Q3 2024 RBC Bearings Inc Earnings Call
Participants
Daniel A. Bergeron; VP, COO & Director; RBC Bearings Incorporated
Michael J. Hartnett; Chairman, President & CEO; RBC Bearings Incorporated
Robert M. Sullivan; VP & CFO; RBC Bearings Incorporated
Unidentified Company Representative
Kristine Liwag; Executive Director, Head of Aerospace & Defense Equity Research and Equity Analyst; Morgan Stanley, Research Division
Peter Osterland; Associate; Truist Securities, Inc., Research Division
Peter John Skibitski; Senior Analyst; Alembic Global Advisors
Robert Stephen Barger; MD & Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division
Seth Robert Weber; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Unidentified Analyst
Vivek Srivastava; Research Analyst; Goldman Sachs Group, Inc., Research Division
Presentation
Operator
Greetings, and welcome to the RBC Bearings Fiscal 2024 Third Quarter Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations. Please go ahead.
Unidentified Company Representative
Good morning, and thank you for joining us for RBC Bearings Fiscal 2024 Third Quarter Earnings Conference Call. With me on the call today are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer; Daniel Bergeron, Director, Vice President and Chief Operating Officer; 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 in 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. With that, I'll now turn the call over to Dr. Hartnett.
Michael J. Hartnett
Thank you, Josh, and good morning, and welcome. Net sales for the third quarter of fiscal 2024 were $373.9 million. This represents an increase of 6.3% from last year. And I'm happy to report this was within our guidance range on revenues. The third quarter of 2024 sales of industrial products represented 65% of net sales with aerospace products at 35%. As a footnote, over the past 5 years, revenue growth at RBC has been a compounded rate of 16.8%.
Gross margin for the quarter was $158 million or 42.3% of net sales, again, within our range. This compares to $146 million or 41.5% for the same period last year, an 80 basis point improvement. We continue to see year-on-year improvement in gross margin as we continue to strengthen operational performance and improve both absorption and methods in our plants.
This quarter, because of fewer production days, leading to lower overhead absorption, margin is normally the lowest of the year. It's historically bounced back in Q4, and there's no surprises here. We see this effect every year.
Overall, profitability continues ahead of plan, year-to-date and to reconfirm, we expect to finish the year in the low to mid-40% range on gross margins. Again, our hats are off to the RBC team for this performance. We all understand that we are in business to service our customers to the full extent of our abilities with high quality and service levels is always our first priority.
More than 70% of our revenue are from products where we are -- sole or primary source. Our customers have learned over the years they can trust us. When they come to us at the last minute in crisis, we perform for them.
Adjusted operating income for the period was $75.5 million, 20.2% of net sales compared to last year, $71.6 million and 20.4%, respectively, a 5.3% improvement. Free cash flow was a strong $70.9 million. Debt reduction continues to be a priority and is progressing as planned. We achieved $550 million decrease in debt since the acquisition of Dodge in November of 2021, 27 months ago. And net debt-to-EBITDA ratio of 2.5 over trailing 12 months down from 5.65 in fiscal '22.
RBC's record of EBITDA growth over the last 5 years now stands at 19.4%. Adjusted EPS diluted was $1.85 a share. Adjusted EBITDA was $109.5 million or 29.3% of net sales compared to $103.3 million or 29.4% of net sales in the same period last year, a 6.1% increase.
We continue to make continual improvements in the execution of our business and are excited to see a robust acceleration in demand for our products from industry leaders in the aircraft, marine and industries. We look forward to March year-end with revenues finishing in the $1.5 billion range.
On the Industrial business, during the quarter, the industrial growth was minus 0.6% overall against some strong comps last year. Last year, improved supply chain performance allowed us to ship orders which relate to customers, creating a bulge in sales and distorting year-on-year comps by a few percentage points. We now have well-performing supply chain on the industrial side, so the environment has changed and orders late to customers' requests are back to normal.
