Mike Cummings - Alpha IR Group Dr. Michael J. Hartnett - Chairman, President and CEO Daniel A. Bergeron - VP and CFO.

Edward Marshall - Sidoti Walter Liptak - Global Hunter Securities Ken Newman - KeyBanc Capital Markets.

Good day ladies and gentlemen. And welcome to the RBC Bearings’ Fiscal 2015 Third Quarter Earnings Conference Call. My name is Tia and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question-and-answer session towards the end of this conference.

[Operator Instructions] I would now like to turn the call over to your host for today, Mr. Mike Cummings, Alpha IR Group. Please proceed..

Thank you. Good morning and thank you for joining us today for the RBC Bearings’ fiscal 2015 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 Web site.

In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the Company’s Web site. Now, I would like to turn the call over to Dr. Hartnett..

Thank you, Mike and good morning and welcome to everyone. Today we’ll follow the same format as we normally do. I’ll provide some highlights for the quarter and Dan Bergeron will provide the color. Net sales for the third quarter fiscal 2015 were 106.3 million versus 100.5 million for the same period last year, a 5.7% increase.

Our Industrial markets increased 13.9% on a year-over-year basis and our aircraft and defense products were basically flat with the corresponding quarter last year. For the third quarter fiscal 2015, sales of industrial products represented 46% of our net sales, with Aerospace and Defense at 54%.

Adjusted gross margins for the period came in at 39.2% versus 38.3% in fiscal ’14. Adjusted operating margins were 20.9% for the quarter versus 19.6% for the same period last year. Our third quarter of fiscal 2015 showed the industrial OEM business of 13.9% from the same period last year.

Relative to the industrial distribution, we demonstrated an organic growth of 10.6% across the broad number of products. Again Europe was the standout in growth for us in this segment up 37% year-over-year. Demand for our products from industrial OEM customers was up a strong 15.9% from last year.

This was driven by the markets of oil and gas, mining and construction, as well as demand over a wide range of industrial markets in the United States. We like everyone else are waiting to see how the current price of oil affects the customers in the E&P sector.

We're closely watching the capital plans of the majors to determine the extent of the downturn and we're seeing re-quotes of 30% to 40% reduction in capital budgets of the majors, but we think it's still early in the game. We don’t expect to see an impact on our revenues until the second quarter of fiscal '16 at the earliest.

This sector represents about 5% of our revenues. Many of the products we supply are consumed on a daily basis in the recovery of oil and it won't be affected. Others are used in the development of the well site and will be impacted.

In any event, we estimate less than a $5 million to $10 million per year impact on consolidated revenues to fiscal 2016, after which our plan is to see growth through new product introductions.

On mining, the revenue base we saw forming in the second quarter demonstrated itself in the third quarter with steady demand and the driver was principally the aftermarket. Relative to our Aerospace and Defense business, these markets were flat relative to last year.

Aero distribution showed a contraction of 4.3% and the OEM side expanded approximately 0.5%. The largest reasons for the contraction in distribution is the business moving from this channel to the OEM channel. Sales to defense customers contracted as a result of lumpy demand in defense helicopter and completion of some programs in ground defense.

We're expecting a renewable in the ground defense programs mid to late next year. Our sales to aircraft OEMs were up 8%. Today we're busy preparing for further growth as the 787 program increases its volume and the A350 airframe comes online. And RBC has significant content in both of these programs.

Adjusted gross margin for the third quarter fiscal 2015 was 41.6 million or 39.2% compared to 35.8 million or 38.3% for the same period last year. The margin expansion as the result of favorable mix and improvement in manufacturing methods.

We did end the third quarter of fiscal 2015 with 119.2 million in cash and in short-term investments, we ended the third quarter of fiscal 2015 with 217 million in backlog, compared to 218.4 million for the fourth quarter of fiscal 2014.

But the greater component of our sales coming from the Industrial businesses than in previous quarter this is expected as that business had shorter lead times or like industrial distribution the nature of which the sales are satisfied immediately from inventory and those numbers never reach backlog.

Also there are a considerable number of supply agreements on the aircraft side of the house, they’re now passing through our contract cycle and we expect those will be hitting the backlog in future quarters.

We're expecting to see sales in the fourth quarter of fiscal 2015 in the neighborhood of $115 million with historically similar margins relative to previous year-end quarters. We don’t expect to see much of an impact on revenues or margins due to currency valuation changes. These are both small headwinds and tailwinds in this regard.

There are small headwinds and tailwinds in this regard, but the net effect on consolidated revenues and margins is minimal. Most of our sales and purchases are in dollars, those contracts and other currencies either have currency collars or have a limited impact on consolidated results.

I will now turn the call over to Dan who can provide more details on financial performance..

