Q3 2025 RBC Bearings Inc Earnings Call
Good morning, and thank you for joining us for RBC Baring's fiscal third quarter 2025 earnings call. 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, Dan Bergeron, Director, Vice President, and Chief Operating Officer, and Rob Sullivan, Vice President and Chief Financial Officer.
Speaker Change: 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.
Speaker Change: We refer you to RBC Bearing's recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.
Speaker Change: These factors are also listed in the press release along with the reconciliation between GAAP and non-GAAP financial information.
Speaker Change: With that, I'll now turn the call over to Dr. Hartnett.
Thank you, Rob, and good morning.
Dr. Hartnett: I'm going to start today's call with a quick review of our financial results.
Speaker Change: and I'll hand it over to Rob Sullivan for some more detail on the numbers. Third quarter net sales came in at $394 million, a 5.5% increase over last year.
Dr. Hartnett: driven by continued strong performance in our aerospace and defense segment.
Dr. Hartnett: Total aerospace and defense sales were up 10.7% year-over-year, with a 14.6% growth on the commercial aerospace side and a 3% growth in defense.
Dr. Hartnett: On the industrial side, the segment grew 2.7% year over year, with distribution and aftermarket up 8% and OEM down 8.2%. Altogether, it was a solid quarter.
So, I'm going to talk about some underlying trends.
Dr. Hartnett: In aerospace and defense, we did a good job mitigating the impact from the strikes of Boeing and Textron during the quarter.
quarter-by-quarter cadence across commercial aerospace has been lumpy.
Dr. Hartnett: through our fiscal 2025, and I'm sure that's no surprise to anyone on this call.
Dr. Hartnett: I would encourage you to focus on the total segment trend, which is 10.7% growth for the quarter.
Dr. Hartnett: and a 15.5% growth year-to-date, and these are solid performance numbers.
growth in the case of defense.
who is limited by capacity and not demand.
In fact, demand is extraordinary.
We are adding capacity as we speak.
and adding capacity means hiring and training staff.
expanding supply chain and we are currently building plants.
Dr. Hartnett: I want to take a second to commend the teams managing our customers, plants, people, and production schedules.
Dr. Hartnett: There's a lot of work put into rebalancing our production cadence in order to smooth some of the customer volatility over the past two quarters.
Dr. Hartnett: Maintaining level operating loads in our plant, that is balancing load against cost, is a critical part of RBC's performance and continues to be a key contributor to our long-term gross margin expansion.
Dr. Hartnett: On the industrial side, we were excited to see the segment return to growth. While our OEM business was down for the period, the bulk of the contraction came from the oil and gas category.
Dr. Hartnett: Additionally, headwinds were also seen, but to a lesser extent, in the construction and semiconductor machinery manufacturing.
Dr. Hartnett: We saw encouraging signs in the aftermarket of aggregate and cement, mining and metals, food and beverage, and grain. Seller markets were up well into the double digits, yielding a net gain of 8% over the period.
Dr. Hartnett: evidence of how even a modest USA GDP expansion can be very impactful to this sector.
Dr. Hartnett: Excluding the oil and gas influence, our industrial sector expanded at a 4.4% rate.
Overall, the continued tailwinds of
Dr. Hartnett: industry-leading service levels, organic growth, synergies, and favorable end-market mix came together to put us well into the green on revenues, margins, cash flow for the quarter, which
Dr. Hartnett: was a quarter that's the most challenging of the four to navigate.
Dr. Hartnett: Gross margin for the quarter came in at $175 million, or 44.3% of sales, a 205 basis point increase year over year. The biggest drivers of our margin expansion continue to be increased absorption of our aerospace and defense capacity.
Dr. Hartnett: ongoing synergies with DODGE and a wide range of smaller continuous improvement projects plant-by-plant basis we continue to identify through our RBC Ops management process.
Thank you.
Adjusted net income of $73 million was up 34.7% year-over-year.
Dr. Hartnett: And that translated to an ingested EPS of 2.34 per share compared to last year's 185 for a growth of 26.5%.
Dr. Hartnett: We use our cash to continue to deleverage the balance sheet with an impressive $100 million reduction in the quarter.