Dodge revenues are up 1.4% year-to-date, down in Q3, minus 0.3% and we expect to be up again in Q4, a few percentage points. RBC Classic industrial sales were down 1.4% during the last period, driven solely by softness in semiconductor machine makers. Normalizing for semiconductor sales, RBC Classic Industrial revenues would have been up 3.6%. In a word, our Industrial business is performing well and is in the steady as she goes mode.
On Aerospace and Defense, commercial aerospace was up 16.5%. The Aerospace and Defense sector was up 22.5% overall. The constraint here is not demand, it's production. We are working to expand manufacturing assets as well as increased in bound materials to fuel the continued 20-plus percent per year-on-year expansion across many facilities that service these markets.
As explained in prior calls, OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites, rockets, and it's up 32.7% year-over-year. Bookings overall in this sector have been very strong. We now have over 60 contracts negotiated and signed with a value of approximately $1 billion. Additionally, we are in a position to grow this metric substantially again by midyear.
Finally, the aftermarket was up 26.1%. Main drivers, jets, helicopters, engines and marine. As you can see, the aerospace market is strongly accelerating with increased volumes quarterly. Demand drivers here are defense and of course, large plane builders, the submarine and weapons OEMs and their supply chains.
Despite the news otherwise, we are building 737 materials at the 42 per month rate and new orders to RBC are inbound at about the 47 per month rate. We don't expect this change to -- this situation to change materially at this time. On the 787, our current build rates are approximately 5 per month now and 7 per month by april. That's an important shift to us, as you know airbus is pushing the 320 ship build to exceed the monthly rate of 70 in 2024.
So in summary, just to go over the highlight reel, Q4 sales were up 6.3% for the period. EBITDA, $109.5 million, up 6.1% from last year. EBITDA 29.3% of sales, up from 26.7% in Q3 of '22, adjusted net income of $60 million, up 12.4%, debt pay down since November of 2021, $550 million, trailing EBITDA to net debt, 2.5 versus 5.65 in fiscal '22, and well over half of our revenues are to replace products consumed in use.
Full year guidance, revenue range FY '24 in the $1.55 million range and gross margins will be in the low to mid-40s. Regarding the fourth quarter of 2024, we are expecting sales to be somewhere between $405 million and $415 million range. And I'll now turn the call over to Rob, our Chief Financial Officer, for more financial details.
Robert M. Sullivan
Thank you, Mike. SG&A for the third quarter of fiscal '24 was $63.9 million compared to $56.8 million for the same period last year. As a percentage of net sales, SG&A was 17.1% for the third quarter of fiscal '24 compared to 16.1% for the same period last year. Other operating expenses for the third quarter of fiscal '24 totaled $18.9 million compared to $18.8 million in peers. For the third quarter, other operating expenses included $17.7 million of amortization of intangible assets, $0.1 million of restructuring costs and $1.1 million of other items. For the same period last year, other operating expenses consisted primarily of $17.4 million of amortization of intangible assets, $1.2 million of Dodge TSA costs and other costs associated with that acquisition and $0.2 million of other items.
Operating income was $75.2 million for the third quarter of fiscal '24 compared to operating income of $70.4 million for the same period last year. Excluding approximately $0.2 million of restructuring costs and $0.1 million of transaction-related costs, adjusted operating income was $75.5 million for 20.2% of sales for the same -- for the third quarter of fiscal '24. Excluding approximately $1.2 million of acquisition costs, adjusted operating income for the third quarter of fiscal 2023 was $71.6 million or 20.4% of sales.
Interest expense for the third quarter was $19.3 million compared to $20.9 million for the same period last year. For the third quarter of fiscal '24, the company reported net income of $46.6 million compared to $36.3 million for the same period last year. On an adjusted basis, net income was $60 million for the third quarter compared to $53.3 million for the same period last year. Net income attributable to common stockholders for the third quarter was $40.8 million compared to $30.6 million for the same period last year. On an adjusted basis, net income to common stockholders attributable to common stockholders for the third quarter was $54.2 million compared to $47.7 million for the same period last year.
