Gorman-Rupp Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to RBC Bearings Fiscal 20 24 First Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining us for RBC Bearings fiscal 2024 Q1 earnings conference call. With me on the call today are Doctor. Michael Hartnett, Chairman, President and Chief Executive Officer Daniel Bergeron, Director, Vice President and Chief Operating Officer and Robert Sullivan, Vice President and Chief Financial Officer. Before beginning today's call, I want to remind you that some of the statements made today will be forward looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors.

Speaker 1

We refer you to RBC Bearings' recent filings These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non GAAP financial information It's included as part of the release and is available on the company's website. With that, I'll now turn the call over to Doctor. Hartnett.

Speaker 2

Thank you, Josh, and good morning to all, and welcome to the RBC conference call. Well, I'm pleased to report that our net sales for the Q1 of 2024 were $387,000,000 This represents an increase of 9.3% from last year. For the Q1 of 2024, sales of industrial products represented 69% of our net sales with aerospace products at 31%. As a footnote, over the past 10 years, revenue growth at RBC has been made at the compounded rate of 14.7%. Gross margin for the quarter is $167,900,000 or 43.4 percent of net sales.

Speaker 2

This compares to $141,200,000 or 39.9 percent for the same period last year, A 350 basis point improvement from last year. Clearly, we are tremendously pleased with the gross margin expansion. Overall, that is a clear result of increased volumes in our aerospace product plants coupled with the impact of many components of synergy Given this trajectory, we can report We plan now to finish the year with gross margins in the low to mid 40% range. I want to take a moment here and thank the RBC teams for their excellence and execution, both in the plants and the offices, as well as the top grades received for customer satisfaction. It is you and your tireless intention to detail to make the difference and create a strong preference for the RBC and Dodge branded products in the aircraft and industrial markets.

Speaker 2

So thank you all for a job well done. Adjusted operating income for the period was $85,300,000 or 22 percent of net sales compared to last year of $68,300,000 19.3 percent respectively, a 25% improvement. Free cash flow was a strong $55,000,000 This has allowed us to reduce debt by over $450,000,000 since the acquisition of Dodge in November of 2021. We now have achieved a net debt to EBITDA ratio of 2.84 over trailing 12 months, down from 5.65 from fiscal 'twenty 2. So RBC has grown EBITDA at a compounded rate of 15.2% per year over the last 10 years.

Speaker 2

Adjusted EPS was $2.13 a share, a 19% improvement from last year. Adjusted EBITDA was $120,400,000 31 percent of net sales compared to 100 $700,000 28.4 percent net sales for the same period, a 20% increase. Overall, we're encouraged by the cultural fit now that exists between Dodge and the RBC and the environment of teamwork and camaraderie That has developed over the 1st 18 months since the acquisition and more importantly, the future that this coupling has created. We look forward to finishing the year at about $1,600,000,000 in revenue. On the industrial business, during the period, the industrial sector growth was 4.7% against Some strong comps last year.

Speaker 2

Last year improved supply chain performance allowed shipments of late orders to customers, Creating a Q1, Q2 and 'twenty three sales bolt that's behind us now. Dodge was a revenue leader in the industrial sector with a 9.4% expansion on a combined OEM and distribution sales. Importantly, several of our target market sectors expanded at a double digit rate over the period. These include oil and gas, food and beverage, And Forage Products, we expect this to continue for the balance of the year, driven by world events. On Aerospace and Defense, overall, we saw an expansion rate of 21.2% with commercial Aero OEM up 26.5 percent and commercial distribution up 35.9%.

Speaker 2

Defense was up 7.9%. OEM defense was up 11%. Jets, missiles, helicopters and marine were the drivers. Aftermarket was down 3.3%, Mainly, fighter jets. We have finally shaken off the bad dreams of the pandemic and the continuing Endemic problems of the major builders.