Dr. Hartnett: Our trailing net leverage to one eight.
Dr. Hartnett: It's many.
Dr. Hartnett: If you know RBC is a cash flow rich business since we acquired gosh, we committed.
Dr. Hartnett: Nearly all of our cash generation.
Dr. Hartnett: Deleveraging the balance sheet.
Dr. Hartnett: The 2.0, Mark debt divided by EBITDA was an important milestone.
Dr. Hartnett: I'm excited too.
Dr. Hartnett: So I do we were able to achieve it in just three years.
Dr. Hartnett: Also with our preferred dividend now gone we are excited to recapture 23 million in annual expense back into our cash flow and further accelerate additional debt repayment going forward.
Dr. Hartnett: Yeah.
Dr. Hartnett: In terms of our outlook, our A&D business remains on a path towards mid teens growth for the full year.
Dr. Hartnett: The industrial business should finish the year roughly flat with a heavy.
Dr. Hartnett: Has healthy seven second half exit to the year.
Dr. Hartnett: With the new calendar year the election behind US. Many of you asked for my thoughts on the New administration and what it might mean for RPC.
Dr. Hartnett: I've I've done a little bit of thinking on the topic.
Dr. Hartnett: And this is where I come out.
Dr. Hartnett: In terms of our end markets I don't think it changes much for commercial aerospace.
Dr. Hartnett: The drivers here has been supply chain challenges in the broader issues at Boeing.
Dr. Hartnett: But from what I can see there appears to be a nice progress.
Dr. Hartnett: Dressing some of these issues and I'm optimistic that it continue.
Dr. Hartnett: If that happens we should stand to benefit from some wonderful comps.
Dr. Hartnett: Commercial aerospace business as we progress through calendar 'twenty 2025, our fiscal 2026.
Dr. Hartnett: We continue to expect strong secular growth.
Dr. Hartnett: Beyond 25.
Dr. Hartnett: Fueled by record bookings backlogs at Boeing and Airbus.
Speaker Change: Cooper, who together have 12 years of demand sitting on their order books and build rates that need to move higher.
Dr. Hartnett: Okay.
Dr. Hartnett: On the defense side.
Dr. Hartnett: With the current geopolitical backdrop and.
Dr. Hartnett: And with the Republicans in charge of the house.
Dr. Hartnett: Senate and executive branch, it seems likely that the U S defendant.
Dr. Hartnett: Spending will accelerate over the next four years.
Dr. Hartnett: And in terms of international defense spending.
Dr. Hartnett: <unk> members are increasingly investing.
Dr. Hartnett: 2% of GDP level.
Dr. Hartnett: Now debating if it needs to be 3%.
Speaker Change: With Trump, arguing that it should be 5%.
Dr. Hartnett: I can't tell you exactly where things are going to shake out, but I suspect there's a.
It will eventually be higher than it's been.
Dr. Hartnett: And at any time and post Cold War history.
Dr. Hartnett: Yeah.
Dr. Hartnett: In the industrial business, we continue to hear from customers and distributor partners.
Dr. Hartnett: The following since the election, there has been a risk step up.
Dr. Hartnett: <unk> for new projects.
Dr. Hartnett: Clearly theres no mistake, we are moving into a drill baby drill period.
Dr. Hartnett: Where renewable energy sources are out of favor worldwide.
Dr. Hartnett: Array for common sense.
Dr. Hartnett: There hasn't been.
Dr. Hartnett: Confidence seems to have returned in a future lowing lowering of interest rates appears to be inevitable.
Dr. Hartnett: Our third quarter is a good indicator of the impact.
Dr. Hartnett: GDP growth on a desk or on our industrial aftermarket.
Dr. Hartnett: Terrorists prudently add both spice and fuel to our business outlook.
Dr. Hartnett: Which.
Dr. Hartnett: Are strongly and net good for RBC.
The last area worth touching on is M&A.
Dr. Hartnett: With our net leverage down to one eight times, we are well prepared for the next opportunity and remain busy assessing candidates.
Dr. Hartnett: Yeah.
Dr. Hartnett: With just one more quarter left in two in fiscal in our fiscal 2025.
Dr. Hartnett: Our retention is beginning.
