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On Nov 14, 2013, we retained our Neutral recommendation on RBC Bearings Inc. (ROLL - Analyst Report), based on its mixed results for the second quarter of fiscal 2014. The company reported improved year-over-year results for earnings and revenues but missed the Zacks Consensus Estimate for both.

Why the Reiteration?

RBC Bearings has a strong foothold on the aircraft and defense products industry, and has been experiencing rising sales for the same in the past few quarters. Revenues for aircraft and defense products increased 15.2% year over year in the reported quarter. As a result, RBC Bearings recorded revenues of $102.0 million, which reflected 1.6% year over year increase.

In the quarter, RBC Bearings reported adjusted earnings per share of 64 cents, increasing 6.7% year over year. The results were due to the company’s organic as well as inorganic growth. Inorganic growth has been an influential source of its growth trend. The company completed the acquisition of TCI, Climax Metal and Western Precision this year in October, August and March, respectively. These acquisitions are expected to contribute roughly $25 million annually.

However, RBC Bearings’ dependence on a handful of customers makes us cautious. In fiscal 2013, the company derived roughly 29% of the total revenue from its top 10 customers. A change in the spending pattern of these clients may have an adverse impact on the company’s financials.

Additionally, the company’s overseas operations expose it to various currencies including the Swiss Franc, Euro and British Pound Sterling, leading to foreign currency fluctuation risks. Moreover, geo-political as well as economic situations of the region of operation affect the company. These risks will continue impacting the company’s financials negatively, as it plans to further penetrate foreign markets.

Other Stocks to Consider

RBC Bearings currently carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry include CIRCOR International, Inc. (CIR - Snapshot Report), Dynamic Materials Corp. (BOOM - Snapshot Report) and NN Inc. (NNBR - Snapshot Report). Each of these carry a Zacks Rank #1 (Strong Buy).

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