Speaker 2

The demand drivers here, as explained in past calls, now are the large plane builders And their supply chain in support of production of Boeing and Airbus's 787, 737, A320 and A330 Planes And also the Private Aircraft Builders and of course the many subcontractors who support the industry. Currently, we are building 737 materials at a rate of 38 per month and new orders inbound are at a rate of 42. Given the 7.30 on the 7.87, our current build rate numbers are 3 per month, we're building now, and 7 per month, We expect that order rate very soon. It's probably a little past due. As is typical of these products today, RBC generates 70% of its sales from sole source or single source positions.

Speaker 2

In summary, let's go over the highlight reel. Q1 sales were up 9.3 percent for the period. EBITDA 120.4%, up 19.5% Adjusted net income, dollars 2.13, up 19 percent full year guidance revenues, dollars 1,600,000,000 Gross margins expected to be in the low to mid-40s. Debt pay down since November 2021, dollars 450,000,000 Trailing EBITDA to net debt today is $2,840,000,000 from $5,650,000,000 in fiscal 'twenty two. 70% of our revenues how to replace products consumed in use and we are normally number 1 market share supplier of our products And 70% of our business is either sole source or we are primary source for the product.

Speaker 2

Another point to mention is our backlog numbers. They're not particularly relevant. Probably 75% of our revenues never pass through our backlog. The aircraft business is done on a where orders are received from a computer screen and shipped as received. And Dodge is working normally when they have a very small backlog, If any, and shipments are made subject to orders received.

Speaker 2

And for the most part, it's a day or 2 are expecting sales to be somewhere between $380,000,000 $390,000,000 range. And I'll now turn the call over to Rob for more detail on the financial performance.

Speaker 3

Thank you, Mike. SG and A for the Q1 of fiscal 'twenty four was $64,700,000 compared to $55,800,000 for the same period last year. As a percentage of net sales, SG and A was 16.7% Q1 of fiscal 2024 compared to 15.8 percent for the same period last year. Other operating expenses for the Q1 of fiscal 2024 totaled $18,200,000 compared to $20,900,000 for the same period last year. For the Q1 of fiscal 'twenty four, other operating expenses This included $17,500,000 of amortization of intangible assets, dollars 300,000 of restructuring costs associated with our California operations and $400,000 of other items.

Speaker 3

For the Q1 of fiscal 'twenty three, other operating expenses consisted primarily of $17,300,000 of amortization of intangible assets and $3,800,000 of costs associated with the Dodge acquisition, partially offset by $200,000 of other income. Operating income was $85,000,000 for the Q1 of fiscal 'twenty four compared to operating income $64,500,000 for the same period last year. Excluding approximately $300,000 of restructuring costs, Adjusted operating income was $85,300,000 or 22 percent of sales for

Speaker 1

the Q1

Speaker 3

of fiscal 2024. Excluding approximately $3,800,000 of acquisition costs, Adjusted operating income for the Q1 of fiscal 'twenty three was $68,300,000 or 19.3 percent of sales. Interest expense for the Q1 of fiscal 2024 was $20,500,000 compared to $15,800,000 for the same period last year. For the Q1 of fiscal 'twenty four, the company reported net income of $50,000,000 compared to $37,400,000 for the same period last year. On an adjusted basis, net income was $67,700,000 for the Q1 of fiscal 2024 compared to $57,500,000 for the same period last year.

Speaker 3

Net income attributable to common stockholders for the Q1 of fiscal 'twenty four was $44,300,000 compared to $31,700,000 for the same period last year. On an adjusted basis, net income attributable to common stockholders for the Q1 of fiscal 'twenty four was $61,900,000 compared to $51,800,000 the same period last year. Diluted earnings per share attributable to common stockholders was $1.52 per share for the Q1 of fiscal 'twenty four compared to $1.09 per share for the same period last year. On an adjusted basis, diluted EPS attributable to common stockholders for the first quarter of fiscal 'twenty four was $2.13 per share compared to $1.79 per share for the same period last year. Turning to cash flow, the company generated $61,700,000 in cash from operating activities in the Q1 of fiscal 'twenty four compared to $59,000,000 for the same period last year.