Dr. Hartnett: Two.
Dr. Hartnett: Focus on next year.
Dr. Hartnett: If the current trend holds its likely that fiscal 2026 could offer an environment, where all three of our end markets are growing in units.
Dr. Hartnett: It's too early to provide a concrete outlook right.
Dr. Hartnett: But that is the back up I, which we are putting budgets together for fiscal 2026.
Dr. Hartnett: Yeah.
Dr. Hartnett: With that I'll now turn the call over to Rob Sullivan for more details on that.
Speaker Change: Our financial performance. Thank you Mike.
Speaker Change: Thank you Harlan indicated this was another strong quarter for RBC net sales growth of five 5% drove gross margin growth and 6% with more than 200 basis points of percentage expansion.
Speaker Change: The quarter benefited from some favorable product mix and strong manufacturing performance in the industrial side.
Speaker Change: Those factors were in addition to the more structural drivers of our gross margin performance, including ongoing synergy and increased utilization of our aerospace and defense manufacturing assets.
Speaker Change: On the SG&A line, we continued our investments in future growth. This includes a combination of investing in <unk>.
Speaker Change: Personnel costs and back office or including IC licenses.
Speaker Change: Sure.
Speaker Change: This resulted in an adjusted EBITDA of $122 6 million up 12% year over year and an adjusted EBITDA margin of 31, 1%, which was up 180 basis points year over year.
Speaker Change: Interest expense in the quarter was $14 2 million. This was down 26, 4% year over year, reflecting the ongoing repayment of our term loan as well as the lower rate loan silver base rate is lower.
Speaker Change: Tax rate and our adjusted EPS calculation was 22, 2%.
Speaker Change: Reasonably reasonably consistent versus last year's 21, 3%.
Speaker Change: Altogether. This led to an adjusted diluted EPS of $2.34 representing growth of 26, 5% year over year, an impressive result, given some of the choppiness in commercial aerospace customer production schedules and the macroeconomic softness in the industrial economy.
Speaker Change: Free cash flow in the quarter came in at $73 6 million with conversion of 127% and compares to $70 9, million% to 152% last year and.
Speaker Change: As usual, we used a meaningful portion of the cash generated to continue to deleverage the balance sheet.
Speaker Change: We paid $100 million of debt during the quarter, taking our total year to date debt reduction.
Speaker Change: He used to have 195.
Speaker Change: In terms of our free cash flow generation going forward. The October 15th automatic conversion of our mandatory convertible preferred stock the moved to cash dividend payments, reducing our future total cash outlays by approximately $23 million on an annualized basis.
Speaker Change: This is roughly nine 5% for fiscal 'twenty quarters total free cash flow.
Speaker Change: With our trailing net leverage now at one eight turns and heading even lower going forward, our balance sheet as an increasingly attractive position to pursue additional accretive M&A and our team remains busy growing our funnel of potential deal funnel.
Speaker Change: Looking into the fourth quarter, we are guiding to revenues of $434 million to $444 million, representing year over year growth or 9% to seven 3%.
Speaker Change: Guidance Embeds, an operating environment its fairly similar to the fiscal third quarter.
Speaker Change: On the gross margin side, we are projecting gross margin to 44 to 44, 5%, which would be an increase of roughly 115 basis points year over year at the midpoint.
Speaker Change: Our SG&A, we expect SG&A as a percentage of sales to be between 16, and 16, 5% range during the fourth quarter.
Speaker Change: In closing this was another strong quarter for RBC.
Speaker Change: <unk> focused on leveraging our core strengths engineering manufacturing and product development to drive both organic and inorganic growth continued margin excellence high levels of free cash flow conversion.
Speaker Change: Operator, please open the call for Q&A.
Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question is from Pizza Kubicki with Alembic Global. Please proceed with your question.
Speaker Change: Hey, good morning, guys nice performance.
Speaker Change: Mike.
Speaker Change: Mike I'll Echo you that it was good to see industrial returned to growth.
Speaker Change: Can you talk more about oil and gas kind of what you saw in the quarter that was.
It was it lack of spending because of the election and then when you talk about increased quote activity and industrial does that does that include oil and gas.
