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ROLL Retains Neutral Rec

Zacks Equity Research

On Aug 26, 2013, we reiterated our Neutral recommendation on RBC Bearings Incorporated (ROLL) based on its mixed fiscal first-quarter 2014 performance.

Why the Reiteration?

RBC Bearings reported improved year-over-year results for the first quarter of fiscal 2014. Adjusted earnings per share increased 6.5% year over year to 66 cents, while revenues fell 0.6% year over year to $102.7 million.

The company’s Aerospace and Defense segment recorded a year-over-year increase of 22.0% in sales, offset by 22.0% decline in the Industrial segment sales. The increase in Aerospace and Defensesegment was driven by a rise in the sales to original equipment manufacturers as well as aftermarket sales.

We are optimistic of further increases in this segment due to a rise in the worldwide commercial aircraft industry. Moreover, unlike the usually-lower second-quarter sales, the company expects a sales hike in the fiscal second-quarter 2014, due to increased demand in the aircraft industry.

Moreover, RBC Bearings’ inorganic growth has been splendid over the past years. Recently, the company also completed the acquisition of Climax Metal Products Company for $13.6 million, keeping with its strategy of growing through acquisitions.

However, the Industrial segment of the company is not performing as expected. Lower sales in Europe were primarily responsible for the decline in fiscal first quarter of 2014. Moreover, the company does not foresee an improvement either in the mining or in the oil and gas markets over the coming quarters, leading to a further decline in the segment sales.

In fiscal 2013, the company sourced roughly 29% of the total revenue from its top 10 customers. This causes the company to be under constant pressure, if any of these customers opt out. Operations in diverse nations expose the company to various geo-political, social and economical risks. It is anticipated that these risks will continue to hover around the company’s financials as it plans to penetrate the foreign markets further.

Other Stocks to Consider

RBC Bearings currently carries a Zacks Rank #3 (Hold). Other stocks worth a watch in the metal industry are Northwest Pipe Co. (NWPX), CIRCOR International, Inc. (CIR) and NN Inc. (NNBR). While CIRCOR International and Northwest Pipe Steel carry a Zacks Rank #1 (Strong Buy), NN Inc. carries a Zacks Rank #2 (Buy).

Read the Full Research Report on ROLL

Read the Full Research Report on CIR

Read the Full Research Report on NNBR

Read the Full Research Report on NWPX

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