RBC Bearings Q4 Earnings Call Highlights
RBC Bearings (NYSE:RBC) reported a record fiscal fourth quarter for 2026, with management pointing to strong aerospace and defense demand, steady industrial growth and continued debt reduction as key themes from the period.
Chairman, President and Chief Executive Officer Dr. Michael Hartnett said fourth-quarter net sales increased 18.3% year over year to $518 million, driven by “continued momentum” in aerospace and defense and steady gains in the company’s industrial businesses. Adjusted diluted earnings per share rose to $3.62 from $2.83 in the prior-year period, while adjusted EBITDA increased 21% to $168.9 million.
The company generated $67.5 million of free cash flow during the quarter and paid down an additional $116 million of debt. Chief Financial Officer Rob Sullivan said RBC Bearings paid off another $27 million after the quarter ended and remains on track to pay off the remainder of its term loan by November 2026.
Aerospace and defense drives growth
RBC Bearings said approximately 43% of fourth-quarter revenue came from its aerospace and defense segment, while 57% came from industrial. Aerospace and defense revenue increased 41.2% from the prior-year quarter. Excluding the VACCO acquisition, aerospace and defense sales increased 22.8%, which Sullivan said reflected continued strength in legacy commercial and defense markets.
Hartnett said the aerospace and defense backlog has continued to expand and now stands at approximately $2.3 billion. For the full year, aerospace and defense revenue increased 32%, including 19.1% organic growth. Commercial aircraft revenue increased 17.8%, including 17.3% organic growth, while defense revenue rose 65.4%, including 22.1% organic growth.
Management highlighted several areas supporting the aerospace and defense outlook, including submarines, missiles, space and commercial aircraft production. Hartnett said marine has been a significant contributor to backlog growth, driven by the build-out of the submarine fleet, including Virginia and Columbia class programs and fleet spares. He said the company is adding machinery and floor space to support higher production rates.
“We are definitely going to double our revenues in that sector over the next 24 to 36 months,” Hartnett said during the question-and-answer portion, referring to the marine business.
Missiles and space remain key end markets
Hartnett said missile-related revenue exceeded $45 million for the fiscal year, with some of the gain coming from the VACCO acquisition. He said the growth reflects increased content across several leading missile programs and expanding demand tied to current global conditions.
In response to a question from Morgan Stanley analyst Kristine Liwag, Hartnett said VACCO provides components used to manage fuel systems, particularly where liquid propulsion is involved, and noted usage on “significant programs like the Tomahawk.” He also said RBC Bearings has content on a broad range of systems, including Patriot, GMLRS, Tomahawk, Standard Missile, JAGM, ASTER and hypersonic missile programs.
Hartnett said RBC Bearings is expanding production capability to support those programs and is also working to increase ship-set content, though he noted that increasing mix can take longer because it requires tooling.
Space revenue came in just above $70 million for the year, including $30 million from eight months of VACCO contribution. Hartnett contrasted that with about $4 million of space-related revenue in 2021. He said customers include both traditional aerospace and defense companies and newer space companies, citing Boeing, Lockheed, Northrop, Raytheon, Collins, SpaceX, Blue Origin and Rocket Lab among those serving the sector.
Asked by Deutsche Bank analyst Scott Deuschle whether SpaceX’s Starship production ramp could accelerate RBC Bearings’ space revenue growth, Hartnett said the impact would be “modest” based on the current outlook.
Industrial business posts steady gains
In the industrial segment, Hartnett said performance remained “steady and up,” with original equipment manufacturer revenue increasing 7.8% and distribution revenue growing 4.5% during the quarter. The company cited strength in aggregates, warehousing, food and beverage, grain and semiconductor end markets.
Hartnett said industrial momentum that began earlier in the year had held up into the first quarter, though he characterized it as modest. He also linked strength in aggregates to infrastructure and construction activity tied to artificial intelligence and server farm build-outs, saying RBC Bearings’ aggregate business was up around 17% to 20%.
On industrial automation, Hartnett said RBC Bearings’ exposure as a supplier is relatively small, in the range of $40 million to $50 million annually. He said semiconductor-related demand, including robotic components for chip manufacturing, has been strong and is expected to become a more significant contributor in fiscal 2027. He described humanoid robot activity as still small and primarily related to samples and industry development, with no volume yet visible.
Margins improve as debt reduction continues
Consolidated gross margin was 44.4% in the fourth quarter, or 45.3% on an adjusted basis, compared with 44.2% in the same period last year. Sullivan said aerospace and defense gross margin was 41.6%, or 44.2% adjusted, while industrial margins were 46.5%, or 46.2% adjusted. Excluding VACCO, aerospace and defense gross margin was 43.7%.
Sullivan said margin improvement in aerospace and defense has been supported by increased efficiencies, higher volumes and newly awarded contracts, though he said the benefits would flow through gradually. He also said SG totaled $86.9 million, or 16.8% of net sales, in the quarter. In response to a question, Sullivan said higher SG was driven primarily by personnel costs, compensation items, stock compensation and other administrative costs.
Interest expense declined 12.5% year over year to $11.2 million, reflecting improved leverage and lower interest rates, Sullivan said. For the full fiscal year, free cash flow was $342.6 million, with conversion of 119.1%, compared with $243.8 million and 99% in the prior year.
Company issues first-quarter guidance
For the first quarter of fiscal 2027, RBC Bearings guided for revenue of $500 million to $510 million, representing year-over-year growth of 14.7% to 17%. The company expects adjusted gross margin of 45.25% to 45.5% and SG as a percentage of net sales of 16.5% to 16.75%.
Sullivan said the guidance reflects a range of outcomes across aerospace and industrial markets, as well as the faster growth of aerospace and defense, which can have a dilutive impact on consolidated margins because industrial margins are higher. For the full year, he said RBC Bearings believes it can expand consolidated gross margins by about 50 basis points.
Hartnett said the company expects commercial aerospace growth of more than 15% in fiscal 2027, while defense and space together are expected to grow faster than commercial aerospace. He also said RBC Bearings has not yet seen headwinds in the commercial aerospace aftermarket from airlines tightening spending amid higher jet fuel prices, though management is watching the issue.
Asked about mergers and acquisitions, Hartnett said the preferred target profile would be a mechanical products company serving a customer base similar to RBC Bearings’ existing customers, preferably distressed and in a geography that would be easy for the company to access and repair.
About RBC Bearings (NYSE:RBC)
RBC Bearings Incorporated is a global designer, manufacturer and marketer of highly engineered precision bearings and components for extreme applications. The company's product portfolio includes cylindrical roller bearings, spherical plain bearings, ball bearings, track rollers, and engineered components such as metal-to-metal and polymer bearings. These products are tailored to meet the demanding requirements of aerospace, defense and industrial customers where reliability under severe conditions is critical.
The company's bearings and components find application in aircraft engines, auxiliary power units, landing gear systems, space and missile programs, industrial gas turbines, oil and gas drilling equipment, and heavy machinery.
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