Bearings manufacturer RBC Bearings (NYSE: RBC) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 5.8% year on year to $437.7 million. Its non-GAAP EPS of $2.83 per share was 4.7% above analysts’ consensus estimates.
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RBC Bearings (RBC) Q1 CY2025 Highlights:
- Revenue: $437.7 million vs analyst estimates of $440 million (5.8% year-on-year growth, 0.5% miss)
- Adjusted EPS: $2.83 vs analyst estimates of $2.70 (4.7% beat)
- Adjusted EBITDA: $139.8 million vs analyst estimates of $134.7 million (31.9% margin, 3.8% beat)
- Revenue Guidance for Q2 CY2025 is $429 million at the midpoint, below analyst estimates of $432.8 million
- Operating Margin: 23%, in line with the same quarter last year
- Free Cash Flow was -$188.6 million, down from $70 million in the same quarter last year
- Market Capitalization: $11.48 billion
StockStory’s Take
RBC Bearings’ first quarter results reflected notable strength in its aerospace and defense (A&D) segment as well as incremental progress in industrial markets, despite ongoing macroeconomic headwinds. CEO Michael Hartnett highlighted the 10.6% year-over-year increase in A&D sales, attributing this to strong demand from engine original equipment manufacturers (OEMs), commercial spare parts, and guided munitions. Hartnett also pointed to the Dodge business’s double-digit OEM sales growth as an example of successfully executed organic growth initiatives. Management noted that these results came despite challenges such as FAA production constraints and strikes at key customers, emphasizing the company’s ability to grow both revenue and margins through a focus on operational execution and targeted new product introductions.
Looking ahead, management believes commercial aerospace will continue to be the primary driver of growth, citing anticipated production increases at Boeing and Airbus. Hartnett stated, “Commercial aero is poised for growth of at least 15%, driven primarily by the expected year-over-year production growth at Boeing and Airbus.” In defense, the company expects mid-to-high single-digit growth, supported by new capacity investments and strong demand from OEMs. However, management identified the industrial segment as more difficult to forecast given variability in end-market demand and ongoing pressures from interest rates and tariffs. CFO Rob Sullivan added that gross margin expansion remains a priority, with plans for continued investments in capacity, technology, and select M&A opportunities to support long-term growth and margin improvement.
Key Insights from Management’s Remarks
Management attributed the quarter’s performance to broad-based A&D demand, successful execution of industrial initiatives, and targeted operational improvements, while noting ongoing industry and supply chain complexities.
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Aerospace and defense momentum: Strong demand from commercial engine OEMs, spare parts, and defense programs drove double-digit sales growth in the A&D segment. Management emphasized the benefit of a diversified portfolio, with exposure to both commercial and defense markets and a mix of aftermarket and OEM customers.
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Industrial segment resilience: The Dodge business delivered double-digit OEM sales growth for the year, supported by improvements in service levels and new product launches. Management attributed outperformance relative to broader industrial trends to targeted organic growth initiatives and high service standards, despite two years of contraction in the manufacturing sector.
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Operational improvements: Gross margin expansion was driven by increased plant utilization in A&D, Dodge-related synergies, and a focus on continuous improvement. Management cited structural cost discipline and ongoing efficiency initiatives as supporting factors for margin gains.
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Capacity expansion underway: To meet rising demand—especially in defense—RBC Bearings is investing in additional capacity at several plants. Hartnett noted that about 70% of plants supporting A&D revenue are currently operating at or above capacity, requiring capital investment and reallocation of machinery and labor.
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Balance sheet and M&A readiness: The company reduced net leverage to 1.7 times trailing EBITDA, emphasizing its readiness to pursue accretive M&A opportunities. Management described an active pipeline of potential acquisitions, particularly those that align with existing customer bases and offer operational improvement potential.
Drivers of Future Performance
Management’s outlook centers on commercial aerospace production recovery, defense backlog execution, and continued margin improvement through operational efficiencies and selective investment.
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Commercial aerospace production ramp: The company expects the largest growth contribution from increased aircraft build rates at Boeing and Airbus. Management anticipates aerospace OEMs reaching higher monthly production levels in the next year, which would expand RBC’s content and revenue per aircraft, especially as supply chain disruptions ease.
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Defense and capacity investments: RBC is scaling plant capacity to address robust defense demand, especially in submarines and major government programs. Management cautioned that growth in this area depends on timely contract awards and the company’s ability to execute planned capacity additions.
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Industrial market uncertainty: The outlook for industrial markets remains mixed, with ongoing headwinds from interest rates and tariffs. Management expects essential end-markets such as food and beverage and mining to provide stable demand, but noted that semiconductor and oil and gas end-markets are lagging and could weigh on overall growth if recovery is delayed.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will watch for (1) clear evidence of commercial aerospace production increases translating to higher sales and margins, (2) successful execution of capacity expansions to meet defense demand, and (3) stabilization or improvement in lagging industrial end-markets such as oil and gas and semiconductors. The pace and selectivity of M&A activity will also be a key area of focus for sustained growth.
RBC Bearings currently trades at a forward P/E ratio of 33.3×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).
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