Q2 2025 RBC Bearings Inc Earnings Call
Operator: Good morning, and thank you for joining us for RBC Bearings Fiscal Second Quarter 2025 Earnings Call.
Good morning, and thank you for joining us for RBC bearings fiscal second quarter 2025 earnings call I'm, Rob Moffat 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.
Rob 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.
Officer, 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 a more detailed discussion of the risks.
Rob 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. Hartnett.
Michael Hartnett: With that, I'll now turn the call over to Dr. Hartnett. Hello guys, good day, good day. Hello.
Yeah.
Yes.
Okay.
Speaker Change: Hello, Greg.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thanks, David.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Michael 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 industrial side. 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.
Speaker Change: Good morning, everyone and thank you for joining us.
Speaker Change: I'm going to start today's call with review of our financial results.
Speaker Change: <unk> with some high level thoughts on the industry and our outlook for the remainder of 2025.
Speaker Change: I'll, then hand, it over to Rob Sullivan for more detail on all of them.
Speaker Change: Second quarter net sales came in at 398 million, 3.2% decrease over last year driven by continued strong performance in our A&D segment.
Speaker Change: And what we believe was continued outperformance versus peers on the industrial.
Speaker Change: Total <unk> sales.
Speaker Change: Year over year.
Speaker Change: With 17, 3% growth.
Speaker Change: Right.
Speaker Change: Right.
The commercial bureaus.
Michael Hartnett: On the industrial side, the second came down 1.4% year over year with OEM Dow 2.5%. and aftermarket sales down 0.9%.
Speaker Change: On the industrial side, the segment came down one 4% year over year with OEM down 5%.
Speaker Change: Aftermarket sales.
Speaker Change: Yeah.
Michael Hartnett: Before I go too deep into the court of the results, I wanted to spend a minute or two on the strength that you're seeing, currently seeing on the defense side of the game. New to date sales stand at an impressive 26.7% organic growth versus last year. We are seeing exceptionally strong demand in our range of business where there is multi-year backlogs 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.
Speaker Change: Before I go too deep deep into the quarterly results I wanted to spend a minute or two on the strength you're seeing currently.
Speaker Change: On the business.
Speaker Change: Year to date sales stand at 26, 7% organic growth versus last year.
Speaker Change: We are seeing exceptionally strong demand.
Speaker Change: Where there is multiyear backlog.
Speaker Change: Sure.
Speaker Change: We are also seeing continued strong and urgent demand for fixed and this one.
Speaker Change: Munitions categories.
Speaker Change: With the current political backdrop weird spanning the continuation of this demand.
Speaker Change: Remainder of this year into next.
Michael Hartnett: During the period, we saw unexpected headwinds from a flowing site, 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.
Speaker Change: During the period, we saw unexpected headwinds Boeing strike impact.
Speaker Change: Okay.
Speaker Change: The later.
Speaker Change: We felt that had a plant shutdown in Asheville North Carolina.
Speaker Change: These events impacted revenues by $45 million in the.
Speaker Change: Period.
Michael Hartnett: Well, now summer's over and we're moving to the performance during the period. Gross margin in the quarter came in at $173.8 million, or 43.7% of sale. a 55% point increase. The biggest drivers of our margin expansion continue to be the 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 department. They are the driving force behind the projects that deliver these results. They are the foundation of our culture of continuous improvement for all of us.
Speaker Change: Well now summer is over or moving to the performance during the period.
Speaker Change: Gross margin in the quarter came in at $173 8 million.
Speaker Change: Or 43, 7%.
At 55 point increase.
Speaker Change: Year over year, the biggest drivers for margin expansion continue to be increased proportionally aerospace capacity.
Ongoing synergies.
Speaker Change: A wide range.
Speaker Change: Projects.
Speaker Change: Yes.
Speaker Change: Continue with that.
Speaker Change: RBC.
Speaker Change: Russell.
Speaker Change: I'd like to acknowledge and thank our teams for the requirements there.
The driving force behind the projects.
Speaker Change: Liver these results.
Speaker Change: The foundation of our culture.
Speaker Change: Yeah.
Michael Hartnett: Ned Incombe. of 67 million with 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. Custom Operations came in at $43 million. compared to $53 million last year, but the timing and scope of tax payments is the biggest factor in year-over-year comparisons. We use our cash to continue to de-leverage the balance sheet with over $35,000 of credit reduction in the quarter. taking our trailing network. to write approximately two times a turn. As a reminder, we are targeting a $275 to $300 million debt reduction for the year, which should allow us to exit the year nicely below the 2x turn mark.
