RBC Bearings Q4 2025 Earnings Report

RBC Bearings EPS Results

• Actual EPS: $2.83
• Consensus EPS: $2.70
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: $2.47

RBC Bearings Revenue Results

• Actual Revenue: $437.70 million
• Expected Revenue: $440.26 million
• Beat/Miss: Missed by -$2.56 million
• YoY Revenue Growth: +5.80%

RBC Bearings Announcement Details

• Quarter: Q4 2025
• Date: 5/16/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 16, 2025
• Conference Call Time: 11:00AM ET

RBC Bearings (NYSE:RBC) manufactures and markets engineered precision bearings, components, and systems in the United States and internationally. It operates through two segments, Aerospace/Defense and Industrial. The company produces plain bearings with self-lubricating or metal-to-metal designs, including rod end bearings, spherical plain bearings, and journal bearings; roller bearings, such as tapered roller bearings, needle roller bearings, and needle bearing track rollers and cam followers, which are anti-friction products that are used in industrial applications and military aircraft platforms; and ball bearings include high precision aerospace, airframe control, thin section, and industrial ball bearings that utilize high precision ball elements to reduce friction in high-speed applications. In addition, it offers mounted bearing products include mounted ball bearings, mounted roller bearings, and mounted plain bearings; and enclosed gearing product lines, including quantis gearmotor, torque arm, tigear, magnagear and maxum, and controlled start transmission. Further, the company's power transmission components include mechanical drive components, couplings, and conveyor components; engineered hydraulics and valves for aircraft and submarine applications, and aerospace and defense aftermarket services; fasteners; precision mechanical components, which are used in various general industrial applications; and machine tool collets that are used for holding circulars or rod-like pieces. It serves automotive, tool holding, agricultural and semiconductor machinery, commercial and defense aerospace, ground defense, construction and mining, oil and natural resource extraction, heavy truck, marine, rail and train, material handling, food and beverage, packaging and canning, wind, and general industrial markets through its direct sales force, and a network of industrial and aerospace distributors. The company was founded in 1919 and is based in Oxford, Connecticut.

RBC Bearings Q4 2025 Earnings Call Transcript

Key Takeaways

• RBC reported Q4 revenue of $438 million (up 5.8% Y/Y), a gross margin of 44.2% versus 43.1%, and adjusted EPS of $2.83 (up 14.6%).
• The A&D segment grew 10.6% Y/Y (11.6% commercial aerospace, 8.2% defense) with full-year sales up 14%, driven by engine OEMs, commercial spare parts, missiles, and space programs.
• Industrial sales rose 3.3% Y/Y—OEM up 5.1% and distribution/aftermarket up 2.5%—as RBC Bearings outperformed broader industrial headwinds and saw double-digit OEM growth at Dodge.
• For FY 2026, RBC expects ≥15% commercial aerospace growth (higher Boeing/Airbus production), mid-to-high-single-digit defense growth on strong government budgets, and steady industrial MRO demand.
• In Q4, RBC generated $55 million of free cash flow (76% conversion) and repaid $82 million of debt, taking FY 25 debt reduction to $275 million, cutting net leverage to 1.7x and enabling accretive M&A with CapEx at 3–3.5% of sales.

Presentation

[Rob Moffatt, Director of Investor Relations at RBC Bearings]

Good morning, and thank you for joining us for RBC Bearings' fiscal fourth quarter twenty twenty five earnings call. I'm Rob Moffett, Director of Corporate Development and Investor Relations. And with me on today's call are Doctor. Michael Hartnett, Chairman, President and Chief Executive Officer Daniel Bergeron, Director, Vice President and Chief Operating Officer and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may be forward looking and are made under the Private Securities Litigation Reform Act of 1995.