Speaker 3

Capital expenditures were $6,700,000 in the Q1 of fiscal 'twenty four compared to $7,900,000 of capital expenditures same period last year. We paid down $50,000,000 on the term loan during the period, leaving total debt of $1,340,000,000 as of July 1, 2023, And cash on hand was $56,700,000 Our net debt to adjusted EBITDA for the trailing 12 months is 2.84 compared to 3.06 at the end of fiscal 'twenty three and 5.65 at the end of fiscal 2022. I'd now like to turn the call back to the operator for the question and answer session.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer Our first questions come from the line Christine Liwag with Morgan Stanley. Please proceed with your question.

Speaker 4

Hey, good morning, guys.

Speaker 2

Good morning, Christine.

Speaker 4

The margin that you guys printed this quarter, I mean, is just I mean, I'm sorry, but it's just a monster margin. So my first question is, in hindsight, like being able to generate margins At 43.4 percent gross margin within about almost 2 years ownership of Dodge, in hindsight, Like where were you surprised like one, were you really surprised that you can you got this much margin expansion in short period of time? And then number 2, Can you give some color in terms of where that surprise could have potentially come from? I mean, this is a pretty meaningful Change in profitability in such a short period of time for a company that's becoming larger like yours.

Speaker 2

Sure. Well, let's put it this way, Christine. We're pleased at the margin expansion that we've been able to achieve with the Dodge RBC combination since November of 2021. And are we a little ahead of our plan? I would say we are.

Speaker 2

Is there any one thing that we did to achieve that kind of performance? There's really never ever one thing that you can do. I mean, there's a whole series of things that has to be done in terms How to sort of tune up the performance of a business. And certainly, looking at the Price cost of your eightytwenty items is really important thing to do first right out of the base And trying to understand if you have a large revenue producer that has a smaller margin than is And it should have or that's acceptable, what to do about it. And so you have a lot of smart people, in the system That have a lot of good ideas on how to correct things like that.

Speaker 2

And so you have lots of meetings with many people On issues such as that, product line by product line to discuss What can be done in terms of operational performance? What costs should be passed along to the marketplace because we've experienced Some pretty steep material charges from suppliers over the years And they weren't passed along and whether or not that particular product offered for sale is something you should even Offer for sale. I mean, some products linger when they should die. And so, it's There is a certain calling effect in that imbalance improves the mix. And I think the other thing is, you look at all the entire customer base has various Discounts associated with how they buy the product and often those discounts haven't been revisited In a decade.

Speaker 2

And so the revisitation of those discounts is another important part of the process. And finally, having additional volumes going through our aircraft plants that have been sort of On standby since 2019 is extraordinarily helpful. So there's Several components that are working together for us right now that are very positive And we're on a good path. We're on a very good path.

Speaker 4

Great. Thanks, Mike. And then you mentioned that backlog A great read through for the business now, especially with the book to ship aspect of the portfolio. So first, What have you had to do differently, if any, to be able to forecast demand and get your demand signals to You're planning your factory. And then second, how accurate has your methodology been in hindsight?

Speaker 2

Well, there's kind of two answers to that. I mean, for the bulk of our business, this aircraft, It's pretty easy to understand what you should be building and have available for immediate delivery based upon your contracts And Boeing or Airbus' or Cessna's build rate. And so you stay pretty close to the build rate. You understand what your for that particular airframe and you understand what you're obligated to in terms of a statement of work And you revisit that monthly and you make sure that you Materials inbound and that you have the right load against your plants, so that product is available when it needs to be available. And that's really The way that we got supplier of the year at Boeing is that's our process.

Speaker 2

When you look at Dodge, Dodge is a little different. Dodge is very dependent upon being able to do a great job Forecasting the demand in their market sectors. And so over the years, they have independently developed A process of being able to forecast the economics of a given Market sector, which then translates down to build rates for items that are sold to that sector. And when I was first introduced to their methods, I was Really kind of skeptical about it could be done that way. But they do it Can be done that way and they do an amazing job with satisfying their customer base And making sure that the right product is available to the right customer, at the right time.

Speaker 2

And I think when you tour one

Speaker 1

of our

Speaker 2

plants, We'll show you how a plant with an offering of 10,000 line items Makes every line item available every day for shipment to a customer with sort of a minimal backup in inventory. Yes, It's really an experience to see how they do that.

