RBC Bearings Incorporated ROLL kept its earnings beat streak alive in the second quarter of fiscal 2020 (ended Sep 28, 2019). Its earnings surpassed estimates by 7.4%, recording the sixth consecutive quarter of impressive results.
The machinery company’s adjusted earnings in the reported quarter were $1.30 per share, surpassing the Zacks Consensus Estimate of $1.21. Also, the bottom line rose 6.6% from the year-ago quarter’s number of $1.30 on healthy sales growth and improvement in operating margin.
Organic Sales Drive Revenues
In the quarter under review, RBC Bearings’ revenues totaled $181.9 million, reflecting year-over-year growth of 5.2%. Organic sales in the quarter grew 6.8% year over year on healthy growth in aerospace markets. Business in Industrial markets was weak, with sales down 5% year over year.
Also, the company’s revenues surpassed the Zacks Consensus Estimate of $181 million by 0.55%.
Exiting the reported quarter, it had backlog of $473.2 million, up 10.1% year over year.
RBC Bearings reports net sales under four heads/segments. The segmental results are briefly discussed below:
Revenues from Plain bearings totaled $90 million, up 16.2% year over year, while that from Roller bearings declined 11.9% year over year to $32.6 million. Ball bearings’ revenues were $17.4 million, down 3.4% year over year. Revenues from Engineered products totaled $41.9 million, up 3.7% year over year.
Notably, the company acquired Switzerland-based Swiss Tool Systems in August 2019. The transaction value was approximately $33.8 million. The acquired assets are part of the Engineered Products segment.
Operating Margin Improves Y/Y
In the reported quarter, RBC Bearings’ cost of sales grew 5.4% year over year to $110.8 million. It represented 60.9% of net sales versus 60.8% recorded in the year-ago quarter. Adjusted gross profit in the quarter rose 5% year over year to $71.2 million. Margin in the quarter declined 10 basis points (bps) to 39.1%.
Selling, general and administrative expenses of $30.8 million rose 4.9% year over year, and represented 16.9% of net sales versus 17% in the year-ago quarter. Adjusted operating income in the reported quarter grew 7% year over year to $38.4 million. Adjusted margin was 21.1% versus 20.8% in the year-ago quarter.
Effective tax rate was 14.7% in the quarter under review versus 11.7% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, RBC Bearings had cash and cash equivalents of $36.4 million, rising 11.3% from $32.7 million recorded at the previous quarter end. Long-term debt was $25 million, down 4.9% sequentially.
In the first half of fiscal 2020, the company generated net cash of $64.6 million from operating activities, up 11.7% from $57.9 million recorded in the year-ago comparable period. Capital spending totaled $20.2 million, rising 13.9% year over year.
During the first half of fiscal 2020, the company repurchased shares worth $9.8 million.
Outlook
For the third quarter of fiscal 2020 (ending December 2019), RBC Bearings anticipates net sales of $177-$179 million, suggesting growth of 3.2-4.4% from the year-ago quarter. Excluding the impact of $2.5-million sales from Swiss Tool and $2.9-million sales from the Miami division (sold in the fiscal third quarter), the company expects sales growth of 3.6-4.7%.
It also expects results in the fiscal third quarter to be influenced by lesser shipping and production days (to the extent of four to five days) due to the holiday season.
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
With a market capitalization of approximately $4 billion, RBC Bearings currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the industry are Tennant Company TNC, Brady Corporation BRC and Dover Corporation DOV. While Tennant sports a Zacks Rank #1 (Strong Buy), both Brady and Dover 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 improved for the current year. Further, positive earnings surprise for the last reported quarter was 40% for Tennant, 11.48% for Brady and 4.58% for Dover.
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