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Bearings manufacturer RBC (TSX:RY) Bearings (NYSE:RBC) fell short of analysts' expectations in Q2 CY2024, with revenue up 5% year on year to $406.3 million. Next quarter's revenue guidance of $400 million also underwhelmed, coming in 1.7% below analysts' estimates. It made a non-GAAP profit of $2.54 per share, improving from its profit of $1.89 per share in the same quarter last year.
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RBC Bearings (RBC) Q2 CY2024 Highlights:
- Revenue: $406.3 million vs analyst estimates of $416.9 million (2.5% miss)
- EPS (non-GAAP): $2.54 vs analyst estimates of $2.42 (4.8% beat)
- Revenue Guidance for Q3 CY2024 is $400 million at the midpoint, below analyst estimates of $407.1 million
- Gross Margin (GAAP): 45.3%, up from 43.4% in the same quarter last year
- Free Cash Flow of $18.4 million, down 73.7% from the previous quarter
- Market Capitalization: $8.33 billion
With a Guinness World Record for engineering the largest spherical plain bearing, RBC Bearings (NYSE:RBC) is a manufacturer of bearings and related components for the aerospace & defense, industrial, and transportation industries.
Engineered Components and SystemsEngineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Luckily, RBC Bearings's sales grew at an incredible 17.4% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows RBC Bearings's offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. RBC Bearings's annualized revenue growth of 17.7% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.
We can dig further into the company's revenue dynamics by analyzing its most important segments, Diversified Industrials and Aerospace and Defense, which are 63.3% and 36.7% of revenue. Over the last two years, RBC Bearings's Diversified Industrials revenue (general industrial equipment) averaged 42.1% year-on-year growth while its Aerospace and Defense revenue (aircraft equipment, radar, missiles) averaged 18.5% growth.
This quarter, RBC Bearings's revenue grew 5% year on year to $406.3 million, falling short of Wall Street's estimates. The company is guiding for revenue to rise 3.7% year on year to $400 million next quarter, slowing from the 4.4% year-on-year increase it recorded in the same quarter last year. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals RBC Bearings could be a hidden gem because it doesn't get attention from professional brokers.
Operating MarginRBC Bearings has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 19.6%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, RBC Bearings's annual operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q2, RBC Bearings generated an operating profit margin of 24%, up 2 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
RBC Bearings's EPS grew at a solid 11.4% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 17.4% annualized revenue growth. This tells us non-fundamental factors affected its ultimate earnings.
We can take a deeper look into RBC Bearings's earnings quality to better understand the drivers of its performance. A five-year view shows RBC Bearings has diluted its shareholders, growing its share count by 18.1%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For RBC Bearings, its two-year annual EPS growth of 44.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, RBC Bearings reported EPS at $2.54, up from $1.89 in the same quarter last year. This print beat analysts' estimates by 4.8%. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data. This signals RBC Bearings could be a hidden gem because it doesn't have much coverage among professional brokers.
Key Takeaways from RBC Bearings's Q2 ResultsIt was good to see RBC Bearings beat analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed and its revenue guidance for next quarter came in slightly below Wall Street's estimates. Overall, this was a mediocre quarter for RBC Bearings. The stock remained flat at $288.03 immediately following the results.
