RBC Bearings Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2022

Key Takeaways

  • Positive Sentiment: RPC Bearings reported Q1 net sales of $354.1 million, up 126% year-over-year, with adjusted EPS of $1.79.
  • Positive Sentiment: Industrial product sales surged 286.8% and organic growth was 17.3%, while aerospace sales rose 10% driven by Boeing/Airbus rate hikes and the 787 production ramp.
  • Negative Sentiment: Supply-chain disruptions and a temporary Shanghai plant shutdown cost an estimated $6–10 million in revenue, and Q2 guidance of $355–365 million reflects ongoing constraints.
  • Positive Sentiment: The company generated free cash flow of $51.2 million in Q1 and paid down $125 million of debt, targeting $300 million of debt reduction this fiscal year.
  • Neutral Sentiment: RPC Bearings restated prior periods to correct the timing of stock-based compensation; these non-cash changes have no impact on non-GAAP adjusted EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
RBC Bearings Q1 2023
00:00 / 00:00

There are 12 speakers on the call.

Operator

A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Josh Carroll, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and thank you for joining us for RPC Bearings fiscal 2023 First Quarter Earnings Conference Call. With me on the call today is Doctor. Michael J. Hartnett, Chairman, President and Chief Executive Officer Daniel Bergeron, Director, Vice President and Chief Operating Officer and Robert Sullivan, Vice President and Chief Financial Officer.

Speaker 1

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, a reconciliation of GAAP and non GAAP financial information is included As part of the release and is available on the company's website.

Speaker 1

With that, I'll now turn the call over to Doctor. Hartman.

Speaker 2

Thank you, Josh, and good morning, all. I'll start off by saying that net sales for the Q1 of fiscal 23 were $354,100,000 versus $156,200,000 for the same period last year, an increase of 126 For the Q1 of 'twenty three, sales of industrial products represented 72% of net sales, Aerospace Products 28%. Gross margin for the quarter was $141,200,000 39.9 percent of net sales compares to $63,800,000 or 40.8 percent for the same period last year. Adjusted operating income was $68,300,000 19.3 percent of net sales compared to last year of 29,900,000 And 19.1%, respectively. GAAP EPS was $1.09 and new adjusted EPS came in at 1.79 And Rob will explain this in more detail later in the call.

Speaker 2

The quarter performance was very much in compliance with our expectations, Right in the middle of the fairway. A little lower on revenues than our guidance as a result Losing $6,000,000 to $10,000,000 from the shutdown of our Shanghai, China plant and some unusual missteps

Speaker 3

Adjusted EBITDA

Speaker 2

was 100 point $7,000,000 28.4 percent of net sales compared to $45,300,000 29 percent of net sales for the same period last year. During the period, we paid down debt by another 125,000,000 And free cash flow was $51,200,000 We entered the Q1 with a strong industrial sector. All components, including industrial distribution, food, aggregate, grain, mining, semiconductor, machinery, Marine, wind, energy were strong and the outlook here is more of the same for the next quarter. Sales of Industrial Products were up by 286.8 percent from last year. RBC organic growth for Industrial Products was up 17.3%.

Speaker 2

Turning now to Aerospace and Defense. The Q1 of Fiscal 'twenty three, net sales were up 10%. The revival in production at Boeing is a welcome contributor as there Plans to increase rates on the MAX to over 50,600 ships in 20 3 20 4, respectively, From 330 today and Airbus sets a new pace of 708 100 ships for the A320 series over the same period. Today, they are they shipped they plan on producing 600 ships. This brings new and welcome post COVID volume to our factories, many of which were designed and capitalized over the past Half dozen years to efficiently produce products for these important aircraft models.

Speaker 2

As many of you already know, RBC Bearings was honored to receive the Supplier of the Year award from Boeing at their June Supply Chain Conference in Los Angeles. We have been a supplier to Boeing since the 1940s, probably earlier and participate in every plane model currently produced And a great many defense products. Boeing Commercial Aircraft is supported today by over 11,000 suppliers. The release to production of the Boeing 787 model aircraft is an important milestone event for us. Several of our plants produce many unique products for this plane and our content is substantial.

