Rory MacLellan – Investor Relations Michael J. Hartnett – Chairman, President and Chief Executive Officer Daniel A. Bergeron – Vice President and Chief Financial Officer.

Edward Marshall – Sidoti & Co. LLC Peter Lisnic – Robert W. Baird & Co. Walter S. Liptak – Global Hunter Securities LLC Samuel H. Eisner – Goldman Sachs & Co. Kristine Liwag – Bank of America Steve Barger – KeyBanc Capital Markets.

Good day ladies and gentlemen, welcome to the Third Quarter Fiscal 2014 RBC Bearings Earnings Conference Call. My name is Twanda and I will be your operator for today. At this time, all participants are in a listen-only mode. At the end of the speakers’ remarks, we will have a question-and-answer session.

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Rory MacLellan, Investor Relations. Please proceed..

Good morning and thank you for joining us today for RBC Bearings fiscal 2014 third quarter earnings conference call. On the call today will be Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer and Daniel A. Bergeron, Vice President and Chief Financial Officer.

Before beginning today’s call, let me 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.

We refer you to RBC Bearings’ recent filings with the SEC for a more detailed discussion of the risks that could impact the company’s future operating results and financial condition. 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 is included as part of the press release and is available on the company’s website. Now, I’d like to turn the call over to Dr. Hartnett..

Thank you, Rory. And good morning and welcome to our third quarter fiscal 2014 conference call. Net sales for the third quarter of 2014 were $100.5 million versus $96.3 million last year over the same period, an increase of 4.4%.

Our industrial markets were down 0.8% on a year-over-year basis and our aircraft and defense products were up 8.6% over the corresponding quarter last year. For the third quarter fiscal 2014, sales of industrial products represented 43% of our total sales. Sales of aircraft and defense products represented 57%.

Gross margins for the period came in at 38.3% versus 37.7% in fiscal 2013. On a year-to-date basis, gross margins were 39.2% versus 37.4% in fiscal 2013, right on our internal target of 1% to 1.25% improvement year-over-year.

Our third quarter of fiscal 2014 showed the industrial business up 3.8%, net of the large Ground Defense program that we had last year. Sequential quarter-to-quarter comparisons are difficult to make because of the large differences in our production calendar which governs the days we operate the business.

Our third quarter on an average had a total of 58 operating days. A standard quarter for us is 62 days. The difference is worth $7.5 million in revenue to us. Our fourth quarter is configured with 63 days and we will produce at a rate of slightly more than $1.75 million per day.

Hence the fourth quarter is always our largest and that will true again this year. As a reference we produced and sold at a rate of $1.65 million per day in the second quarter. As you know, we formally budget the company each quarter. Our plan for Q3 was finalized in mid-September. We performed precisely to that plan.

And given the rates discussed it will be the same for this fourth quarter. The components of our industrial business, our distribution and OEM on a year-over-year basis were up 23.1% in distribution and down 5.2% in OEM sales net of the Ground Defense program.

Relative to our industrial markets, we definitely saw a positive change demand next quarter in both the sectors we classify as construction and mining as well as oil and gas. We’re planning a step-up in run rates accordingly and expect the results of this demand, if sustained, will be reflected in our first quarter of fiscal 2015 performance.

Relative to our aircraft products, we felt the impact of increased run aircraft build rates the industry has published during this period. With the strengthening in orders, given the lead time this is a positive sign, beginning of the first quarter next year.

As a footnote we saw that increase in demand in the quarter coming late in the quarter and then we really expected it in the final innings of our second quarter. As far as the fourth quarter growth we expect net sales to be close to $110 million, right on the 1.75 rate and a nice improvement over the fourth quarter of last year.

I’ll now turn the call over to Dan..

Thanks Mike. SG&A for the third quarter of fiscal 2014, increased by $1.75 million to $18.3 million compared to $16.6 million for the same period last year. As a percentage of net sales, SG&A was 18.2% for the third quarter of fiscal 2014 compared to 17.2% for the same period last year.