Speaker Change: Yeah, well on the oil and gas side side of things.
Speaker Change: Okay, that's a boom or bust industry and when it's booming.
Speaker Change: They want materials faster than you can.
Speaker Change: Make materials.
Speaker Change: And.
Speaker Change: Ultimately.
Speaker Change: Over order their materials because.
Speaker Change: The trees never stopped growing.
Speaker Change: And so.
<unk> stopped growing and they had too many materials. So it's really an inventory correction.
Speaker Change: We're studying it.
Speaker Change: Yes.
Speaker Change:
Speaker Change: It'll blend down over the next.
Speaker Change: Nine months.
Get back to a more normal level.
Speaker Change: Basically we had a few customers.
Speaker Change: Who over ordered.
Speaker Change: Got it okay. Thanks, I'll give you a little more color on that this is Rob moffitt ex the oil and gas headwind that OEM business.
Speaker Change: Two 5% a big chunk of that Delta in industrial yes.
Speaker Change: Gotcha. That's helpful guys I appreciate it and then just.
Speaker Change: Everybody is going to be where are you going into the weekend about this tariff issue.
Speaker Change: Mike you don't sound too worried can you can you give us more color in terms of.
Speaker Change: What allows.
Speaker Change: Allows you to retain confidence that that won't be a major roadblock for ya.
Speaker Change: Yeah, sure well I mean, there's.
Speaker Change: It's it's Mexico, and China really right.
Speaker Change: Okay.
Speaker Change: Two.
Speaker Change: Issues.
Speaker Change:
Speaker Change: First of all first of all our our Mexico plants, we have three plants in Mexico.
Speaker Change: The materials.
Speaker Change: Our shipped in from the U S. The.
Speaker Change: The value added is minimal.
Speaker Change: And then they're shipped back out so any tariff is applied to Mexico will be easily absorbed.
Speaker Change: It's just not it's not that big a number.
Speaker Change: Easily be absorbed in our cost structure ask along as.
Speaker Change: And our pricing is it's a non issue.
Speaker Change: Oh sure.
Speaker Change: So the other the.
Speaker Change: Part of Mexico is is our.
Speaker Change: Contracts, where we saw where we actually sell product.
Speaker Change: Out of Mexico directly to customers.
Our contracts have triggers in them.
Speaker Change: With which we anticipate.
Speaker Change: Or or.
Speaker Change: We anticipate some government.
Speaker Change: Action that's unforeseen.
Speaker Change: And it allows us to negotiate renegotiate their contract.
Speaker Change: And.
Speaker Change: How do we learn that well we learned that during the pandemic.
Speaker Change: Showed up at the plant.
Speaker Change: Guns drawn.
Speaker Change: It shut down our plants.
Speaker Change: So we decided you know it would be nice to have a clause in these contracts going forward as.
Speaker Change: Theres anything crazy like that.
Speaker Change: Happens between the governance.
Speaker Change: The way too.
Speaker Change: Litigator.
Speaker Change: Mitigate.
Speaker Change: Uh huh.
Speaker Change: Our business business model so.
Yeah, that's that's kind of baked into our contracts and also.
Speaker Change: For the most part our contracts for commercial items or F O B plant.
Speaker Change: I'm sure.
Speaker Change: We have belt and suspenders.
Speaker Change: As far as that is concerned.
Speaker Change: Yeah.
Speaker Change: No no that's.
Speaker Change: Okay got it.
Speaker Change: China is in China is another issue.
Speaker Change: You know and.
Speaker Change: If trump dose is 10%.
Speaker Change: Tariff on China.
Speaker Change: That will be incredibly disappointed.
Speaker Change: Okay.
Speaker Change: I mean, all the huffing and puffing he did and he's going to do 10% first of all 10%.
Speaker Change: We won't even feel it in our numbers.
Speaker Change: It's just it will be insignificant.
Speaker Change: If he does 50%.
Speaker Change: And he puts the same program in place he is putting in place for the steel industry the bearing industry.
Speaker Change: What do you think is going to happen to <unk>.
Speaker Change: Probably a shortfall right.
Speaker Change: Shortfall what happens.
Speaker Change: Supply and demand how about that equation that balance.