Speaker 2

Obviously, we are applauding the resumption of production of this aircraft and are busy now reviewing plant capacity to support the increase. We are using 10 ships per month in 24 months out as a planning bogey. A word in our defense business, The outlook here is positive for new designs, hardware and services, new designs for advanced munitions, aircraft And submarines with expanded mission profiles. It's very active right now and it's a pretty exciting place to work. Our business supporting the construction of Virginia and Columbia ships continues to expand and we plan to add to our manufacturing and test Facilities over the next 24 months to support these requirements for the next at least dozen years.

Speaker 2

More on this aspect in future calls. Finally, given the deployment of U. S. Made equipment to Europe in the past month, there's been Strong initiative underway here for replenishment of munitions as you can imagine, we will be impacted by that. Regarding the Q2, we are expecting sales to be between $355,000,000 $365,000,000 The are here in that range is all about supply chain.

Speaker 2

And now I'll turn the call over to Rob for more detail on the financial performance.

Speaker 4

Thank you, Mike. SG and A for the Q1 of fiscal 2023 was 55 point $8,000,000 compared to $31,200,000 for the same period last year. As a percentage of net sales, SG and A was 15.8% for the Q1 of 2023 compared to 20% for the same period last year. Other operating expenses for the Q1 of fiscal 2023 totaled $20,900,000 Compared to $3,200,000 for the same period last year, for the Q1 of fiscal 2023, other operating expenses included $17,300,000 of amortization of intangible assets, dollars 3,800,000 of costs associated with the Dodge acquisition And $200,000 of other income. For the Q1 of fiscal 2022, other operating expenses consisted primarily of $2,600,000 of amortization of assets and $600,000 of restructuring costs and other items.

Speaker 4

Operating income was $64,500,000 for the Q1 of Fiscal 2023 compared to operating income of $29,300,000 for the same period in fiscal 2022. On an adjusted basis, operating income would have been $8,300,000 for the Q1 of fiscal 2023 compared to adjusted operating income of $29,900,000 for the Q1 of fiscal 2022. Interest expense for the Q1 of fiscal 2023 was $15,800,000 including $2,300,000 associated with the amortization of deferred financing fees. This compares to interest expense of $300,000 for the same period last year. The year over year increase reflects the addition of the Term loan facility in the senior notes utilized for the Dodge acquisition during fiscal 2022.

Speaker 4

For the Q1 of fiscal 2023, the company reported net income of 37 $400,000 compared to net income of $24,000,000 for the same period last year. On an adjusted basis, net income was $40,200,000 for the Q1 of 2023 compared to $24,300,000 for the same period last year. Net income available to common stockholders For the Q1 of fiscal 2023 was $31,700,000 compared to net income of $24,000,000 for the same period last year. On an adjusted basis, net income available to common stockholders for the Q1 of fiscal 2023 was $34,500,000 compared to adjusted diluted earnings per share of $0.96 for the same period last year. Starting this quarter and in future releases, We reflect a newly defined adjusted earnings per share.

Speaker 4

In recent months, it's become clear everyone is a bit all over the place in how they're considering earnings And we've listened to feedback from our shareholders, and we believe this new metric will best reflect the ongoing performance of our business. To be clear, in future periods, we will no longer report cash earnings per share or historical adjusted earnings The new adjusted earnings per share will reflect adjustments for one time or unusual items, foreign exchange, Discrete and other unusual tax matters, amortization of M and A related intangible assets, amortization of stock based compensation and the amortization of deferred financing fees. For the Q1 of fiscal 2023, this new adjusted earnings per share was $1.79 Compared to $1.22 for the same period last year, this year over year improvement reflects the significant benefits provided by the Dodge acquisition. Please refer to our press release filed this morning for the full calculation. Turning to cash flow, the company generated $59,000,000 in cash from operating activities In the Q1 of fiscal 2023 compared to $53,300,000 for the same period last year.

