QQ, what it would've been because you only lost a couple of weeks of production in <unk>.
Speaker Change: But even if you.
Speaker Change: You had two impacts on the Boeing side right you had the original impact from the January two our plugs blow out then you had the strike itself. Then you had the hurricane there's just too many variables to really narrow that down and answer about high level content.
Speaker Change: Got you okay. Thanks.
Unknown Executive: Thank you.
Speaker Change: Thank you and we have now reached the end of the question and answer session and I will now turn the call over to Dr. Hartnett for closing remarks.
Mike Hartnett: And we have now reached the end of the question and answer session, and I will now turn the call over to Dr. Hartnett for Okay, well, thank you.
Speaker Change: Yeah.
Dr. Hartnett: Okay well.
Mike Hartnett: And this concludes our conference call for the second quarter. Appreciate everybody's participation and all the good questions. And look forward to talking to you again in in early February.
Thank you and this concludes our conference call for the second quarter.
Dr. Hartnett: I appreciate everybody's participation and all the good questions.
Dr. Hartnett: And look forward to talking to you again in <unk>.
Dr. Hartnett: In early February.
Unknown Executive: Good day.
Dr. Hartnett: Good day.
Dr. Hartnett: <unk>.
Unknown Executive: and all parties may now disconnect.
Speaker Change #100: All parties May now disconnect have a good day.