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RBC Bearings (ROLL) Q3 Earnings and Revenues Miss Estimates

Zacks Equity Research

RBC Bearings Incorporated ROLL reported weaker-than-expected results for the third quarter of fiscal 2020 (ended Dec 28, 2019). Its earnings and sales lagged estimates by 1.6% and 1.3%, respectively. This downside followed six consecutive quarters of impressive results.

The machinery company’s adjusted earnings in the reported quarter were $1.22 per share, below the Zacks Consensus Estimate of $1.24. However, the bottom line improved 6.1% from the year-ago number of $1.15 on healthy sales growth.

Segmental Revenues

In the quarter under review, RBC Bearings’ revenues of $177 million reflected year-over-year growth of 3.2%. Organic sales in the period rose 3.6% year over year, driven by 13% higher sales from aerospace markets, partially offset by an 11% decline in industrial sales.

However, the company’s revenues lagged the Zacks Consensus Estimate of $179.3 million.

Exiting the reported quarter, it had backlog of $477.7 million, up 11.6% year over year.

RBC Bearings reports net sales under four heads/segments that are discussed below:

Revenues from Plain bearings totaled $86.9 million, up 9.5% year over year while the same from Roller bearings decreased 8.6% year over year to $31.8 million. Ball bearings’ revenues of $18.5 million were up 10.5% year over year. Revenues from Engineered products summed $39.8 million, down 1.8% year over year.

Margin Profile

In the reported quarter, RBC Bearings’ cost of sales increased 2.9% year over year to $106.3 million, representing 60.1% of net sales compared with 60.3% a year ago. Adjusted gross profit improved 4.1% year over year to $70.9 million. Margin inched up 40 basis points (bps) to 40.1%.

Selling, general and administrative expenses of $30.7 million were up 5.4% year over year, accounting for 17.4% of net sales. Adjusted operating income grew 3.2% year over year to $37.8 million. Adjusted margin was flat year over year at 21.4%.

Effective tax rate was 17% in the quarter under review compared with 15% in the prior year.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, RBC Bearings had cash and cash equivalents of $60.3 million, surging 65.7% from $36.4 million recorded at the previous quarter-end. Long-term debt was $16.2 million, down 35.4% sequentially.

In the first nine months of fiscal 2020, the company generated net cash of $111.2 million from operating activities, up 40.7% from $79 million in the year earlier. Capital spending of $27.6 million fell 5.6% year over year. The company repurchased shares worth $11.5 million.

Outlook

For the fourth quarter of fiscal 2020 (ending March 2020), RBC Bearings anticipates net sales of $187-$191 million, suggesting growth of 2.7-4.9% from the year-ago reported figure. Excluding the impact of $2.4-million sales from Swiss Tool (acquired in August 2019), the company expects sales growth of 1.3-3.5%.

In addition, the company noted that its current content (for engines and airframe for 737 Max aircraft) is $120,000 per plane. It believes that this might increase to $160,000 per plane with maturity of new contracts.

RBC Bearings Incorporated Price, Consensus and EPS Surprise

RBC Bearings Incorporated Price, Consensus and EPS Surprise
RBC Bearings Incorporated Price, Consensus and EPS Surprise

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

Zacks Rank & Stocks to Consider

RBC Bearings currently has a market capitalization of $3.8 billion and a Zacks Rank #4 (Sell).

Some better-ranked stocks in the industry are Graco Inc. GGG, Barnes Group, Inc. B and Tennant Company TNC. While Graco currently sports a Zacks Rank #1 (Strong Buy), Barnes and Tennant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings estimates for these companies have been revised upward over the past 60 days. Further, average four-quarter positive earnings surprise for Graco, Barnes and Tennant is 0.40%, 4.21% and 28.65%, respectively.

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