The increase in SG&A year-over-year was mainly due to an increase of $0.9 million associated with the addition of two acquisition since August 2013, $0.6 million in personal related expenses and $0.2 million in other expenses.

Other net for the third quarter of fiscal 2014 was expense of $0.6 million compared to expense of $0.6 million for the same period of last year. For the third quarter fiscal 2014 other net consisted of $0.5 million of amortization of intangibles and $0.1 million of cost associated with the acquisition of TCI in October 2013.

Operating income was $19.7 million for the third quarter of fiscal 2014, compared to operating income of $19.2 million for the same period in fiscal 2013. As a percentage of net sales operating income was 19.6% for the third quarter of fiscal 2014 compared to 19.9% from the same period of last year.

Income tax expense for the third quarter fiscal 2014 was $6.6 million compared to $6.5 million for the same period of last year. Our effective income tax rate for the third quarter of fiscal 2014 was 34% compared to 35.1% for the same period of last year.

For the third quarter of fiscal 2014, the company reported net income of $12.8 million compared to net income of $12.1 million for the same period of last year.

Excluding discrete tax benefit in the third quarter last year, net income would have been $12.8 million for the third quarter of fiscal 2014, an increase of 6.3% compared to an adjusted $12 million for the same period of last year.

Diluted earnings per share was $0.55 per share for the third quarter of fiscal 2014 compared to $0.53 per share for the same period of last year, an increase of 3.8%. Turning to cash flow, the company generated $14.4 million in cash from operating activities in the third quarter fiscal 2014 compared to $19.5 million for the same period last year.

Capital expenditures were $8 million in the third quarter fiscal 2014 compared to $19.2 million for the same period last year. The company ended the third quarter of fiscal 2014 with a $118.3 million of cash and short-term investments and $10.7 million debt on the balance sheet.

I’d now like to turn back to the operator to begin the question-and-answer session..

(Operator Instructions) Your first question comes from the line of Edward Marshall with Sidoti. Please proceed..

Good morning Mike, Dan, how are you?.

Good morning Ed..

So, I just want to check my math if I could. When I look at kind of the organic sales in the business and trying to x out the three acquisitions, I guess it looks like it’s down about 1%, is that math right? And I guess I should also be thinking about ground vehicle and kind of exiting that out, the numbers would suggest the number is slightly up.

Is that math about right?.

Yes, so for the total company our growth rate was 4.4%. As we pull out the acquisitions, organic growth was down 1.5% and as we pull out AxleTech, we’re within that 6.5%, but organic minus our military vehicle would have been growth of 0.5%..

Okay. And then if I look at the aerospace and I kind of back-out some of the – and it is always difficult because we don’t have complete data there. But if I try to back-out some of the, yeah, the acquired sales, it looks like it was up maybe 2% in the quarter.

And I am just curious, if I was to ship a plane today when would you ship the product that would be on that aircraft?.

I will answer the first part for you and then Mike may answer the second. The organic growth for aerospace was 4.8%....

Okay. .

…in the quarter and I’ll let Mike answer the lead time question. .

Yes, Ed, we’ve always offset the increase in plane build rate by six months with regard to when we think we have to shift the bearings to the manufacturer or to the sub. Clearly that rule was breached a little bit in the fourth calendar quarter because we saw sort of tepid demand early in the quarter.

And we are wondering how these guys are going to build airplanes when they are not ordering bearings at the right rate. So we were just kind of scratching our heads. And then late in the quarter all that reversed and the order started rolling in. I think part of the problem is, we deliver these products – we never have delivery issues.

We deliver all these products on time, all the time. So the good news is, we’re gold rated at most of these customers. The bad news is, they are taking us for granted..

As I look at Boeing’s kind of guidance for plane deliveries next year, the midpoint suggest roughly 11%. They are one of your larger customers and I think it’s waited the programs that you have larger content on.

