RBC Bearings Incorporated (ROLL) Q1 2022 Earnings Call Transcript

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RBC Bearings Incorporated (ROLL -0.42%)
Q1 2022 Earnings Call
Aug 5, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Q1 2022 RBC Bearings Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Will Stack with Investor Relations.

William Stack -- Investor Relations, Alpha IR Group

Good morning, and thank you for joining us for RBC Bearings fiscal 2022 first quarter earnings conference call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer; Daniel A. Bergeron, Director, Vice President and Chief Operating Officer; and Robert Sullivan, Vice President and Chief Financial Officer.

Before beginning today's call, let me remind you that some of the statements made today will 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 that could impact the Company's future operating results and financial condition. These factors are also described in greater detail on the press release and on the Company's website.

In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the Company's website.

Now, I'll turn the call over to Dr. Hartnett.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Thank you, Will, and good morning, and welcome to all. It seems like we're having these calls weekly now. It's just a pleasure to speak to everyone every week.

Net sales for the first quarter of fiscal 2022 were $156.2 million versus $156.5 million for the same period last year, a decrease of 0.2%. We had some delays in shipments in one of our divisions as a result of source inspection, which is beyond our control. So that's where we are. For fiscal quarter -- for the first fiscal quarter of 2022, sales of industrial products represented 48% of net sales, with aerospace products at 52%.

Gross margin for the quarter was $63.8 million, or 40.8% of net sales. This compares to $59.5 million, or 38% for the same period last year.

Adjusted operating income was $31.3 million, 20% of net sales, compared to last year's 19.1%.

Adjusted EBITDA was $45.3 million, 29% of net sales, compared to $43.8 million, and 28% of net sales for the same period last year.

We ended the quarter with $296 million in cash and securities and $10.8 million of debt.

Quarter was one where the industrial markets continue to show increasing strength. Our industrial OEM businesses, non-marine, demonstrated a quarter-to-quarter bounce of 42% over last year. Demand was strong in virtually all components of the market, except oil and gas, but the latter appears to be making a comeback now in the July quarter. Performance in the industrial aftermarket was almost as impressive with a 32.6% expansion over last year. We saw demand ranging from excellent to extraordinary in most markets served, and we are looking forward to a strong second quarter from the industrial businesses, and expect a continuing, but some moderation in demand through the balance of the year. Our strong industrial markets were construction and mining, industrial distribution, semiconductor machinery, machine tool, wind and train.

Turning to aerospace and defense, this sector was off 18.3% for the quarter. Sequentially when normalized for production days, it was about flat with the preceding period. Aircraft OEM was down almost 22.5%. This can be almost entirely attributed to the slow ramp of the 737 MAX programs through 2021 and into calendar year 2022, a problem that should resolve itself in the quarters ahead as Boeing steps through their monthly production rates from today's 17 per month to January of 2023 of 42 per month. But we are now seeing increases in orders shippable later in the year across all of our plants that service and supply both Boeing and Airbus. Today, we are combing [Phonetic] through over 200,000 -- 20,000 -- 2,000 line items, excuse me, bearings and assemblies we supply to the industry to ensure we have materials, logistics, and staff in place to seamlessly support the next two years of build rate increases.

Regarding our second quarter, we are expecting sales to be between $158 million and $162 million.

And I'll now turn the call over to Dan and Rob for more detail on the financial performance.

Robert M. Sullivan -- Vice President, Chief Financial Officer

Thank you, Mike. Since Mike has already covered net sales and gross margin, I'll jump down to SG&A. SG&A for the first quarter of fiscal 2022 was $29.8 million, compared to $26.8 million for the same period last year. The increase was mainly due to higher personnel costs of $2.4 million and $0.6 million of other items. As a percentage of net sales, SG&A was 19.1% for the first quarter of fiscal 2022, compared to 17.1% for the same period last year.

Other operating expense for the first quarter of fiscal 2022 was $3.2 million, compared to expense of $3.8 million for the same period last year. For the first quarter of fiscal 2022, other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets and $0.6 million of restructuring costs and other items. Other operating expense for the same period last year consisted mainly of $2.5 million in amortization of intangible assets, $1.1 million of restructuring costs, and $0.2 million of other items.