Diluted earnings per share attributable to common stockholders was $1.39 per share for the third quarter compared to $1.05 for the same period last year. On an adjusted basis, diluted EPS attributable to common stockholders for the third quarter was $1.85 per share compared to $1.64 per share for the same period last year.
Turning to cash flow. The company generated $80.5 million in cash from operating activities in the third quarter of fiscal 2024 compared to $60.9 million for the same period last year. Capital expenditures were $9.5 million in the third quarter compared to $6.5 million last year. Free cash flow conversion this quarter was 152% and 116% for the full 9-month period. We paid down $60 million on the term loan during this quarter, leaving total debt of $1.26 billion as of December 30, 2023, and cash on hand was $71.6 million.
I would now like to turn the call back to the operator for the question-and-answer session.
Question and Answer Session
Operator
(Operator Instructions) Our first questions come from the line of Kristine Liwag with Morgan Stanley.
Kristine Liwag
Industrials was flattish in the quarter. And then also your -- looking at your fourth quarter outlook for revenue, it just seems a little bit lighter versus what you've seen so far through the year. Can you give us any color regarding what's driving these pieces? How much visibility you have? And if there's any downside risk to your updated 4Q revenue outlook?
Michael J. Hartnett
Well, I think in terms of the aircraft and defense side, Kristine, the visibility is is really good. It's really a matter of making it, and we usually do a pretty good job there. So there's -- we don't see a lot of risk there. And on the Industrial side, the visibility -- mainly the visibility and the driver there is largely Dodge. And Dodge is a company that really doesn't have the kind of backlog or contract relationship with its customer base because of its customer base as we do. And so we're always extrapolating based upon economic demand and economic forecasts, what exactly Dodge's sales are going to be. So if there's any risk to the upside or to the downside, it's probably coming mostly from Dodge.
Kristine Liwag
Great. And then I know it's -- we're already here in February. So based on what you're seeing out of Dodge, what's the pace of ordering? And I know it's more of a brick and fix type business. What's the pace that's driving that? And I guess in terms of Industrial revenue, PMI now is trending higher. Is your outlook then for this quarter more conservative, Mike?
Michael J. Hartnett
Yes. I hope it is. I would say that here we are in February, and Dodge's business is performing very well. So -- and we only have about 6 weeks to go. So what could possibly happen?
Kristine Liwag
I guess on that -- sorry, I'll sneak 1 more in. The first 2 years of the deal with Dodge, you've always talked about the years of the factory. And with the margins where they are, you've clearly done your job there. So can you give us an update where you are in terms of revenue synergies between legacy RBC and Dodge?
Daniel A. Bergeron
Sure, Kristine, it's Dan. On the revenue side, as we talked about in the past, we just don't have a lot of overlap on our OEMs. So we're starting to see some nice traction there. We've been training the Dodge sales team on RBC products, and we've been training the RBC team on Dodge products, and we've been doing that both domestically and globally, and we're starting to see some traction from those events. And I think that would just continue to be accretive to the top line over the next 3 to 4 years as the sales engineers get up to speed on these different products and these different OEMs that they're visiting.
So from that standpoint, we're feeling good on the margin side, I think we already kind of address that. But our gross margins for the 9 months were up 220 bps and 160 bps fell down to EBITDA. So we'll definitely gain leverage off the investments we're making on SG&A and we're definitely gaining the benefit from the synergies on the cost side and the SG&A side with Dodge.
On the cost side, I think we still have some nice synergies still coming through for '25, '26 and '27 on our in-sourcing efforts that were kind of long-term goals for us, and those are moving along nicely. We're actually building out manufacturing facility space in Mexico to give us more capacity for U.S. products in the United States for Dodge. So that's going to be hopefully accretive to the top line and to gross margins. And we continue to work on consolidation in our SG&A to see what other costs we can continue to drive out between the 2 divisions.
Operator
Our next questions come from the line of Pete Skibitski with Alembic Global.