[Rob Moffatt, Director of Investor Relations at RBC Bearings]

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 listed in the press release along with a reconciliation between GAAP and non GAAP financial information. With that, I'll now turn the call over to Doctor. Hartnett.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Thank you, Rob, and good morning, and thank you for joining us. I'm going to start today's call with a quick review of our financial results, and I'll finish with some high level thoughts on the industry, our outlook for fiscal twenty twenty six and then hand it over to Rob Sullivan for more detailed color on the numbers. Fourth quarter sales came in at $438,000,000 a 5.8% increase over last year, driven by continued strong performance in our A and D segment and other very strong performance in the industrial businesses, particularly when viewed against the broader industrial trends. Consolidated gross margin for the quarter was 44.2% versus 43.1% for the same period last year, and adjusted diluted EPS was $2.83 a share versus $2.47 a share, up 14.6%. Clearly, we're thrilled to see the results, and this reflects the energy and commitment everyone invested to make this year successful.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

So a big thank you to team RBC. Total A and D sales were up 10.6% year over year with 11.6% growth on the commercial aerospace and 8.2% on defense. On the industrial side, the segment grew 3.3% year over year, with distribution and aftermarket up 2.5% and OEM up an impressive 5.1%. In A and D, we saw broad strengths across the portfolio. Our leading sources of growth came from engine OEMs, commercial spare parts, commercial fixed wing aircraft, missiles and guided munitions and, of course, space.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

For the full year, A and D sales grew at 14%, with commercial aero up 13.3% and defense up 15.9%. Although the FAA constrained production and a prolonged strike at our largest customer, coupled with other challenges that the industry faced this past year, we still grew the business at 14% and expanded margins as planned. We clearly benefited from the breadth and diversity of RBC's portfolio, giving us exposure to many different customers in many different parts of the supply chain. This includes a healthy balance between aftermarket and OEM, fixed wing and rotary craft and commercial and defense. We also benefited from highly targeted organic growth initiatives focused on specific customers and programs that not only contributed to fiscal twenty twenty five, but should continue to benefit us in 2026 and well beyond.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Moving over to Industrial segment. We delivered a 3.3% growth this quarter. We were able to grow the business on a full year basis even in an environment where the industrial economy has seen two consecutive years of contraction as measured by the manufacturing PMI. High service levels, lots of internal can do and incremental progress on new product introductions were the reasons. Our outgrowth relative to peers and the broader industrial economy has been notable, and I want to commend our teams for measuring up to the high bar they reached.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Results like this don't happen by chance. They are the result of our relentless focus on our organic growth during our ops meetings and the ambitious goals of our managers that are willing and those goals that they're willing to take on. Coming into the year, we talked about how our focus at Dodge is in the early innings of evolving from delivering cost synergies to driving revenue synergies, and that accelerating growth was the major priority for fiscal twenty twenty five. I'm proud to say that these early efforts appeared to be paying off. Year over year OEM sales growth in the Dodge business has been in the double digits for the past three quarters, and the very strong finish in the fourth quarter enabled them to finish with a double digit OEM sales growth for the full year.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Keep in mind, OEM wins today pay in the aftermarket and MRO dividends for years to come. With fiscal twenty twenty five behind us, let's spend a little time talking about 2026. In terms of end markets, we believe commercial aero is poised for growth of at least 15%, driven primarily by the expected year over year production growth at Boeing and Airbus. Last year had its challenges for Boeing, but the company appears to be making substantial progress under its new CEO, and recent trends are very encouraging to the industry. On the defense side, we are comping against substantial growth of nearly 22% in fiscal twenty twenty four and sixteen percent in 2025.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Even against this high bar, we believe we can grow the business at least in the mid- to high single digits and likely more. We are adding additional capacity at several plants to accommodate very strong demand from a wide array of defense OEMs. Certainly, led by growth in submarines, coupled with broader strength across RBC's portfolio in support of the government's proposed $1,000,000,000,000 defense budget. For the industrial businesses, end markets are a little tougher to predict due to the short term impact of interest rates, tariffs, consumer spending and general GDP expansion or not. In any event, we feel the MRO side of the world that supports the staples of human life, such as food and beverage, grain, aggregate, mining, forest products, sewage treatment provide a steady demand for our North American product offering and are essential to keep the wheels of American industry turning and America's population fed.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