Hey thanks Mike. Since Mike has already discussed sales and gross margin, I'll jump down to SG&A. SG&A for the third quarter of fiscal 2015 increased 1 million to 19.3 million compared to 18.3 million for the same period last year.

As a percentage of net sales SG&A was 18.1% for the third quarter of fiscal 2015 compared to 18.2% for the same period last year. The increase in SG&A year-over-year was mainly due to an increase of 0.6 million associated with incentive stock compensation expense and 0.4 million in other items.

Other operating expenses for the third quarter of fiscal 2015 was expense of 1.8 million compared to expense of 0.6 million for the same period last year.

For the third quarter fiscal 2015 other operating expenses consisted mainly of 1.5 million associated with acquisition activity, 0.1 million in costs associated with the consolidation and restructuring of our UK facility which is completed, and 0.4 million of amortization of intangibles offset by 0.2 million of other income.

Further explanation of the 1.5 million in acquisition activity in the third quarter of fiscal 2015, the Company incurred 1.5 million in legal fees, accounting tax, and environmental due diligence expenses on an investigation of a large acquisition target, the Company was not successful in winning the final bid in the auction process.

When we get to the Q&A session, just keep in mind we’re under a non-disclosure agreement there, so we cannot discuss who the target was.

Operating income was 20.6 million for the third quarter fiscal 2015 compared to operating income of 19.7 million for the same period in fiscal 2014, excluding the costs associated with the consolidation and restructuring and the acquisition activity operating income would have been 22.2 million for the third quarter of fiscal 2015 compared to an adjusted 19.7 million for the same period last year, excluding these adjustments operating income as a percentage of net sales was 20.9% for the third quarter of fiscal 2015 compared to 19.6% for the same period last year.

Income tax expense for the third quarter fiscal 2015 was 6.1 million compared to 6.6 million for the same period last year. Our effective income tax rate for the third quarter of fiscal 2015 was 30.3% compared to 34% for the same period last year.

The effective income tax rate for the third quarter of fiscal 2015 includes discrete tax benefits of $0.7 million. The effective income tax rate without the discrete tax benefits would have been 33.7% compared to 34% for the same period last year.

For the third quarter of fiscal 2015 the Company reported net income of 14.1 million compared to net income 12.8 million for the same period last year.

Excluding the after-tax impact of costs associated with consolidation and restructuring and acquisition activities and the discrete tax benefits, net income would have been 14.4 million for the third quarter of fiscal 2015, compared to net income of 12.8 million for the same period last year.

Diluted earnings per share were $0.60 per share for the third quarter of fiscal 2015 compared to $0.55 per share for the same period last year.

Excluding the after-tax impact of costs associated with consolidation and restructuring, acquisition activity and the discrete tax benefits, diluted earnings per share for the third quarter of fiscal 2015 would have been $0.62 per share compared to an adjusted EPS of $0.55 per share for the same period last year, an increase of 12.7%.

Turning to cash flow, the Company generated 17.7 million in cash from operating activities in the third quarter fiscal of 2015 compared to 14.4 million for the same period last year. On a nine-month basis for fiscal 2015, the Company has generated 62.4 million in cash from operating activities compared to 36 million for the same period last year.

Capital expenditures were 4.4 million in the third quarter of fiscal 2015 compared to 8 million for the same period last year and on a nine-month basis for fiscal 2015 capital expenditures were 15.9 million compared to 22.6 million for the same period last year.

In the fourth quarter the Company expects capital expenditures to be in the range of 3 million to 6 million. On a nine month basis, the Company paid a cash dividend of 46 million, repurchased common stock of 7.1 million. The Company ended the third quarter of fiscal 2015 with 19.2 million in cash and 9.1 million in debt on the balance sheet.

I’d like now to turn it back over to the operator to begin the Q&A session..

Question-and:.

[Operator Instructions] The first question comes from the line of Edward Marshall with Sidoti. Please proceed..

So I wanted to maybe look into the guidance that you have provided for the fourth quarter or the range for sales.

And I guess looking at maybe both components Industrial and Aerospace, do you anticipate that Aerospace first will continue to decline into the fourth quarter or is that just something that was timing around the helicopter orders that you mentioned?.

I am just trying to think of the component build up, no I think Aerospace will be up a little bit in the fourth quarter. I don’t have that broken out yet..

Okay, if that’s the case it looks like Industrials have come off that mid-teen growth rate that you've seen for the first three quarters of this year and probably fallen to a single-digit rate based on kind of the year-over-year comps?.

I think that’s basically true I think on the aircraft side we have certainly given the fact that Boeing’s plane build rate was up 14%-15% year-over-year and Airbus was virtually flat.