Speaker Change: Net income.
Speaker Change: 67 billion was up six.
We spent year over year that translated into an adjusted EPS.
Jeannine Scott: Two point Jeannine Scott.
Jeannine Scott: <unk> per share compared to last year's one seven per share.
Jeannine Scott: Cash from operations came in at $43 million.
Jeannine Scott: Compares to 53 million last year.
Jeannine Scott: Yes.
Jeannine Scott: The biggest factor year over year comparison.
Jeannine Scott: We use our cash to continue to deleverage.
Jeannine Scott: Balance sheet with over $35 million.
Jeannine Scott: Water.
Jeannine Scott: Taking our trailing net leverage.
Jeannine Scott: Right.
Jeannine Scott: <unk> two times.
Jeannine Scott: Sure.
Speaker Change: As a reminder, we are targeting a $175 million to $300 million reduction for the year.
Which will allow us to exit the year nicely, although there too.
Speaker Change: Mark.
Michael Hartnett: 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, towing 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 of the plan to step up production of the 737 airplane is not at all clear to us. Of course, the production of the 787 ship remains unaffected. We do know that their backlog for 737 is substantial.
Mark: Using our balance sheet well positioned.
Speaker Change: Sure.
Speaker Change: Or are there.
Speaker Change: Acquisition.
Speaker Change: Interest.
Speaker Change: Moving to our outlook.
Speaker Change: The A&D side demand remains very strong.
Speaker Change: As a result of recent events Boeing is playing an increasingly smaller though our revenues.
Speaker Change: And we expect this to continue over the balance of this quarter and into next.
Speaker Change: Yeah.
Consequently, we are planning our business accordingly.
Speaker Change: When their strike will and how.
Speaker Change: All the plan to step up production of the 737 airplanes.
Speaker Change: At all clear to us at this time.
Speaker Change: Of course, the production of the 786 chip.
Speaker Change: CIT remains unaffected.
Speaker Change: We do know that their backlog for 737 be substantial cut.
Michael Hartnett: 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 making contracts now that will support. Productions are rolling through 2030.
Speaker Change: Customers need the aircrafts some desperately.
Speaker Change: We stand in a perfect position to support any production rate set by management.
We expect a clarification.
Speaker Change: The next few weeks on these matters regarding production rates.
There are currently busy negotiating and inking contracts.
Contracts now that will support.
Speaker Change: Production for Boeing through 2030.
Michael 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 full 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 was concentrated into a few end marks. primarily earth oil and gas. as a result of inventory corrections during the period at peak.
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 many parents will hold.
Speaker Change: A year.
Speaker Change: On the industrial side I was pleased with the results.
Speaker Change: Second quarter <unk>.
Speaker Change: Including continued strength.
Speaker Change: Food and beverage and power generation.
Speaker Change: All of our weakness was concentrated into a few end markets.
Speaker Change: Primarily our oil and gas.
Speaker Change: As a result of inventory.
Speaker Change: Correction during the period.
Michael 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.
Speaker Change: I believe our industrial business can return to growth in the back half of the year is for some of these end markets.
Speaker Change: Our relentless focus on driving organic growth.
Michael Hartnett: 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, hold right. at the 38 rate, pushing towards 50 rate in 27. Strong and Increasing Demand for Jet Engine Components and Repair. Space Products Playing an Increasingly Significant Role in Our Lineup of Revenues. Impactful synergies from Dodge acquisitions as we end the testing cycle and begin the restoring some products of RBC. and important and incremental expansion of our statements of work for European aerospace.
Speaker Change: Looking forward to next year.
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.
Speaker Change: And the 38 rate pushing towards 50 rate.
Okay.
Speaker Change: Strong and increasing demand for jet engine components.
Speaker Change: Strengthen strengthening industrial demand.
Speaker Change: Space <unk>, playing an increasingly significant role.
Speaker Change: Our lineup.
Impactful synergies from badge acquisition as we ended.
Speaker Change: Cycle and begin and begin the re shoring some products with RBC.
An important and incremental expansion.
Speaker Change: Statements of work or European Aerospace linearity.
Rob Sullivan: With that, I'll now turn the call over to 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. Net sales growth of 3.2% for 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 Synergies achieved.