The last topic I want to touch on before handing the call over to Rob is the balance sheet. Last quarter, we crossed the two turn mark from a net leverage perspective, and this quarter, we pushed it even lower. In total, we allocated $275,000,000 to debt repayment in fiscal twenty twenty five, taking our trailing net leverage to 1.7 turns exiting the year. We remain well poised to pursue additional accretive M and A, and the team has been very active in keeping the pipeline full of ideas. Looking ahead, fiscal twenty twenty six is poised to be another strong year for RBC.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

The backdrop for growth across all of our channels is substantial, and our team is laser focused on executing at the highest level. With that, I'd like to turn over the call to Rob Sullivan for more details.

[Robert Sullivan, VP & CFO at RBC Bearings]

Thank you, Mike. As Doctor. Hartnett indicated, this was another strong quarter for RBC. Net sales growth of 5.8% drove gross profit growth of 8.5% with more than 110 basis points of expansion. The quarter benefited from strong manufacturing performance coupled with the structural drivers of our gross margin performance, including Dodge synergies, increased utilization of our aerospace and defense manufacturing assets and the continuous improvement focus on the RBC ops management process.

[Robert Sullivan, VP & CFO at RBC Bearings]

Industrial gross margins during the quarter were 45.7% and aerospace and defense margins were 41.5%. On the SG and A line, we continued our investments in future growth. This included a combination of investments in personnel costs and back office support, including IT. This resulted in adjusted EBITDA of 139,800,000 up 7.4% year over year and adjusted EBITDA margin of 31.9%, which was up 50 basis points year over year. Interest expense in the quarter was $12,800,000 This was down 31.8% year over year, reflecting the ongoing repayment of our term loan as well as a lower rate on the loan as the SOFR base rate has moved lower.

[Robert Sullivan, VP & CFO at RBC Bearings]

The tax rate in our adjusted EPS calculation was 21.7%, reasonably consistent versus last year's 21.2%. Altogether, this led to adjusted diluted EPS of $2.83 representing growth of 14.6% year over year, an impressive result given the choppiness in commercial aerospace customer production schedules and the macroeconomic softness in the industrial economy. Free cash flow in the quarter came in at $55,000,000 with conversion of 76% and compares to $70,000,000 and 113% last year. The lower conversion rate this quarter was primarily the result of timing around accounts receivable driven by year over year increased sales. As usual, we used the cash generated to continue to deleverage the balance sheet.

[Robert Sullivan, VP & CFO at RBC Bearings]

We repaid $82,000,000 of debt during the quarter, taking our total year to date debt reduction to $275,000,000 All in, this is another strong year for free cash flow generation, and all of that cash flow is applied to debt reduction. This takes our trailing net leverage to 1.7 turns, leaving our balance sheet in an increasingly attractive position to pursue additional accretive M and A. Looking into the first quarter, we are guiding to revenues of $424,000,000 to $434,000,000 representing year over year growth of 4.4% to 6.8%. That guidance embeds an operating environment that's fairly similar to the fiscal fourth quarter. On the margin side, we are projecting gross margins of 44.25 to 44.75 for the quarter, which at the midpoint would be up against the full year fiscal twenty twenty five performance.

[Robert Sullivan, VP & CFO at RBC Bearings]

Our focus on continuous improvement on the margin line marches on and can be seen in our outlook for full year gross margin expansion of 50 to 100 basis points, which will likely be back half weighted. This is inclusive of all tariffs at the current levels. We currently expect tariff pressure to be minimal and believe we can mitigate the expected headwinds and still deliver margin expansion on a full year basis. Similar to prior years, we expect to reinvest some of this margin expansion into fueling future growth through investments in the SG and A line. We expect other factors to be normal as well, including free cash flow conversion of 100%, adjusted taxes in the twenty two percent to 23% range and CapEx in the range of 3% to 3.5% of sales.