So is it right to look at that 11% growth rate and kind of think that you can grow a little bit faster than that given that you’re waiting or should I – I mean how do I think about how defense fits into that equation as well..

Daniel A. Bergeron:.

:.

Now, there was no issues with inventory or anything like that. You didn’t produce ahead of any kind of rate increases or anything to that matter that we should be thinking about. It sounded like given the comments about the early part of the quarter, that inventory really is an issue and that you should be growing along with that..

Yes, I know it is business as usual..

Okay. And then finally I just wanted to ask everybody is talking about ground vehicle for sometime and I think that we’re close – I don’t think we’re there yet, but I think we’re close than the last comparable quarter for military ground vehicle. I’m sure you’re going to be happy when that’s out of the numbers.

But can you kind of give me the cadence maybe for fiscal 2013 last year, quarter-by-quarter so you can kind of get an idea of how that ground vehicle kind of looks like? Thanks..

Sure, for fiscal 2013 we did $11,462,000 on military vehicle, in Q1 we did $3.681 million. In Q2 we did $4.214 million. In Q3 we did $1.919 million and in Q4 we did $1.648 million..

Okay. Thanks guys..

This year Q1 we did 633,000; Q2, 61,000; Q3, 2,000 and I guess Q4 will be zero..

Okay, all right guys, thanks a lot..

Yep..

Your next question comes from the line of Peter Lisnic with Robert W. Baird. Please proceed. .

Hello. .

…after this right, but x acquisition, growth minus 1.5% in the quarter correct?.

Organic growth was minus 1.5%?.

Okay, perfect. And then I heard the – I thought I heard on construction and mining and oil and gas side maybe midish quarter saw demand trends, turn a little bit more positive. Can you give us a little bit of color, does that mean inventory pretty cleaned out of the channel, starting to see orders come in.

There maybe – I don’t know book-to-bill or some sort of indicator that you can help us understand the order of magnitude of positive change in those particular verticals?.

Yes, I think Peter in the construction and mining side, taking these one at a time, in the construction and mining side certainly coming down the slope that the large OEMs came down. There were burning off inventory and they never do that well for us, it’s just – they just put both feet on the break and stop ordering those products.

And inevitably they over sue. And we intend indications in mid-quarter, they overshot and they have – they are out of stock on important items for their after market..

Okay..

So now this whole thing kind of reverses itself and it’s just a typical industry cycle and now we are on the other side of that cycle coming up the curve. That’s definitely going on in construction and mining. We have conversations everyday with customers in that regards.

Oil and gas is, we are seeing more activity in the oil and gas field and it’s very positive and so we’re expecting to have a very good year in the oil and gas business and we’re having meaningful discussions with large customers, volume purchases. So that hadn’t been reflected in any order book in the fourth quarter.

But these discussions are that time is guided a long way down the pike and again the oil and gas industry a little bit like the construction and mining in some areas have depleted inventory beyond where they need to be in terms of safety stock and have a little bit of a crisis on their hand.

So we should be coming up the curve on the other side of that too. Now that probably won’t get reflected very much in our fourth quarter because of the lead times associated with producing these products.

The fourth quarter is going to be on that $1.75 million a day kind of rate, maybe little bit north of that depending upon how things change, but it should be right on that rate. And in the first quarter next year we should start seeing some perkier behavior..

Okay. So when I kind of wrap all that up, and thanks Dan for giving us the military numbers.

The OEM piece within industrial I guess if I summarize all that maybe a slightly down kind of fourth quarter year-over-year and then things turning more positive in fiscal 2015, is that the right way to think about the comp trend in that OEM piece of industrial?.

Yes..

Okay, all right. And then just one question on margins or cost structure, I guess the S&A number at 18.2% look like a more elevated number than what we have seen over the past several quarters, maybe past couple of years.

Is there anything in there that – not necessarily non-recurring but I know you’re spending a bit on growth, is there a way of pursing out what that might me and maybe the way of asking the question more directly is should we expect that level of SG&A burden to come down to more of a 15%, 16% kind of level as we progress through fiscal 2015 and beyond?.

