Bulletin
Investor Alert

Aug. 5, 2021, 5:38 p.m. EDT

10-Q: RBC BEARINGS INC

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement as to Forward-Looking Information

The objective of the discussion and analysis is to provide material information relevant to an assessment of the financial condition and results of operations of the registrant including an evaluation of the amounts and certainty of cash flows from operations and from outside sources.

The information in this discussion contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which are subject to the "safe harbor" created by those sections. All statements, other than statements of historical facts, included in this quarterly report on Form 10-Q regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are "forward-looking statements" as the term is defined in the Private Securities Litigation Reform Act of 1995.

The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation: (a) the bearing and engineered products industries are highly competitive, and this competition could reduce our profitability or limit our ability to grow; (b) the loss of a major customer, or a material adverse change in a major customer's business, could result in a material reduction in our revenues, cash flows and profitability;

Overview

We are a well-known international manufacturer of highly engineered precision bearings and components. Our precision solutions are integral to the manufacture and operation of most machines and mechanical systems, reduce wear to moving parts, facilitate proper power transmission and reduce damage and energy loss caused by friction. While we manufacture products in all major bearing categories, we focus primarily on the higher end of the bearing market where we believe our value added manufacturing and engineering capabilities enable us to differentiate ourselves from our competitors and enhance profitability. We believe our unique expertise has enabled us to garner leading positions in many of the product markets in which we primarily compete. With 43 facilities in seven countries, of which 31 are manufacturing facilities, we have been able to significantly broaden our end markets, products, customer base and geographic reach. We currently operate under four reportable business segments: Plain Bearings; Roller Bearings; Ball Bearings; and Engineered Products. The following further describes these reportable segments:

Plain Bearings. Plain bearings are produced with either self-lubricating or metal-to-metal designs and consist of several sub-classes, including rod end bearings, spherical plain bearings and journal bearings. Unlike ball bearings, which are used in high-speed rotational applications, plain bearings are primarily used to rectify inevitable misalignments in various mechanical components.

Roller Bearings. Roller bearings are anti-friction bearings that use rollers instead of balls. We manufacture four basic types of roller bearings: heavy duty needle roller bearings with inner rings, tapered roller bearings, track rollers and aircraft roller bearings.

Ball Bearings. We manufacture four basic types of ball bearings: high precision aerospace, airframe control, thin section and commercial ball bearings which are used in high-speed rotational applications.

Engineered Products. Engineered Products consist of highly engineered hydraulics, fasteners, collets, tool holders and precision components used in aerospace, marine and industrial applications.

Purchasers of bearings and engineered products include industrial equipment and machinery manufacturers, producers of commercial and military aerospace equipment, agricultural machinery manufacturers, construction, energy, mining and specialized equipment manufacturers, and marine products, automotive and commercial truck manufacturers. The markets for our products are cyclical, and we have endeavored to mitigate this cyclicality by entering into sole-source relationships and long-term purchase agreements, through diversification across multiple market segments within the aerospace and industrial segments, by increasing sales to the aftermarket, and by focusing on developing highly customized solutions.

Currently, our strategy is built around maintaining our role as a leading manufacturer of precision bearings and components through the following efforts:

? Developing innovative solutions. By leveraging our design and manufacturing expertise and our extensive customer relationships, we continue to develop new products for markets in which there are substantial growth opportunities.

? Expanding customer base and penetrating end markets. We continually seek opportunities to access new customers, geographic locations and bearing platforms with existing products or profitable new product opportunities.

? Increasing aftermarket sales. We believe that increasing our aftermarket sales of replacement parts will further enhance the continuity and predictability of our revenues and enhance our profitability. Such sales include sales to third party distributors, and sales to OEMs for replacement products and aftermarket services. We expect to increase the percentage of our revenues derived from the replacement market by continuing to implement several initiatives.

? Pursuing selective acquisitions. The acquisition of businesses that complement or expand our operations has been and continues to be an important element of our business strategy. We believe that there will continue to be consolidation within the industry that may present us with acquisition opportunities.

We have demonstrated expertise in acquiring and integrating bearing and precision engineered component manufacturers that have complementary products or distribution channels and have provided significant margin enhancement. We have consistently increased the profitability of acquired businesses through a process of methods and systems improvement coupled with the introduction of complementary and proprietary new products. Since 1992 we have completed 26 acquisitions, which have broadened our end markets, products, customer base and geographic reach.