Scott: So this is Scott.
Scott: Follow the same path as the steel industry, if there's a very strong era.
Scott: I'm praying for a strong parent.
Scott: Got it.
Scott: Got it okay.
Scott: Okay. That's very helpful. I appreciate that the whole.
Scott: Contacts.
Scott: And I think one other thing.
Scott: There is.
Speaker Change: RBC is they made in the USA company or the most.
Speaker Change: We make our products here I mean, theres some augmentation by other by foreign foreign sources, but not a lot and nothing that we can't recover with our own plants. So we make it here.
And for the most part more or less we sell 90% of our sales are here, that's a big distinction between us and what other people consider as our peers.
Speaker Change: Very helpful very helpful. I'll end on a defense note.
Speaker Change: And maybe a less controversial one.
Speaker Change: You've talked about the need to increase submarine capacity I think you've hinted that you need to increase munitions capacity as well.
Speaker Change: I'm just wondering if you could update us on the Capex impact and the schedules for our for your capacity expansion in defense.
Speaker Change: Yeah, well you won't.
Speaker Change: The capex will be.
Speaker Change: It won't be extraordinary.
Speaker Change: We as far as the submarine business is concerned.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: We're building out a.
Speaker Change: Great.
Speaker Change: Thousands plus plant in Tucson.
Speaker Change: It's a leased building so there's no no.
Speaker Change: Brick and mortar there.
Speaker Change:
Speaker Change: We will move machinery from.
Speaker Change: One of the Tucson plants into this third plant.
Speaker Change: Over the over the course of the year and allow more manufacturing capacity inside the.
Speaker Change: Phase II plant for them.
Speaker Change: The submarine business so that's ongoing.
The capital impact is.
Speaker Change: He is well within our normal capital budgets.
Speaker Change: Okay.
Speaker Change: It sounds like.
Speaker Change: Not something that would take a long time I guess is the first point the second point is it I guess.
Speaker Change: Free cash flow dropdown should be pretty pretty strong I would say.
Speaker Change: Yes.
Speaker Change: It's going to be.
Speaker Change: Same is the same as it's been.
Speaker Change: Great. Thanks for the color I appreciate it guys.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Steve Barger: Thanks, Good morning.
Speaker Change: One Steve.
Speaker Change: Mike I know, it's early to talk about fiscal 'twenty six but you did mention how comps and condition should allow for strong growth in aerospace just based on what you know now about demand and capacity are you thinking mid teen growth against the mid teens comp or does the growth rate to actually accelerate I guess just trying.
Speaker Change: To figure out how good do you think this could be.
Speaker Change: Now, we're talking about commercial aerospace right.
Speaker Change: I guess the segment of aerospace yeah, Okay, it's going to be very good.
Speaker Change: This is it.
Speaker Change: But let's put it this way we're at 15% volume really hasn't been building here.
Speaker Change: Right. So we have a lag if nothing else changes it just accelerates the growth rate yeah, nothing else changes it just accelerates and we have a lot of content on those plants. So yeah.
Speaker Change: Yeah. It's.
Speaker Change: 15% for commercial aerospace.
Speaker Change: Sure.
Speaker Change: Sure.
So D a.
Speaker Change:
Speaker Change: I don't I don't want to say, it's a floor because we think it should be higher.
Speaker Change: B.
Speaker Change: Yeah.
Speaker Change: And presumably and I'm not trying to nail you down to anything but just based on the conditions. The 12 year backlog that you talked about like this shouldnt and anytime soon you should have.
Speaker Change: Not to put words in your mouth, but like you you you must have as good a visibility right now in the aerospace as you've had in a long time.
Speaker Change: Yeah, I mean, our visibility to the year in the aerospace is.
Speaker Change: It's the same as everybody else's when you look at Boeing Skyline in yeah.
Speaker Change: We say a little north of the units.
Speaker Change: They make it.
Speaker Change: And that all happens for us.
Speaker Change: That's where the risk is I mean are we.
Speaker Change: We have contracts in place with Boeing through 2034.
Speaker Change: For all of our stuff. So all they have to do is make a plane and we will send them we'll send them.
So it's it's.