Speaker 4

Yes. And then if I could sneak one last in. So in terms of your different end Can you provide the trends that you're seeing and where you see risks and opportunities regarding your full year outlook?

Speaker 2

Yes. Well, I mean, we're Are we talking industrial or aircraft, defense or all 3?

Speaker 4

All of the above, please.

Speaker 2

All of the above. Well, aircraft is unless something different happens, we're pretty much dialed in on rate And materials and plant loading and plant staffing, we know what the program is. And at the end of this year, we're going to be running hard to keep up. And that's the way that looks. But we will keep up, but It's going to be demanding for us in several of our plants.

Speaker 2

So that's the aircraft story. On the defense side, The Marine business is sort of the one of the leaders in our defense program And we're busy building Submarine components to service the Navy And that's the number one defense priority is to build submarines And we're a big supplier in that category. So our contracts are multi year, Multi products, multi 1,000,000 of dollars and they're in place And our supply chain is working effectively and things are starting to move through the plant Just the way we like to see. So I think that's that volume will continue to increase as we start building More assemblies and shipping more assemblies. So we expect to see good growth in that sector going forward for the rest of the year.

Speaker 2

And then, on the industrial side, there are several important markets for us In the industrial business, and we've been doing a lot of study on this to understand, because there's so many industrial markets that we service, Which are the markets that are really material to us and which are the markets that have a substantial growth potential? And we see markets substantial growth potentials based upon demonstrated consumption of our products In food and beverage, forest products, oil and gas, mining and materials and aggregate. And those are material markets for us that have we feel A double digit, either they've demonstrated double digit growth potential or they there's something Coming down the pike like the infrastructure bill that's going to encourage that potential. So Those are the markets.

Speaker 4

Great. Thanks, Mike. Appreciate it.

Speaker 2

Okay. Thank you, Christine.

Operator

Thank you. Our next questions come from the line of Pete Skibitski with Alembic Global. Please proceed with your questions.

Speaker 5

Good morning, guys. Nice quarter.

Speaker 6

Thank you, Pete.

Speaker 5

Hey, just one follow-up on gross margin. It sounds like performance is a big part of the great result there. Just curious, Mike, because I know you've talked about Pricing power being a tailwind for you due to inflation, On kind of a relative basis, relative to other factors, how much was pricing helpful to the gross margin result?

Speaker 2

Yes, I just Pete, I never broke it out. I do know that a lot of our businesses, particularly Dodge, it was very supply chain dependent And we saw substantial price increases from our supply chain for materials. And I know the pricing that we put through to the marketplace to the best of our ability was to at least neutralize what we saw For material increases. So, I mean, that's all I have to say.

Speaker 5

Okay. Fair enough. I appreciate it. And then just shifting to SG and A, you guys are running kind of 15 ish percentage of sales last year in SG and A and you're at 16.7% here in the Q1 and you're guiding into the 60% in the second. It just seems like something kind of flipped here on SG and A.

Speaker 5

I don't know if it's an R and D bump or something, but can you give us some color there on what's been going on and Is that expected to kind of continue through the midterm?

Speaker 3

Yes. So what we're seeing through SG and A is again just some investment In organic growth throughout the different cost centers, we should see some leverage on that as we enter into the second half of the year. But in terms of What falls down to the operating income EBITDA line? If you look at adjusted EBITDA quarter over quarter even versus Q4, you're seeing 40 basis Points have increased. So it's not all getting caught up in SG and A.

Speaker 3

It's slowing down.

Speaker 5

Yes. Okay. Now that makes sense. I guess last one for me. Why did you guys decide for the first time to give full year revenue guidance?

Speaker 5

Just I think I know the reason, but I'm just curious as To your thinking there and I guess, we're still expecting I assume kind of double digit growth at A and D over netting out And I don't know mid single digits or so at Industrial, is that kind of the way you're thinking?

Speaker 2

Yes, that's the way we're thinking. It's just that Every year we get into this situation where we have our Q2 and our Q3 are typically weak quarters for us just because of The number of days, the number of vacations, the number of holidays and so on and so forth. And so we end up Explaining that to everybody ad nauseam, right? And so we thought that it'd be better just to say, hey, look at relax, Full year looks healthy. We've got 2 quarters that are typically weak and we know that.