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 challenging period.
Speaker Change: Net sales growth of three 2% drove gross margin gross margin growth.
Speaker Change: 5% year over year.
Speaker Change: Five basis points gross margin expansion.
Speaker Change: This year over year margin expansion was primarily reflected in our industrial segment, we continue to see strong execution.
Speaker Change: And the benefits of synergies achieved.
Rob Sullivan: 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. 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, and still above 2024's full-year 30.9% margin.
Speaker Change: 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 Ellsworth edition to support international.
Speaker Change: As we highlighted.
Speaker Change: In addition, we continued our investment in back office support, including E had incremental professional and travel fees during the period.
Speaker Change: 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 it still about 2020 for its full year, 39% margin.
Rob Sullivan: 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 in our adjusted EPS calculation was 22.1%, reasonably consistent with last year's rate of 22.1%. All together, 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.
Speaker Change: 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.
Speaker Change: The tax rate and our adjusted EPS calculation was 22, 1% reasonably consistent with last year's rate of 22.
Speaker Change: Altogether. This led to adjusted diluted EPS of $2 29.
Speaker Change: Presenting year over year growth of five 5% an impressive result, given some of the short term headwinds this quarter.
Rob Sullivan: In terms of cash flow, through the first six months of fiscal 2025, we have generated $140.4 million in cash from operations. The pre-cash flow conversion of approximately 100% of that increase 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 eight million during the quarter, which was previously leased. A portion of this was financed with a 10-year mortgage at 2.2%. 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 deleverage the balance.
Speaker Change: 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.
Speaker Change: 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 released a portion of this was financed with a 10 year mortgage at two 2%.
Our six months free cash flow has increased 14, 5% year over year, primarily driven by net income growth result results during the period.
As usual, we will use the meaningful portion of the cash generated to continue to deleverage the balance sheet, we repaid over $35 million of debt in 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 Sullivan: 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 close. If you include that payment, that takes our total year-to-date debt reduction to $128.7 million.
Speaker Change: Our total year to date production to $128 7 million.
Rob Sullivan: 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. 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.
Speaker Change: And in terms of our free cash flow generation going forward.
Speaker Change: The October 15th automatic conversion of our series a mandatory convertible preferred stock not only slightly accretive to EPS.
Speaker Change: Also removes the cash dividend payments, reducing our future total cash outlays by approximately $23 million on an annualized basis.
Speaker Change: This is roughly nine 5% in fiscal 2021st total free cash flow.
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.
Speaker Change: All impacted the shares will be reflected in the fourth quarter. When they are all outstanding for the full period.
Rob Sullivan: Looking into the 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 it's typically our latest quarter of the year. Our guidance is calling for flattish revenue trends as compared to Q2 fiscal 2025, despite the selling day headwind, and despite the aerospace OEM headwind 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. On the gross margin side, we are projecting gross margins of 42.5 to 43.5 percent, which would be an increase of roughly 70 basis points year-over-year at this time.
Speaker Change: Looking into the third quarter, we expect revenues at $390 million to $400 million representing year over year growth of four 3% to 7%.
Speaker Change: As a reminder, many of many of our plants, our fiscal third quarter, including fewer selling days due to holidays and is typically our lightest quarter of the year.
Speaker Change: Our guidance 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 this.
Speaker Change: This was driven primarily by ongoing strength in the broader market and industrial sales that should be comparable to that of Q2.
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 the midpoint.
Rob Sullivan: 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.
Speaker Change: On the SG&A side, we expect SG&A as a percentage of sales to be in the 17% to 17, 5% range during the third quarter <unk>.
Rob 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.
Speaker Change: 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.
Operator: With that, 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. 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. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the button.
Speaker Change: 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 Q4.
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.
Speaker Change: Yes.
Rob Sullivan: 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 may have had on gross margins? Yeah, I mean, there's obviously there's a way to do that. I can't do it here, here and now, you know, if you just, if you 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. for contributions, what that would have contributed to EPS, I think that's fair. Okay, okay, fair enough.
Speaker Change: I guess the strike combination of the strike implications the hurricane I think you called out the revenue impact anyway.
Speaker Change: Quantify the impact that may have had.
Speaker Change: Adam gross margins.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes, I mean, theres, obviously, theres a way to do that right.
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.
Speaker Change: All those products so.
Speaker Change: I've been just using the consolidated gross margin.
Speaker Change: Sure.
