RBC Bearings Inc (ROLL) Q4 2019 Earnings Call Transcript

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RBC Bearings Inc (NASDAQ: ROLL)Q4 2019 Earnings CallMay 23, 2019, 11:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2019 RBC Bearings Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Chris Donovan with Alpha IR. Mr. Donovan, you may begin.

Chris Donovan -- Investor Relations

Good morning, and thank you for joining us for RBC Bearings fiscal 2019 fourth quarter earnings conference call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer; and Daniel A. Bergeron, Vice President, Chief Financial Officer and Chief Operating Officer.

Before beginning today's call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. So we refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website.

Now, I'll turn the call over to Dr. Hartnett.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Good morning, and welcome to the RBC conference call. Net sales for the fourth fiscal quarter of 2019 were $182.2 million versus $179.9 million for the same period last year. Excluding the sales from Avborne, Miami, a business that we recently sold, organic growth for the quarter was 4%. The fourth quarter of fiscal 2019 sales of industrial products represented 37.2% of our net sales, aerospace products 62.8%. Gross margin for the quarter was $73 million, or 40.1% of net sales on an organic basis. This compares to $69.8 million, or 38.8% for the same period last year, a 9.6% increase. Adjusted operating income was $41.2 million versus an adjusted $38.5 million last year, 22.6% of sales. For the full year adjusted EBITDA was $195.5 million, or 27.8% of revenues, which is a record. The business performed very well for the quarter as we are beginning to overcome our own production supply constraints, which are the same as those currently plaguing much of the aerospace industry.

Industrial products showed a 5% organic year-over-year decline during the period against the strong comps of a year ago. Industrial OEM sales expanded 6% and distribution and aftermarket was up 7% for the full year. Aerospace and defense showed a 10.2% expansion on an organic basis. Shipments on the defense side were up 11.8%, while aero commercial OEM was 11.2%. Aerospace was up a total of 7% for the year. The increased build rate and new content at the major airframe and engine producers continues to drive very strong demand as we raise to bring capacity and processes online across our manufacturing network. We saw no impact from the 737 MAX problem in Q4. And at this stage of the quarter, we don't expect to see any this period.

We are making good progress on business development across the breadth of both the aerospace and defense sectors, which will be reflected in our results throughout FY 2020 and beyond. We remain on track to bring additional plant capacity on line this year to address the increases in demand as well as internalize many processes that have been traditionally outsourced to our subcontractors. The purpose here is to augment industry capacity and support of the unprecedented expansion in the aircraft industry and to create an infrastructure that is more responsive to the needs of our customer base. Aerospace demand drivers this year will be the major airframe and engine builders. We continue to see supply of an ever expanding range of products, including of course bearings as well as bearing integrated structural components, fasteners, engine seals and hydraulic actuators among other products.

Today, we are preparing to support the accelerated build rates of the 737 MAX and the 787 ships as well as the introduction with Boeing's 777X, which will be a very important ship to RBC Bearings. On the defense side, the submarine business continues to show strong current demand and future promise as plans for the expansion of future sub-builds become firm. As funding for the 9 boat (ph) block 5 is under way there is a movement underfoot for an 11 boat (ph) block 5, which will mean a 3 boat Virginia Class build starting as early as 2020. The Joint Strike Fighter build rate increases again this year, another high-profile program for us and more funding is allocated for offensive weapons systems including missiles and advanced bombers. Both systems use products core to our business.

Last but not least is space. We are working with the major rocket system and satellite manufacturers on the new century of space technology, new designs for bearings and actuating devices to be used in rocket guidance, rocket engine turbo pumps and communication satellites are being created turned into operating hardware and sold in low production quantities to the principal manufacturers. Our belief is that this will be a very productive area for our products in the future. It's very hard to put a limit on the future business that could be developed, if interplanetary travel becomes reality, however, the explosion of disposable communications satellites is very close at hand. Regarding our first quarter, we are expecting sales to be between $182 million and $184 million, compared to $171 million last year, net of the Airtomic, Miami contributions.

I will now turn the call over to Dan, who'll give you more detail on our financial performance.