Speaker 2

And we usually have a and we are expecting to have a very powerful Q4 bringing us to those kinds of numbers. So We just wanted to sort of take a more offensive position on explaining what the year how the year is laid out.

Speaker 5

Yes, I hear you. Makes sense. Thanks guys.

Speaker 1

Yes.

Operator

Thank you. Our next question This comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Speaker 7

Hey, guys. Good morning. No surprise. I have a gross margin question too. Mike, for the year, you said low to mid 40% range, which is Incredible because that obviously includes 44% or 45%.

Speaker 7

That would be a huge win relative to 43.4% this quarter. So Can you talk about what the upper limit is when you say low to mid 40%?

Speaker 2

You really want me to do that, Steve?

Speaker 7

I do.

Speaker 2

I'm going to let Rob do that because he's always pulling on my collar.

Speaker 3

Yes. Look, Steve, I mean, if

Speaker 2

you look even versus where we were at the

Speaker 3

end of Q4 and now where we are into Q1, I mean, we're seeing some significant Step up in gross margin. We feel 43% is a comfortable spot for us At this point, obviously, you've seen our playbook. We will continue to push the limits where we can, But that's kind of why we're saying low to mid at this point.

Speaker 7

Got it. Okay. Well, I know segment margins come in the queue, but with a 52% incremental operating margin this quarter, One or both of the segments must have been exceptional. Can you tell us which was the real outlier?

Speaker 3

Yes. You'll see industrial gross margins We're about 45% this quarter. So we haven't even seen the full benefit of what aerospace is going to bring to the table as those plants start to push even higher. So That's where we have some upward mobility.

Speaker 7

Got it. And on the industrial side, another bearing company This week took guidance down saying its industrial distribution and its off highway customers are destocking even though they think that Underlying demand will stay positive. Are you seeing any similar issues across the Dodge portfolio? And do you expect the Industrial segment will Remain positive from a growth standpoint each quarter this year?

Speaker 2

Yes. How did I know you're going to ask that question? Because I cover industrial bearings. So After reading through the transcripts of the other bearing companies, I thought that we should Investigate the destocking issue ourselves internally because I haven't heard very much about it. And normally, I would hear I would get at least 1 or 2 panic phone calls if that were occurring.

Speaker 2

So we don't see that occurring. We do see what's happened was last year, the supply chain was still fragile And people were worried about getting the product that they needed to run their plants. So there was a lot of panic buying. So we had a backlog of many tens of 1,000,000 of dollars That were shipped as soon as we took the order, it was late. So it was past due the minute they take the orders.

Speaker 2

So we didn't have the product available because It wasn't produced and yet we had this order that we could ship any time, so because of the panic buying. So this year, The panic buying, I think people have more confidence in the performance of their supply chain. So we don't see that at all that level of Panic buying and things are definitely back to normal. We suspect that's really what's going on.

Speaker 7

I understand. So are you happy with your own inventory position relative to what you see for demand across both Aerospace and Industrial?

Speaker 2

Yes, we are. Actually, I think we have a little bit too much inventory, and we're going to we're trying to bleed that down. And We got caught up in the supply chain problem too where too much material came in because we Had to go to several sources and then they all solved their problems and sent it in. So we'll be bleeding inventory down For the most part, for much of the year, particularly in the industrial businesses. The aircraft business is just Maybe just the opposite.

Speaker 2

Materials are material lead times are out to From what's normal 40 week material lead time to now it's 60 and maybe even more 70 weeks. So we are taking sort of a more aggressive position to bring in Safety stock of key materials to make sure that we don't disappoint our customers.

Speaker 7

Very good. Thanks for the time. I'll pass it along.

Speaker 2

Yes.

Operator

Thank you. Our next questions come from the line of Michael Ciarmoli with proceed with your questions.

Speaker 8

Hey, good morning guys. Nice results and nice gross margins. Before I try and dig into the gross margins a little bit more, just I may have missed it. What was the year over year growth rate for industrial

Speaker 3

So industrial OEM Was actually down 9.2% year over year and industrial distribution was up 12.7%.