Speaker Change: Reducer.
Speaker Change: What it would what that would have contributed to EPS.
Speaker Change: Okay.
Speaker Change: Okay, Okay fair enough.
Michael Hartnett: 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 you know, get this sort of rate cap lifted.
Speaker Change: And then.
Speaker Change: Mike I think you said.
Speaker Change: Sure.
Speaker Change: The beltway.
Speaker Change: Doubt even further now I mean does that does that incorporate.
Speaker Change: Spirit as well and are you better positioned 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 definitely still elongated for some of your products but.
Speaker Change: Any color in terms of once maybe.
Yes.
Speaker Change: First is to get it.
Speaker Change: Get the sort of rate cap lifted, but any any thoughts on if there is a destock headwind once they start ramping again.
Michael Hartnett: 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, you know, 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.
Speaker Change: I don't see it.
Speaker Change: Uh huh.
Speaker Change: We're sort of down is the nadir.
Speaker Change: But we've been supplying that hole.
Speaker Change: Food chain in terms of.
Speaker Change: In terms of product so I think I think.
Once they once they.
Speaker Change: I'll 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.
Michael Ciarmoli: That's helpful. And then just the last one.
Speaker Change: That's helpful and then.
Speaker Change: Okay.
Speaker Change: The last one.
Speaker Change: Okay.
Michael Hartnett: 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 and, 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. of Guided Weapons and Shoulder Mounted Weapons.
Speaker Change: Urgent demand for fixed wing munitions.
Yes.
Speaker Change: Any I mean I.
Yes.
Speaker Change: And any more detail you can provide there if you're seeing more from from Europe and NATO Recapitalizing is it just all flowing through.
Speaker Change: The domestic prime contractor.
Speaker Change: Maybe 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: Well I think I think the detail there.
Speaker Change: No.
Speaker Change: A lot of these.
Speaker Change: Oh guided weapons and shoulder mounted weapons.
Michael Hartnett: of U.S. Bearings, Precision Bearings. and many of them are miniature bears. And there it 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 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. We know about it.
Speaker Change: Use.
Airings of precision bearings.
And.
Speaker Change: Many of them are miniature bearings.
Speaker Change: And there is.
Speaker Change: No.
Speaker Change: Because the U S mail defense products miniature bearings after the U S made been sparing.
Speaker Change: <unk> made barings and theirs.
Yeah.
Debt.
Particular.
Speaker Change: Supply chain is.
Speaker Change: <unk>.
Speaker Change: Over the last generation.
Speaker Change: And now there is not sufficient production capacity.
Speaker Change: For miniature bearings.
Speaker Change: Two.
The service the demand and.
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 <unk>.
Speaker Change: And we know about it we're not participating in it for other reasons, but were not what we are.
Michael Hartnett: We're not participating in it for other reasons, but we are aware of it.
Speaker Change: 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 Pizza 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? Um 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.
Speaker Change: Hey, good morning, guys.
Speaker Change: Sorry, if I.
Speaker Change: Sorry, if I missed it.
Pizza Kubicki: I know you quantified the Asheville impact and I guess industrial can you quantify how much the Boeing iam strike negatively impact the second quarter in May.
Pizza 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.
Pizza Kubicki: Okay.
Pizza Kubicki:
Speaker Change: Well, Yeah I think.
Pizza Kubicki: Yeah.
Pizza Kubicki: Okay.
Pizza Kubicki: For the back half half of our year our.
Pizza Kubicki: Our assumption is based on the.
Pizza Kubicki: The following.
Pizza Kubicki: Boeing.
Pizza Kubicki: Being in production.
Pizza Kubicki: The supply chain.
Pizza Kubicki: Having the requirements for one month out of three.
Pizza Kubicki: And.
Michael Hartnett: Is that the right number? I don't know. It seemed to be conservative when we made it. This is now November. you know, the strike looms, although it's maybe it'll make progress today as I read the journal. So, yeah, so, so what's boiled into our numbers is operating one month out of Okay, so you're assuming sequentially your commercial aero 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?
Is that the right number.
Pizza Kubicki: No.
Pizza Kubicki: It seemed it seemed to be conservative when we made it.
Pizza Kubicki: Yes.
Pizza Kubicki: This is now November.
Pizza Kubicki: And.
Pizza Kubicki: The strike looms, although it's maybe it'll make progress today.