Speaker Change: Really in there yeah.
Speaker Change: Understood and similar question for industrial if I heard you right you said it.
Speaker Change: 4% growth ex oil and gas this quarter, if we assume oil and gas gets back to growth does this feel like we're heading back to a mid single digit kind of growth environment for industrial just as you think about the sentiment the quoting activity that you've talked about the.
Speaker Change: The how you think the administration is going to proceed.
Speaker Change: Yes, I would say that's right.
Speaker Change: I think were oil and gas from what we know about inventories and absorption rates, it's going to take a little bit longer.
Speaker Change: It will phase in at the end of the year.
Speaker Change: Yeah.
Speaker Change: Understood Thanks very much.
Speaker Change: Yeah.
Thank you. Our next question is from Michael Karmali with true Securities. Please proceed with your question.
Speaker Change: Michael is your line on mute.
Michael Karmali: Oh, sorry can you guys hear me now.
Speaker Change: Yes, yes.
Michael Karmali: Thanks for taking my question Nice job Nice result, Hey, Mike just to maybe stay on stay.
Speaker Change: Stay on that line I guess first with oil and gas I mean, you mentioned the drill baby drill are you are you kind of seeing any tangible.
Speaker Change: Evidence of more planned spending I mean, if we do see a pretty steep reduction in oil prices I mean, our energy prices. These these companies you should learn incentivize to expand they want to continue to deploy capital to shareholders. So you really think you see.
Speaker Change: Large scale projects pick up and that kind of environment.
Speaker Change: Oh well.
Speaker Change: To say I mean, you got to do.
Speaker Change: Horses imbalance there right.
Speaker Change: Assumption in there.
Speaker Change: Supply and <unk>.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Here's all there always seems to be a problem with supply.
Speaker Change: Yes, whether it's a floor or its embargo or it's something else. There's always there's always seems to be here.
Speaker Change: Interruption.
Speaker Change: It's unpredictable changes that changes the game for a year or two.
Speaker Change: So I think it needs something like that.
Speaker Change: Uh huh.
To accelerate it.
Speaker Change: I wouldn't rule something like that.
Speaker Change: Okay sure.
Speaker Change: And then just a follow up on out where he was going with that with arrow.
Now put words in your mouth, if 15% is a for next year, how do we think about your your contract contract renewals.
Speaker Change: That had been coming due.
Speaker Change: You kind of maybe juice that any.
Any growth rate a bit with some pricing on top of the volume, assuming Boeing Airbus and the supply chain kind of start to normalize here.
Speaker Change:
Speaker Change: You know our current contracts.
Speaker Change: Term out at.
Speaker Change: At the end of 2006 with Boeing.
Speaker Change: I think Airbus.
Speaker Change: I'm sure all of us.
Speaker Change: So the new.
Speaker Change: Tracks, and the new pricing and the new mix.
It takes effect.
Speaker Change: January of 'twenty.
Speaker Change: Thanks.
Speaker Change: So yeah and it's.
Speaker Change: It's better.
Speaker Change: Okay since the old let's put it this way since the old contracts were signed.
Speaker Change: The producer price index has probably gone up somewhere between 30 and 35%.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: Got it and then just.
Speaker Change: Further back on tariffs you know maybe with that the China topic I think when you guys. When we saw this years ago in 2018 you commented.
Speaker Change: I guess, you don't really have a lot of.
Speaker Change: Direct competition in China, a lot of Commoditized markets does that really then move the needle for you guys. If the tariffs into China are pretty significant.
Speaker Change: Just given that you didn't have a lot of the Commoditized tomorrow.
Speaker Change: You don't have a lot of Chinese competition right.
Speaker Change: The customers you're dealing with or are looking for.
Speaker Change: More ruggedized high quality differentiated bearings like you provide versus the commoditized market. So.
Speaker Change: I mean, it doesn't really move the needle.
Speaker Change: Well are you you're talking about <unk>.
Speaker Change: Exports into China.
Speaker Change: I guess I guess in both cases right I mean, do you sell directly to that much into China, right now and presumably would there be a lot of substitute.
Speaker Change: If those tariffs on products coming out of China or material do you think you'll get a lot of business.