Operating income was $30.7 million for the first quarter of fiscal 2022, compared to operating income of $28.8 million for the same period in fiscal 2021. On an adjusted basis, operating income would have been $31.3 million for the first quarter of fiscal 2022, compared to adjusted operating income of $29.9 million for the first quarter of 2021.

For the first quarter of 2022, the Company reported net income of $26.0 million, compared to net income of $22.7 million for the same period last year. On an adjusted basis, net income would have been $26.3 million for the first quarter of fiscal 2022, compared to adjusted net income of $23.6 million for the same period last year.

Diluted earnings per share was $1.03 per share for the first quarter of fiscal 2022, compared to $0.91 per share for the same period last year. On an adjusted basis, diluted earnings per share for the first quarter of fiscal 2022 was a $1.04, compared to $0.95 per share for the same period last year.

Turning to cash flow, in one of our strongest quarter's to date, the Company generated $53.3 million in cash from operating activities in the first quarter of fiscal 2022, compared to $48.4 million for the same period last year. Capital expenditures were $3.4 million in the first quarter of fiscal 2022, compared to $3.9 million for the same period last year. Total debt as of July 3, 2021 was $10.8 million and cash and marketable securities on hand was $296.1 million.

I would now like to turn the call back to the operator for the question-and-answer session.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Pete Skibitski with Alembic Global.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Hey. Good morning, guys. Long time, no talk.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Hey, Pete.

Robert M. Sullivan -- Vice President, Chief Financial Officer

Hey, Pete.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Nice quarter. I want to start out, Mike, I think you talked about delays in shipments from, I think one unit because of source inspections. Could you guys maybe quantify how much revenue was impacted by that event? And maybe was it aerospace sales or industrial sales?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. It was industrial sales, and it's about $2 million.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Okay. Okay. Got it. And then on the -- I thought aerospace was interesting because it wasn't -- you would had four quarters of down aerospace sales, so this should have been an easier comp quarter. But I thought maybe, Mike, you mentioned something about a fewer days in the quarter or something? Did I hear that right or am I completely wrong on that?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. Well, there is more days in our fourth quarter than there is in our first quarter. So, when you normalize the two, it's about even.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Okay. In the first quarter was the same number of days in the first quarter of fiscal 2021 or no.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah, yeah. No, it's about the same, yeah.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Okay, OK. Okay. So, are you seeing kind of some recovery in some of the -- demand for some of the other platforms or just mainly the MAX, that was the headwind this quarter?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. It's mainly the MAX. I mean, the other platforms are almost incidental to what's going on here. The MAX is really kind of a big deal because when we look at -- when we look -- I have to quote industry analysts numbers, because I'm kind of an insider on the aircraft stuff and I can't quote the exact values. But the -- when I look at what the industry expects Boeing to build this year is somewhere between 150 and 160 MAXs, right, through the calendar year. And I think that number is a good number. And next year is 300 to 340, sort of that's the range.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Yeah.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

And the year after it's 500. And so, the -- there has been a sort of a liquidation of Boeing's inventory because if you look at our last -- our first quarter last year, we still have full order books, and we still had full plants and we were shipping orders to subcontractors and to Boeing that we had on the books. And so, that inventory now is clearing the system, as well as everybody else's inventory, including Boeing's. So, we're seeing this pickup in demand to support the builds next year of -- sort of, in our fourth quarter, some in our third quarter.

Frankly, I think we should be -- if life worked perfectly and it never does, we should be starting our products a year ahead of their build rate, simply because it takes six months, to make it simple, to make the bearing and of the six months, probably right now it's 20 weeks to get this deal. So, we don't have a lot of time to make the bearing, and sometimes the bearing has to get a frequent flyer to get all the outside processings that has to be done, and that's the exception to the rule, but still it's the rule.