Outlook

Our net sales for the three-month period ended July 3, 2021 decreased by 0.2% compared to the same period last fiscal year. The decrease in net sales was a result of a 31.0% increase in our industrial markets offset by an 18.3% decrease in our aerospace markets. The increase in industrial sales was driven by increases in the mining, energy, and general industrial markets. The decrease in aerospace sales was experienced both in our commercial and defense markets. Our backlog, as of July 3, 2021, was $420.2 million compared to $394.8 million as of April 3, 2021.

Our sales to industrial markets experienced growth of 31.0% in the first quarter of fiscal 2022 as compared to the same three month period last year. This growth was evidenced across most of our industrial products both to OEM and distribution customers. The improvement in domestic and international economic conditions in recent months has been reflected through increased orders received which we expect to sustain throughout fiscal 2022.

The COVID-19 health crisis, which was declared a pandemic in March 2020, continues to impact our commercial aerospace sales in fiscal 2022 as a result of build rate changes within the industry. The commercial aerospace OEM and aftermarket will continue to be impacted by reduced air travel and changes in production rates in the first half of fiscal 2022, but are expected to grow in the second half of the year.

We experienced strong cash flow generation during the first three months of fiscal 2022 (as discussed in the section "Liquidity and Capital Resources" below). We expect this trend to continue throughout the fiscal year as customer demand continues to improve. We believe that operating cash flows and available credit under the Revolver and Foreign Revolver will provide adequate resources to fund internal growth initiatives for the foreseeable future, including at least the next 12 months. For further discussion regarding plans to fund external growth initiatives, refer to Part I, Item 1 - Note 11 "Subsequent Events." As of July 3, 2021, we had cash and cash equivalents and highly liquid marketable securities of $296.1 million of which approximately $11.8 million was cash held by our foreign operations.

The Company expects net sales to be approximately $158.0 million to $162.0 million in the second quarter of fiscal 2022.







        Results of Operations
        (dollars in millions in tables)
                                                                       Three Months Ended
                                                     July 3,          June 27,           $              %
                                                       2021             2020           Change         Change
        Total net sales                            $      156.2     $      156.5     $     (0.3 )         (0.2 )%
        Net income                                 $       26.0     $       22.7     $      3.3           14.6 %
        Net income per common share: diluted       $       1.03     $       0.91
        Weighted average common shares: diluted      25,308,723       24,933,941
        


Our net sales for the three-month period ended July 3, 2021 decreased 0.2% compared to the same period last fiscal year. The decrease in net sales was a result of a 31.0% increase in our industrial markets offset by an 18.3% decrease in our aerospace markets. The increase in industrial sales was driven by increases in the mining, energy, and general industrial markets. The decrease in aerospace sales was experienced both in our commercial and defense markets.

Net income for the first quarter of fiscal 2022 was $26.0 million compared to $22.7 million for the same period last year. Net income for the first quarter of fiscal 2022 was affected by $0.2 million of discrete tax benefit. Net income for the first quarter of fiscal 2021 was affected $0.9 million of after tax restructuring costs and related items and $0.1 million of losses on foreign exchange offset by $0.1 million of discrete tax benefit.







        Gross Margin
                                         Three Months Ended
                          July 3,       June 27,         $            %
                           2021           2020         Change       Change
        Gross Margin     $    63.8     $     59.5     $    4.3          7.3 %
        Gross Margin %        40.8 %         38.0 %
        


Gross margin was 40.8% of net sales for the first quarter of fiscal 2022 compared to 38.0% for the first quarter of fiscal 2021. The increase was primarily the result of cost efficiencies achieved through recent restructuring and consolidation efforts made throughout the company.







        Selling, General and Administrative
                                        Three Months Ended
                          July 3,       June 27,         $            %
                           2021           2020         Change      Change
        SG&A             $    29.8     $     26.8     $    3.0        11.1 %
        % of net sales        19.1 %         17.1 %
        


SG&A for the first quarter of fiscal 2022 was $29.8 million, or 19.1% of net sales, as compared to $26.8 million, or 17.1% of net sales, for the same period of fiscal 2021. This is attributable to increases in personnel costs of $2.4 million, share-based compensation of $0.3 million and other costs of $0.3 million.







