RBC Bearings Inc. (NASDAQ:ROLL) Q2 2020 Earnings Conference Call - Final Transcript

Nov 01, 2019 • 11:00 am ET

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RBC Bearings Inc. (NASDAQ:ROLL) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Executive
Chris Donovan

[Operator Instructions] And your first question comes from the line of Pete Skibitski with Alembic Global.

Analyst
Pete Skibitski

Good morning guys. Hey guys just want to get a sense of how you're seeing margins -- operating margins in the second half of the year. It looks like the first half you're up year-over-year in the first half. Second half I think it's a little tougher comp wise on the margin side but it looks like you're feeling good about volumes. So should we expect margins to be up period-over-period in the second half and kind of how much are they tied to whether or not we can have Max return to service?

Executive
Michael Hartnett

Yes. Well, at the beginning of the year we gave guidance 50 bps on gross margins. So for the first six months this year we're at 38.9% compared to 38.9% last year. So a little short on the target for gross margin but we were able to keep the cost in mind. So on adjusted operating income year-to-date we're at 21.1% compared to last year 20.6%. So we're a 50 bp improvement. So I think that's going to stay steady through the year. I think we'll see the margins improve going into Q3 and Q4 and we'll try to keep the cost under control also. But I think we're comfortable with the 50 bp improvement falling down to operating income.

Analyst
Pete Skibitski

Okay. Sounds, great. And then Mike can you maybe expand on your comments about green shoots and industrial maybe starting to do more in the fourth quarter or are those maybe certain subsectors within industrial are already showing signs there?

Executive
Michael Hartnett

Well there are a couple of things that normally go on on the industrial section. Right now what you have in the third quarter or our third quarter the calendar year fourth quarter is everybody in the kingdom is trying to manage their inventories to some turn objective that they had set for their bonuses. And inevitably the businesses can't run with that artificial level of working capital. So every year what you see is in our fourth quarter the calendar first quarter all these companies hit the gas in terms of replenishing inventory so they can run their businesses properly. So I mean that's just sort of standard operating procedure in the industrial world for us. But in addition to that we have some new contracts coming in on existing accounts which are very promising which are going to bring us some industrial volumes -- increased industrial volumes next year. And we have some new contracts on new accounts which are equally promising. And we see -- we're seeing a pickup in mind?

Analyst
Pete Skibitski

That sounds great. And is that all incremental to I think you've been expecting the submarine business to get better next year. So the commentary you just gave kind of in addition to the submarine kind of optimism?

Executive
Michael Hartnett

That has nothing to do with the submarine business. That just yes...

Analyst
Pete Skibitski

Great, Okay. Gentlemen last question for me.