RBC Bearings (NYSE:RBC) executives told investors the company delivered another strong quarter in fiscal third-quarter 2026, driven by broad-based momentum in aerospace and defense and modest growth in industrial markets, while continuing to generate robust free cash flow and reduce debt.
Quarterly results highlighted by A&D growth and strong cash generation
Chairman, President, and CEO Dr. Hartnett said third-quarter net sales were $461 million, up 17% from the prior year period. Consolidated gross margin was 44.3% (or 45.1% on an adjusted basis), while adjusted diluted earnings per share increased to $3.04 from $2.34 a year earlier, a 30% improvement.
Revenue mix for the quarter was 56% industrial and 44% aerospace and defense (A&D), management said.
Aerospace and defense described as “extremely robust”
Management emphasized continued strength across A&D markets. Dr. Hartnett said total A&D sales increased 41.5% year-over-year, with commercial aerospace up 21.5% and defense up 86.2%. Sullivan added that A&D growth was 21.7% excluding sales from VACCO, pointing to expansion in both legacy commercial and defense markets.
On profitability, Sullivan said A&D gross margin was 40.1% (or 42.2% adjusted) in the quarter, and excluding VACCO, A&D gross margin was 43.4%. He said the company is seeing margin progress in A&D due to improved plant efficiencies and “improving pricing on customer contracts,” while noting the impact should be gradual as the benefits flow through.
Dr. Hartnett said backlog “modestly exceeded” the $2 billion mark discussed on the previous call, while also noting that much of the company’s A&D activity is managed through frequent electronic pulls and therefore has a limited footprint in the reported backlog. He added that if certain joint contract obligations were extended based on awarded statements of work and projected bill rates, they “would likely exceed another $500 million-$1 billion in backlog.”
Management also detailed several end-market areas supporting demand, including:
- Submarines: Dr. Hartnett called submarines the top defense priority and cited demand for proprietary quiet-running valves for both new construction and replacement. He referenced plans for 66 Virginia-class ships (with 25 commissioned to date) and 12 Columbia-class ships.
- Missiles and guided systems: The company pointed to multi-year refurbishment initiatives and demand tied to targeting systems and fuel management products. Hartnett said RBC is “across the board” on missile-related programs but does not expect the missile business to be anywhere near the size of its commercial aircraft business.
- Space: Hartnett said RBC supports “engineering support and staple components” for space systems, including precision assemblies for applications such as targeting, thrust vectoring, and fuel management.
In the Q&A, COO Daniel Bergeron said Sargent Aerospace products are “specifically for submarine,” while VACCO has some applications in space on satellites. Hartnett later described VACCO as having a strong portfolio of “staples” used to build satellites and said the company is evaluating which products to stock more broadly, suggesting availability can influence order wins and potentially even design choices by customers.
Industrial growth modest, with signs of improving demand
Industrial revenue grew 3.1% year-over-year in the third quarter, with industrial distribution up 1.5% and the OEM sector up 7%, management said. Dr. Hartnett pointed to strength in aggregate and cement, food and beverage, and warehousing markets.
He added that the company has recently seen “positive trends” in some end markets that should emerge in revenue as orders move through lead times, calling semiconductors “the biggest standout.” Hartnett said broad industrial demand strengthened in late December and continued through January.
Management also highlighted product and go-to-market initiatives. Dr. Hartnett said RBC plans to introduce several new industrial products through fiscal 2027, with many in testing and development since the Dodge acquisition. He also said the company is opening a service center in the Midwest to better serve customers in that region.
Addressing investor questions about the fourth quarter outlook, management said the revenue build for the industrial business looks similar to the third quarter and may be “slightly conservative.” Sullivan later said the fourth quarter forecast for industrial growth is “probably even a little bit below” the roughly 3% rate seen in the third quarter, while noting recent orders have been “pretty good.” Executives also said they expect fiscal 2027 to be a higher growth year for industrial than fiscal 2026.
Dr. Hartnett attributed relative resilience in the industrial business to the strength of the Dodge brand in MRO and the importance of product availability in a short-cycle marketplace, saying Dodge manages availability and in-stock “hit rates” particularly well.
Debt reduction, capex, and fourth-quarter guidance
Sullivan said SG&A expense totaled $77.9 million, representing 16.9% of net sales. Interest expense was $13 million, down 8.5% year-over-year, which he attributed to improved leverage and lower interest rates versus a year ago. In addition to the $81 million paid down in the quarter, he said the company paid down another $67 million since the end of the third quarter.
Free cash flow conversion was 147% in the quarter compared with 127% last year, driven by higher earnings and working capital management, according to the CFO. Sullivan said the company’s capital allocation strategy remains focused on deleveraging, with an expectation to pay off the remainder of its term loan by November 2026.
On capital spending, management said recent elevated capex reflected strategic investments and capacity buildouts, but Sullivan reiterated expectations for full-year capex of about 3.5% of sales (and “less than 4%”). Responding to a question about potential missile-related production increases, Dr. Hartnett said the company has capacity and may add some equipment, but those needs should be “modest” and within the same capex framework.
For the fiscal fourth quarter, RBC guided to revenue of $495 million to $505 million, implying year-over-year growth of 13.1% to 15.4%. The company projected adjusted gross margin of 45% to 45.25% and SG&A as a percentage of sales of 16% to 16.25%.
During Q&A, Dr. Hartnett also said a new Airbus contract included a “meaningful” shipset content increase—estimating about 20%—and said the company expects to see that benefit “in this particular quarter.”
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.