Speaker Change: Yes.
Speaker Change: So, yes, we sell into China, now, but it's not material.
Speaker Change: Okay.
Speaker Change: It isn't it isn't worth isn't worth talking about.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Got it and then.
Speaker Change: I guess.
Speaker Change: Last one for me any anything else you can say on kind of M&A I know you talked about the the leverage being down you've got more cash here with the preferreds rolling off I mean.
Speaker Change: Just any anything close to the finish line any.
Speaker Change: Do you think adds whether it's market youre looking to expand any any kind of color you can maybe tell us.
Speaker Change: Sure Yeah, well certainly we have the balance sheet now.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: On the other hand, we have are unprecedented.
Speaker Change: Projects internal projects underway that we're developing for organic growth.
Speaker Change: That are either in production or close to production.
Speaker Change: So our first order of business is.
Speaker Change: It has to look internally.
Speaker Change: Make sure that these these projects and products are.
Speaker Change: Well well managed.
Speaker Change: And we don't disappoint our customers.
Speaker Change: So that's that's our first order of priority.
Speaker Change: And acquisitions.
Speaker Change: We continue to review candidates.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: They I don't know how many they have that doesn't.
Speaker Change: Come over the transom every month.
Speaker Change: That kind of a rate.
Speaker Change: Okay, and we're looking at we look at it.
Speaker Change: Fit with our markets.
Speaker Change: With our.
Speaker Change: Our ability to sell our ability to understand those markets.
Speaker Change: We look for scale.
Scale is important.
Speaker Change:
Speaker Change: And Oh.
Speaker Change: We've gotten to the point, where we will accept.
Speaker Change: No less.
Speaker Change: The.
Speaker Change: Top tier management.
Speaker Change: So okay.
Speaker Change: Dodge completely spoiled us.
Speaker Change: Yeah, so right.
Speaker Change: When we look at every one of them when we say is it as good as that.
Speaker Change: And.
Speaker Change: Is it a yea or nay in terms of management team and so.
Speaker Change: We're looking for another day.
Speaker Change: So that rules out should we should we think about ruling out kind of fixer uppers or accompany with maybe.
Speaker Change: Inferior margins.
Speaker Change: It just <unk>.
Speaker Change: We looked at those who are saying you could deploy your toolkit and there'd be a tremendous opportunity for accretion, but if you're accepting no less than top tier management, presumably the financials would be pretty good.
Speaker Change: Well you know we were able to we were able to help guide you out with their margins.
Speaker Change: The net of it all worked out well for everybody. So.
Speaker Change: You know.
Speaker Change: I think we went to our management team basically that's it.
Speaker Change: That's it.
Speaker Change: It knows the game.
Speaker Change: There's a lot of experience in the industry and the business.
Speaker Change: And is willing to work with us and that's what we found was that and got it. So that's all kind of gray stuff when youre doing your diligence.
Speaker Change: No you have to make a call though exactly that.
Speaker Change: And.
Speaker Change: And that's that's that's where we are I mean, we've we've made bids on some of the candidates we've seen over the last quarter.
Speaker Change: And I can only say that there's.
Way too much private equity.
Speaker Change: Hello, it's flowing around.
Speaker Change: And.
Speaker Change: So.
Speaker Change: Whatever we do will be expensive.
Speaker Change: Got it that's helpful.
Rob Moffett: Thanks, Scott I'll just add onto that this is Rob Moffett I mean, yes.
Speaker Change: Yes.
Speaker Change: Dr aren't necessarily a point when we look at fiscal 2026, and the amount of organic growth. That's out there we don't need to take risks on M&A number one focus is yes heads down and capturing the organic growth. That's there and we can wait till the right pitch to come across the play whether its product set management team et cetera, but there's.
Speaker Change: There's a lot of opportunity that we're focused on organically, where we don't feel pressure to take risk.
Speaker Change: Yes, it makes sense got it helpful.
Speaker Change: Good stuff thanks, guys.
Speaker Change: Our next question is from Ross <unk> Black with William Blair. Please proceed with your question.
Speaker Change: Hey, good morning, gentlemen.
Speaker Change: Russ.