        Other, Net
                                       Three Months Ended
                          July 3,      June 27,         $           %
                           2021          2020        Change      Change
        Other, net       $     3.2     $     3.8     $  (0.6 )     (14.8 )%
        % of net sales         2.1 %         2.4 %
        


Other operating expenses for the first quarter of fiscal 2022 totaled $3.2 million compared to $3.8 million for the same period last year. For the first quarter of fiscal 2022, other operating expenses were comprised mainly of $2.6 million of amortization of intangible assets and $0.6 million of restructuring costs and other items. For the first quarter of fiscal 2021, other operating expenses were comprised mainly of $1.1 million of restructuring costs and related items, $2.5 million of amortization of intangible assets and $0.2 million of other costs.







        Interest Expense, Net
                                              Three Months Ended
                                 July 3,      June 27,         $           %
                                  2021          2020        Change      Change
        Interest expense, net   $     0.3     $     0.4     $  (0.1 )     (24.9 )%
        % of net sales                0.2 %         0.3 %
        


Interest expense, net, generally consists of interest charged on the Revolver and amortization of deferred financing fees, offset by interest income (see "Liquidity and Capital Resources" below). Interest expense, net, was $0.3 million for the first quarter of fiscal 2022 compared to $0.4 million for the same period last year.







        Other Non-Operating (Income)/Expense
                                                               Three Months Ended
                                                July 3,       June 27,         $            %
                                                 2021           2020        Change        Change
        Other non-operating (income)/expense   $    (0.5 )    $     0.0     $  (0.5 )     (1,207.1 )%
        % of net sales                              (0.3 )%         0.0 %
        


Other non-operating income was $0.5 million for the first quarter of fiscal 2022, primarily comprised of dividend income received from short-term marketable securities. Other non-operating expense for the first quarter of fiscal 2021 was comprised of $0.1 million of foreign exchange loss offset by $0.1 million of other items.







        Income Taxes
                                           Three Months Ended
                                        July 3,         June 27,
                                         2021             2020
        Income tax expense (benefit)   $     4.9       $      5.7
        Effective tax rate                  15.8 %           20.0 %
        


Income tax expense for the three-month period ended July 3, 2021 was $4.9 million compared to $5.7 million for the three-month period ended June 27, 2020. Our effective income tax rate for the three-month period ended July 3, 2021 was 15.8% compared to 20.0% for the three-month period ended June 27, 2020. The effective income tax rate for the three-month period ended July 3, 2021 of 15.8% included $2.1 million of tax benefit associated with share-based compensation along with $0.2 million of tax benefit associated with the release of unrecognized tax positions associated with the statute of limitations expiration. The effective income tax rate without these benefits and other items for the three-month period ended July 3, 2021 would have been 23.2%. The effective income tax rate for the three-month period ended June 27, 2020 of 20.0% included $0.3 million of tax benefit associated with share-based compensation along with $0.1 million of tax benefit associated with the release of unrecognized tax positions associated with the statute of limitations expiration. The effective income tax rate without these benefits and other items for the three-month period ended June 27, 2020 would have been 21.3%.

Segment Information

(dollars in millions in tables)

We have four reportable product segments: Plain Bearings, Roller Bearings, Ball Bearings and Engineered Products. We use gross margin as the primary measurement to assess the financial performance of each reportable segment.







        Plain Bearings Segment
                                                Three Months Ended
                                  July 3,       June 27,         $           %
                                   2021           2020        Change      Change
        Total net sales          $    73.3     $     78.9     $  (5.6 )      (7.0 )%
        Gross margin             $    31.5     $     32.1     $  (0.6 )      (1.7 )%
        Gross margin %                43.0 %         40.7 %
        SG&A                     $     5.9     $      5.3     $   0.6        11.6 %
        % of segment net sales         8.0 %          6.7 %
        


Net sales decreased $5.6 million, or 7.0%, for the three months ended July 3, 2021 compared to the same period last year. The 7.0% decrease was primarily driven by a decrease of 17.5% in our aerospace markets offset by a 24.7% increase in the industrial markets. The decrease in aerospace net sales was driven by both the commercial and defense markets. The increase in industrial net sales was mostly driven by the mining and energy markets.

Gross margin as a percentage of net sales was 43.0% for the first quarter of fiscal 2022 compared to 40.7% for the same period last year. The increase in gross margin as a percentage of sales was due to cost efficiencies and product mix.







