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Industrial Strength Aids RBC Bearings (ROLL) Amid Aerospace Woes

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RBC Bearings Incorporated ROLL engages in manufacturing plain, roller and ball bearings. The Oxford, CN-based company has customers in multiple end markets and across countries.

The company belongs to the Zacks Manufacturing - General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. The industry players are benefiting from the recovery in manufacturing activities and economic growth. Supply-chain woes, inflation and logistics issues are concerning.

Several factors are influencing the company’s prospects. A brief discussion on the important factors and the company’s projections is given below:

Industrial Market & Company’s Projection: The company is benefiting from strength in its industrial market business. In first-quarter fiscal 2022 (ended Jul 3, 2021), its industrial revenues increased 31% from the year-ago quarter. In the quarters ahead, impressive demand across mining, energy and general industrial markets will likely boost the company’s industrial revenues.

In addition, solid product offerings, focus on innovation and a healthy backlog are beneficial in the quarters ahead. For second-quarter fiscal 2022 (ended September 2021, results are awaited), the company anticipates revenues of $158-$162 million, suggesting an 8-10.7% increase from the year-ago reported figure.

Shareholders’ Rewards: Healthy liquidity has enabled RBC Bearings to reward shareholders with share buybacks. In the first quarter of fiscal 2022, the company bought back $6.3 million worth of shares. This represented an increase from the year-ago quarter repurchase of $4.4 million worth of shares.

At the end of first-quarter fiscal 2022, the company is left with the authorization to buy back $81.3 million worth of shares.

Healthy Liquidity and DODGE Buyout: RBC Bearings seems to have adequate liquidity to fund growth investments and deal with financial uncertainties. With revolving credit facilities of $262.7 million, the company also had cash and cash equivalents of $175.8 million, and marketable securities of $120.3 million at the end of the fiscal first quarter. Speaking of the company’s debts, it stood at just $10.8 million at the end of the fiscal first quarter.

The deal to acquire Asea Brown Boveri Ltd’s DODGE mechanical power transmission division was signed by RBC Bearings in July 2021. The company believes that the acquisition will help boost product offerings, the customer base and market exposure. The buyout is expected to be completed in third-quarter fiscal 2022 (ending December 2021). In the first full year of completion, the acquisition is expected to increase cash earnings per share by 40-60%. It is also expected to generate synergies of $70-$100 million by fiscal 2026 (ending March 2026).

Some other players in the industry, which have been actively engaged in buyout activities, are Nordson Corporation NDSN, Applied Industrial Technologies, Inc. AIT and Ingersoll Rand Inc. IR.

Aerospace Woes: In the fiscal first quarter, RBC Bearings faces headwinds from weakness in the commercial and defense aerospace businesses. It recorded an 18.3% year-over-year decline in its aerospace sales in the quarter.

In the first half of fiscal 2022, the company predicts production rate changes and lower air travel to continue impacting its commercial aerospace industry. This includes both aftermarket and OEM commercial aerospace businesses.

Buyout Woes: Higher numbers of shares outstanding have inverse impacts on earnings per share. In the fiscal first quarter, the company bought back $6.3 million worth of shares and despite this, its shares outstanding expanded 1.5% from the year-ago quarter.

RBC Bearings have also issued common stocks, preferred shares and senior notes to fund the DODGE buyout. Such modes of funding the buyout might inflate the company’s outstanding shares and debts.

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