Speaker 4

We made a strategic investment in our inventory during the current period, impacted the operating cash generation. Capital expenditures were $7,900,000 in the Q1 of fiscal 2023 Compared to $3,400,000 for the same period last year, we paid down $125,000,000 on the term loan during the period, leaving total debt of 1.56 $5,000,000,000 as of the end of the period and cash on hand was $119,600,000 Finally, I wanted to offer some brief details on The restatement of our 10 ks previously filed in May. This restatement arose out of the company's reexamination of the timing of the recognition of stock based compensation Under U. S. GAAP, the recognition of compensation expense associated with these awards Should have been accelerated due to certain clauses in the agreements associated with voluntary termination.

Speaker 4

The results of these adjustments is an expense that would have Previously been recorded in fiscal 2023 and future years has been recorded in previous periods. The impact in fiscal 2022 was an additional $9,000,000 of pre tax compensation expense. The impact in fiscal 2021 was a reduction in expense of $3,200,000 And the impact in fiscal 2020 was an additional $7,400,000 of pre tax compensation expense. Importantly, these adjustments relate to a non cash expense item It impacts the timing of the recognition rather than the overall amount of the compensation expense. There was no impact to our historical non GAAP adjusted EBITDA as we traditionally exclude stock based compensation from that metric.

Speaker 4

As a result of these adjustments, The total expense recognized in fiscal 2023 is expected to be less than previously anticipated, including a reduction of more than $5,000,000 for the total for the rest of the I would now like to turn the call back to the operator for the question and answer session.

Operator

Thank you. We will now be conducting a question One moment please while we poll for questions. Our first question today is coming from Christine Legg from Morgan Stanley. Your line is now live.

Speaker 5

Hey, good morning, guys.

Speaker 2

Good morning, Paul.

Speaker 5

Or I guess afternoon, sorry. So first, congratulations on winning the Boeing Supplier of the Year award. Presumably Boeing would want more of its supply chain to execute like you guys. I mean to what degree does this recognition potentially unlock

Speaker 2

Well, we're waiting To see how that plays out, Christine, we're clearly Sort of in the winner's circle in terms of new work coming from Boeing and We're working through bids on other products. Boeing is, I guess it's well known that they have a lot of supply chain issues and suppliers that didn't make it through the COVID period for Financial reasons or employment reasons or shortage of labors And so they're looking to move work and I think we're probably in a very good position To achieve some of that work, it's too early to tell what the ultimate benefit is going to be.

Speaker 4

But I like

Speaker 2

who we are.

Speaker 5

That's great. And if I could do a follow on question on Dodge. When you look at RBC Bearings historically, you guys have performed and been very defensive across different cycles. I mean, Looking back in the past 10 years, gross margins didn't dip below 35%. And even going back to data Post IPO, I mean, gross margins never dipped below 30%.

Speaker 5

So given the uncertain macro backdrop we're facing today, Can you provide more color on how Dodge changes your the defensibility of your portfolio and how you'd expect them to perform In an industrial recession, should we see 1? I mean, with the 60% recurring revenue at Dodge, is it more or less Sensible on top and bottom line versus RBC Bearings on a legacy basis?

Speaker 2

Yes. Well, I think roughly 80%, I'm rounding now, of Dodge's revenues are coming from industrial distributors And those industrial distributors, if you talk to any one of those industrial distributors, they will tell you that 50% of their revenue It's what they call break fix revenue. So there's something broken in one of the plants that they service and so They supply the replacement part to that plant. And so There's a heavy concentration of Dodge's business is associated with this break fix component of The U. S.

Speaker 2

Infrastructure and that infrastructure is aggregate, it's grain, it's What they call unit handling and so it's very integrated So I think the Dodge when you look at the Dodge revenues Over that same period, there are lower beta revenues than RBCs, because RBC It's more direct OEM business, so we might be supplying somebody like a Caterpillar and depending upon what systems you're Flying at Cattell, you can be up a lot, you can be down a lot, and Dodge doesn't have that variability in their makeup.

