RBC Bearings INC Q2 FY2025 earnings call

• Defense Strength: Defense side has 26.7% organic growth year-to-date, with strong demand in marine, fixed wing, and missile guided munitions; planning for continued demand. - Headwinds: Impact of Boeing strike and Hurricane Helene led to $4 million to $5 million revenue loss. - Margin Expansion: Gross margin expansion driven by aerospace/defense capacity absorption, Dodge synergies, and plant-level improvements. - Outlook: A&D demand strong, Boeing strike impact on revenues expected to continue; industrial business expected to return to growth in the back half of 2025; future plans include defense demand, jet engine components, Dodge synergies, and European aerospace expansion.

A&D Segment: Total A&D sales increased 12.5% year-over-year, with defense up 17.3% and commercial aerospace up 10.3%. Industrial segment decreased 1.4% year-over-year, with OEM down 2.5% and aftermarket down 0.9%. Year-to-date defense sales had 26.7% organic growth, marine business has multiyear backlog, and fixed wing/missile guided munitions in strong demand. Financials: Net sales were $398 million, a 3.2% increase year-over-year. Gross margin was $173.8 million (43.7% of sales), a 55 basis point increase year-over-year. Net income was $67 million, up 6% year-over-year, and adjusted EPS was $2.29 per share. Cash from operations was $43 million, with over $35 million in debt reduction during the quarter.

• Third Quarter: Expected revenues of $390 million to $400 million (+4.3%-7% year-over-year). Gross margin projected at 42.5%-43.5% (+~70 basis points year-over-year midpoint). SG&A expected to be 17%-17.5% of sales. - Full Year: Target $275 million to $300 million debt reduction, aiming to exit below 2x net leverage, focus on organic and inorganic growth, margin excellence, and free cash flow conversion.

• Boeing Strike Impact: Revenue impact from Boeing strike and Hurricane Helene. - Supply Chain Issues: Previous supply chain problems affecting prior quarters' comps. - Political/Market Uncertainty: Impact of political backdrop on defense demand continuity.

Q: Impact of strike and hurricane on gross margins?

A: Difficult to quantify specifically, but reflected in consolidated gross margin.

Q: Boeing exposure and destock headwind?

A: Exposures reduced, no significant destock headwind expected once production resumes.

Q: Industrial outperformance vs peers?

A: Unclear if outperformance vs peers, related to supply chain tail issues from prior year.

Q: Industrial growth outlook?

A: Sequential growth expected, driven by various end markets, mixed bag but some markets showing improvement.

Q: Pricing and contracts?

A: New contracts reflect PPI increases, old contracts may not have full adjustments.

Q: Backlog and normalization?

A: Industrial backlog normalized, Dodge backlog more normalized now.