Pizza Kubicki: Read the journal so yeah, so so with boiled into our numbers is operating one month.
Speaker Change: Okay. So youre assuming sequentially your commercial Aero revenue should be down in the third quarter.
Pizza Kubicki: Yes.
Pizza Kubicki: Okay.
Pizza Kubicki: Then.
Just I mean, you had some nice backlog increased sequentially I think about four 6% was a lot of that commercial aerospace and maybe there's wide body orders.
Michael Hartnett: 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: A lot of that would have been on the defense side, certainly aerospace defense segment heavy but it would have been a lot of it.
Speaker Change: Business.
Speaker Change: Okay got it that was.
Michael Hartnett: 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. You know, the bookings are, you know, firm contracts or purchase orders that are extended over often many years.
Well heading into my last question then.
Speaker Change: We've got this continuing resolution ongoing right for D O D, which.
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 now.
Speaker Change: Our defense bookings are for the most are the.
Speaker Change: A significant part of those are with Oems.
Speaker Change: So.
Speaker Change: They're not.
Speaker Change: With the department of defense so.
Speaker Change: The bookings are.
Speaker Change: Firm contracts or purchase orders that are extended over often many years.
Peter Skibitski: And I think what's reflected in our backlog is it's still 12 months. Thanks. 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.
And I think what's reflected in our backlog is is it still 12 months.
Speaker Change: Okay.
<unk>.
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 great.
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: Rob's commentary there at the end, but in terms of the outlook for the third quarter I thought I heard.
Tim Thein: Hey, Rob 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.
Speaker Change: I'd say, yes.
Speaker Change: Sequentially. It should look a lot like Q2 plus or minus.
Speaker Change: Okay.
Okay.
Speaker Change: Right. So that's that then youre 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.
Speaker Change: 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, that 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 your fiscal third quarter, the commentary from the, at least from the public bearing distributors, you know, they're not calling for much by way of improvement. So, I'm just curious in terms of, you know, what you guys are seeing.
Speaker Change: Okay got it and I guess im interested in maybe it ties back into the the.
Speaker Change: 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.
Speaker Change: As you look to the third your fiscal third quarter the commentary from the release from the public.
Speaker Change: Bearing distributors it definitely does they're not calling for much by way of improvement so.
Speaker Change: I'm just curious in terms of.
What you guys are seeing.
Rob Sullivan: Is this some of the benefits from Dodge paying off? Is it maybe you're gaining a higher share of wallet with the distributors?
Speaker Change: Is there some of the benefits 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 us some color in terms of.
Rob Sullivan: 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. 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, that fits us.
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 yeah.
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.
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.
That fits us it fits us.
Rob Sullivan: I don't know what their problem is. It wasn't that flattering. It was, I mean, I just, I don't, I don't think others are talking about. You know, 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. 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.
Speaker Change: I don't know what their problem.
Speaker Change: Thank you everyone a flattering flattery.
Yes.
Speaker Change: I don't think others are talking about.
Industrial revenue was down.
Speaker Change: Point or last but that was that 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.
Speaker Change: 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 I was just.
Speaker Change: If you had any commentary around what what what you've seen internally and where you are.
Speaker Change: Yes.
Speaker Change: Where your some of the initiatives you put forth and how those are progressing.
Rob Sullivan: 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 in 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. various various assemblies. So now we don't have that difficult quarter-to-quarter competition.
Speaker Change: Well I mean, there is.
Speaker Change: I would say that.
Speaker Change: I just performance is.
Speaker Change:
Speaker Change: It is showing an improvement year over year.
Speaker Change: Because last year.
Speaker Change: In.
Speaker Change: These quarters are first and second quarter, we had we were still fighting with the tail of our supply chain problems.
And in that second quarter was.
Speaker Change: The end of that tail.
Speaker Change: So which effectively made those quarters last year, a little bit stronger than.
Speaker Change: They 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.
Speaker Change: Various various assemblies.
Speaker Change: So now we're not we don't have that.
Speaker Change: Difficult quarter to quarter comp.
Rob Sullivan: And so now it's more a pure, you know, operating 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. Just, you highlighted within A&D, the marine segment. I think you've been, you know, calling on that for some time.
Speaker Change: And so now it's more a pure.
Speaker Change: Operating.
Speaker Change: Performance relative to market demand.
Yeah.
Speaker Change: Got it Okay and then just.
Speaker Change: On that.
Speaker Change: Last quarter, you had commented that the 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.