Speaker 5

That's great. And then with less variability in the top line, presumably margins also would be more stable. Is that a fair assessment?

Speaker 2

Yes, I think that's a fair assessment.

Speaker 5

Great. I'll pass it on to the next question. Thank you.

Operator

Thank you. Next question is coming from Steve Barger from KeyBanc Capital Markets. Your line is now live.

Speaker 4

Thanks.

Speaker 6

Rob, thanks for the explanation on the new adjusted EPS. Just to make sure I understand, when you report 2Q, we'll see a GAAP result and then The adjusted number that you will focus people to be comparable to the $1.79 that you referenced for this quarter?

Speaker 4

That's exactly right. Those will be the only 2 that will reflect starting next

Speaker 6

quarter. So you would expect consensus to reflect more of that 179 basis?

Speaker 4

That would be what we would expect.

Speaker 6

Got it. That's perfect. I'm going to ask that industrial question maybe in a slightly different way. When you think about the combined industrial business and how that will grow relative to the cycle, just To be more quantitative, if IP or industrial production is plus 5%, what would you expect your business to be up? And then same question if IP were to be down 5%.

Speaker 2

Well, I can tell you, if IP were up 5%, we would have difficulty Supporting all the order book. The order book would be extremely demanding. Actually, when When it's above 3%, it's very demanding. 5%, it's probably Merges with a purchase manager index of something like 55 to 58. Those kind of track each other and in those neighborhoods, we're as busy as it can get.

Speaker 2

When it goes negative 5%, Steve, I really don't want to think about that.

Speaker 6

Well, I mean, you just went through it in the pandemic, right? And IP is running about 5% right now. So Is the order book hard to keep up with as it stands today? Yes. Supply chain notwithstanding?

Speaker 2

Yes. The order book It's still outpacing our ability to deliver and that's mainly a supply chain thing. We certainly have The internal plant capacity, but we are having hiccups, particularly in the Dodge side, not on the RBC side, but on the Dodge side, With supply chain matters and that way, when we do a revenue guidance, There is an incredible amount of work that goes into the calculus Associated with getting to those revenue numbers and so we try to make them conservative But realistic. And so, If there is some supply chain breakthroughs, then there will be a very pleasant revenue Surprise at the end of the quarter. The supply chain problem is getting better As we bring on basically additional suppliers and in some cases, we convert some of the RBC Classic plant manufacturing to relieve some of the shortages that we have.

Speaker 2

So, and that's working better as you introduce it and work it and it matures. So I think but I do think it's going to be with us for the rest of this year.

Speaker 6

Yes. For the revenue guide for 2Q, how much Did you factor in as an offset for supply chain?

Speaker 2

Well, I know what the number is, but I don't want to tell you.

Speaker 6

Okay. Is it less than you factored in for your 1Q guide?

Speaker 2

No, it's the same.

Speaker 6

Okay. And do you expect Dodge revenue contribution will be up sequentially?

Speaker 2

Yes, I do.

Speaker 6

Got it. All right. Thanks. I'll pass it along.

Operator

Thank you. Next question is coming from Seth Weber

Speaker 7

I wanted to ask the margins were actually Better than what we are looking for both on the gross margin and EBITDA margin. So I'm just trying to understand maybe where you're at from a price Cost perspective, would you expect price cost to be getting better through the balance of the year? Are you on the positive side of that? Or just Any framework you can give us for what you saw in the Q1 relative to expectations for the rest of the year? Thanks.

Speaker 2

Yes. Well, I think price cost is going to get better, Particularly as it relates to supply chain, and half of Dodge's cost of sales in rough numbers, Our supply chain supplied, and so there's transportation expense in there. In the past quarter, there is airfreight from Asia That's going away. The cost of diesel seems to be moderating. So the transportation expense should calm down and we see the prices of some of the basic commodities backing off.

Speaker 2

So that's telling us that, that cost pressure We should be relieved as time goes on. We didn't see any relief in the 1st quarter. And we're not planning to see any material relief in the 2nd quarter.