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

Thanks, Mike. SG&A for the fourth quarter of fiscal 2019 was $29.5 million, compared to $29.6 million for the same period last year. As a percentage of net sales, SG&A was 16.2% for the fourth quarter of fiscal 2019, compared to 16.4% for the same period last year. Other operating expense for the fourth quarter of fiscal 2019 was expense of $3.2 million, compared to expense of $2.1 million for the same period last year. For the fourth quarter fiscal 2019, other operating expenses were comprised mainly of $2.3 million in amortization of intangible assets and $0.9 million of restructuring expense. Other operating expense for the same period last year consisted mainly of $2.3 million in amortization of intangible assets, offset by other income of $0.2 million. Operating income was $40.3 million with the fourth quarter of fiscal 2019, compared to operating income with $38.1 million for the same period in fiscal 2018. On an adjusted basis, operating income would have been $41.2 million for the fourth quarter of fiscal 2019, compared to an adjusted operating income of $38.5 million for the fourth quarter of fiscal 2018.

For the fourth quarter of fiscal 2019, the company reported net income of $31.4 million, compared to net income of $26.7 million for the same period last year. On an adjusted basis, net income would have been $32.9 million for the fourth quarter of fiscal 2019, compared to adjusted net income of $26.4 million for the same period last year. Diluted earnings per share was $1.27 per share with the fourth quarter of fiscal 2019, compared to $1.09 per share for the same period last year. On an adjusted basis, diluted earnings per share for the fourth quarter of fiscal 2019 was $1.33 compared to an adjusted diluted EPS of $1.08 for the same period last year.

Turning to cash flow, the company generated $29.5 million in cash from operating activities in the fourth quarter of fiscal 2019, compared to $37.8 million for the same period last year and $108.5 million in cash from operating activities for the full year fiscal 2019, compared to $130.3 million for the same period last year. Capital expenditures were $12.1 million in the fourth quarter of fiscal 2019, compared to $7.4 million for the same period last year. On a 12-month basis, CapEx was $41.3 million, compared to $28 million for the same period last year. In the fourth quarter of fiscal 2009 (ph), the company paid down $70.1 million of debt and for 12-month period, paid down $130.5 million of debt. Total debt as of March 30th 2019 was $43.6 million and cash on hand was $29.9 million.

I would now like to turn the call back to the operator to begin the Q&A session.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Steve Barger of KeyBanc Capital Markets. You may proceed with your question.

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Hey, good morning, guys. This is Ken Newman on for Steve.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Hi, Ken. How are you doing?

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Good. Just curious. Could you just talk about the decline in industrial, obviously you had a really tough comp this -- in the prior year and the comp gets a little tougher, or is still tough into the first quarter of your new fiscal year. Just talk through which end market categories were down versus what still showing strength?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Sure. Remember last year Q4, we grew the industrial business at 26.4% in the quarter, so it's really tough comp. But it's kind of just down a little on oil and gas, marine, semiconductor and machine tool collets. And so it's kind of evenly spread across those four end markets for us. But we're still confident in fiscal year 2020, that we'll be able to achieve that normal goal of two times GDP on growth on the industrial side of the business.

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Okay. That's helpful. And then switching gears here, I just want to talk about free cash flow. Obviously, there's been a lot of CapEx geared toward some of the capacity additions and other restructuring actions that you took this year. As you think about free cash flow in your fiscal 2020, do you think conversion could kind of return back toward that 100% or better that you've done the more normalized portion of the cycle?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. You know, as you know, Ken, we consider ourselves a growth company, so we're going to invest in growth. And so, I mean, organic growth and acquisitions. I think on the organic growth side where we're pretty much there, all depends on how much more capacity that we want to put in depending on what's going on with some of these new programs that are coming at us over the next 24 months. But I don't think we'll be at $41 million next year on CapEx will be a little less than that. And we did end this year with a little bigger investment in working capital mainly, AR, because the big pickup in revenues in the fourth quarter and strategic inventory coming out of this year to prepare us for fiscal year 2020 and 2021. And that, that will normalize over the next 12 months to 18 months also. So we'll be back to that conversion of over 100% net income to cash.

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Got it. And then lastly before I jump back into queue, I just wanted to ask about the margin profile. In past years I think you'd always had a goal for about 100 basis points in gross margin expansion. First, do you think that's still possible with tough comps and industrial in fiscal 2020. And I'm also curious, did you see anything unusual in the quarter to drive operating income dollars higher than the revenue growth in the quarter? I'm trying to think about how you think about these forward mix of industrial versus aerospace growth?

