What RBC Bearings (RBC) Said on Its Q2 Earnings Call

Key Points

• Strong quarterly performance: Fiscal Q2 2027 sales rose 15.2% to $524.6 million, while adjusted EPS increased 29.9% to $3.74 and adjusted EBITDA grew 20.4% to $175 million. Gross margin improved to 45.6%.
• Aerospace and defense demand remains robust: Segment revenue increased 15.8%, supported by commercial aerospace, defense, space and missile programs. Capacity expansions are underway, though marine production continues to face supply-chain constraints.
• Positive outlook and deleveraging: RBC Bearings repaid $96 million of debt, including its remaining term loan balance, while forecasting Q3 revenue of $520 million to $525 million. Management expects stronger second-half results, with potential Aerospace & Defense growth above 15% if marine production recovers.

RBC Bearings NYSE: RBC reported fiscal second-quarter 2027 results marked by double-digit sales growth, higher margins and continued debt reduction, as demand remained strong across its Aerospace & Defense and Industrial businesses.

Net sales increased 15.2% year over year to $524.6 million. Adjusted diluted earnings per share rose 29.9% to $3.74, while adjusted EBITDA increased 20.4% to $175 million, representing 33.4% of revenue. Consolidated gross margin was 45.6%, compared with 44.1% on a reported basis in the prior-year period.

Chairman, President and CEO Mike Hartnett said growth was supported by continued Aerospace & Defense demand and a 14.8% increase in Industrial revenue. The company generated free cash flow of approximately $85 million during the quarter, including the impact of a $24 million acquisition, and repaid $96 million in debt.

Aerospace and Defense Demand Remains Strong

Aerospace & Defense represented 44% of quarterly revenue, while Industrial accounted for approximately 56%. Aerospace & Defense segment revenue increased 15.8%, with commercial aerospace sales up 17.4% and defense sales up 13.6%.

Hartnett said both commercial aerospace and defense growth were constrained by production capacity, although those constraints are beginning to ease as new equipment is installed. He cited record order activity, increased customer inquiries, requests for accelerated deliveries and longer-term commitments across Aerospace & Defense, including space-related programs.

Space revenue increased 78% during the first half of fiscal 2027, according to Hartnett. He said the business remains in an early stage of development and that RBC Bearings is planning further capacity expansions to support its long-term opportunity.

The company is also working to increase output for submarine-related marine components to three times its baseline level. Hartnett said the company is about 30% of the way toward that target and expects expansion efforts to continue through fiscal 2028.

However, management acknowledged that marine production has been below plan because of supply-chain difficulties. Hartnett said the company has moved to bring certain complex processes in-house and expects significant catch-up, particularly during the fourth quarter. He said the company could be more than 70% of the way toward its targeted production increase next year, with the expansion expected to be completed in fiscal 2029.

In response to a question regarding missile and munitions demand, Hartnett cited increased production expectations for programs including Tomahawk, GMLRS, Standard Missile and the hypersonic missile/Zumwalt program. CFO Rob Sullivan said missiles and munitions currently account for roughly $50 million in annual revenue.

Hartnett said Tomahawk production is moving from roughly 200 units annually toward approximately 1,000 units annually. RBC Bearings produces several critical fuel-system components for the missile and is laying out floor space to support higher production rates, he said.

Industrial Growth Broad-Based

Industrial revenue rose 14.8%, or approximately 14% excluding $2 million in sales from PSC, which RBC Bearings acquired in August. OEM revenue increased 24.2%, while distribution revenue rose 10.6%.

Management cited growth in aggregates, metals, food and beverage, warehousing, semiconductors, grain and power generation, and said it saw no significant contraction in its core Industrial markets. Sullivan said mining and metals performed particularly well during the quarter, while semiconductor-related revenue, though small, rose significantly.

Daniel Bergeron, director, vice president and chief operating officer, attributed distribution growth in part to product availability. He said Dodge’s product availability across its thousands of line items is typically in the 95% to 97% range, supporting sales when customers need replacement parts quickly.

Hartnett said oil and gas, the company’s most cyclical Industrial OEM end market, is seeing a renewed pickup in activity. He characterized the company’s machinery exposure as present but not material.

Margins, Cash Flow and Capital Allocation

Reported and adjusted gross margin both reached 45.6% in the quarter. Sullivan said the result reflected higher production volumes, contract renewals and favorable product mix. Aerospace & Defense gross margin was 42.2%, up from 38.7% a year earlier, while Industrial gross margin remained at 48.2%.

SG&A expense totaled $83.4 million, or 15.9% of sales. Sullivan said the company expects an increase in SG&A as a percentage of sales in the third quarter, largely because stock-based compensation is expected to rise by roughly $1.5 million.

Interest expense fell 30.6% year over year to $9.3 million, reflecting lower leverage and lower interest rates. The company repaid the remaining balance on its term loan ahead of its November 2026 target. Sullivan said RBC Bearings’ improved financial flexibility supports a balanced approach to capital allocation as it continues deleveraging.

Bergeron said capital allocation priorities remain debt repayment, investment in organic growth and acquisitions. He said the company continues to look for acquisitions that bring new products and technologies to its customer base, including opportunities in defense, aerospace and Industrial markets.

Third-Quarter Outlook

For the fiscal third quarter, RBC Bearings forecast revenue of $520 million to $525 million, implying year-over-year growth of 12.7% to 13.7%. The company expects adjusted gross margin of 45.5% to 45.75% and SG&A expense of 16.25% to 16.5% of sales.

The company said its outlook incorporates the normal seasonal effect of the holiday period. Hartnett also noted that the fiscal year’s second half includes an extra week in the company’s accounting calendar, while recent investments in equipment, personnel and supply-chain logistics are expected to contribute more meaningfully in coming quarters.

Management reiterated its expectation that the second half will outperform the first half. Hartnett said Aerospace & Defense growth could exceed 15% and potentially approach 20% if marine production recovers as anticipated, while the company generally plans for high-single-digit Industrial growth because of the segment’s sensitivity to broader economic conditions.

About RBC Bearings (NYSE:RBC)

RBC Bearings Incorporated is a manufacturer of highly engineered bearing and motion-control products. Founded in 1919 and headquartered in Oxford, Connecticut, the company serves original equipment manufacturers and aftermarket customers that require components designed for demanding operating environments.

Its product portfolio includes plain bearings, roller bearings, ball bearings, rod ends, spherical bearings, thrust bearings, and related precision components. These products are used in applications involving load support, friction reduction, positioning, and motion control across aerospace and defense, industrial equipment, construction, transportation, energy, and other specialized markets.

RBC Bearings sells its products through a combination of direct sales, distributors, and customer-specific manufacturing programs.

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