Speaker 7

Okay. Would you keep the Price increases that you're pushing through even in a lower input costs environment?

Speaker 2

Well, I mean, we'd have to evaluate it product by product and account by account and see where it all comes out. That's a hard question to answer. We would in some cases and we Probably back down in other cases, and so it's very tactical.

Speaker 7

Yes. Okay. And then just my follow-up question. You've mentioned now for a couple of quarters adding capacity on the aero side, and I think I heard you Kind of reference adding some capacity on the defense side as well. Can you just put some timing around that?

Speaker 7

It sounds like defense may be a little bit further out, but when would you expect this extra capacity to start to help you?

Speaker 2

Well, on the aero side, we don't have to add the capacity on the aero side in terms of CapEx and that sort of thing Because we were at a gallop there before the pandemic hit and we want to get sort of it looks like we're going to get back into those close. So it's really adding manpower. And that's These days, that's not easy to do, but it's doable. And so you have to go out And be creative about where you look for people and how you attract them to your company. So that's on the aerospace and the industrial side, that's kind of answers that question.

Speaker 2

On the defense side, yes, it's a little further out. We have proposals into the some of the defense agencies with regard to What we'd like to add for what we think should be added for capacity and They've been favorably received and it looks like we'll receive some funding.

Speaker 7

Got it. Okay. Thank you, guys. Appreciate it.

Operator

Thank you. Our next question is coming from Sam Srinivasan from Truist Securities. Your line is now live.

Speaker 8

Hey, guys. Mike Ciarmoli today. Just hoping, I think you touched on this a little bit regarding pricing, but is there any particular Aspect of supply chain, whether it be specific parts or raw materials, where you guys are increasing lead times or maybe some pressure there? And then kind of building off of that, Again, briefly touched on prior, but regarding labor, are you guys finding any additional needs there Bringing on capacity on that front?

Speaker 2

Yes, well on the labor side, we definitely will. We'll have to add labor. This buildup of the 787 Production volume is pretty significant for us. So there's no way that we're going to be able to do that without adding labor. And but it's a manageable amount of labor requirement.

Speaker 2

So It's the second part of your question was materials.

Speaker 9

Yes, just if you guys

Speaker 8

are feeling any particular Supply chain pressure, whether it be lead times or just pressure and whether it's any particular parts of raw materials where you might be feeling that?

Speaker 2

Well, yes, on raw materials, of course, it's titanium. And titanium is always an issue. And depending upon Who you're working for, it can be a challenge, it can be very costly. And so there's various strategies that we can employ there and do employ We can buy if we're supplying Boeing, we can buy titanium from the suppliers At a negotiated price that Boeing had negotiated with that supplier for people like us. And And Boeing tells us there's absolutely no issue at all with the availability of titanium.

Speaker 2

They've got that covered. So I hope they're right. With regard to some steels, Some of the steels are pretty exotic and pretty sophisticated and lead times on some of the steels are You know, a year, 50 weeks, some of the important steels Are made by people who went bankrupt and are barely staying alive. And so some of the big plane makers and their subcontractors, larger subcontractors are doing some extraordinary things to Keep those people alive, but that's always a concern.

Speaker 8

Great. Thank you.

Operator

Thank you. Next question is coming from Joe Ritchie from Goldman Sachs. Your line is now live.

Speaker 10

Hi, good afternoon.

Speaker 2

Hi, Joe. Hi, Joe.

Speaker 10

Just a few quick ones for me. I think I recall The last time we chatted, we were anticipating the first half gross margin to be about 100 basis points higher Then where you exited fiscal 'twenty two, it looks like the start to the year has gotten maybe a little bit gotten off a little bit slower than or below the 4Q number. Do you guys still expect the first half GM to be about 100 basis points higher?

Speaker 2

Where do we end up in?

Speaker 4

Yes, I think that the way we're looking at it is that over the course of the year, we should Start to see that improvement, but it's always lumpy during the year. I would expect the 2nd quarter gross margins to look quite similar to the first.

Speaker 11

And our strongest quarter is Q4.