[Robert Sullivan, VP & CFO at RBC Bearings]

In closing, this was another strong quarter for RBC and we are poised for another strong year. We remain focused on leveraging our core strengths in engineering, manufacturing and product development to drive both organic and inorganic growth, continuous improvement in operating efficiency and high levels of free cash flow conversion. With that operator, please open the call for Q and A.

[Operator]

Certainly. We'll now be conducting a question and answer session. Our first question is coming from Christine Lewand from Morgan Stanley. Your line is now live.

[Kristine Liwag, Executive Director at Morgan Stanley]

Hey, good morning everyone.

[Robert Sullivan, VP & CFO at RBC Bearings]

Morning.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Hi, Christine.

[Kristine Liwag, Executive Director at Morgan Stanley]

So maybe first question on commercial aerospace. I mean, we're starting to finally see Boeing production rate move in that positive trajectory. So I guess I wanted to level set. Can you remind us when we actually get to, let's say, 50 per month for the seven thirty seven MAX and 10 per month for the seven eighty seven? I mean, much bigger is your commercial aerospace OE business at that point?

[Kristine Liwag, Executive Director at Morgan Stanley]

And then also, when we think about margins, you guys have done an incredible job holding on to margins even though production rates have been uncertain. When we get to that full run rate, how should we think about the margin opportunity?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, Christine, you asked some difficult questions, as usual.

[Kristine Liwag, Executive Director at Morgan Stanley]

And I'm hoping you're going to have some

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, you would be the person I would go to, to ask when Boeing is going to get to the 50 a month. So right now, we're hoping to see them get to the 38 number, which I think they're going to get to very soon within a month or two. And then, apparently, they're pretty far along with the FAA on approving the key metrics, which sort of turns on the next 10 planes for them. We're thinking that it's going to be not too deep into calendar 'twenty six before we start seeing plane builds in the upper 40s.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Is

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

that how you see it?

[Kristine Liwag, Executive Director at Morgan Stanley]

Yes. I mean, just looked at the May deliveries and we're only in the halfway part of May and they got to some pretty good production numbers. So I think I would agree with your assessment of the 38 is going to be very soon. But what I wanted to ask you is like, so when you do get to that 40s per month or even eventually 50, I mean, much bigger could your revenue be? Because you won a lot of shipset content for the MAX versus the NG that we didn't really see the full benefit of because of the disruption in production.

[Kristine Liwag, Executive Director at Morgan Stanley]

So I just wanted to understand, could your Boeing commercial OE revenue be at this point 2x versus 2019? Just some sort of level setting numbers around that, Mike.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Okay. Well, let me do a little math here and maybe come back at the other end of the Q and A and I'll have my math done.

[Kristine Liwag, Executive Director at Morgan Stanley]

Sounds good. Then in the meantime, in industrials, I was wondering, I mean, you guys are very clear that this the growth that you're seeing is from the improvement of from the strategy of your team versus the end markets. Can you give a little bit more color on exactly what kind of initiatives you took and how much that provided you in terms of incremental growth versus end markets? And could you sustain your leadership in growth versus peers in this cycle?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Yeah, on the industrial side, yeah, yeah, I think, well, a couple of things there. I think first of all, was some product lines that had service level problems at Dodge that after we acquired the company and we started working on and making it a priority with the Dodge folks to improve the service levels and the production capacity for certain products. Certainly, they did that, and the market responded very well to that to that initiative. I mean, that's that's sort of the easiest thing to fix because of you know, you don't have to worry about product development and testing and long cycle kinda kinda things. So you you really wanna you you really wanna get at at the service level problems first.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

And then on the on the longer cycle, they had you know, Dodge had several products that were through the test cycle when we acquired the business but weren't capitalized or capitalization wasn't encouraged. I think it was just you know, they were busy selling the business for a couple of years, so things, priorities change. And so we were the benefactors or beneficiaries of that business, and we were able to turn on some of those new products pretty quickly. So that's certainly accruing to the overall benefit. And then I think the third thing, there's longer term opportunities that Dodge has that sort of are in the pipeline right now that will take a little bit longer to mature, but have some significant market positions once matured.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

It's overall a pretty healthy outlook for them.