        Roller Bearings Segment
                                                Three Months Ended
                                  July 3,       June 27,         $            %
                                   2021           2020         Change      Change
        Total net sales          $    25.2     $     22.9     $    2.3        10.2 %
        Gross margin             $     9.1     $      8.4     $    0.7         8.5 %
        Gross margin %                36.1 %         36.7 %
        SG&A                     $     1.4     $      1.2     $    0.2         9.6 %
        % of segment net sales         5.4 %          5.4 %
        


Net sales increased $2.3 million, or 10.2%, for the three months ended July 3, 2021 compared to the same period last year. Our aerospace markets decreased 33.6% while our industrial markets increased by 70.2%. The increase in industrial sales were due to the mining, class 8 truck and general industrial markets. The decrease in aerospace was driven by the commercial OEM and aftermarket slightly offset by an increase in the OEM defense market.

Gross margin for the three months ended July 3, 2021 was 36.1% of net sales, compared to 36.7% in the comparable period in fiscal 2021. The decrease in gross margin as a percentage of sales was due to product mix.







        Ball Bearings Segment
                                                Three Months Ended
                                  July 3,       June 27,         $            %
                                   2021           2020         Change      Change
        Total net sales          $    23.1     $     18.8     $    4.3        22.8 %
        Gross margin             $    10.7     $      7.9     $    2.8        34.9 %
        Gross margin %                46.2 %         42.1 %
        SG&A                     $     1.6     $      1.3     $    0.3        21.9 %
        % of segment net sales         7.1 %          7.1 %
        


Net sales increased by $4.3 million for the first quarter of fiscal 2022 compared to the same period last year. Our industrial sales increased 34.7% and our aerospace markets increased 2.7%. The increase in industrial sales were primarily due to semiconductor, distribution, and general industrial markets. The increase in aerospace net sales was primarily driven by the commercial OEM market.

Gross margin as a percentage of net sales was 46.2% for the first quarter of fiscal 2022 as compared to 42.1% for the same period last year. The increase in margin percentage was a result of product mix and increased volume during the period.







        Engineered Products Segment
                                                Three Months Ended
                                  July 3,       June 27,         $           %
                                   2021           2020        Change      Change
        Total net sales          $    34.5     $     35.9     $  (1.4 )      (3.8 )%
        Gross margin             $    12.4     $     11.0     $   1.4        12.7 %
        Gross margin %                36.0 %         30.8 %
        SG&A                     $     4.2     $      3.8     $   0.4        11.5 %
        % of segment net sales        12.3 %         10.6 %
        


Net sales decreased $1.4 million, or 3.8%, for the first three months of fiscal 2022 compared to the same period last year. Our aerospace markets decreased 17.8% while our industrial markets increased 12.6%. The decrease in aerospace net sales was primarily driven by the commercial and defense OEM markets. The increase in our industrial net sales was driven by the machine tools and general industrial markets.

Gross margin as a percentage of net sales was 36.0% for the first quarter of fiscal 2022 compared to 30.8% for the same period last year. This increase was primarily attributable to product mix and cost efficiencies achieved through recent consolidation and restructuring efforts. During the first quarter of fiscal 2021, gross margin was also impacted by approximately $0.5 million of capacity inefficiencies driven by the impact of the COVID-19 pandemic.







        Corporate
                                               Three Months Ended
                                July 3,       June 27,         $            %
                                 2021           2020         Change       Change
        SG&A                   $    16.7     $     15.2     $    1.5          9.9 %
        % of total net sales        10.7 %          9.7 %
        


Corporate SG&A increased $1.5 million, or 9.9%, for the first quarter of fiscal 2022 compared to the same period last year. This is attributable to increases in personnel costs of $1.0 million, share-based compensation of $0.3 million and other costs of $0.2 million.

Liquidity and Capital Resources

(dollars in millions in tables)

Our business is capital-intensive. Our capital requirements include manufacturing equipment and materials. In addition, we have historically fueled our growth, in part, through acquisitions. We have historically met our working capital, capital expenditure requirements and acquisition funding needs through our net cash flows provided by operations, various debt arrangements and sale of equity to investors. We believe that operating cash flows and available credit under the Revolver and Foreign Revolver will provide adequate resources to fund internal growth initiatives for the foreseeable future. For further discussion regarding plans to fund external growth initiatives, refer to Part I, Item 1 - Note 11 "Subsequent Events."

Our ability to meet future working capital, capital expenditures and debt service requirements will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, particularly interest rates, cyclical changes in our end markets and prices for steel and our ability to pass through price increases on a timely basis, many of which are outside of our control. In addition, future acquisitions could have a significant impact on our liquidity position and our need for additional funds.

. . .

Aug 05, 2021

COMTEX_391038709/2041/2021-08-05T17:38:18

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2021 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.