Speaker 10

Okay. That's helpful. And then I guess Maybe just kind of parsing out. I know that you guys have a lot of international exposure, so probably less affected by FX And a lot of other companies that we cover. But I'm just curious, like the industrial organic growth number for this quarter, I don't I didn't hear you guys give it earlier.

Speaker 10

I mean, we're calculating something like 17%. Is that what you saw come through in the quarter?

Speaker 4

That didn't go. 0.3%.

Speaker 11

And that's mainly due to

Speaker 10

the call. Okay, great. And then I'd actually be curious just to hear any trends that you're seeing in the business As you progress through the quarter, obviously, 17% is a very healthy number. A lot of concerns Out there around industrial activity slowing, just any thoughts around what you're seeing in that business and any trends that you saw intra quarter?

Speaker 11

Well, I think we have a few really good key markets that are doing well, construction and mining, semicon, Oil and Gas and at the same time, I think we're starting to see some activity from our synergy on cost training, Dodge's sales team and RBC's sales team. And so with a 17.3% growth rate on industrial mainly in the U. S, I mean, we're more than double of any of our competitors on the growth rate year over year for the quarter We're going up against. But for us, the big markets, like I said, are construction of mine inside be the Caterpillars, Komatsu's of the world, oil and gas, semiconductor, general industrial distribution, Just without Dodge, our general industrial distribution business was up 11.6% and Organically and our OEM business was up 21%.

Speaker 10

Okay. That's helpful. Thank you.

Operator

Thank you. Next question is coming from Ron Epstein from Bank of America. Your line is now live.

Speaker 3

Yes. Hey, Mike. Good afternoon. Good morning, Paul.

Speaker 4

Hey, Ryan.

Speaker 3

Just a couple of quick Financial questions. So is the plan to still pay down $300,000,000 of debt this year?

Speaker 4

The plan is to accomplish $300,000,000 this year, dollars 400,000,000 cumulatively since the acquisition. That's right.

Speaker 3

Okay, great. Super, super. And then I guess, another thing that kind of came out in the release, I mean, what's being done to address the material weakness in the financial controls?

Speaker 4

Yes. We're taking internally, we are reevaluating the processes that are in place regarding employment contracts as they relate to Compensation and we'll be adding additional controls regarding the legal and accounting review prior to the time of Grant.

Speaker 3

Got you. Got you. Okay, great. Thank you.

Operator

Thank you. The next question is a follow-up from Steve Barger from KeyBanc Capital Markets. Your line is now live.

Speaker 6

Hey, thanks guys. Was there anything outside of Shanghai and supply chain that impacted 1Q revenue? Like was there any FX impact?

Speaker 4

Very minimal FX impact during the period, all things considered. Obviously, the European rates It's moved the way they did, but the notes that Mike hit on were the bigger drivers.

Speaker 6

Okay. Can you remind me if anything changed around seasonality for 3Q with Dodge included? I think historically, it typically steps down a touch From 2Q before the ramp to the 4Q peak?

Speaker 4

The same. So you can expect they're going

Speaker 11

to have the same holiday seasons that we have, Thanksgiving, Christmas and the shortest amount of production days for both companies.

Speaker 4

Yes. Okay.

Speaker 6

And historically, Rolle's Been really good at taking an analytical approach to things. So as you look across your end markets and your existing customers, Do you see more value right now in going after more wallet share or in entering new markets because presumably the former has a higher returns than the latter?

Speaker 2

Well, We have a lot of new products coming through the system, Almost too many in terms of I mean, you can't get behind all of them. And you have to pick the big winners. And so right now, as far as Dodge is concerned, we're sorting through what they have for Product development, which is extensive and which products, how mature Are there developments? How far along is the product technically and how far along are we in terms of understanding the market need? And what's scalable in terms of those products and that's the process that we're going through right now with Dodge.