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

I'll answer the first part of your question. I'll let Mike answer the second. So on the -- remember when we began this year, we gave The Street our point of view on what our internal goal was on growing gross margin, it was 50 bps, and we ended the year at about 108 (ph). And a part of that came from the sale of our Miami division because it was a lower gross margin product offering, but a big chunk of that came from more efficiency and better price in the marketplace. Our target -- internal target for fiscal year 2020 is around 50 bps again. And -- because we have a lot going on. We have started to pull these new facilities that will be coming through. And so we do have some headwinds and those expenses as we go through the year. I'm going to let Mike answer. Do you see anything unusual? I don't.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Unusual in the past quarter or looking forward?

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

I mean, looking specifically at the quarter, but I mean the takeaway on the forward look would be great as well.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, the -- we had several businesses over the quarter, this past quarter, actually for the year, where we were -- our book-to-bill was 150%. And that leads to a very strong environment for pricing.

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Yeah. Perfect. That's very helpful. I'll jump back in queue.

Operator

Thank you. And our next question comes from Michael Ciarmoli of SunTrust. You may proceed with your question.

Michael Ciarmoli -- SunTrust -- Analyst

Hey, good morning, guys. Thanks for taking the question, real nice margin performance in the quarter. Maybe just to go back to Ken's line of question on industrial. I mean, I know last quarter, semi was softening and you had some other end markets leveling off. Can you give us color did the trends outside the tough year-over-year comp, did any of the trends worsened in any of those end markets. And maybe if you could talk about the -- you had nice backlog growth was industrial kind of strong on the booking side or what drove that backlog growth?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah, I think on the industrial side, I mean, with oil and gas, when you get to that certain level, it just gets a little lumpy now right from quarter-to-quarter since we grew that business over 20% something over the last year-and-a-half. And then none of these are really kind of connected on the machine tool collets for us. That's mainly our European business that serves in the industrial base in Germany and Switzerland and in China. And then on the marine side, that is just-we are transitioning off a Block 4 which is just coming into an end on the marine Virginia Builds and we are transition into the Block 5 which is starting off as a one boat build and then going to two and then hopefully to three. And we discussed that on the last call, I think in that what we felt was going to be impact in the marine was going to be. Going into April, our order book was very strong on the industrial side and then it calm down again a little and May. So, I think it's always going to-when you get to that certain level on the industrial side after growing the business that will digit for two years. It's going to be get back to a normalized growth rate where we need to focus very hard on market share gains, which we are doing.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. What about you mentioned the Virginia Class again, does the three boat-the same at 2 versus 3 have any implications. I know the House Appropriations Committee just kind of made a surprise move in cut that third boat and it looks like they are moving more money into ship maintenance. Does that have any impact on what your run rate would be in that business that the third boat doesn't come through?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, we'd love to see the third boat come through, but it doesn't have -- that would have influence on our run rate for sure, because that boat is probably worth anywhere depending how it's configured from $12 million to $15 million to us. So, yeah that would have a reasonable impact. So with that said, since we don't stock in aerospace we have never were in a position where they were building 3 boats a year.

Michael Ciarmoli -- SunTrust -- Analyst

Yeah.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

That is all we can tell.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Got it. And then just more on the, the 737, I know we've got the summit today and it certainly looks like this is going to be more of an extended downtime. I know it's a pretty important platform for you guys. Are you seeing any indications from some of your customers? It sounds like everybody is still shipping out 52 per month, but how are you sort of framing that risk in your fiscal 2020 planning horizon if you see any risk. It seems like there's a big unknown right now. And I guess you know spirits continuing to produce a 52, I just don't know how a lot of these suppliers are managing this unknown. So any more color you could see there, or any discussions with any of your customers what the cadence of production might look like, or how you're framing our risk in unknown?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, it's a simple question with a complicated answer. First of all, the demand on the industry right now to produce componentry for this system is right at its maximum. I mean, it's -- if there's a delay in the 737 production for a few months, which we expect there is going to be, it would be a blessing more than anything else. Because as I said earlier, when we're booking these businesses at 150% book-to-bill ratio, it's -- the bathtub is completely filled to the brim with water, industrywide in terms of capacity versus demand. So to move from the 52 ships to the 57 ships, it's going to be very difficult for the infrastructure to support that demand. Do I think that Boeing can solve the technical problem relative to the system that -- actually I don't -- the system, the question is, did the system malfunction, or did they have incompetent pilots. And that's a question I think it will go around and around forever. But to make this system more sailor-proof, shall we say, is I think very -- Boeing is very capable of doing. It has the technology to do that. And now as they are focused on it, no question will apply their skills to making that system sailor-proof. The question is why wasn't that done in the past, I mean who is ever putting the airplane to together is product -- program manager made a choice that may be he wish he didn't make much right now, but, I think the problem has moved from one of a technical problem to one of a political problem. Obvious the political problems get solved by politics overtime, we are expecting that time frame to be sometime over into the fall. Will 737 Max fly again? Yes. Will it be a successful ship? Yes. Will Boeing catch up their production rate? Yes. So, the industry stumbled trying to support Boeing to these production rate? Yes. That is how we see it.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Last one. And just -- I mean, if they stay at 52 a month here for -- through maybe May or June of next year, does that have an impact on your growth rate?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