We're expecting to see next year Airbus move their numbers up and we're expecting to see some additional platforms in engine models that we've developed new products for come on. I think we're going to plateau for a couple quarters here and then we're back up to growth on the aircraft side..

Just a point of clarification I think when you were talking about the Aerospace division you were talking about ground defense in that segment. I thought that ran through Industrials.

Is that right or is it actually in the Aerospace division?.

It’s a different vehicle it’s called it’s the Bradley that actually runs through the Aerospace side the one that runs through the Industrials side is the MRAP and the business we do at Isotech..

And then finally I guess let me know the energy component you gave a lot of color there. Have you seen any declines in the business as of yet or the order book.

And I know it's kind of newer for you so probably don’t have quite the feel for it but maybe you can kind of talk about maybe elaborate on what you provided already in your prepared remarks as to what you anticipate the timing et cetera?.

Well we've seen a decline from some customers and we've seen an increase from other customers. And the decline is from customers who are in the well development area and the increase is in the customers who are in the recovery side so, so far so good on that.

We're anticipating just given what we see for the capital plans that that business is going to be off until oil gets back to a better price per barrel, so how long that's going to be, we're thinking 12 to 18 months, but frankly no one knows and we don’t know any better than anybody else..

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

I wanted to ask about -- to see if we can get a little bit more detail on the Aerospace and your comments on Boeing, what are you thinking about now with the supply chain and production rates for some of the Aerospace it's been a little bit volatile, are we expecting it to improve into March or is it going to be beyond that before we start getting better growth in that market?.

I think Boeing's production numbers year-over-year for calendar '14 to calendar '13 were up by 14%-15% and we're expecting and they are publishing that they're planning to be pretty flat for the next year.

And then move up particularly in the 787 and 737 build rates for the year after that, so it looks to me like they're trying to get their vendors to sort of consolidate and get into a production cadence before they take that next step.

So we don’t see -- we think we're going to be sort of even with Boeing for the next year and then up from there and in Airbus we're expecting to grow somewhere around 10% year-over-year I don’t remember the exact number but it's in that 60 plane range and so we have more content at Airbus than we had in the past, so we expect to see some growth particularly coming from the European side..

And if I could switch gears to the -- and ask about the transformational acquisition and I guess maybe just to not get into the NDA portion of it, but would sector be, Industrial economy was it, was it Industrial or are they both Industrial and Aerospace, what kind of size you think of as transformational and are there other such deals that you're seeing out there?.

There are other such deals that we're seeing out there, transformational size would be about the size that we are today and we like Industrial and Aerospace space depending upon the nature of the customer base..

The next question comes from the line of Steve Barger with KeyBanc. Please proceed..

Hi, good morning. It's Ken Newman on for Steve.

I was just curious if you could dig into if you could the gross margins by sector Industrial versus Aero, did you see margins in either of those segments move materially in this past quarter and just trying to get a sense of where you’d expect margins for Aero to go going forward?.

Ken I'm just trying to think of business-by-business where we saw the margins move the most I think we probably saw the margins move the most in some of our, well it was actually both Defense and Industrial is where we made some real margin progress and I think in both cases that was related to methods improvements in the way we produce these products.

So we work on that every week with the divisions and the divisions have objectives of margin expansion and they have in order to expand margins in a industry like this it requires a considerable amount of skill in terms of manufacturing technique and knowhow and design technique and knowhow and most of our major divisions have those skill sets.

And so they have the targets that they need in order to achieve the margin expansion goals that we've set for them. And they do a pretty good job getting us there.

So that's just the way we make our bread here and it's been the culture of the Company since for the last 20 years and I would say that now a lot of our major divisions are better at it than they have ever been. I mean they have played the game so many times that they're getting very expert at execution.

So I think our margins are safe and I would hope that there is a few points of upside there..

And then I think a few quarters ago you had mentioned some large volume expectations associated with I assume narrow body airframes starting in 2016 really ramping up in 2018, I think those are the Neo and the Max specifically.

We've been hearing some murmurs about those orders for airframes weakening or being delayed with the new oil environment making operating these older models more cost efficient.

Just curious have you seen any evidence of this and if you have what kind of impact does it have on your forward delivery expectations?.

We've seen no evidence of it at all, and I think both Boeing and Airbus's order book is so deep I don't imagine that that's much of a factor for them either..

[Operator Instructions] The next question comes from the line of Walter Liptak with Global Hunter. Please proceed..

I wanted to ask about Europe and the relo that you have done out there.

Where are we in terms of starting to see some benefits from that labor arbitrage?.

We're in a good spot I mean you're talking about our Poland operation Walter?.

Yes, that's correct, right..