Speaker Change: Hey, guys apologies, if I missed it but did you provide the gross margins by segment between Aero and industrial.
Speaker Change: That'll be in the queue.
Speaker Change: Okay Alright.
Speaker Change: I guess the implied here, though is that era was the heavy lift this quarter.
Speaker Change: Okay.
Russell: Can you just give me a SEC Russell.
Speaker Change: Hold out for your industrial margins were exceptional.
Speaker Change: You would expect.
Speaker Change: Aerospace margins this quarter were over 40, there are 45, new industrial margins were $46 five.
Speaker Change: Oh, Wow, I mean that implies that you guys really aren't seeing much from the wide body ramped <unk> contract renewals as I guess you previously noted so there's still a pretty significant leg up here.
Speaker Change: On the industrial side, you get the sense of you're towards the end of a Dodge synergies then.
Speaker Change: I think we'll have Dodge synergies for the next 10 years.
Speaker Change: It just doesn't seem to and it doesn't seem to end.
Speaker Change: Okay.
Speaker Change: On the warehouse business could you provide us what the growth was in the quarter between aftermarket and narrow I know, that's a or an OEM that's stepping up here.
Speaker Change: Yeah, those warranties lap.
Speaker Change: Yeah.
Speaker Change: Ross you asked me for aftermarket versus OEM Aero.
Speaker Change: No no sorry, the Dodge the Dodge warehouse.
Speaker Change: No.
Speaker Change: Yeah that was up.
Speaker Change: Yes, I got it right here in the solid solid performance across OEM and aftermarket was up about 7% on a year over year.
Speaker Change: Okay.
Speaker Change: So I'm kind of OEM and aftermarket.
Speaker Change: So maybe just to kind of frame the industrial runway in that end of the year than 2026, roughly 70% of industrial is stable and modest growth.
Speaker Change: The warehouses coming back and then you know semiconductor at oil and gas are still.
Speaker Change: Brown trough levels.
Speaker Change: Any sense on kind of where that stands on peak to trough or maybe just chomping normalized levels for OEM and semiconductor is mostly going to come back.
Speaker Change: I don't.
Speaker Change: Yes.
Speaker Change: Starting to see semiconductor work its way back.
Speaker Change: We're seeing we're seeing orders from customers.
Speaker Change:
Speaker Change:
Speaker Change: We're not existent.
Speaker Change: A year ago.
Speaker Change: Our old customers for us.
Speaker Change: Know, who they are and what they use.
Speaker Change: So on so yeah, we're starting to see that trickle back is it.
Speaker Change: It hasn't it hasn't reached the Gallup yet.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: I'm just trying to assess your expectations on maybe if there is a yeah lift above 4% growth in the near term. It does did meaningfully accelerate but it sounds like you guys are have a lot still ahead of yourself, yeah, congrats on the quarter and I'll leave it there.
Ross Black: Thanks Ross.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Jordan <unk> with Bank of America. Please proceed with your question.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: Hello could you guys give a little more detail on what the growth was for space.
Speaker Change: Which end markets are defense you guys saw the most growth for an.
Speaker Change: Expectations for going forward.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Pulling up space for you hold on one second.
Speaker Change: Thanks.
Speaker Change: Uh huh.
Speaker Change: Yes spaces was solid again, it was another quarter with a ballpark call it 40% year over year growth.
Speaker Change: Uh huh.
Speaker Change: It's pretty balanced.
Speaker Change: Okay. So a couple of categories missiles, and guided munitions are strong fixed wing military strong on the defense side.
Speaker Change: It's a pretty balanced across the board.
Speaker Change: Great. Thank you guys so much.
Got it.
Speaker Change: Thank you there are no further questions at this time I'd like to turn the floor back over to Dr. Hartnett for any closing comments.
Speaker Change: Okay, well. This concludes our conference call for the third quarter and I appreciate everybody's participation.
Speaker Change: Good questions.
Speaker Change: We look forward to talking to you again I think that's in May.
Speaker Change: End of May.
Speaker Change: Good day.
Speaker Change: Yes.
Speaker Change: Thank you. This does conclude today's conference.
Speaker Change: Thank you for your participation you may disconnect your lines at this time.