RBC Bearings Soars in Aerospace Sector While Peers Lag: A Deep Dive into Q4 Results

In a quarter marked by mixed performance across engineered components and systems stocks, RBC Bearings (NYSE:RBC) emerged as a standout performer. The company’s Q4 2024 earnings revealed robust growth in its aerospace and defense segments, underpinned by strong demand and operational efficiencies. This performance contrasted sharply with weaker results from peers like Regal Rexnord (NYSE:RRX) and Graham Corporation (NYSE:GHM), which grappled with sector-specific headwinds. Let’s unpack the details.

RBC Bearings: Dominance in Aerospace & Defense

RBC’s Q4 revenue rose 5.5% year-over-year to $394.4 million, driven by its Aerospace & Defense segment, which surged 10.7%. This segment, accounting for 63.7% of total revenue, benefited from:- Commercial Aerospace growth of 14.6%: Driven by Boeing and Airbus backlog reductions (12+ years of demand).- Defense sales up 3%, despite capacity constraints. Management emphasized plans to expand production, including a new 100,000 sq. ft. facility in Tucson to support submarine contracts.

Margin improvements were equally notable. Gross margin expanded to 44.3%, a 205 basis-point increase over 2023, fueled by higher capacity utilization and synergies from the Dodge acquisition. Operating margins hit 21.7%, while adjusted EPS reached $2.34, a 26.5% year-over-year jump. These figures outpaced peers, with RBC’s stock rising 10.4% post-earnings to $355.48.

Peers: A Tale of Two Sectors

While RBC thrived in aerospace/defense, competitors faced challenges in unrelated segments:

ESCO (NYSE:ESE): The Bright Spot

ESCO delivered 13.2% revenue growth to $247 million, exceeding estimates by 2.8%, making it the fastest-growing peer. Its focus on aerospace/defense—evident in projects like the "Dark Knight" Batmobile’s communication systems—propelled a 20.1% stock surge. ESCO’s strong performance underscores the sector’s appeal.

Regal Rexnord (NYSE:RRX): Industrial Struggles

RRX reported a 9.1% revenue decline to $1.46 billion, missing estimates due to weak industrial automation demand. Its stock plummeted 31.7%, reflecting broader sector concerns in power transmission and automation.

Worthington (NYSE:WOR) and Graham (NYSE:GHM): Mixed Results

• WOR: Revenue dipped 3.9%, but it beat estimates by 6.7%, driving an 18.3% stock gain. Its engineered cabs and steel products remain resilient in niche markets.
• GHM: A 7.3% revenue rise to $47.04 million still missed estimates, with shares falling 31.9% due to poor guidance in its energy-focused segment.

Industry Dynamics: Tailwinds and Risks

Aerospace & Defense: A Growth Engine
RBC and ESCO’s success reflects secular trends:- Defense spending: U.S. military budgets are expected to rise under a Republican administration, with global allies (e.g., EU members) boosting spending to 2–5% of GDP.- Commercial aerospace recovery: Boeing and Airbus are ramping up production, creating mid-teens growth opportunities for suppliers like RBC.

Risks Lurking
- Capacity constraints: RBC’s defense growth hinges on expanding production to meet demand.- Oil & gas volatility: RBC’s industrial segment (36.3% of revenue) faces headwinds from inventory corrections, though aftermarket sales in construction/mining offset some losses.- Trade policies: While RBC’s 90% U.S. manufacturing base shields it from tariffs, peers reliant on foreign supply chains face higher risks.

RBC’s Strategic Edge

• Deleveraging: Reduced net debt by $100 million, lowering leverage to 1.8x EBITDA, freeing capital for M&A.
• M&A pipeline: Aided by low leverage, RBC is poised to pursue accretive acquisitions, targeting engineered components with synergies to its core business.
• Free cash flow: $74 million in Q4, up from $71 million, supports reinvestment and deleveraging.

Conclusion: RBC’s Dominance Positions It for Continued Outperformance

RBC Bearings’ Q4 results underscore its strategic positioning in high-growth aerospace/defense markets, where peers like ESCO also shine. With a 26.5% EPS surge, margin expansion, and a deleveraged balance sheet, RBC is primed to capitalize on defense spending increases and commercial aerospace recovery.

The company’s domestic manufacturing focus further insulates it from trade risks, a key advantage over peers reliant on global supply chains. While risks like capacity bottlenecks and oil/gas volatility persist, RBC’s guidance for 26.2% 2025 EPS growth and its $8.30 EPS target suggest strong fundamentals.

Investors should note that RBC’s P/E ratio of 51.4 reflects high expectations, but its 44%+ gross margins and free cash flow resilience justify the premium. Among peers, RBC and ESCO are clear leaders, while RRX and GHM face structural challenges. For those focused on aerospace/defense exposure, RBC remains a compelling play on long-term sector momentum.

Final Takeaway: RBC’s Q4 results are a testament to its dominance in a critical sector. With geopolitical and commercial tailwinds, this stock is a buy for investors willing to ride the aerospace/defense boom.