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RBC Bearings (ROLL) Issues Stocks, Prices $500M Senior Notes

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RBC Bearings Incorporated ROLL, on Sep 24, issued 4.6 million stocks of 5.00% Series A mandatory convertible preferred stock and 3.45 million of common shares. A day earlier, the company priced a $500-million offering of senior notes by Roller Bearing Company of America, Inc. — a wholly-owned subsidiary of RBC Bearings.

In the last day’s trading session, RBC Bearings’ shares decreased 2.54%, closing at $211.21.

Inside the Headlines

Of the 4.6 million preferred stocks issued, 0.6 million stocks were issued to the underwriters in connection with a 30-day option granted to them. Each preferred stock for the public has been priced at $100 and the underwriters have been given discounts of $3.00 per share. The liquidation preference for each stock is $10.00. The annual dividend rate for these stocks is 5% and payouts will be made quarterly on Jan 15, Apr 15, Jul 15 and Oct 15. The dividend payments will be applicable from Jan 15, 2022, to Oct 15, 2024.

Each preferred stock can be converted into common shares on Oct 15, 2024, using conversion rates ranging between 0.4413 and 0.5405. Conversion prices range between $185.00 per share and $226.63 per share.

For common stock issuance, 3 million common shares were issued to the public and 0.45 million shares were issued to the underwriters. The public offer price is $185.00 per share and the underwriters have been granted a discount of $9.25 per share.

Regarding the senior notes offering, the company stated that the notes carried a coupon rate of 4.375% and are due to mature in 2029. The offering is expected to be completed on Oct 7, 2021, provided the closing conditions are satisfied.

RBC Bearings anticipates using the net proceeds from the common stock, preferred stock and senior notes offerings to fund the acquisition of Asea Brown Boveri Ltd.’s DODGE mechanical power transmission division. The deal, valued at $2.9 billion, was announced by RBC Bearings in July and is anticipated to be complete in third-quarter fiscal 2022 (ending December 2021). In addition, the company plans on using the proceeds for paying fees and expenses related to the DODGE acquisition and satisfy general corporate purposes.

We believe that the above-mentioned common stock offering along with preferred stocks, when converted into common stock, will increase the company’s common stock outstanding balance. Also, the issuance of senior notes might inflate the debts. Exiting first-quarter fiscal 2022 (ended Jul 3, 2021), RBC Bearings’ shares outstanding were 25.3 million and its long-term debts were $10.8 million.

Zacks Rank, Price Performance and Estimate Trend

With a market capitalization of $5.4 billion, RBC Bearings currently carries a Zacks Rank #3 (Hold). Strength in industrial markets, healthy backlog and favorable shareholder-friendly policies are beneficial. However, the persistence of weakness in the aerospace markets is concerning.

In the past three months, the company’s shares have gained 7.3% against the industry’s decline of 3.9%.

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Zacks Investment Research


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In the past 60 days, the Zacks Consensus Estimate for its earnings has decreased 3.7% to $1.05 per share for the second quarter of fiscal 2022 (ending September 2021). The consensus estimate for fiscal 2022 (ending March 2022) at $4.49 and for fiscal 2023 (ending March 2023) at $5.14 reflects 0.2% and 0.8% increases from the 60-day-ago figures, respectively.

RBC Bearings Incorporated Price and Consensus

RBC Bearings Incorporated Price and Consensus
RBC Bearings Incorporated Price and Consensus

RBC Bearings Incorporated price-consensus-chart | RBC Bearings Incorporated Quote

Stocks to Consider

Three better-ranked stocks in the industry are Kadant Inc. KAI, Applied Industrial Technologies, Inc. AIT and EnPro Industries, Inc. NPO. While Kadant presently sports a Zacks Rank #1 (Strong Buy), both Applied Industries and EnPro Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, positive earnings surprise for the last reported quarter was 33.11% for Kadant, 27.97% for Applied Industrial and 25.81% for EnPro Industries.


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