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RBC Bearings (ROLL) Gains From End-Market Strength Amid Risks

·3 min read

RBC Bearings Incorporated ROLL stands to benefit from strength in its industrial business, backed by a strong demand environment across general industrial, mining, semiconductor and energy markets. In third-quarter fiscal 2022 (ended Jan 1, 2022), sales at the company’s Industrial segment increased 230.4% on a year-over-year basis. Also, ROLL’s solid backlog of $552.7 million (exiting the fiscal third quarter) is anticipated to drive its performance in the quarters ahead. For fourth-quarter fiscal 2022 (ending March 2022), it expects its sales to lie in the range of $340-$350 million (including the contribution from the DODGE buyout), indicating growth of 112.1-118.3% year over year.

The company acquired ABB Ltd’s ABB DODGE mechanical power transmission division for $2.9 billion in November 2021. The deal is expected to expand RBC Bearings' exposure in industrial, aerospace and defense markets apart from strengthening its product offerings and customer base. Also, the buyout of ABB’s unit is likely to boost its cash earnings per share by 40-60% in the initial full year of the completion of the transaction.

It remains committed to rewarding shareholders through share buyback programs. In the first nine months of fiscal 2022 (ended Jan 1, 2022), it repurchased shares worth $7.7 million, reflecting an increase of 23.4% from the year-ago period. Exiting fiscal third quarter, shares worth $79.9 million were left for repurchase under its May 2019 share buyback program.

However, the company has been experiencing weakness across its defense market of late. For instance, in the fiscal third quarter, its sales in the defense market decreased 10.3% year over year owing to the delay in production.

RBC Bearings has been dealing with escalating costs and operating expenses over the past few quarters. In the fiscal third quarter, the company’s cost of sales jumped 92.3% year over year, while its selling, general and administrative expenses increased 67.8%. In the quarter, its adjusted operating margin declined 230 basis points year over year.

High debt level also poses a concern for the company. It had long-term debt of $1,726.7 million at the end of the fiscal third quarter, up from $7.1 million in the previous quarter. Its interest expenses in the quarter were $11.9 million.

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Zacks Investment Research

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In the past three months, the company’s share price has declined 5.4% compared with the industry’s fall of 8.8%.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked companies from the same space are discussed below.

IDEX Corporation IEX presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. It delivered a four-quarter earnings surprise of 1.46%, on average.

IDEX’s earnings estimates increased 4.1% for 2022 in the past 30 days. IEX’s shares have lost 17.9% in the past three months.

Standex International Corporation SXI presently has a Zacks Rank #2. Its earnings surprise in the last four quarters was 5.85%, on average.

In the past 30 days, Standex’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022). SXI’s shares have lost 0.5% in the past three months.

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RBC Bearings Incorporated (ROLL) : Free Stock Analysis Report

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