Peter John Skibitski
Nice free cash quarter again. So maybe just to start there. I had a question on inventory. You guys booked a lot of inventory back in '23, I think because of supply chain issues, but a little bit more slowly in the first half of this year. But it looks like working capital was really kind of de minimis growth here in the third quarter. So should we expect your inventory needs to slow going forward Maybe your supply chain is becoming more predictable maybe. But just was wondering if that should -- that growth should slow going forward even as your revenue grows, particularly in aerospace.
Michael J. Hartnett
Well, I think the inventory growth that you saw previously was mainly driven by Dodge and their supply chain. And so we've kind of dialed that back. And it hasn't responded as well as we wanted to see it respond. So we're going to continue to dial it back and sort of get Dodge more into the steady-state turns that they demonstrated in 2019. But -- feed those dollars into the into the aircraft business because of the demand there and the lead time on materials -- lead time of materials now is -- for our types of materials is typically average 50 weeks and then -- but it actually doesn't get delivered for till 60 weeks. So you have to be really -- you have to be long on your planning for materials for these businesses. And I'd expected dollars just to stay reasonably constant, but shift ownership.
Peter John Skibitski
Yes. Okay. Makes sense. I appreciate that. Let me just move in to revenue. I want to make sure I understand. Mike, did you say you expect industrial revenue up about 3% in the fourth quarter? I just want to clarify, I felt like that would presume aerospace is sort of flattish sequentially and if industrial is up about 3%.
Michael J. Hartnett
Yes. I think I said aerospace or industrial would be up a few percent. And yes, -- where is the aerospace? What is the aerospace in the fourth quarter?
Robert M. Sullivan
Aerospace is anticipated to continue to escalate as we move forward sequentially. So I think industrials, we'll be a couple of points maybe, but aerospace will continue to grow as we continue to deliver.
Peter John Skibitski
Okay. Okay. Are we talking about industrial up year-over-year or sequentially?
Robert M. Sullivan
Sequentially.
Peter John Skibitski
Okay. Okay. Okay. Let me -- 1 more question for me. I'll get back in queue. I think, Mike, last quarter, you talked about going through your planning process for aerospace and defense, and you were talking about 20% type growth as I recall. Just wondering if anything changed there? We are under kind of an extended continuing resolution on the defense side. So I'm not sure how the visibility is going there. And we've obviously had some MAX issues, although it sounds like for you guys, that hasn't impacted anything. So just was wondering if you're still feeling good about 20% type growth in '25 for A&D.
Michael J. Hartnett
I'm trying to think. Well, I wouldn't feel good. I think it's going to be in that neighborhood. It will be between 15% and 20%. I don't have the '25 plan in front of me, and I don't remember all the details of it. But I think it certainly is -- nothing is backing off. I mean it's a matter of getting the materials and training the labor for the most part, we have the capital equipment, although some of it's being augmented and then executing. And so I think we'll be in that 15% to 20% neighborhood for several quarters.
Peter John Skibitski
Okay. Okay. And have you guys seen any big labor challenges in terms of getting the people you anticipate needing?
Michael J. Hartnett
Yes, we're always being challenged there. It depends upon what part of the country you're talking about. But certainly in the Northeast here, that's not an easy solution. We've brought some innovative solutions. We've planned with the growth in our population by plant has to be in order to meet our plans, and we are out recruiting people and doing interesting things in order to attract people to our plant. It's pretty dry here. We're being successful, but it's -- it comes at a great labor investment.
The Southern California, it depends upon exactly where in Southern California, your plants are. And I think for the most part, we're okay there. We're fine in Mexico, in all the plants in Mexico. And we're pretty good in the South Carolina also. So I think the major pressure is pretty much in the Northeast. And we have people working on that.
Operator
Our next questions come from the line of [Andre Madrid] with Bank of America.
Unidentified Analyst
You said material on 737's at 42 with new orders in (inaudible) at 47, but with the recent announcement of the production freeze, the [FA] and post production freeze, how are you guys thinking to a more prolonged freeze impacts, what moves out on your end? How can we think about that? And is that something you guys are kind of factoring in the moment? Or is it really not of concern?
