RBC Bearings, Inc. (NASDAQ:ROLL) Q3 2018 Earnings Call February 6, 2018 11:00 AM ET

Executives

Chris Donovan - Alpha IR Group

Dr. Michael J. Hartnett - RBC Bearings, Inc.

Daniel A. Bergeron - RBC Bearings, Inc.

Analysts

Kristine Tan Liwag - Bank of America Merrill Lynch

Peter John Skibitski - Drexel Hamilton LLC

George J. Godfrey - C.L. King & Associates, Inc.

Steve Barger - KeyBanc Capital Markets, Inc.

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 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 be given at that time. As a reminder, this call is being recorded.

I would now like to turn the call over to Chris Donovan with Alpha IR. You may begin.

Chris Donovan - Alpha IR Group

Good morning. And thank you for joining us for RBC Bearings fiscal 2018 third 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. 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.

Dr. Michael J. Hartnett - RBC Bearings, Inc.

Thank you, Chris, and good morning. And welcome to RBC's conference call. Net sales for the third quarter fiscal 2018 were $166.9 million versus $146.7 million for the same period last year, a 13.8% increase. For the third fiscal quarter of 2018, the sales of industrial products represented 37% of our net sales, with aerospace products at 63%.

Gross margin for the third quarter fiscal 2018 was $64.7 million or 38.8% of net sales. This compared to $52.4 million or 35.7% for the same period of last year, a 23.4% increase.

Adjusted operating income was $33.1 million versus $20.5 million last year, a 61.3% increase. Clearly, this was a very positive and exciting quarter for the company. The startup expenses, our new programs referred to in the last call are now producing the benefits of better margin performance for their relative product lines. There are more startups ahead as we begin to tool for new plane and engine component awards.

Adjusted diluted EPS for the quarter was $1.05. Free cash flow for the quarter was $20.6 million. And correspondingly, that was reduced by another $22.6 million. EBITDA came in at $44.4 million, 26.6% of revenues.

Industrial products showed a 23.1% year-over-year growth rate, and we continue to see strong overall demand for these programs. Industrial OEM was up 23.2%, and distribution and aftermarket was up 22.8% on a year-over-year basis. Mining, oil and gas, semiconductor machinery, machine tool and general industrial equipment demonstrated exceptional strength during this period.

On the aerospace and defense side, this quarter, the sector showed a 8.9% expansion. Aftermarket revenues, often lumpy, were flat for the period. Aero OEM was up 9.8% while defense jumped 23.4%. As you may know, the step-up in build rates for the single-aisle planes this year 2018 is planned to add another 160 planes. And there will be an additional 160 planes that are planned for calendar year 2019. That's assuming everybody can get all the parts, particularly engines.