RBC Bearings (ROLL) Down 3.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for RBC Bearings (ROLL). Shares have lost about 3.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RBC Bearings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

RBC Bearings Q3 Earnings and Revenues Miss Estimates

RBC Bearings 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.

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.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, RBC Bearings has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise RBC Bearings has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.