Well, Peter that SG&A spending in gross dollars looks a lot better with a $110 million top line because remember those are period costs..

Right..

So you will have the same period cost in our fourth quarter with a different top line and that’s just – it’s just the way it works for us..

Yes, and you have to keep in mind that there is million of additional SG&A associated with the three acquisitions that we did over the last nine months and it will take us a few quarters to integrate these transactions and get the leverage out of the SG&A that we had planned for when we acquired these businesses. .

Okay, all right. That is very helpful. Thank you both for your time..

Your next question comes from the line of Walter Liptak with Global Hunter. Please proceed..

Hi, thanks. Good morning guys.

One of the comments I think I heard you say Mike at the beginning of your comments was – I thought you gave guidance for the fourth quarter revenue, was that right?.

Yes. $110 million target..

Okay.

As I look at the number though, in the fourth quarter you have a similar amount of acquired revenue, right?.

Yes, about a $1.8 million – sorry about $5.2 million..

Okay, right. Okay, so in the fourth quarter again the organic growth is still pretty modest. And you want to review those segment and sectors and how it’s trending, but if I would have thought that with industrial starting to do a little bit better and aerospace, fourth quarter would be a little bit better revenue number.

I wonder if there is something going on like with drive down from your customers, just the way that you’re approaching, your calendar year in terms of production levels.

I wonder if you can just provide some color on that?.

The question is the organic growth – I think the organic growth in the fourth quarter is really still diluted back by the industrial performance and that’s sort of a flat year-to-year on oil and gas, and down on construction and mining. Again the orders for that hardware won’t be completed and diluted in the quarter and that will be the issue.

So although we’ll see good demand we’ll not be able to satisfy that demand with only 90 days left to produce it. So industrial is diluting us back and the organic growth in the quarter should be about 3% in total and most of that is driven obviously by aerospace and defense offsetting the decline in industrial..

Okay, thanks for that. And if I can ask one on gross margin, I’ve got your comment about how on a nine month basis, it looks like you’re up 120 or so basis points. The expectation I guess it will still be in that 100 basis to 150 basis point year-over-year improvement for the full year.

But was there anything in the gross margin maybe related to the acquisitions that weren’t called out in the press release in your comments?.

Yes, I mean, like I said in the conference call last quarter that we are definitely has headwinds on gross margins and SG&A from the acquisition. It probably is costing us about little over half a point on gross margin which will filter itself out by the third quarter of next year.

And our target this year I remember beginning of the year, we told everybody 100 bps to 125 bps right now, year-to-date were at 130 bps and I think we’ll have no problem maintaining that 130 bps for the full year even with the headwinds that we have from the acquisitions..

Okay..

Yes, I think there’s two other issues besides that purchase accounting treatment of gross margin for those acquisitions. One is we had an unusual issue with one of our vendors and it cost us about a 0.5% on consolidated gross margin. That’s not going to repeat but it did create a fire drill for us and the other issue is just mix.

During the quarter some of the large highly profitable products were in production, but didn’t ship..

Okay. All right great. Yeah, I think we’ve become a little bit spoiled seeing your gross margin going up year-over-year and sequentially for so long that it came as a little bit of a surprise with this quarter but thank you for the data point..

Your next question comes from the line of Samuel Eisner with Goldman Sachs. Please proceed..

Good morning everyone..

Good morning..

If I can just go back to gross margins here, just curious how you guys are thinking about pricing and the impact of that on this quarter and prudentially going forward, as well as with some potentially new facilities coming on line, whether any or was there any under absorption that occurred this quarter?.

Michael J. Hartnett:.

:.

And when did that facility come on line and what’s the expectation for that to be running at normal 70%-80% utilization rate?.

Yes. I do know. I don’t know the answers to your questions there. It came online. It will come online in our first calendar quarter. And we’ve had people from Poland in our plants training on skills and production practices, engaging techniques, et cetera, et cetera.