Speaker 8

Got it. Perfect. So just back to the margins, and I guess maybe to try and attack it Another way, you talked about 41% to 41.5% this quarter. So sequentially, you made some really big improvements on down revenues. And I know you talked about the aerospace volumes, But Arrow was down.

Speaker 8

Did anything change quarter to quarter? Did you have a lot of Contracts or pricing flow through or Mike, I think you mentioned kind of calling the portfolio and taking out some product lines, But it just seems to get this gross margin leverage on weaker sales sequentially seems pretty surprising too. So maybe Anything kind of jump out recently here?

Speaker 2

Well, I think the Just to go through my list of the obvious, certainly we talked about the volumes in the aircraft businesses that That's going to help us more and more and more this year. Secondly, we have several processes that we've We were working on in 2019 and right before the pandemic. And we were early on the learning curve for those processes. And so we've had From 2019 to now, 2023, To mature those processes and achieve and introduce volume. And that's happened In a few plants where the designs were very complex And required a disproportionate learning curve to get it to the pro form a gross margin We were targeting and so that 2 or 3 years Where the volume demands were off, it was very helpful to maturing those processes.

Speaker 2

When the volume demands are on and you have immature processes, you don't have the resources to mature them Because you're busy trying to ship product to a customer who needs to Incorporate that product and what he's producing. So, that timeframe was very helpful.

Speaker 6

Okay.

Speaker 2

And also, I think we've been sourced components that over the period just Accrued to the benefit of the margin.

Speaker 8

Okay. I wanted to actually ask on that, the status of the in sourcing, kind of What inning are you in there? I know I think you talked about $1,200,000 of savings. So it sounds like you're starting to see some of that benefit.

Speaker 2

Yes. We're that's a long road and but that's one of the spokes in the wheel And we're working at it. We're not we didn't say 200, though. We Yes.

Speaker 3

Our synergies are 70 to 100. Yes.

Speaker 8

And Yes. No, I thought there was $200,000,000 of product that Dodge source that you could potentially start sourcing internally. I thought that's what it would no, I got the synergy side of it, but I thought you had flagged About $200,000,000 at one point.

Speaker 2

Yes. Well, there's a pool of $200,000,000 plus to choose from.

Operator

Right, right.

Speaker 3

And not all of it fits, but some does. Yes. Right.

Speaker 8

Last one on the year, I think you were Still calling our last quarter double digit aerospace revenue growth and high single for industrial as part of that one point $6,000,000,000 are those still directionally correct?

Speaker 2

Yes, that math works.

Speaker 6

Okay.

Operator

Good.

Speaker 8

Go ahead.

Speaker 2

Yes. I think industrial is maybe our goal has always been 2x GDP, And I think that's kind of where that fits.

Speaker 8

Got it. Perfect. Thanks, guys.

Speaker 6

I'll jump back in the queue.

Speaker 8

Thank

Operator

Our next questions come from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions.

Speaker 6

Hi, thanks. This is Vivek Shrivastava on For Joe, maybe just wanted to zoom in on the industrial side and particularly on the classic RBC Industrial. Looks like Sales declined sort of mid single digit in the Classic RBC Industrial part. Just any color on what drove that How does that growth in the Classic business look going forward in the coming quarters?

Speaker 9

Yes, this is Dan Bergeron. I'd say on the industrial side of classic RBC on the OEM side, It was mainly driven by semicon, wind, machine tool holders and call it, warehousing and I live on the heavy truck. So I think those we just had a really hard comp to last year and I think some of these markets are coming back and we should see some of them improvement in the second half of the year.

Speaker 6

Got it. And then maybe just looking at the next quarter's guidance, Just the low end of the sales would suggest industrial probably decelerates from here. So just want to understand what underpins the

Speaker 9

So I think on the range, when we look how many production days are in the quarter Compared to the Q1, there's less amount of production days. So it kind of hits both the industrial side and the aerospace and defense side of the business. And Then it all depends what big projects that we're shipping on, on the defense side, on the marine and on aerospace, like the F-thirty 5 projects like that, And they could be lumpy quarter to quarter. So that range is pretty wide to forecast some of that. And we kind of have the same impact in Q3 because of the holiday season.