No. It absolutely will not. If they go to 57 a month, it will be extremely difficult for us to achieve that support rate.

Michael Ciarmoli -- SunTrust -- Analyst

Okay. Got it.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Basically what happens in this industry is when the other suppliers can't supply the product, the subcontractor base comes to RBC for the supply. And that's one of the reasons why we're up a 150% versus where we expected to be last year is that the industry has started defaulting to RBC for supply requirements and at 57, I don't think we can take on everybody's requirements.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Now that's really helpful color. I'll jump back in the queue guys. Thanks.

Operator

Thank you. And our next question comes from Kristine Liwag, Bank of America. You may proceed with your question.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Good morning.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Good morning, Kristine.

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

Good morning, Kristine.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

Gross margins are pretty much at the highest level you've had in history. When you look at margin expansion opportunities from here, how reasonable is it for you to get another 1 percentage point each year?

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

Are you going to put that into your model, Kristine. You're dialing in 1% a year for five years.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

Well, that's what you said in the past and you've pretty much delivered on it. So...

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

Yeah.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

I want to see where the future lies.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. Well, I think given the products that we make and given the environment that we were in right now, I would say that that's -- other things aside that's probably achievable. Dan just fainted. Let me help him up off the floor here. But offsetting that you know we have start-up costs on new plants and it's very hard to predict the impact in the timing of these costs and when those plants will be sort of big margin contributors. And so that's a little bit of an unknown. So we're not so terribly bullish on the 1%, although you know if we were just steady-state running our business against our current mix and the current volumes that's eminently achievable, but we're not. So we're growing volume. We're going to grow margin. It's hard to tell you that it's going to be 1%. It will probably be 0.5% for the next year.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

Great. And then looking at that plan, I think what you guys have said before is that you expect 150,000 square feet of capacity additions to come online by the first half of fiscal year 2020? So that's about three quarters of capacity additions you had announced. So I was wondering does that mean that first half of 2020 should bear the brunt of that start-up costs. And then at what point would those facilities be accretive? I mean, these are -- I think a lot of that pieces you are in-sourcing because of supply constraints in the market. So presumably you should get a pretty healthy margin from those additions in the long run.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

And that's exactly how we see it too. It will be the first 6 months, or a little ahead in some areas and a little behind in others and I'd say 6 months kind of clears the deck.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

And then the net of it is basically as you said 1 percentage point gross margin for the business. And then you have start-up costs, but it nets out to about 50 basis point gross margin improvement for fiscal year 2020, but margins kind of back-end weighted. Is that fair?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

That's fair.

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from George Godfrey of C.L. King. You may proceed with your question.

George Godfrey -- C.L. King & Associates -- Analyst

Good morning, and thank you for taking the question.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Hey, George.