Ramping up all the year this past year and it’s probably I don’t know something like between 8 and 12 people. And they travel and they relocation expenses et cetera, et cetera. So I suspect that that plant will be probably at best running at neutral by the end of next year.

And will be a small gross margin drag on us through the year, but it’s a important strategy for us to service the aircraft and machine tool business in Europe with the engineering and manufacturing process design being done in Switzerland..

Thanks for that. And then just on the distribution growth that you called out this quarter, I believe it was up around 23%.

So just curious if that’s just a function of easing comps or you’re actually seeing sequential improvements within the distribution channel?.

Yeah, a big piece of it Sam was related to acquisitions. So industrial distribution on an organic base was close to 1% growth over last year..

Got you. And then just lastly, obviously the cash balance continues to remain high but you have about $4.60 a share in net cash.

So just maybe some commentary on how you guys are thinking about capital allocation in the fourth quarter and then also in fiscal 2015?.

Yes, just that 1% organic growth in industrial distribution was diluted back pretty good in Europe. The North American distribution growth was probably close to between three and 4%. Just to clarify that point..

Thanks..

And your question on capital allocation?.

Yes, just curious, obviously the cash continues to build here.

We’re at about $4.60 a share in net cash, so just curious how you guys are thinking about capital allocation entering fiscal 2015, how the M&A pipeline all the things kind of involved with capital allocation?.

Yes, well, we have – the M&A pipeline is healthy. We expect to be doing our normal 1 and 1.5 acquisitions next year, maybe soon or rather than later depending upon how things flow here.

Relative to a dividend or any considerations like that there is active and productive discussions going now with the board, nothing is been concluded but we expect to reach a conclusion sometime before the end of our year..

Thanks so much..

Operator:.

:.

Hi, good morning Mike and Dan..

Good morning..

Good morning..

My question is more for commercial aerospace. So it sounded like the weakness in the quarter is attributed to market timing of orders from customers and not necessarily from inventory destocking. So if your organic growth in commercial aero was up 4.8% and OEM production rates are closer to low double-digits.

Do you expect a catch-up to occur mostly in 4Q or will it stretch beyond that?.

Do we expect the catch-up in production rates?.

No, in your shipping rates, because your sales growth is lower than what Boeing is producing. So if there is no inventory destocking then there is presumably some sort of catch-up for you to meet the lead times or I mean the production rates for them.

Is that catch-up all going to occur next quarter or what’s kind of the timing on the catch-up for you?.

Well, the overall run rate we had in the quarter and the second quarter was 1.65 million a day and the fourth quarter is 1.75 million and we’re just not going to be much through out that numbers, just the way things work.

On a year-to-date basis, for aircraft, we’re up 12% and we expect again we’ll probably be a little closer to that 12% in the fourth quarter baked into that 1.75 million a day rate to service the build up in the aircraft business. So we expect to stay right with it.

It make phase in and out quarter-to-quarter based on timing but there should be no surprise as there is no inventory thing going on anywhere that we can measure and we know about.

I think a lot of the sub-contractors to Boeing and Airbus wait now for the very last minute for them to order our hardware probably triggered by orders from Boeing, I mean this end-to-end thing has taken – that’s just the way the industry is working right now.

It makes it challenging for us because the normal production cycle for Bearings given the amount of process steps taken to make a bearing and get the specialty steels required to produce a bearing are normally 20 weeks to 25 weeks.

So you really have to be ahead of your game mix wise in order to be way inside of that and support these sub-contractors..

And just to kind of get the understanding, it seems like the commercial aerospace supply chain is operating at a tighter just in time schedule, is that the way to understand that?.

I think that’s right..

Sure.

And then switching gears to defense, can you talk about the biggest movers and shakers on an organic basis and also on a program basis for that?.

