RBC Q3 Deep Dive: Aerospace and Defense Demand Drives Growth, Capacity Expansion in Focus

Bearings manufacturer RBC Bearings (NYSE:RBC) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 14.4% year on year to $455.3 million. The company expects next quarter’s revenue to be around $458 million, close to analysts’ estimates. Its non-GAAP profit of $2.88 per share was 5.3% above analysts’ consensus estimates.

Is now the time to buy RBC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

RBC Bearings delivered results ahead of Wall Street expectations in Q3, with the market responding positively to robust revenue growth and non-GAAP earnings. Management attributed this performance primarily to continued strength in the Aerospace and Defense segment, which saw significant order momentum, while the industrial business remained steady. CEO Mike Hartnett highlighted that strong customer demand, particularly from submarine and aircraft engine programs, pushed the company’s backlog to new highs. The company’s ability to secure multiyear contracts and maintain production discipline were key contributors to the quarter’s outperformance.

Looking ahead, management expects demand from both commercial aerospace and defense markets to remain elevated, with capacity expansion slated to support higher production volumes. CEO Mike Hartnett stated that “production of our products, of course, must follow” as customers like Boeing and Airbus increase build rates. The company is focused on integrating the recent VACCO acquisition, ramping up manufacturing capabilities, and renegotiating major contracts, all of which are expected to underpin further margin gains and support its growth outlook.

Key Insights from Management’s Remarks

Management pointed to sustained strength in Aerospace and Defense and operational initiatives supporting margins, while capacity constraints and integration of a recent acquisition shaped the latest quarter.

• Aerospace and Defense momentum: The Aerospace and Defense segment continued to outpace other divisions, with sales rising sharply due to both organic growth and increased contribution from proprietary products in submarine, aircraft, and engine programs. This included a substantial backlog increase, with management expecting further gains as new contracts are finalized.

• Industrial business stability: While the industrial segment showed only modest growth, management cited solid aftermarket demand in areas like aggregates, metals, and warehousing. Weakness persisted in oil, semiconductor, and European machine tool markets, but the overall mix provided some balance to the company’s portfolio.

• Integration of VACCO: The recently acquired VACCO business contributed to top-line growth but operated at lower margins than the core business. Management emphasized ongoing efforts to achieve operational synergies and align VACCO’s performance with RBC’s standards, including leveraging West Coast manufacturing capacity and renegotiating space-related contracts.

• Manufacturing capacity expansion: With aerospace plants running near full utilization, RBC is increasing shifts and investing in new equipment to meet strong demand. Management indicated that incremental capacity additions should drive better overhead absorption and margin expansion over the next several quarters.

• Operational discipline and cash flow: Improved working capital management and cost control led to strong free cash flow conversion, enabling continued debt reduction and supporting the company’s focus on deleveraging as part of its capital allocation strategy.

Drivers of Future Performance

RBC Bearings expects ongoing demand in Aerospace and Defense, supported by capacity additions and operational improvements, to shape its near-term outlook.

• Aerospace and Defense backlog: The company’s order book is expected to approach $2 billion, driven by multiyear contracts and increasing build rates from major customers like Boeing, Airbus, and U.S. defense programs. Management believes this backlog will provide visibility and support sustained revenue growth.

• VACCO integration and margin improvement: Efforts to bring VACCO’s margins closer to RBC’s historical levels remain a priority. Management highlighted operational synergies, particularly through expanded manufacturing capacity in West Coast plants, as a key lever for future profitability.

• Industrial market recovery and risks: While the industrial segment remains subdued in some sub-markets, management is monitoring for signs of recovery. Risks include ongoing weakness in sectors like oil and semiconductor machinery, as well as potential delays in contract negotiations or capacity ramp-up.

Catalysts in Upcoming Quarters

Over the coming quarters, our team will be monitoring (1) the pace at which RBC Bearings expands capacity to meet growing Aerospace and Defense demand, (2) progress in integrating VACCO and improving its margin profile, and (3) stabilization or recovery in underperforming industrial sub-segments. Updates on contract negotiations and backlog growth will also be important signposts for execution.

RBC Bearings currently trades at $423.29, up from $406.46 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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