So, yeah, I mean, we should -- I think the industry is a little bit delayed right now in turning on the volumes that they need to produce the planes that are expected to be produced. So that calculus falls on us to make sure that we understand what we are obligated to supply and when we're likely to supply it. And so, we're going through those planning routines now to make sure that we have the product that the aircraft builders need when they need it. And if you look at the step-up, I mean, those 30 planes to us or 300 planes next year, 300 to 340 next year, that's probably worth $45 million to us in over the course of 12 months in revenue. So, it's a big number for our plants to absorb. And so, we're a little -- we want to get way ahead of the game in terms of getting everybody into position to be able to support that. And then, you look further at the skyline chart and there is another 200 planes step-up to 2023. And so, there is going to be a lot of demand headed our way. And the last thing we want is not to be able to execute it deficiently and service the customer on time.

Peter Skibitski -- Alembic Global Advisors -- Analyst

I appreciate all the color. I guess, last one from me, just looking at your defense revenue in the last three quarters, defense ex-marine, and I know you have a lot of -- you are on the F-35 and stuff, but we've seen defense down for a few quarters. And I know a lot of other suppliers have had some F-35 inventory that have had to kind of flush out as Lockheed has kind of slowed things a bit there on an interim basis. So, is that what's going on for you guys, maybe just some interim F-35 headwinds? Or do you think -- and maybe expected to step back up later this year or next year or do you just sense the defense is kind of getting some headwinds there just because the overall budget flattening?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, I see Dan is looking at the table. So I'll...

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

I think on the aerospace OEM defense, I mean, it's Q1 to Q1 last year we're only down 3.6%, right? But it's just not big numbers on total sales. It's $20.6 million, compared to $21.4 million on the aerospace OEM defense. So it's a little lumpy with the F-35 and the new lot sizes -- lot coming through, and some of the work that we're doing on the military helicopters, but some of that's being offset by the strain on our missile programs. And that we're working on with Lockheed and others.

Peter Skibitski -- Alembic Global Advisors -- Analyst

Okay. Thanks very much, guys.

Operator

Your next question comes from Michael Ciarmoli with Truist Securities.

Michael Ciarmoli -- Truist Securities -- Analyst

Hey. Good morning, guys. Thanks for taking the questions here. Nice result. Maybe just sticking on aero what Pete was asking. Was there any -- I mean, the step down, I guess, on a sequential basis for the aero OEM was pretty significant. It seems like a 14% step down maybe, you mentioned the working days. Any other changes on some of the wide-body platforms? I mean, I know you got a lot of content on the 787 or any way to parse that out? Was it more engine? Was it more airframe content? And yeah, because it seems like that definitely snuck up on you, there were supposed to be kind of sequential improvements in growth. I mean, it just seems like a big move down.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah, no. It's all about the order rates by Boeing and its subs. And I think right now, they are trying to sell the planes they built, and liquidate it in the middle.

Michael Ciarmoli -- Truist Securities -- Analyst

Yeah.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

But if -- I would say that their priority to do that maybe is more extreme than it should be and it could affect their ability to build planes in the future if they don't turn on the supply chain.

Michael Ciarmoli -- Truist Securities -- Analyst

Okay. That's helpful. What about -- anything on the aftermarket side? I know it's kind of a tale of domestic narrow bodies. You guys were, again, I think sequentially flat there. I mean, are you seeing any noticeable changes on the aftermarket distribution side of aero?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, the aftermarket distribution side of the business has been -- usually, at this stage in the cycle, the distributors would be loading up their inventories, knowing that build rate increases are going to be substantial and the market would be -- the buyers would be best with service levels. And that would be normal at this stage in the cycle. What's not normal now is so many of the aftermarket distributors are owned by -- have new owners and new management teams, and they don't have experience -- they don't have the experience to these cycles. So what they should be doing with their capital right now, they don't appear to be doing it. So the aftermarket in terms of distribution is -- what does it look like? Dan's got the charts.

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

Yeah. For Q1 FY 2022, it was around $12.2 million. But compared to Q4, it was a longer quarter, was $12.3 million.

Michael Ciarmoli -- Truist Securities -- Analyst

Yeah.

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

So it's kind of just -- if I ended up doing a little better than Q4, because it's more production days in Q4.

Michael Ciarmoli -- Truist Securities -- Analyst

Okay. Okay.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

What about last one?

Michael Ciarmoli -- Truist Securities -- Analyst

Okay. Sorry.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. But the repair side of the aftermarket is -- has been a pleasant surprise for us. That's been -- it's been strong and it's producing well.