Well it’s a little confidential Kristine. We like missiles and helicopters, and we do well in missiles and helicopters and we have long-term contractual relationships with the major builders of the air and those orders are contracts, our booked in orders are part of our backlog.

And that’s why we can say it’s pretty steady because we can look at our backlog and understand the usage rates of these things and we feel secure about where we’re going be quarter-to-quarter..

Great, thank you..

Your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed. .

Hi good morning guys.

I want to understand the revenue contribution from CMP specifically since it’s bigger than the other two acquisitions combined? Is there seasonality now and beyond what you discussed for this quarter in general or can you tell me what that specifically added in the quarter?.

Sure, CMP was $3.6 million..

And any seasonality beyond what the days issue that you talked about that impacted the quarter itself?.

No, not that we can see after we owned since August. But they seem to operate kind of in the same cycle that our normal industrial business is operating..

Okay.

And as you’ve mentioned you’re six months in, but is it on track with the expectations and how are you thinking the best way is to leverage that deal into improving results, is it new market opportunities or driving efficiencies rather than specific location, can you just talk through where you see the best opportunities?.

I think it’s both. I mean we’re looking at trying to find better ways and to make the product at a fast retail and we are working now to bring their product line to offering across to our direct sales force and to start picking up some market share..

Okay. And Mike to go back to your comment about the industrial cycle starting to come up the curve, are you more focused now on finding new organic growth opportunities in that half of the business or is that really imaging capacity from what’s been a low level.

Are you looking for acquisitions on that side specifically to get in front of improving demand? I know it’s all important but where can you make the most impact on the business of the cycles turning positive?.

Well, we are always looking for a way to improve our product offering organically and we’ve spent a lot of time, effort, money, capital, positioning our plants to do that and we’re sort of early in that game in the oil and gas industry.

And so we are making a big bet that the oil and gas industry is going to be successful independent of any political administration that tries to make it unsuccessful. And so we see nice upside there. We are expanding our product lines there.

We are making bearings now that they are up to 40 inches-50 inches, even more in diameter to support the OEM’s in that sector and it’s being received very well. So our major trust right now is – that’s one of them.

On the construction and mining we continue to work with the large OEM people, trying to innovate and redesign their construction machinery, so that it’s more durable and it requires less maintenance interval.

And so we have a lot of new products in the breach trying to – that are being tested, that could change the way some of that equipment is designed.

And we’re working also with large engine makers in that field to antifrictionize [ph] some of the larger engines that are used in the bigger movers to make them more durable and able to achieve the EPA requirements that are being enforced on the industry next year.

So those are our three major thrusts in the industrial OEM and we have even more vigorous thrust in the aircraft, airframe and engine business that now we can talk about sometime..

And just to stay on the industrial side for a second. I know it’s impossible to predict any specific program, but when you think about getting involved in the design process with the customer to reengineer a part, is that something where you can see product in the field.

Is that a one year thing or is that a three years, is there any way to frame up that process..

Yes, well, in the oil and gas, it will be next year. It will affect next year’s results. In the construction and mining it’s probably out a year or two because of the test sequences that these machinery goes through. It goes through lab test, bench test, field test, and test with the users. So I mean that’s kind of a long cycle.

So it’s both, but some of that will affect next year..

Okay. And last one from me, any more tone on the unusual vendor, as you said, it would not be recurring, but was it something related to shipments from them or anything you can discuss..

It was related to a change in the product that they were shipping us. It required us to seize manufacturing of that product and do some extraordinary testing and recertification before we could commence production again. So it was a fire drill..

Okay. All right thanks. .

(Operator Instructions) And with no further questions, I would now like to turn the conference over to Dr. Michael Hartnett for closing remarks..

Okay. Well, I’d like to thank everyone today for participating in the call. It was certainly vigorous and we expected it to be. And we expect to have another interesting session after our fourth quarter and hopefully that should be a good new session. So thank you and good day..

Thank you for joining today’s conference. That concludes the presentation. You may now disconnect, and have a great day..