Speaker 9

And in Q4, We have an extra 5 to 7 production days. So you're shipping an extra 5 to 7 days Product for your businesses. So it's kind of when things normalize year over year, it's always that U shaped effect. When you're when we're in A steep growth period, you don't see it, but now that Dodge is integrated for a year, now we go back to our normal Kind of routine that we have with seasonality mainly driven by production days.

Speaker 6

Thanks for that. And maybe if I can Squeeze one last one. Just a more longer term question on the industrial business. You've talked about 2 times GDP growth and always trying to like Some of the smaller green shoots across the businesses, maybe highlight some of the green shoots that are helping your industrial business Right now, in this current environment and for the upcoming like 2, 3 quarters? Thanks.

Speaker 2

Yes. I think we talked about where we saw quarter to quarter Growth in our in some of our markets and that was food and beverage, forest products, oil and gas, Mining and Aggregates, those are all very strong markets for us. And so in part, what we have to do is make sure that Our resources, our selling and field resources are aligned are properly aligned with those markets so that we can benefit in their growth. And this is probably some organizational tweaking that has to be done to achieve that. On the oil and gas side,

Speaker 8

we're

Speaker 2

pretty much capped out on capacity, manufacturing capacity To service that oil and gas market right now. And so we're working to add capacity, which In our industry, it takes a little while because it's machinery and the machinery has to be built. And so we would expect to see additional capacity online for that business By late our late Q4. So to some extent, that's one sector That's a material sector for us in terms of scale that it has some capacity constraints.

Speaker 9

I'll add one more to it. Just to give you an idea of some of the green shoots that we work on, one is the space industry. So in 2021, We shipped around $4,000,000 of product into space. Last year, we shipped in $10,000,000 and just the Q1 of this year, we shipped $4,000,000 So And that's over about 15 different RBC facilities participating in that market, such as one of many Green shoots that these guys are working on that are driving volume.

Speaker 6

Great. Thanks.

Operator

Thank you. Our next questions come from the line of Jordan Leerink with Bank of America. Please proceed with your question.

Speaker 3

Hey, good morning.

Speaker 2

Good morning. Good morning.

Speaker 3

I just had a quick question. With the step up Coming for

Speaker 1

the aerospace OEM production rates,

Speaker 2

would you guys be able

Speaker 1

to give more details on Ship set value or any increased content you guys are expecting?

Speaker 9

Yes. We don't publish our ship Said content, but we are picking up market share on different platforms on both the commercial side and the defense side. Our bigger ships for us would be like the 737, the 787, the 777X, The F-thirty five and of course we have a significant content on our marine programs On the Virginia and the Columbia subs for the Newport News and Electric Boat.

Speaker 3

Got it. All right. Thank you.

Operator

Thank you. Our next questions come from the line of Christine Liwag with Morgan Stanley. Please proceed with your questions.

Speaker 4

Hey, guys. Thanks for letting me back into the queue. So maybe now that we've had a few you guys have had a few quarters of Dodge already almost 2 years and the leverage Is approaching manageable levels and Dodge is integrated. What's your appetite to restart the M and A pipeline? And historically, you guys have wanted to be 50 percent aerospace defense, 50 percent industrials.

Speaker 4

What's your appetite today and what does that pipeline look like?

Speaker 2

Well, obviously, with those ratios improving to that extent And they'll continue to improve through the balance of this year. Our appetite For an acquisition in Aerospace Defense is good. And so we're looking where We need to look and trying to evaluate what's the right partner To court. And so that whole process is starting over again now.

Speaker 4

Great. Thank you.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this I would now like to turn the call back over to Doctor. Hartnett for any closing remarks.

Speaker 2

Okay. Well, thank you. And I appreciate all the discussion today on RBC. I hope you we got a chance to explain our business a little bit better and what the future looks like and we'll speak again in November. Good day.

Operator

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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Earnings Conference Call
Gorman-Rupp Q1 2024
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