Yes, we're in a good spot, I mean the Poland operation is up, it's productive it's performing, it's beyond its breakeven, it's an overall contributor to the good right now and when you look at how the Swiss franc has strengthened and how the Poland zloty kind of tracks with the euro.

We kind of look like geniuses, so we have big plans for that plant going forward and we're accelerating that..

How much production is running through there? Like if you were in a -- where are you in the relo? Like what percent do you still have to do to move over to that plant?.

Well let’s see we're probably using about 20% of the plant right now, so it's very early stages of utilization.

We've gone through the difficult period of hiring people, training them, relocating them to Switzerland for additional training, putting them back in Poland for production activities and getting schedule in place, getting tooling in place, getting machines in place and getting that all to work in a environment that's beyond breakeven.

So there is a lot of work behind us, and I think right now we definitely have the wind at our back on that plant, we have a good operation, we have first-class facility, we have a small but highly trained workforce and now we can start scaling it up..

With the way that franc and the zloty have moved, is the gross margin impact larger than what you first thought?.

Yes, I mean from that perspective it should be. We don’t like the way that franc has moved relative to the euro from a competitive point of view on some of the other product lines. So that's some of the things that we're dealing with..

The next question comes from the line of Steve Barger with KeyBanc. Please proceed..

Last quarter you mentioned some strength in the mining at MRO sector, CAT earlier lowered its sales guidance from mining because of low commodity prices and increasing efficiency from customers. Your comments were a little more optimistic on mining.

Could you characterize activity levels and how it's changed over the past few months?.

I think if anything, it's just stabilized. We saw that mining MRO side came back. I think CAT's problem is that they can't live on their MRO they're an OEM manufacturer that sells new machinery and a cover there and through overheads and all that.

So that's a little bit different situation, but we've seen stable demand and it's stabilized now for the second quarter in a row. So we’re feeling good about that and we don’t see anything happening in the near-term that’s going to change that..

And then you mentioned some solid strength in European markets this quarter.

And I was curious if you could just talk about what's been the main driver of growth in that market and has the strategy changed at all in that region for you guys going forward?.

Yes well I think there is a couple of aspects for growth that are favorable to us. First of all when the U.S. is making a lot of cars and they’re making a lot of cars now, they use a lot of machinery, machine tools and all their sub-suppliers also have a population of machine tools.

A lot of those machine tools are made in Switzerland and so the machine tools that are made in Switzerland some of the designs have our tooling specified and so as the U.S. volume of automobile production goes up the consumable tooling that we'd supply goes up with it.

So although we might be selling those tools to OEMs that produce the machines in Switzerland those machines are consumed in the United States.

So we're seeing some increased demand from that standpoint which has been favorable and I think secondly we have some new products that go into the high speed train high speed rail and the Chinese have become very big fans of these products.

And so we see our Industrial business growing in China as a result of that and so I think those are two of the main drivers of that business that immediately come to mind..

And just one more if I could.

ROLL is physically pretty good at keeping price on Industrial products are you seeing any areas where the customers are pushing for price concessions or are the distributors telling you the price is too high?.

Yes we've had customers telling us that for at least the last 30 year and they haven’t let up. I think it's part of the DNA when they hire new purchasing people or purchasing people go to seminars and that’s they're always trained to say well you' re 10% high and if you came off that 10% we could probably do business with you.

So it's part of the culture some periods it's more intense than others some markets it’s more intense than others we have some intensity in some markets and some lack of intensity in other markets today.

And we have to learn how to deal with it and that’s -- we work hard at trying to understand that and try to train our people on methods and techniques of negotiation, so that we can get a fair price for a good product..

So I mean I guess in general you're not too worried about having to give up on price going forward..

You're always worried about that I don’t think it's material, but we never -- I particularly don’t like to do it. And I think everybody here knows that..

The next question comes from the line of Edward Marshall with Sidoti. Please proceed..

Guys I just wanted to clarify. You mentioned size of an acquisition and you gave kind of a range of something similar to the size of you.

I wanted to clarify are you talking about your enterprise value, your sales, both?.

Sales..

Sales, okay, and when you broke out the cost associated with the acquisition related expenses. Generally you do most of the due diligence internally I guess partially because of the size are you seeking outside assistance as well going through this or I'm just curious if....

On a typical small deal we do all the work internally. But when you look at a deal of that size and magnitude then you need to bring in assistance to help you..

[Operator Instructions] There are no questions in queue at this time. I would now like to turn the call back over to management for closing remarks..

Okay. Thank you and I'd like to thank everybody for participating in the call today. I hope it was good for you and we're happy with the performance in the quarter and we're going to back to work and see if we can do even better. Thanks for your day..

Ladies and gentlemen, thank you for your participation in today's conference. That concludes the presentation. You may now disconnect. Have a great day..