[Kristine Liwag, Executive Director at Morgan Stanley]

Thank you.

[Operator]

You. Next question today is coming from Michael Ciarmoli from Truist Securities. Your line is now live.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Hey, good morning guys. Nice results. Thanks for taking the questions. Hey, Rob, do you happen to I know we'll get it in the queue. Do you happen to have the gross margins by segment for the quarter?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

I did read them out in my script, but I won't repeat them.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

The industrial gross margins were 45.7% this quarter and A and D was 41.5%.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Got it. And do we how are we I know you gave some color on '26. Any thoughts? I mean, I guess, the gross margin expansion maybe seems a bit conservative, assuming we get the volumes. And I know that's still a bit of a wildcard, everything from Boeing sounding better.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

But if we get more margin expansion, I'm assuming it comes on the aerospace and defense side. Is it fair to say there's more runway there?

[Robert Sullivan, VP & CFO at RBC Bearings]

Yes. I think we certainly see a lot of runway. You can see the gap between A and D and industrial, and where A and D is today versus where it's demonstrated its ability in the past, leaves us opportunity to expand with more throughput in the plants. We've spoken about some of the contract renewals that will come up late in the year, and the increased volumes all kind of contributing. So we think that the gross margins in A and D certainly have some runway there.

[Robert Sullivan, VP & CFO at RBC Bearings]

And as I mentioned, that expansion looks like it could be back half weighted,

[Robert Sullivan, VP & CFO at RBC Bearings]

it.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

And then you guys gave some pretty good detail on '26 with, I'd say, more of that contained to aero. And I get the industrial environment is probably a little bit more fluid and harder to predict. But I mean, if we kind of mash it together, it sounds like the aero side of the house can grow low teens. I mean, if you kind of imply low single, maybe mid single for industrial, are you guys comfortable with a 1,700,000,000.0 to $1,800,000,000 revenue kind of bogey for next year?

[Robert Sullivan, VP & CFO at RBC Bearings]

I think we're really sticking to the direct guidance for the next quarter as we always do. We've offered some color on the A and D for the full year, and we'll go from there.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

Okay. Last one and I'll jump back in the queue. You talked about minimal tariffs impact. I mean, there any change in your thought process around kind of your sentiment or views on tariffs? I mean, the commentary last quarter, I think it was talking about adding spice and fuel that would be strongly net good for the business.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

So is anything kind of changed around tariffs, ability to offset with pricing? Are you seeing any share gains as customers potentially rethink their supply chains looking for domestic sources?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, I think short term versus long term, I mean, term, we have a certain supply chain and so on and so forth. So there's a we've looked at it pretty closely and we think short term we're neutral on, for the most part on tariff impact. For the long term, I think it's depending upon the extent of the tariff, the larger the tariff, the more we're going to benefit, just because there's going to be shortages everywhere and the right mix will find us. We won't have to search for it.

[Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities]

It. Understood. All right. Thanks guys. I'll jump back in the queue.

[Operator]

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

[Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets]

Thanks. Good morning. Mike, you talked about organic growth initiatives targeted at specific customers and programs, but I know the team is always in front of people. So is this an acceleration of existing programs or are you trying something new and what does that look like?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, it depends on whether you're talking to A and D or industrial. I mean, obviously, the way the A and D works, you're always in front of people with new programs. I mean, it's

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

just

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

the way the business is working seems to like it's always worked that way. Industrial, it's a little different. I think Dodge has had pretty much over the years a pretty fixed mix and a well honed process. And so Dodge, we're taking a few additional steps to invigorate their OEM business, and that's having modest gains.

[Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets]

Is that targeting more wallet share with existing customers? Or are you casting a broader net for new customers?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Both. Absolutely both. And we're doing some things to make it easier for new customers to do business with us. And we're opening up some geographic regions that have been where we really didn't have significant representation or customer reach in the past.

[Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets]

Got it. You may have talked about this in the past, but what are the new regions that you're really targeting?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, I think there's the most productive regions are in North America. The more exotic and higher risk regions are elsewhere in the world, South America, India, Mexico, places like that.

[Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets]

Got it. And then last question. I know capacity utilization is always a tricky question because of productivity initiatives and your ability to run over time or add a shift. But if you're going to post double digit growth in A and D and we also get a firmer industrial production cycle, how much flexibility do you have in the plants to support that higher growth right now?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, I'm glad you asked that question because we've got a lot of plants, and, the demand on these plants isn't the same on all the plants. I mean, some plants are overloaded with demand, some plants are just well balanced. And so on the A and D side of it, it looks like about 70% of our revenues, plants that make 70% of our revenues are way over demand and capacity are not balanced. There's far more demand than there is capacity. That's we've had, what, double digit growths for the last couple of years in those businesses.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

And inevitably, we kind of hit a capacity ceiling in some of those businesses, and we're working our way through that ceiling now. And so that's capital, machinery, labor. So we're adding labor, we're adding hours, and we're adding machinery. And, actually, we're moving machinery from plants that, are balanced and can do with less machinery to plants that are, where demand is and capacity is constrained. So all that is taking place as we speak.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

And so we're to grow our throughput in those A and D plants through this year, and it's going to continue next year. It's going be the same process at least for the next two years. We're just to be chasing this for a while. But that's a great thing to have to deal with. I mean of all the problems I have if you call this a problem, I'll take it.

[Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets]

For sure. It's a great problem to have. Maybe I missed it. Did you throw out a CapEx number for the year?

[Robert Sullivan, VP & CFO at RBC Bearings]

It will be in the 3% to 3.5%. Got it. Okay, thanks.

[Operator]

Thank you. Our first question our next question I should say is coming from Pete Skibitski from Alembic Global. Your line is now live.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Hey, good morning guys.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Good morning, Pete.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Maybe one for Rob. Hey, Rob, I think you said the free cash conversion target for '26 is one times. You had this big receivables build here in the fourth quarter. I don't know how fast you expect to collect on that. But it seems to the extent you can collect on that, it's pretty large that maybe one times conversion is kind of conservative unless you think as you grow here that fourth quarter will be kind of ongoing receivables delays.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

But I was wondering if you could give us some color on that.

[Robert Sullivan, VP & CFO at RBC Bearings]

Yes. I mean, the one time is always our target. Hopefully, we'll beat it. We are continuing to grow sales. So there would always be some of that pressure, but we're going to do what we can to exceed that.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Okay. Fair enough. And then just on the CapEx profile, I guess maybe Mike, if this reconciliation bill goes through and defense budgets grow well into the double digits, is that going to kind of set off another CapEx cycle for you guys, just given that's a pretty big step up in potential demand there? I don't know what this current cycle kind of enables you for capacity wise?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Yes, it will. And we actually are planning a five year kind of outlook for a couple of our plants and sort of what we need for capital and how do we adjust because when you look at what the growth is going to be in some of those plants over the next five years, given sort of the A and D profile that we're looking at, we have to act now to get ahead of it.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Okay. Okay. Makes sense. Last one for me, just on I think Steve kind of asked about the SG and A investments. I think I might have missed some of it.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Could you just update us on the timeline in terms of have you reached kind of peak incremental spend on some of the incremental IT investments and the India investments that you guys wanted to do and so I don't know if we should expect some operating leverage at this point going forward or are you still kind of growing that investment and maybe what's the return timeline on that?

[Robert Sullivan, VP & CFO at RBC Bearings]

Yes. So we're continuing to invest in the growth. Obviously, we're trying to grow the company at a healthy rate. But the key takeaway would be of that margin expansion that we're seeking, we're always aiming to see a good amount of that fall down to the EBITDA line. That's the best way I'd frame it.

[Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors]

Fair enough. Thanks guys.

[Operator]

Thank you. Next question is coming from Ross Sparenbeck from William Blair. Your line is now live.

[Robert Sullivan, VP & CFO at RBC Bearings]

Good afternoon, guys.

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

Hey, Ross. Hey,

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

on the defense guidance, I believe you guys said mid to high single digit plus for 2026 seems like a generally broad range there, so it'd be great to just gauge the sensitivity and what's informing the lower end versus the high end. Is it more just ramping capacity or is it kind of just customer timing?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

It's probably ramping capacity, Ross. We've are working our way through some pretty substantial contracts with the majors, both plane builders and the defense agencies, the defense OEMs. And so a lot of them are already booked or in process or late to book because of administrative delay on the other side. But definitely going to be a capacity challenge for us.

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

Okay, understood. And then maybe just on industrial, can you just elaborate on some of the end market dynamics there, on the strength on the OEM side? You noted Dodge being strong, but maybe just on the RBC Classic?

[Rob Moffatt, Director of Investor Relations at RBC Bearings]

Ross, it's Rob Moffett. Just looking at the end markets, mining metals was our strongest. We've had a couple of decent quarters there. Aggregate and cement was number two and warehousing and logistics is an end market that has turned very nicely positive for us. Those are our top three contributors to growth.

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

Okay. So I mean, do you get

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

the sense that the worst is kind of in the rearview here? Oil and gas is still expected, second half twenty five percent. So maybe it's more just a mix when we think about the first quarter gross margin step down to just strengthen the OEM for RBC Classic?

[Robert Sullivan, VP & CFO at RBC Bearings]

You're talking about the Q1 versus Q1 last year. I think I would just point to the fact that Q1 last year was an exceptionally strong margin quarter. We had a nice product mix there coupled with some expedites that were flowing through if you recall. I'd just kind of remind you that the overall implication for the Q1 margin is above the full year FY 'twenty five performance.

[Rob Moffatt, Director of Investor Relations at RBC Bearings]

Ross, if you're thinking in terms of growth, I mean, we do still have headwinds in the oil and gas segment, the semiconductor end markets. Still think that those are going to turn. If you look at the strong performance that we had in Industrial, it's a lot of the things that Doctor. Hartnett talked about earlier, organic growth initiatives, really strong performance at Dodge, picking up pockets of market share in different places. It's the things that we focus on during ops that are driving that more so than end markets.

[Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C]

Awesome. Thanks guys.

[Operator]

Thank you. Next question is coming from Jordan Leonez from Bank of America. Your line is now live.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Hey, good morning. Thanks for taking the question. I appreciate the comments on the debt repayment. But could you guys give a sense of what you're seeing for M and A pipeline? Has anything changed in the market for you?

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Or what's coming up that you'd be interested in?

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Well, on M and A, I would say that, first of all, we've been working hard looking at alternatives, and lots of alternatives, and so we've been busy. Fit and synergy is important to us in our aspects of selection, and we're very selective, but we're spending considerable amount of time here on candidates, and it burden, it's a big burden for the staff, let's put it that way. We think progress is being made. We think the balance sheet is in good position to do something if we need to act. And if we do see something we like, we'll act quickly.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Great. Thank you so much.

[Operator]

Thank you. Next question today is coming from Christine Liwag from Morgan Stanley. Please proceed with your follow-up.

[Kristine Liwag, Executive Director at Morgan Stanley]

I wanted to get back in queue, Mike, to check on your math, I know you're really good at it, so I just want to make sure you didn't forget. But

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Christine, I thought you I was hoping you'd forget. This the way my math came out, and I'll let you do it by by I did it by 10 plane built rate for the July. K? A 10 plane rate annually would add about $24,000,000

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

For

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

the July, a five plane rate would add $24,000,000 and for the 03/20, a 10 plane rate would add 12,000,000

[Kristine Liwag, Executive Director at Morgan Stanley]

Great. Wow, these are good numbers. And then, so thank you. So I'll do some number crunching and follow-up with you offline. But I was wondering, maybe since I'm back in queue, another follow-up on the previous question on M and A.

