Restructuring Charges Hold RBC Bearings Back for Now

Machinery from sophisticated aircraft to manufacturing equipment requires a host of bearings and components to work properly, and RBC Bearings (NASDAQ: ROLL) specializes in supplying the key products that various manufacturers need to do their work properly. The strength of the aerospace industry has helped keep RBC moving higher in recent years, but some headwinds earlier in 2017 required the company to make some adjustments to keep itself moving.

Coming into the fiscal second-quarter financial report on Nov. 3, RBC Bearings shareholders were looking for solid growth in key metrics. The bearings specialist didn't quite live up to all of those expectations, and one-time charges also played a role in hurting short-term results even if they might result in better performance in the future. Let's take a closer look at RBC Bearings to see what the results show about its business prospects.

RBC Bearings hits a bump

RBC Bearings' fiscal second-quarter results didn't maintain the positive momentum that the company had from last quarter. Revenue was up about 7% to $164.3 million, which nearly exactly matched what those following the stock were looking to see. GAAP net income was down by nearly a fifth due to restructuring charges, but adjusted net income climbed more than 10% to $20.3 million. Nevertheless, the resulting adjusted earnings of $0.83 per share were $0.02 less than the consensus forecast among investors.

RBC once again saw a major disparity between its two major business lines. Sales to the industrial market soared 23% compared with year-earlier levels, reflecting the ramping up of the cyclical sector. However, aerospace market sales were down 1% over the same period.

Sales trends across RBC's four key segments remained similar to those of prior periods. The roller bearing segment had the best growth rates, with more than 20% gains in segment revenue. Ball bearings also posted healthy growth of 13%, and the plain bearings segment had modest success with 5% gains. Only the engineered products segment suffered a drop in revenue, with segment sales declining by just over 1%.

RBC's efforts to boost internal efficiency had mixed success. Gross margin was higher by almost a percentage point to 37.6%, but restructuring costs pushed operating margin lower by nearly four percentage points. On an adjusted basis, though, operating margin would have been flat compared to the year-earlier quarter.

What's ahead for RBC Bearings?

CEO Michael Hartnett didn't mince words about his company's results. "Our solid second-quarter operating performance was driven by strong industrial sales growth," Hartnett said, "combined with continued gross margin improvements across the organization." The CEO pointed out that cost initiatives, improvements to the manufacturing process, and consolidation efforts all contributed to better performance for the bearings specialist.

RBC is also confident about the future. The company believes that it should be able to keep up its growth rates through the remainder of the 2018 fiscal year, pointing to a strong backlog of orders that it will need to fulfill. RBC has $390.2 million in backlogged orders as of Sept. 30, up by nearly $50 million from year-ago levels.

Investors got some guidance on what to expect for the fiscal third quarter. RBC is predicting revenue of $162 million to $163 million, which would match up favorably against the current projection from investors for about $158.5 million. The figure would also result in double-digit percentage growth rates on the top line, sustaining forward momentum for the bearings specialist.

Yet RBC Bearings shareholders weren't entirely comfortable with every aspect of the report, especially the weaker results from the aerospace side of the business. The stock dropped more than 3% on Friday following the announcement. To regain the full confidence of its shareholders, RBC will have to demonstrate that the money it is spending on internal improvements will pay off with higher profit sooner rather than later.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends RBC Bearings. The Motley Fool has a disclosure policy.