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RBC Bearings (ROLL) Up 15.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for RBC Bearings (ROLL). Shares have added about 15.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is RBC Bearings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

RBC Bearings Q4 Earnings & Revenues Top Estimates

RBC Bearings pulled off a positive earnings surprise of 9% in the fourth quarter of fiscal 2019 (ended Mar 30, 2019). This was the company’s fourth consecutive quarter of impressive results.

This machinery company’s adjusted earnings were $1.33 per share, surpassing the Zacks Consensus Estimate of $1.22. Also, the bottom line increased 23.1% from the year-ago quarter’s figure of $1.08 on the back of healthy sales growth, margin improvement and lower taxes.

Notably, RBC Bearings reported adjusted earnings of $4.84 for fiscal 2019, an increase of 25.1% from the prior year.

Organic Sales Drive Revenues

In the quarter under review, RBC Bearings’ revenues totaled $182.2 million, reflecting year-over-year growth of 1.3%. Organic sales jumped 4% on the back of 10.2% growth in aerospace markets, partially offset by 5% decrease in industrial markets.

Moreover, the top line surpassed the consensus estimate of $179.97 million by 1.2%.

For fiscal 2019, RBC Bearings generated revenues of $702.5 million compared with $674.9 million in fiscal 2018.

Exiting the reported quarter, the company had backlog of $445.1 million, up 13.5% year over year.

RBC Bearings reports net sales under four heads/segments. The segmental results are briefly discussed below:

Revenues from Plain bearings totaled $87.9 million, up 7.3% year over year while that from Roller bearings increased 0.8% to $36.1 million. Ball bearings’ revenues were $19.5 million, up 2.1%. Revenues from Engineered products totaled $38.6 million, down 10.4%.

Margins Improve Y/Y

In the reported quarter, RBC Bearings’ cost of sales declined 0.7% year over year to $109.2 million. It represented 59.9% of net sales versus 61.1% recorded in the year-ago quarter. Gross profit in the quarter increased 4.6% to $73 million. Margin in the quarter grew 130 basis points to 40.1%.

Selling, general and administrative expenses of $29.5 million decreased 0.3%, and represented 16.2% of net sales versus 16.5% in the year-ago quarter. Adjusted operating income in the reported quarter increased 7% to $41.2 million. Adjusted margin was 22.6% versus 21.4% in the year-ago quarter.Effective tax rate was 20.8%, lower than 25.5% a year ago.

Balance Sheet and Cash Flow

As of Mar 30, 2019, RBC Bearings had cash and cash equivalents of $29.9 million, decreasing 44.8% from $54.2 million recorded as of Mar 31, 2018. Total debt was $43.6 million, down from $173.4 million.

In fiscal 2019, the company generated net cash of $108.5 million from operating activities, down 16.7% from $130.3 million in fiscal 2018. Capital spending totaled $41.3 million, increasing 47.5%.

During fiscal 2019, the company repurchased shares worth $5.2 million while backlog at the end of the year was $445.1 million.

Outlook

RBC Bearings anticipates net sales of $182-$184 million for the first quarter of fiscal 2020 (ending June 2019), representing growth of 3.4-4.6% year over year.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, RBC Bearings has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

RBC Bearings has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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