Speaker 2

And I'll tell you, it's keeping us busy. There's

Operator

a lot of Lot

Speaker 2

of wood to cut there. And so I think in terms of adding new products to the existing market channels It's a very good recipe for success as it applies Certainly, as it applies to Dodge. Now RBC, on the other hand, To a large extent, particularly in Aerospace and Defense, it's completely different lineup in terms of customers And market channels and so we've kind of gone through the RBC agenda over the years and know Which ones are the ones for that and It's pretty much product introduction to existing markets. And then I think secondarily to that is how do you map RBC across Dodge's Industrial markets, so that you're actually picking up revenue by Introducing new accounts to existing products. So that's those are the 2 big legs on the stool that we're working on right

Speaker 6

And realistically, how long does it take to effectively complete that mapping process? Is that years or quarters?

Speaker 2

We're quite well, I mean, it never ends, Steve. It really never ends Because there's always more coming through, but we're quite far along on some of these programs in terms of Dodge's program. And others are at the initial stage, at the end of their technical development, but at Beginning of their market assessment. So, yes, I think we're going

Speaker 3

to have some good things to talk about.

Speaker 6

Great. And just one more. Just looking at the segments, will Aerospace always have intrinsically higher incremental margin than Industrial Or should they be even over time?

Speaker 4

They tend to be quite close over time. It obviously depends on the period and what's going on. But if you look at the history, they're really not that far apart.

Operator

Thank you. Our next question is coming from Pete Skibitski from Alembic Global. Your line is now live.

Speaker 9

Hi, guys. Sorry, I had trouble getting into the queue there. Yes, Mike, maybe just to start, on the Shanghai plant, Revenue wise, has the plant reopened again as of the start of 2Q?

Speaker 2

Yes, it has.

Speaker 9

It has. Okay. So we should gain that revenue back. And then, any would you guys be willing to quantify the impact of the I think you called it unusual Freight misstep in the quarter?

Speaker 2

Yes. It was that impact was somewhere between $2,000,000 $4,000,000 Okay.

Speaker 9

Okay. And the issue has been it sounds like a one time issue?

Speaker 2

Yes. It's an unusual issue for this particular forwarder. It hasn't happened in the past that anybody could remember. And so we're getting involved with why it happened this time and what we can do to help.

Speaker 9

Got it. Okay. Fair enough. Maybe on industrial to kind of switch the metric a little bit from IP. In the past, Mike, you've talked about PMIs a lot and it's great when PMIs are above 55 and we've seen a little bit of deceleration recently.

Speaker 9

So I'm just wondering as we sit here in August over the last month plus, are there any signs of deceleration in demand at all for your industrial end markets? Or is it just not really something that's visible right now?

Speaker 2

Certainly for Classic RBC, We're definitely not seeing it. We're not seeing any deceleration. In Dodge, Their business is lumpy and but when we look at the markets that they serve, In the aggregate market, from what our field people are telling us, There's no capacity left by aggregate producers. They're 100% full And we have now this infrastructure program coming through that's going to throw gasoline on the fire. Grain is grain.

Speaker 2

You know what's going on in the world with grain. And so, the farmers are Running their machinery and breaking things and needing replacement. Our food products have been really well accepted by the industry and that's a growth leg for us that's in its early stages And we have been we have a lot of demand for these new products out of Dodge that Address the manufacture of food and so we think that those markets Are going to continue and we haven't seen them lit up. We have seen some backing off of what they call unit handling as a result of Amazon canceling Building, what, 40 or 50 different warehouses. So, there's been some backup there, but that's Frankly, that's probably going to expand our margins.

Speaker 9

Okay. Okay. I appreciate all that color. Last one for me. I think you guys are still expecting to generate $400,000,000 in adjusted EBITDA this year.

Speaker 9

Is that on track?

Speaker 4

Well, certainly with the Q1, we're trending in that direction. Yes.

Speaker 2

Okay, great.

Speaker 9

Thanks guys.

Speaker 2

Okay. Thank you.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Doctor. Hartnett for any further or closing comments.

Speaker 2

Okay. Well, I appreciate the involvement of everybody and the questions today. And thanks again for your interest in RBC Bearings and

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation

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