RBC Bearings Earnings Call Insights: Industrial Business Analysis and Industrial Outlook

RBC Bearings (NASDAQ:ROLL) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Industrial Business Analysis

Edward Marshall, Jr. – Sidoti: The first question was on the Industrial business, which the performance on sequential basis looks a lot different than the year-over-year change. And I was curious if we can kind of maybe look at it or cut the data a little bit and look at it maybe from a daily sales run or some other kind of, performance metrics that we can measure a little bit easier? Has it bottomed, have you recovered from or recovering slowly from the bottom or is this just the seasonality in the fourth — in December skewing a data little bit?

Dr. Michael J. Hartnett – Chairman, President and CEO: We’re trying to take in what you just asked us Ed.

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Daniel A. Bergeron – VP and CFO: Well, Ed in the fourth quarter – I mean in the third quarter fiscal 2013 Industrials was $43.3 million and in the fourth quarter it is $46.9 million. So we have some sequential growth there and I think we are seeing those types of levels carrying into our first quarter on the industrial side.

Edward Marshall, Jr. – Sidoti: Arguably, I guess there is a year-over-year comp was pretty tough last year?

Daniel A. Bergeron – VP and CFO: Yeah, if you think about it last year. In our fourth quarter last year, if you compare it to fiscal year 2012 and fiscal year 2011, our industrial business grew at 25.4% and our aerospace business grew 25%, so tough quarter to comp against. And obviously the growth rates will get a little stronger during the year as these comps get a little easier as we go through Q2, Q3 of next year…

Edward Marshall, Jr. – Sidoti: So, I mean the big drops are passed, I guess is what I’m trying to get at? Seems there is still some sequential improvement even though looking at the seasonality in the fourth quarter and trying to normalize that it looks like we’ve kind of bottomed to start to track back out of the trough here?

Dr. Michael J. Hartnett – Chairman, President and CEO: I’d say that’s true. That’s how we see it. We have other projects coming for other markets and they just haven’t phased in into the current quarter and probably won’t phase in till the end of our fiscal ’14. But certainly, the core industrial business has bottomed and it looks like its growing back with parts of the sector healthy and parts of the sector just normal.

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Edward Marshall, Jr. – Sidoti: So, there is no need to further increase your restructuring you’ve already announced. So you are not going to bring in any further than what you’ve already done correct?

Dr. Michael J. Hartnett – Chairman, President and CEO: Correct. I think in the release that we put out this morning you see we spent $6.7 million, but we will have a little bit of period cost that go through 2014 and is about $1.2 million. Some of its depreciation on the building and so we get to a conclusion either to lease or sell the building, and some of it’s for continued moving cost to complete the restructuring and consolidation. But there is no new projects or consolidation projects on the radar at this point.

Edward Marshall, Jr. – Sidoti: Then the cadences were I guess two-thirds almost of the way through the quarter albeit at a few days, I think you mentioned that the performance so far on the industrial side has been relatively the same to your fourth quarter. Aerospace as well or is that in the same kind of ballpark or any comments you can make at the cadence through April and May so far this year?

Dr. Michael J. Hartnett – Chairman, President and CEO: The question is, first quarter to fourth quarter?

Edward Marshall, Jr. – Sidoti: Yes.

Dr. Michael J. Hartnett – Chairman, President and CEO: Yes, I’d say we are expecting it to be about the same. We are seeing some acceleration’s in the aerospace market with people looking for products earlier than we anticipated producing them and delivering them, which is always a pleasant surprise, but we expect sort of a normal quarter-to-quarter rate on aircraft also.

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Industrial Outlook

Joshua Chan – Robert W. Baird: This is Josh Chan filling in for Pete. So, we talked a little bit about industrial in the first quarter, just curious about your thoughts on industrial as you kind of progress through the entire year of fiscal ’14 how you think that would trend. Are you a subscriber to the notion of second half calendar ’13 industrial recovery if you would?

Dr. Michael J. Hartnett – Chairman, President and CEO: Well, I think the second half ’13 industrial recovery is all based on the theory that mining gets better and I’m not a big subscriber to that theory. I don’t expect it to get better. I hope I’m wrong. I think it’s going to stay kind of where it’s been here for the last two quarters, that’s how we’ve created our planning. I think there is other industrial sectors we see strengthening and the general industrial marketplace is good. We think oil and gas will get better and there’s some other smaller markets semicon and other places where there seems to be upside in the fiscal year. So, we’re thinking industrial is okay, I mean it’s not a barnburner. And aerospace will continue to get the quarter-to-quarter stronger as new projects and new products come online…

Joshua Chan – Robert W. Baird: Thanks for the color there and a little bit of a follow-up on the aero side. The fourth quarter growth was a little bit less because of the touch comp and do you think that you can resume sort of the more double-digit type growth in the next year or do you think that concept been difficult enough that, that might not be possible?

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Dr. Michael J. Hartnett – Chairman, President and CEO: I think it’s a little lumpy, I mean it’s to some extent the 787, the delay in the 787 program is going to slow things down a little bit and they are back on the gas with that, so we’re seeing pull-ins. As the 350 comes online that will generate additional volume. We have a substantial amount of new projects and products going into these aircraft and these engines. So, as the new engines and the new airframe are released we are absolutely going to see additional volumes. And Boeing is now looking at stepping up the production rate on the 737 again, so that will create more volume in this business. So, I would think that double-digit rate is within reach.

Joshua Chan – Robert W. Baird: Then the last question for me is. Is there a way to quantify the annual cost savings from the consolidation of the Houston facility and then also, like what portion of that savings would be cash?

Dr. Michael J. Hartnett – Chairman, President and CEO: Well, that was run at about $800,000 a quarter of gross margin of which 50% of that was cash and the other 50% was depreciation. So we’re going to obviously see a positive impact to gross margins from the consolidation throughout the year, I think will be slow in the first half year because we are still in the middle of moving things around, setting things up and getting back to efficiency levels that make sense. So, I think from a gross margin standpoint, we’re looking at for the year we should be around that 38% range and once we get further down the road on the consolidation maybe on the second quarter we’ll disclose what our new internal target is for gross margin for fiscal year 2014.

A Closer Look: RBC Bearings Earnings Cheat Sheet>>