Michael Ciarmoli -- Truist Securities -- Analyst

Got it. Last one, you kind of brought up inventories there, but just to shift that maybe to industrial. I think last quarter you noted that there was so much demand, you had kind of depleted inventory rushing to replenish. Did you -- you called out the $2 million headwind, but did you kind of see that the same pace of demand persist? I mean, obviously, you had -- if I add back the $2 million to sequential uptick there in industrial, but were you able to catch up on inventory to meet demand or did you lose out on some revenue this quarter?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

No, we're making it as fast as we can deliver. And we do have some supply chain challenges, getting raw material, which we're working.

Michael Ciarmoli -- Truist Securities -- Analyst

Okay. Okay. Perfect. Thanks, guys. I'll jump back in the queue.

Operator

[Operator Instructions] And your next question comes from with Ken Newman with KeyBanc.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

Hey. Good morning, guys.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Good morning.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

I wanted to step back to the aero side a little bit. It was a good color in terms of the forward outlook for aero, obviously, with the build rates kind of coming up into the second half. I'm curious, how do you weigh that against some of the slower ramps in the larger wide-body platforms as we think about the step-up in the second half for aero revenue versus the first half. Is that -- I guess, to simplify, could that revenue for aero be up double digits, like 10%? Or is it -- is the ramp via the build rate going to slow down a little bit?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

No, it can be up double digits in the second half. And it needs to be up double digits in the second half to support the build -- the Boeing build rate. So, that's how we see it. Let's hope the cards get played that way.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

Right. So, I guess, with that in mind, obviously, you put up really strong gross margins in the quarter. I'm curious how sustainable of 40%-plus gross margin could be for the remainder of the year as I kind of think about potential inventory builds and just the expected step-up in aero growth for the second half.

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

I think it'd be lumpy journey quarters, but I think by the end of the year, we should be close or a little north of that 41%.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

Is a lot of that just absorption on higher volumes? Any way to kind of parse out how much of that is better pricing? Or any color on price cost either for the quarter or just your forward outlook?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. Well, each division that we have has a -- keeps a ledger on what price increases we've seen from -- on materials and suppliers and what price increases we instituted into the market to offset the price increases from materials and suppliers. And we always like to be a little bit ahead.

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

And also we put significant investment in bringing all these outside services inside for the aerospace business in 2021. And we still haven't seen the full benefit of that investment because of COVID, right, because the build rates dropped off. So we should see when the aerospace business picks up and the volume picks up, we should see some nice improvement driven by this investment that we made over that 24-month period.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

Right. So this will be my last one here. Just trying to put a finer point on price cost here. I guess, obviously, the industrial aftermarket sales were up as you were mentioning to Mike earlier. Any -- I'm guessing the pricing increases for those products within that channel are pretty instantaneous. Can you help us kind of put a finer point on just how much price was a contributor to the sales growth in aftermarket for industrial versus just purely volumes?

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

Yeah. I'd say, on the industrial side, especially industrial distribution in our first quarter, it wasn't price. And on industrial OEM, in some cases it is. Other cases, it's the ability to pass through raw material inflation that comes through in the way of surcharges. So every segment is a little different, every customer is a little different and every channel is a little different. And there's just a lot of good efficiency happening in the industrial side of our business. When your business is up 30% or 40%, you're really absorbing your assets nicely.

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

Understood. Thanks for the color.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah.

Operator

[Operator Instructions] At this time, there are no further questions. I will now hand the call back to Dr. Hartnett for closing remarks.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Okay. Well, thanks for participating in the call today. And we'll be certainly talking to you again by early November and discussing our third quarter -- or our second quarter, which we're anticipating another strong quarter. I think, as I said, we are expecting sales to be between $158 million and $162 million and that's looking very positive.

Operator

[Operator Closing Remarks]

Duration: 27 minutes

Call participants:

William Stack -- Investor Relations, Alpha IR Group

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Robert M. Sullivan -- Vice President, Chief Financial Officer

Daniel A. Bergeron -- Director, Vice President and Chief Operating Officer

Peter Skibitski -- Alembic Global Advisors -- Analyst

Michael Ciarmoli -- Truist Securities -- Analyst

Kenneth Newman -- KeyBanc Capital Markets -- Analyst

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