Speaker Change: Yes, yes, okay got it got it okay.
Speaker Change: Last one and.
Speaker Change: I'll move on.
Speaker Change: You highlighted within A&D that the marine segment.
<unk> bin.
Speaker Change: Calling on that for some time any any I don't know if its something for competitive reasons, maybe you're precluded from.
Rob Sullivan: Any, I don't know if it's something for competitive reasons, maybe you're precluded from divulging it, but any context in terms of, you know, within that total company backlog, the size of the, you know, 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.
Speaker Change: From divulging it but.
Speaker Change: Any context in terms of.
Speaker Change: Within that total company backlog the size of it.
Speaker Change: 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.
Operator: 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: Thank you and I reminded 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 Sparenblek: Our next question comes from Ross Sparenblek 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 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.
Speaker Change: 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.
Speaker Change: Yeah well.
Speaker Change: We have.
Speaker Change: We have several new product initiatives moving through.
Speaker Change: Oh from R&D into production and.
Speaker Change: And so.
Speaker Change: Sure.
Speaker Change: I think this year some of the some of the first well.
Speaker Change: Probably generate a few million dollars over the full year period.
Ross Sparenblek: 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, 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 for a new product.
Speaker Change: So I would say that.
Speaker Change: New products out of Dodge.
Speaker Change: On an annualized basis.
Speaker Change: Next year.
Speaker Change: $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: Yes.
Speaker Change: If we have identified the market demand.
Speaker Change: Oh, I think I think we have some pretty sharp people.
Speaker Change: Working net into the into the equation.
Speaker Change: Yes, I think those should be meaningful contributors.
Ross Sparenblek: It's great to hear.
Speaker Change: That's great to hear and then maybe just think about dodges warehousing business. It's been a tougher couple of years, but seen signs of Greenfield activity is picking up so anything you can call them that performance and then maybe anything around project activity that you might be hearing from your customers.
Ross Sparenblek: And maybe just think about Dodge's warehousing business. It's been a tougher couple of years, but it's seen signs that greenfield activity is picking up. So anything just to call in on that performance, and then maybe anything around project activity that you might be hearing from your customers. Well, 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: Oh, you know Thats I think thats that side of the business.
Speaker Change: <unk> showed some.
Speaker Change: So some positive effects here in this last quarter.
Speaker Change: So it's a.
Speaker Change: It's coming back slowly.
You know we.
Speaker Change: Were looking seriously at that.
Speaker Change: <unk>.
Speaker Change: Market.
Speaker Change: And we're probably.
Speaker Change: Going to develop a new product line.
To address it.
Speaker Change: Which will.
Speaker Change: Probably take a few years of the development, but should should should allow us to be a a.
Speaker Change: A more significant player.
Ross Sparenblek: 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.
Michael Hartnett: And then just one last one here. What else do you want me to give away, Ross? 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 or 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 it's, you know, moving, moving into that 38 first curve.
Speaker Change: Perfect Alright, and then just one last one do you want me to give away Ross.
Speaker Change: Yeah.
Speaker Change: The keys to your car.
Speaker Change: On the.
Speaker Change: On the 707 and Triple Southern X ramp so I'm, just kind of breaking up but thinking about the second half margins scratches or aerospace that was previously in the cards conversations may still be in the works with Boeing on that.
Speaker Change: Any expectation there maybe second half late in fiscal next year.
Speaker Change: Well I think I think next year, we should be beyond these troubles.
Speaker Change: And into production.
Speaker Change: Moving moving into.
Speaker Change: Into that 38%.
Michael Hartnett: month ship build rate. That's our expectation and that's in terms of what we're rolling together for operating budgets. That will sort of be the basis of our operating budget next year. Unknown 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. I mean, there's the supply chains are.
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: We will sort of be the basis of our operating budget next year.
Speaker Change:
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 and the.
Speaker Change: And the needs of their customers.
Speaker Change: And the needs of their supply chain I mean, there is the <unk>.
Speaker Change: <unk> changed our.
Michael Hartnett: 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 we're having a tough time.
Speaker Change: Alright.
Speaker Change: Pretty tough shape.
Speaker Change: Hello.
Speaker Change: A lot of them are.
Speaker Change: If you survey.
Speaker Change: Yes.
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.
Speaker Change: Try to collect our receivables based upon.
Speaker Change: What we sold them and so we know Ruth we'd always having a tough time.