George Godfrey -- C.L. King & Associates -- Analyst

I just wanted -- Good morning. Hi there. I just wanted to understand on the capacity constraints what you can ultimately control and then what your -- under the subject of other suppliers, I'm thinking the processes that you want to bring in-house, with lead times in the equipment and machines you need versus other suppliers that you really can't alter their process or production you just have to wait. Can you quantify where you are in controlling the constraints that you have control over the next 9 months versus what you can't? Thanks.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. We're in very good shape, George. We have most of these processes coming online. It's not to say that we're not going to buy some of these processes from our subcontractors going forward. We are, but they have not. We can see industrywide, a lot of these subcontractors are small people. They don't have the big balance sheets. They're conservative. They're not willing to expand their businesses. They're happy with what they've got. But it doesn't address the industry problem of needing more supply of these products. So the capacity that we're adding sort of augments the industry capacity and takes care of that problem. The other issue is there's because of the products that we make are very high category products that have to have processes done only by certain specified agents in the country. So we make bearings in Connecticut. Those bearings have to go to California to be through some of their treatments and then back to Connecticut for the next step in the process and sometimes back to California again for subsequent treatment and then back to Connecticut for refinishing. So the bearing has to travel 5000 miles, 6000 miles in its journey from raw material to finished goods. So internalizing those processes the bearing is completed in the same plant. And it's just going to have an amazingly positive effect not only throughput, rate of throughput, but also obviously when you have a bearing going back and forth to California with frequent flyer miles you end up having a lot of extra whip in the system because you just have to -- because your lead times are expanded for those travel delays.

George Godfrey -- C.L. King & Associates -- Analyst

So those treatments that you're bringing in-house, do you think that process of bringing that treatment and getting that certification is completed, which is my understanding and that's done, so that by the December quarter is what I'm trying to get at that you are not capacity constrained on customer orders from what you can control, that's what I was trying to get at. Thanks.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Okay. Yeah, this is December ending quarter or is it the January beginning quarter?

George Godfrey -- C.L. King & Associates -- Analyst

I was thinking the December ending quarter, so your fiscal third quarter of 2020.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. I mean, we should be in that kind of position by then. Yeah, certainly by the December ending quarter. The only fly in the ointment there is can we get the approval by the OEMs for each one of these processes in place. We have the processes effectively in place today and we're working through the approval cycle with these OEMs now. That's a little bit out of our control.

George Godfrey -- C.L. King & Associates -- Analyst

Understood. Thank you for taking the question.

Operator

Thank you. And our next question comes from Pete Skibitski of Alembic Global. You may proceed with you question.

Peter Skibitski -- Alembic Global -- Analyst

Yeah. Nice quarter guys.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Thank you.

Peter Skibitski -- Alembic Global -- Analyst

Mike, I just want to talk about revenue a little bit more. So for the full year fiscal 2019, you grew revenue about 4%, and backlog grew about 13.5%. So do you just feel a lot more comfortable heading into fiscal 2020 in terms of your visibility? And the nice guidance you gave for the first quarter, I think it's 6% to 7% organic growth. Is that kind of the growth you're expecting for the full year, or do things kind of accelerate as the capacity comes online?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah, it should accelerate as the capacity comes online.

Peter Skibitski -- Alembic Global -- Analyst

Okay, OK. That's correct. And at this point...

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

It almost -- given our backlogs, it almost has to and our backlog really isn't that reflective of our business anymore, because a lot of the products that we -- a lot of the orders that we get, we get through a Internet portal that are released by the big OEMs. So the OEMs say, you know for parts, X, Y, Z, shipped me 50 pieces. And so we know that's coming because it's under contract, so we have the 50 pieces. We ship it right away. A lot of our business is done through those portals.

Peter Skibitski -- Alembic Global -- Analyst

Got it. Okay, OK. And just to put a final piece on it, should aerospace grow faster do you think that industrial in fiscal 2020, just because you've got the -- that Virginia Class headwind in the industrial?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah. Well, aerospace will grow faster just because we need to get the product out of here to take care of our customers.

Peter Skibitski -- Alembic Global -- Analyst

Okay, OK. And then I have another question on capacity as well. It wasn't clear to me as the capacity comes online by kind of mid fiscal 2020. Are you able to hit 57 a month at that point or would you have to add even more capacity in order to get to 57 a month, should it be required to?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

If we talk about the existing mix that we have and the existing business and the contract and so on and so forth that we have, yes, we won't have any trouble with the 57 a month. The problem is, we keep getting more and more business and more and more contracts on top of the ones that we already have. And you know it's because the other guys whoever those other guys are -- you know they're having difficulty supporting the build rates. So we're -- they're defaulting on their contracts and we're picking up their contracts. So, you know, we can't handle the entire industries default position, because we can handle our own size a little bit.

Peter Skibitski -- Alembic Global -- Analyst

Tough spot to be, right?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Yeah.

