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RBC Bearings Q4 Earnings: Margin Resilience Justifies a Buy Amid Sector Tailwinds

Julian WestThursday, May 15, 2025 5:38 am ET

40min read

In a quarter marked by uneven revenue growth, RBC Bearings (NASDAQ: RBC) delivered a masterclass in operational excellence, proving that margin discipline and sector-specific tailwinds can overpower near-term revenue headwinds. With adjusted diluted EPS up 16.8% year-over-year to $2.47 and gross margins expanding to 43.1%, the company has positioned itself as a top-tier play in the aerospace/defense and industrial sectors. Investors should prioritize RBC’s structural advantages over short-term revenue volatility, as its $726 million backlog, deleveraging trajectory, and upcoming catalysts—most notably the completed preferred stock conversion—signal a compelling entry point.

Margin Resilience: The Engine of Outperformance

While RBC’s Q4 revenue rose just 4.9% year-over-year to $413.7 million, the real story lies in its profit metrics. Gross margins expanded +90 basis points to 43.1%, driven by operational efficiencies and the integration of acquired businesses like Dodge Ball & Roller Bearing. CEO Michael Hartnett highlighted “Dodge synergies” as a key driver, with cost controls and higher-margin aerospace/defense sales offsetting a sluggish industrial segment.

The company’s adjusted EBITDA margin hit 31.4%, outpacing its peers in both aerospace and industrial equipment. This margin strength is no accident: RBC’s focus on precision-engineered components for critical industries—think aircraft actuators and defense-grade bearings—ensures pricing power and recurring demand.

Revenue Dynamics: Aerospace/Defense Drives the Future

While the Industrial segment sales dipped 0.4%, the Aerospace/Defense division surged 16.8%, showcasing RBC’s strategic pivot to higher-margin markets. This segment now accounts for over 60% of total sales, a shift that will continue to lift margins. With the global aerospace industry poised for double-digit growth through 2030 (driven by commercial aircraft replacement and defense spending), RBC’s backlog—up 11% year-over-year to $726 million—suggests strong execution ahead.

Strategic Leverage: Preferred Stock Conversion Eliminates a $23M Annual Drain

The Q4 results marked a critical inflection point: the Series A convertible preferred stock, which required a $5.7 million quarterly dividend, converted to common stock on October 15, 2024. This move removes $23 million in annual cash outflows, directly boosting net income and free cash flow. Had the conversion occurred in Q4, diluted EPS would have been $1.97 instead of $1.91—a 3% uplift—with adjusted EPS rising to $2.49. This is a game-changer for RBC’s balance sheet, enabling it to reduce net debt by $205 million year-over-year to $1.19 billion, and aim for net leverage “nicely below 2.0x” by 2025.

Valuation: A Discount to Growth, With Analysts Already On Board

At current levels, RBC trades at just 14.8x trailing 12-month adjusted EPS, well below its 5-year average P/E of 18.2x. Analysts are bullish: the average price target is $384, implying 22% upside from recent trading around $315. Even more compelling, RBC’s free cash flow conversion hit 113% in Q4, ensuring sustained shareholder returns via dividends and buybacks.

Why Act Now?

Margin Expansion vs. Peers: RBC’s gross margins are +200 basis points higher than industry averages, and its adjusted EBITDA margins lead competitors like Timken (TKR) and Ball Corporation (BLL).
Backlog Stability: A $726 million backlog—up 11% year-over-year—ensures visibility into 2025 sales, even if macroeconomic uncertainty persists.
Debt Reduction: With leverage declining and the preferred stock drag removed, RBC is primed for share repurchases or strategic acquisitions to fuel future growth.

Conclusion: A Buy Rating – Seize the Margin Advantage

RBC Bearings’ Q4 results underscore a repeatable playbook: focus on high-margin aerospace/defense, lean into operational discipline, and capitalize on secular industry trends. Even with modest revenue growth, its margin resilience and balance sheet strength make it a standout pick in an uncertain market. With $23 million in annual savings now realized, a backlog fueling future sales, and analysts pricing in further upside, there’s no better time to position for RBC’s next leg of growth.

Action Item: Buy RBC shares at current levels, targeting the $384 price target—a 22% potential return—as margin tailwinds and aerospace demand accelerate. This is a hold-to-own name for investors focused on durable profitability and structural growth.

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