Yes.
Speaker Change: Yes.
Michael Hartnett: Got it. 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, Ross? 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: Got it.
Speaker Change: 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.
Speaker Change: Okay say that again Ross.
Speaker Change: I mean.
Speaker Change: 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 practical.
Speaker Change: Practical producers and.
Speaker Change: You know, we we like both of them and we have projects big projects in the in the breach with the with both companies and.
Michael Hartnett: And we have projects, big projects in the in the breach with with both companies and Some are, some are, you know, reaching Reaching Harvest. Let's put it that way. Got it.
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.
Michael Hartnett: Very helpful. Thank you guys.
Speaker Change: Yes.
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? Unknown Speaker Okay. Thank you. Yeah, we, uh... 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 auction, and sometimes we do and sometimes we don't.
Speaker Change: Our next question comes from Ron Epstein with Bank of America. Please state your question.
Speaker Change: Yeah, Hey, guys.
Ron Epstein: Hey, 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:
Speaker Change: Yeah, we.
Speaker Change: We see things coming coming to market on the M&A World All the time.
Speaker Change: And we.
Speaker Change: Particularly in the A&D side of the business.
Speaker Change: And.
Speaker Change: We tried to understand whether or not we should participate in the auction.
Speaker Change: And sometimes we do and sometimes we don't.
Michael Hartnett: 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 A lot of tools to avoid, to fix them. Yeah, that makes sense.
Speaker Change: What we're seeing is.
Speaker Change: Hey, hungry and competitive private equity.
Speaker Change: Interest in aerospace companies, if you can believe that.
Speaker Change: So the competitive nature of these of these businesses that are.
Speaker Change: Attractive to us.
Speaker Change: Is is has been.
It has been difficult.
Speaker Change: And some of these some of these businesses come with.
Speaker Change: 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.
Speaker Change: A lot of tools to avoid fix them.
Speaker Change: Yes that makes sense and then maybe another question.
Michael Hartnett: 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 end 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.
Speaker Change: Are there opportunities specifically for you guys and Youre kind of been maybe more supply chain to help I mean, it seems like that.
Speaker Change: End market in particular is really struggling to execute.
And I don't know for a company that's a good execute or.
Speaker Change: 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 and that mineral supply chain.
Michael Hartnett: 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 have complained that the industrial base isn't big enough or strong enough. to support the build-out. And we've offered to build a plant on the waterfront in Connecticut and barge things over to Groton.
Speaker Change: Well, we certainly looked at it Ron.
Speaker Change: And I'd.
Speaker Change: I'd say right now.
Speaker Change: R R.
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 products. 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 for.
Speaker Change: We're strong enough.
Speaker Change: Two to support the build out.
Speaker Change: We've offered to build the plant.
On the waterfront in Connecticut in barge things over to <unk>.
Speaker Change: Rotten.
Speaker Change: You know equip it with the appropriate machinery, and so on and so forth and.
Michael Hartnett: 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. It's unfortunate. Yeah. All right. Well, thank you. Thank you.
Speaker Change: You know.
Speaker Change: We could do it but there wasn't a lot of interest expressed.
Speaker Change: Hmm.
Speaker Change: It's unfortunate.
Speaker Change: Alright.
Speaker Change: Thank you.
Speaker Change: Yes.
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.
Vivek Srivastava: Hi, this is Vivek Srivastava on puncho. Thank you for the question. My first question is on the industrial end 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?
Speaker Change: Hi, This is <unk> <unk>, one for Joe and thank you for the question. My first question is on the industrial end market you talked about industrial sales next quarter comparable to Q.
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 original equipment and aftermarket to return 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 call 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 and Mark. We are expecting to see that starting to come back 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 and Q1. are different markets on the MRO side that are actually driving some of our growth.
Speaker Change: So on the <unk>.
Speaker Change: Just so I understand your question and you know the kind of the end markets that we're seeing good activity on is 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.
Some of the.
Speaker Change: Mining side of the business.
Speaker Change:
Speaker Change: Aggregate and.
Speaker Change: Those end markets so.
Speaker Change: It's a mixed bag now oil and gas, where 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.
Speaker Change: It's just our average.
Speaker Change: Different markets on the MRO side that are actually driving.
Speaker Change: Some of our growth.
Vivek Srivastava: Very helpful.
Very helpful moving on to pricing just trying to understand how much of your.
Vivek Srivastava: 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. reflect that change.
