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RBC Bearings (ROLL) Up 3.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for RBC Bearings (ROLL). Shares have added about 3.4% in that time frame.

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

RBC Bearings Q2 Earnings and Revenues Top Estimates

RBC Bearings kept its earnings beat streak alive in the second quarter of fiscal 2020 (ended Sep 28, 2019). Its earnings surpassed estimates by 7.4%.

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.

How Have Estimates Been Moving Since Then?

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

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VGM Scores

At this time, RBC Bearings has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 these revisions indicates a downward shift. Notably, RBC Bearings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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