Michael J. Hartnett
Well, right now, we're listening to [Calhoun's] conference call and trying to understand exactly what his direction was and we've concluded that his direction was to maintain their rates -- their planning rates on the MAX. And that's kind of what we came away with. So we're doing the same. And I think Boeing is in a tough place. I mean -- they have customers who need the planes, are screaming for the planes. They have a long backlog. They have just now getting their supply chain to perform for them. And I don't think they want to tie in on it at this point and slow everybody down. So I think they're going to be using some working capital in order to bank some of these components. And if it's a year, it's what, 150 planes. Well, then they have 500 planes on the (inaudible) at one point in time and have all that working capital tied up there, it seems like 150, which when you're only buying -- you're only stocking the components would be would be a small change for them.
They certainly can afford it. So I think they don't -- I think their options are limited, and I think they have to maintain rate.
Unidentified Analyst
Understood. Got you. And then pivoting again to industrial, I know it was touched on a little bit already, but maybe to get back in and just really clarify. How much of the softness do you think could just be attributed to diminished end market demand versus actual issues because it really doesn't seem like there's anything on your front, but I might have that wrong. I mean how much -- can you maybe just talk broadly about the demand drivers long term on that side of the business?
Michael J. Hartnett
Yes. Well, on the industrial side, we see markets of mining and metals performing pretty well for us even during this period. Food and beverage areas, these are important areas for us, that's doing pretty well. Oil and natural gas is doing real well for us. And that's been offset by what we consider aggregate and general industrial and semicon. So I think aggregate is a big one. It's an important one to us. It's very dependent upon this. It's -- this infrastructure bill could be a big aid to the aggregate business. And so we'd expect a little pickup in the overall industrial demand through our FY '25, and that's kind of what our budgets are based on. And so that's how we're making the call.
Operator
Our next questions come from the line of Steve Barger with KeyBanc Capital Markets.
Robert Stephen Barger
For 3Q, if I assume your EBIT margin in Aero and your corporate expenses were pretty similar sequentially, it suggests the Industrial margin was down maybe 300 basis points versus 2Q. First of all, is that right? And second, is that just from revenue being down? Or is there a mix in there? And how are you thinking about 4Q Industrial margin?
Michael J. Hartnett
Well, I think the Industrial margins were down, and I think it's mix driven. And based upon the way we forecast, it's mainly a Dodge issue. And basically, the way we forecast Dodge going forward, it's hard to tell exactly what that mix is going to be. So I suspect there will be no more deterioration than it was in the third quarter. And so worst case, we have some pickup.
Robert M. Sullivan
Yes, Steve, I'll give them to you right now. So you'll see it in the [Q] later, but the Aerospace margins, we had a really strong quarter. The margins were 41.2%. So they continue to escalate, as I've talked about in the last few calls. Industrial margins were 42.8% this quarter. But I kind of want to go back to what Dan said earlier in the call that for the 9 months, gross margins are up 220 basis points for the full year consolidated. So we're well ahead of what we had said earlier in the year and feeling really good about it.
Robert Stephen Barger
Got it, Rob. Some other industrial companies have been guiding to a softer organic growth environment for the first half of '24 calendar and stronger in the back half. And I know Dodge is in a backlog basis business, but how are you thinking about general cadence of industrial revenue through calendar '24. Is there anything different from what you'd expect from your own normal seasonality?
Michael J. Hartnett
We're not seeing it. I mean we're off -- since the first of January, the Industrial bookings have been very encouraging. So the economists predict one thing, and it seems like the economy does something else. So I don't think anybody expected the GDP growth that we saw in the third quarter or we're projecting it earlier. And so I think the -- I think we're just steady as she goes. As I said earlier, we're taking it 1 month at a time.
Robert Stephen Barger
And so if there is weakness in industrial that you're seeing right now, it is on the Dodge side, whereas legacy, I think you said is more stable or was up year-over-year while Dodge was down?
Michael J. Hartnett
Well, the legacy business is more like the RBC aircraft business in that it's servicing OEMs principally on an 80-20 basis. And so there's long-term POs and there's contracts and there's all that sort of thing that ties it together. And so it's much easier to forecast it.
