RBC Bearings Puts Another Strong Year Behind It

The precision components manufacturer is still making the most of solid industry conditions.

Dan Caplinger
Dan Caplinger
May 26, 2016 at 12:42PM

Image source: RBC Bearings.

Many companies make their money by supplying necessary parts and components to the manufacturers that integrate them into the products we all know and love. In the aerospace, defense, and industrial sectors, RBC Bearings (NASDAQ:ROLL) produces engineered precision components and bearings that its customers rely on to build aircraft and other complex products, and the strength in aerospace has carried over into RBC's business as well. Coming into Thursday's fiscal fourth-quarter financial report, RBC Bearings shareholders wanted to see more evidence of booming sales and solid bottom-line performance, and for the most part, RBC exceeded those expectations. Let's look more closely at the latest from RBC Bearings and what it says about the company's future.

RBC Bearings keeps gaining altitude

RBC Bearings' fiscal fourth-quarter results kept the company's streak of success alive. Revenue jumped 43% to $162.3 million, outpacing even the ambitious 41% gains that investors were looking to see. Adjusted net income was up 19% to $20.2 million, and that produced adjusted earnings of $0.86 per share, topping the consensus forecast among those following the stock by $0.02 per share.

Looking more closely at RBC Bearings' numbers, the huge disparity between aerospace and the rest of the company's business got even more pronounced. Aerospace market sales soared 70% from year-ago levels, but growth in revenue from RBC's industrial markets was less than 10%. Overall, engineered product revenue jumped sixfold to represent more than a quarter of RBC's overall sales. Plain bearings also managed to post gains of 24% from year-ago levels, but ball-bearings sales were mostly flat, and roller-bearings revenue was down 13%.

Once again, margin figures showed the downside of how quickly RBC has grown. Gross margin of 37.2% was down almost 2.5 percentage points from year-ago levels. A rise in overhead expenses came largely from RBC's acquisition of Sargent Aerospace, and even though the company did a good job of controlling costs overall, operating margin fell to 20%.

CEO Michael Hartnett described how the quarter capped RBC's fiscal 2016. "Our results demonstrated solid execution and continued strong operating performance," Hartnett said. The CEO also talked about the Sargent acquisition, noting that "We're very pleased with the earnings accretion, strong cash flows, highly technical product offering, and very talented and dedicated team funning these businesses."

What's ahead for RBC Bearings?

The issue that keeps coming up for RBC is whether the future can remain as impressive as the recent past. Backlogs of $346.4 million were up by nearly two-thirds from year-ago levels, but the figure actually represented a sequential decrease compared to the $351.3 million in backlog that RBC had as of the beginning of calendar 2016.

RBC Bearings investors won't have to worry about one continuing threat that the company has faced for some time. During the quarter, RBC recorded a litigation reserve of $1.7 million related to a lease dispute between an RBC subsidiary and distributor SKF. A decade ago, RBC terminated SKF's distributorship agreement, but SKF had argued that the termination was improper. A jury verdict of $1.5 million plus interest came down in February, and SKF and RBC settled the matter rather than going through an appeals process. Even though the verdict is disappointing, having the matter behind it should give RBC a chance to refocus on making the most of its growth opportunities going forward.

RBC Bearings investors were happy with the company's results, sending the stock up nearly 5% at midday following the announcement. Given the favorable conditions that the aerospace industry has provided for it, RBC should be able to keep growing at least until something changes to create new headwinds for aircraft manufacturers.