Peter Skibitski -- Alembic Global -- Analyst

Last question for me. I was curious and just to put it broadly, would you think of this Parker acquisition of Lord (ph). Do you think that is going to impact to you guys and then more broadly just how is the M&A funnel and environmental look like?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, you know, I think -- I think that's a nice acquisition for Parker. I mean, I -- you know Lord is a highly respected company. They have some great products. You know, I wish, we acquired them. So congratulations Parker. I think they'll do very well with Lord. Our acquisition pipeline is very productive right now and we should be talking about it soon.

Peter Skibitski -- Alembic Global -- Analyst

Got it. Okay, OK. Just a follow up. Was Lord one of those companies that was having troubles executing and maybe they will be doing better as part of a company with a bigger balance sheet?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

No. You know Lord isn't really in our space. We like a lot of their product offering. We don't have those products. We don't make those products, but we covet those products.

Peter Skibitski -- Alembic Global -- Analyst

Thanks so much guys.

Operator

Thank you. (Operator Instructions) Our next question comes from Josh Sullivan of Seaport Global. You may proceed with your question.

Josh Sullivan -- Seaport Global -- Analyst

Hey, good morning.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Hey, Josh. Good morning.

Josh Sullivan -- Seaport Global -- Analyst

Just a question on the A320 platform. There's been some comments that forging sides constraining deliveries. Are you seeing anything either on the engine or airframe side on the A320 as it relates to RBC? And then just tying that together, you mentioned that getting to 57 on the 737 has some challenging hurdles. What about the A320 plans here to raise plane production? Are there any similar type hurdles with A320 plants?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

No, I'd say on the A320 where we don't see any issues with forging, because we're not aware of any of that. But on the A320, I mean that plane pretty much uses a standard mix that we produce and we have plenty of capacity for that standard mix.

Josh Sullivan -- Seaport Global -- Analyst

Okay. And then just with regard to the aerospace aftermarket, are you seeing any changes in demand for older model parts on the aftermarket at this point? Just looking at are you seeing a response to the grounding of the 737 for increased usage of older aftermarket parts. And then how do those margins for those legacy platforms kind of compared to the average at this point?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Well, we are seeing continued increasing demand in the aftermarket and the margins are very favorable. We're focused on fight engine groups and our business which was -- which is small, but growing. It's something, I don't have the number in front of me right now, it's something like 20%, 25% a year. It's a matter of fact, we just added 30,000 square feet to one of our aftermarket plants to support the growth in new business. So it's -- margins are good, volume is good. The 737 -- the impact of the 737 isn't a factor (ph).

Josh Sullivan -- Seaport Global -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from Michael Ciarmoli of SunTrust. You may proceed with your question.

Michael Ciarmoli -- SunTrust -- Analyst

Hey thanks for taking the follow up. Just you were hinting at those share gains, other suppliers, faltering, defaulting. Do you guys see these as temporary gains, or is this new sort of permanent market share gains going forward?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

All right. This is how it works. Glad you asked that question. This is how it works. If we have a customer -- we have customers that are driving through and that are with through the good times and the not so good times, right. And then we have other customers that we don't see, we only see at times like this. And so -- and they have a crisis. They need parts to have a crisis. And we can help them with their crisis. But we -- if we could sell the part for -- if the part's worth $1 and we can sell it for $10 and get to solve their crisis, we don't want to do that. What we would do want to do is we want a commitment from them, contractual commitment for their business for 5 years. Then we'll help them with their crisis.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Now that's really helpful. Last one, any updated views on tariffs and ability to pass through pricing?

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

The pricing environment has been very, very good. That's -- and if tariffs have are a very weak voice in a strong pricing environment.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Helpful. Thanks a lot guys.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mike Hartnett for any further remarks.

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Okay. Well, I think that concludes our conference call for today. Appreciate everybody's interest and support for RBC Bearings and we'll be looking to talk to you again in July. Good day.

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.

Duration: 41 minutes

Call participants:

Chris Donovan -- Investor Relations

Michael J. Hartnett -- Chairman, President and Chief Executive Officer

Daniel A. Bergeron -- Director, Vice President, Chief Financial Officer, and Chief Operating Officer

Kenneth H. Newman -- KeyBanc Capital Markets -- Analyst

Michael Ciarmoli -- SunTrust -- Analyst

Kristine Tan Liwag -- Bank of America Merrill Lynch -- Analyst

George Godfrey -- C.L. King & Associates -- Analyst

Peter Skibitski -- Alembic Global -- Analyst

Josh Sullivan -- Seaport Global -- Analyst

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