Robert Stephen Barger
Got it. And just 1 last one. As you look across the M&A landscape, are you seeing more Industrial deals than Aero? And what are the relative sizes of deals that you see across the 2 segments?
Michael J. Hartnett
I'd say the Industrial sizes are in the $100 million to $200 million kind of range is what we've been seeing coming by. And some of the Aerospace businesses are larger than that. And they sort of come and go. We're looking -- we're a little picky about exactly what we want in our space. And so I think during the third quarter, we worked very hard on one and sort of missed the grade. So we're all recovering from disappointment this quarter and looking at other potentials.
Robert Stephen Barger
And just to clarify, those are deal sizes or revenue?
Michael J. Hartnett
Revenue.
Operator
Our next questions come from the line of Seth Weber with Wells Fargo.
Seth Robert Weber
Sorry to just go back to the guidance question again for the fourth quarter. I guess to have Industrial revenue up a few 100 basis points sequentially, that implies on a year-over-year down kind of mid- to high single digits. I'm just trying to tie that together with your commentary about the January bookings being better. So would you expect 2025 Industrial to be less negative than the down kind of mid- to high single digits that is kind of implied by your fourth quarter Industrial revenue? Does that make sense? Or is that how you start the year anyway?
Michael J. Hartnett
Yes. I think the fourth quarter Industrial revenue will be, as we said, will be up a few percentage points based upon what we're seeing so far in the quarter. There doesn't seem to be much difference about that. I think the -- is the issue of the Aerospace projection?
Seth Robert Weber
I'm sorry, I'm trying to just discern your -- I think you're talking sequential improvement, but I'm just trying to think of that on a year-over-year basis, I think, sequentially up a few percent translates down, I don't know, 7% or 8% year-to-year? Or is that not the right math?
Robert M. Sullivan
That seems very high. I don't suspect that it's going to be down 7% to 8% year-over-year.
Michael J. Hartnett
I'm a year-over-year guy too, Seth. And yes, I think the Industrial revenue year-over-year is going to be up a few percent in the fourth quarter.
Seth Robert Weber
Okay. All right. That's super helpful clarification. And I just wanted to go back to the comment around the Mexico capacity add. Can you just -- I apologize if you've talked about this more in the past, but is that replacing -- are you moving capacity from high-cost markets to Mexico? Or is that just incremental capacity? And what will that be serving?
Michael J. Hartnett
Well, we just completed -- we expect to complete this quarter a plant in [Takata], that's about 100,000 square feet. And that will be pretty much earmarked for the Dodge business. And so we will move manufacturing from the U.S. to Mexico for Dodge for the purpose of opening floor space in one of the Dodge plants, where we have new manufacturing equipment arriving and no source base to accommodate it. And so we're sort of playing musical chairs there with one of the Dodge plants. And -- so the new equipment that's arriving in the plant will be for increased volume on product lines that are very successful, but constrained by production. So that's the first phase of Takata -- that's our first phase. Our second phase will probably be for lower-cost manufacturing of some of the Dodge products and maybe some insuring, reshoring some of the supply chain.
Operator
Our next questions come from the line of Pete Osterland with Truist Securities.
Peter Osterland
First, just had a question on raw materials. We've heard about some tightness in the bearings market stemming from lack of material availability. And just wondering if you were seeing anything like that, where there any challenges procuring materials or any additional cost inflation? Just any color there would be helpful.
Michael J. Hartnett
Yes. Well, I mean, in Aerospace and Defense, materials are more exotic than not and difficult to get. If your planning horizon is short, you're going to be buying it from third parties to extremely higher prices. So your planning horizon needs to be long and long is probably 60 weeks. And the special grades of stainless steel are -- and that's really the only way to acquire them. And overall, I think in the Aerospace business, from what we hear from customers that keep coming to us is that bearings are really hard to get. And so that's kind of music to our ears. And that's part of the reason why we're generating so many contracts with people to supply them over a longer term.