[Kristine Liwag, Executive Director at Morgan Stanley]

Speaking to some industry folks, I actually think that a lot of people are really surprised what you're able to do with the Dodge asset, right? I mean, who would have thought, but by now, industrial your industrial business would be a few hundred basis points higher on gross margin than your aerospace defense business. So I guess, you know, looking at you've always had faith in your team and you've had a pretty structured way of training all your employees. But I think, you know, that that kind of performance really surprised the industry in Dodge. So I was wondering, now that you have seen the size, I mean, doubling your revenue and getting over 1,000 basis points in margin within eighteen months of ownership, these are all pretty spectacular accomplishments really on operations.

[Kristine Liwag, Executive Director at Morgan Stanley]

I was wondering, does that give you more confidence? Does that widen your aperture regarding deals you could look at, assets that you think you could turn around or extract more value from? And also, you look at your priorities for the balance sheet at 1.7 times net debt EBITDA, you do have a lot of runway and with your organic business, you don't need to acquire. But can you give us some sort of guidance regarding what kind of assets would be interesting to you? Is it more industrial?

[Kristine Liwag, Executive Director at Morgan Stanley]

Is it more aerospace defense? Like are there some sort of milestones or markers either in size or proprietary content that we can kind of follow? Thanks.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Sure. Well, on the aerospace defense side, we like companies that sell to our customers because the customers in that sphere are very sophisticated. The terms and conditions are very difficult and time consuming to negotiate. And so if you have a customer where you've negotiated your terms and you understand how the customer makes decisions and you know the people at the account how they think, and you have the account covered with marketing people that have been servicing the account for a decade, you feel pretty comfortable looking at a company that services that account too. So you can quickly identify what the company's position is, what its reputation is, how it goes to market, how it prices its product, so on and so forth.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

So that's part of the profile that we really like. And that also would add scale at that account to us, which overall helps your statement of work. So that checks a big box, and we like that box checked. And when it comes to making things, we have, I don't know, probably more than a thousand engineers that know how to make stuff, and they're very good at manufacturing processes, so our ability to absorb the manufacturing world for the target is very high ability, so if they're doing something that we can improve, can identify it right away, and we can bring in the right specialist that deals with that particular aspect of manufacturing, and sort of off we go. So there's nothing, for us, there's nothing scary about it, and it takes a lot of risk, you know, off the table at the same time.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

You the account, you know the manufacturing, you know the plant efficiencies, you know what you can do to improve the plant efficiencies, you know, maybe what what the pricing mechanism is different than maybe you would wanna you you would price. So, you know, you can you can see a long way when when there's candidates that have that kind of a profile.

[Kristine Liwag, Executive Director at Morgan Stanley]

Great, thank you.

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Yep.

[Operator]

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

[Michael Hartnett, Chairman, President & CEO at RBC Bearings]

Okay. Well, I have no more comments. I think I'm pretty much commented out, but I appreciate everybody participating today. And there was a lot of good questions. I hope we gave you good answers and we look forward to talking to you later in the summer.

[Operator]

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

Participants

Executives

• Rob Moffatt, Director of Investor Relations
• Michael Hartnett, Chairman, President & CEO
• Robert Sullivan, VP & CFO

Analysts

• Kristine Liwag, Executive Director at Morgan Stanley
• Michael Ciarmoli, Managing Director - Aerospace & Defense Equity Research at Truist Securities
• Steve Barger, Managing Director - Equity Research at KeyBanc Capital Markets
• Pete Skibitski, Director - Aerospace & Defense Equity Research at Alembic Global Advisors
• Ross Sparenblek, Equity Research Analyst at William Blair & Company, L.L.C
• Jordan Lyonnais, Equity Research Associate at Bank of America