Speaker Change: Unless pricing gets put on in January again, how you're thinking about that and then you have talked about contracts.
Speaker Change: Aerospace and defense.
Speaker Change: 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 the contracts that we have.
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.
Reflect that change.
Vivek Srivastava: 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: The old contracts that we have.
Where the prices were set years ago.
Speaker Change: 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: 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 your backlog within <unk> any color on how you are in that backlog is trending maybe compared to 2019 that really can do.
Speaker Change: Do you see like some risk of that.
Rock Tenn: Rock Tenn, Bob.
Speaker Change: Are you seeing backlog in Australia.
Speaker Change: Yes.
Speaker Change: We know the big takeaway I would tell you on the industrial backlog that's worth considering 2019.
Speaker Change: 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: Their 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, a lot of In-N-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.
Robert Barger: Thank you, and our next question. Robert Barger with KeyBank. Thanks. Good morning. On the industrial side, the four-ish percent growth you expect for industrial and 3Q certainly seems positive. The comp and 4Q is similar.
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: Let's see.
Steve Barger: On the industrial side.
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 do you think the inflection as happened in industrial for your business and you're back to consistent growth.
Robert Barger: 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 competitive? 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 a fewer days, that could mean down ever so slightly. So we didn't say 4% next quarter. 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%.
Steve Barger: Sure.
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 the fewer days that could mean down ever so slightly so we didn't say, 4% next quarter I just wanted to.
Speaker Change: Thank you Greg.
You don't mean dollar growth rate.
Yes, we do.
Speaker Change: We do expect sequential growth, but you didn't say 4%.
Robert Barger: 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. Yep.
Speaker Change: Sequential growth in growth rate.
Speaker Change: Industrial and industrial.
Speaker Change: No I understand but youre not seeing sequential growth in dollars Youre, saying sequel.
Speaker Change: Both rate gets better got it just wanted to make sure that everybody understood. Okay. Yes.
Speaker Change:
Robert Barger: 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 is 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.
Speaker Change: What percentage of the portfolio do you classify as defense now across the two segments and what percentage of the portfolio Mike.
Speaker Change: Mike would you consider as exceptionally strong maybe running 20% plus.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: You were looking at that number for you.
Speaker Change: Okay.
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 we.
Speaker Change: We have it all in aerospace and defense Okay.
Speaker Change: Got it okay.
Speaker Change: Okay.
Robert Barger: 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. 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: And Mike and the second part of that question you had talked about some of the lines of business being exceptionally strong right now.
Speaker Change: What percentage of the overall portfolio would you consider exceptionally strong.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: The big Reorders.
Speaker Change: It's RBC traditional RV question industrial yes.
Traditional rbc's A&D, which was used to be 60% of revenues before with you quite got you. So.
Speaker Change: So it's 30% of total revenues is exceptionally strong.
30% got it.
Robert Barger: 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 3QX strike? At what build rate? at what build rate? I guess the build rate that was occurring prior to 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 you only lost a couple of weeks of production to But you made up your impacts on the Boeing side, right?
Speaker Change: Great.
Speaker Change: 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: Yes.
Speaker Change: Yeah, what build rate.
Speaker Change #100: The build rate that was occurring prior to the strike.
Speaker Change #101: 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 #100: Forward looking.
Speaker Change #100: Hmm.
Speaker Change #102: Well I was actually looking for QQ, what it would've been because you only lost a couple of weeks of production in <unk>.
But even if you.
You had two impacts on the Boeing side right you had the original impact from the January dwarfed by 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 of confidence.
Rob Sullivan: 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 enter a high level. Gotcha. That's okay. Thanks. Thank you.
Got you okay. Thanks.
Speaker Change #103: 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.
Michael 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 closing. Okay, well, thank you. And this concludes our conference call for the second quarter. Appreciate everybody's participation and all the good questions.
Speaker Change #102: Yeah.
Dr. Hartnett: Okay well.
Thank you and this concludes our conference call for the second quarter.
Dr. Hartnett: I appreciate everybody's participation and all the good questions.
Operator: And look forward to talking to you again in in early February. Good day. and all parties may now disconnect.
Dr. Hartnett: And look forward to talking to you again in <unk>.
Dr. Hartnett: In early February.
Dr. Hartnett: Good day.
Dr. Hartnett: <unk>.
Speaker Change #105: All parties May now disconnect have a good day.