Unfortunately, it takes us a long time to get that material. So to turn that into revenues isn't the most immediate thing, but it turns into revenues over time. And very often, customers are willing to pay a premium if you have to buy steel from a third party at a high price and are more than willing to absorb the price difference. So I would say there's a lot going on in our business right now with regard to supply chain.
Peter Osterland
Very helpful. And then just turning to Industrial. What are you seeing within your distribution sales channels in terms of customer inventories? Are they generally rightsized? Or have you seen any signs of destocking activity there?
Michael J. Hartnett
Yes. I mean, we haven't seen much destocking. As far as I can tell, they're rightsized to a little bit heavy, but not -- they're not overwhelmingly heavy.
Operator
Our next questions come from the line of Joe Ritchie with Goldman Sachs.
Vivek Srivastava
This is Vivek Srivastava on for Joe. My first question is on the Industrial market. Just if you can provide some color on how the trends are diverging between original equipment versus aftermarket sales growth and potentially how is January trending? That would be helpful.
Michael J. Hartnett
On the industrial side or...
Vivek Srivastava
On the industrial side, correct.
Michael J. Hartnett
Yes, let us refer to our charts here for a minute. I don't think we would have that on how we're trending right now, right, because we'd have to break that information down, how much has come into distribution, how much is coming in through OEM. But Rob, I think you have the industrial OEM and the industrial distribution in Q3.
Robert M. Sullivan
Yes. So the industrial OEM for Q3 was $79.4 million, effectively flat year-over-year, and Industrial distribution was $165.3 million. So again, very close to last year. So it's not as if 1 was diverging, if that's your question.
Vivek Srivastava
Yes. No, that's definitely helpful. And then I noticed on the food and beverage market, you said it's going on well for you guys. And we are hearing from your peers that it was actually one of the softer markets for them. So just maybe wanted to zoom in on this end market? And why you are seeing better trends than some of your peers? Is it more market share driven? Or is it a product offering?
Michael J. Hartnett
Yes. I mean, I don't think we can speak for our peers, but I would say that we spend -- it's a priority for us. So we direct a lot of attention to that market, both in terms of calling on customers, identifying problems, problem solving, product development, new product introduction. So it's active for us. It's -- it performs well for us, but we have to work at it. It doesn't -- it's not on autopilot.
Operator
Our next questions come from the line of Pete Skibitski with Alembic Global.
Peter John Skibitski
A couple of questions on margins. One on gross margin, it sounds like if you kind of hit your mark for the fourth quarter gross margin, it sounds like for the full year, fiscal '24, you'd be up at least maybe 1.5 points, call it, roughly. So I'm just wondering for fiscal '25, do you see the ability to move it up another point or so on the gross margin line?
Michael J. Hartnett
Well, I think it's very encouraging. I don't think that the margins on the Industrial side are going to do much better. Maybe they will. But others, there's not a major mechanism there that's going to drive that, that I can see. On the aircraft side, there is a major mechanism in that as volume increases. We still haven't gotten to 2019 level of absorption in our aircraft plants. So our aircraft margins are still trailing what we measured in 2019. So as the volume increases in most of the aircraft plants, the volume is increasing, and it's increasing at a rate that as we talked about, getting the labor and getting the materials and getting the planning straight and is challenging. So that is leading to better absorptions and better absorptions, obviously lead to better margins. So we'll see that mechanism improve our performance next year and in this quarter.
Peter John Skibitski
Okay. Got it. And then just -- Rob, I just want to understand 1 thing. I think when you talk about Industrial in the third quarter, I think you were talking about EBIT of around $42 million. And so I'm just trying to understand...
Robert M. Sullivan
Yes, I was talking gross margin. I was talking gross margin percentage. So 42.8%.
Operator
Ladies and gentlemen, there are no further questions at this time. And now I would like to turn the call back over to Dr. Hartnett for closing remarks.
Michael J. Hartnett
Okay. Well, I think that completes our conference call for the third quarter. I appreciate everybody's questions and participation. And we look forward to talking to you again in May. Good day.
Operator
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
