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RBC Bearings (ROLL) Prices Stock Offerings, To Offer Notes

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RBC Bearings Incorporated (ROLL - Free Report) announced the pricing of public offerings of its common shares and 5.00% Series A mandatory convertible preferred stock. Concurrently, the company communicated that its wholly-owned subsidiary, Roller Bearing Company of America, Inc., intends on issuing $500 million of senior notes.

Yesterday, RBC Bearings’ shares gained 5.43%, ending the trading session at $199.57.

Inside the Headlines

For 3 million common share offerings, RBC Bearings priced each share at $185.00. Underwriters have been given the option to purchase additional 0.45 million common stocks. Discount offered to the underwriters totals $27.8 million (at the rate of $9.25 per common stock for 3 million shares) or $31.9 million (at the rate of $9.25 per common stock for 3.45 million shares). The net proceeds from the common stock offering are expected to be $526.4 million (for 3 million share offering) or $605.5 million if the underwriters exercise their options entirely.

For a $400-million preferred stock offering, the company priced each stock at $100.00. At this price, its offerings are for 4 million preferred stocks or 4.6 million stocks, including underwriters’ option to buy additional 0.6 million stocks. Notably, each preferred stock has a liquidation preference of $100.

The annual dividend rate for the preferred stock is 5%. Payouts will be made quarterly on Jan 15, Apr 15, Jul 15 and Oct 15. The first disbursement is scheduled for Jan 15, 2022, and the last payment is on Oct 15, 2024.

Notably, the preferred stocks will be converted into the company’s common shares on Oct 15, 2024. The initial minimum and maximum conversion rates are 0.4413 and 0.5405, respectively, while the initial minimum and maximum conversion prices are $185.00 per share and $226.63 per share, respectively.

The underwriters’ discount totals $12 million (at the rate of $3.00 per preferred stock for 4 million shares) or $13.8 million (at the rate of $3.00 per preferred stock for 4.6 million shares). Net proceeds are expected to be 387.2 million (for 4 million shares) or $445.4 million if the underwriters exercise their options entirely.

The option for underwriters in both offerings is valid for 30 days. Also, net proceeds are after adjusting discounts for underwriters, commissions, and expenses related to the offerings. The settlement date for both offerings is set at Sep 24, 2021.

RBC Bearings anticipates using the net proceeds from the common stock and preferred stock offerings to fund the acquisition of Asea Brown Boveri Ltd’s DODGE mechanical power transmission division. The deal, valued at $2.9 billion, was announced by RBC Bearings in July and is anticipated to be complete in third-quarter fiscal 2022 (ending December 2021). In addition, the company plans on using the proceeds for paying fees and expenses related to the DODGE acquisition and satisfy general corporate purposes.

Regarding the senior notes offering, RBC Bearings’ subsidiary proposes to offer senior notes due to mature in 2029. The private offering of notes is subject to the satisfaction of the market and other necessary conditions. The proceeds raised from the offerings will be used for financing the acquisition of Asea Brown Boveri Ltd’s DODGE mechanical power transmission division. Also, buyout-related expenses and other costs will be financed.

It is worth mentioning here that RBC Bearings’ shares outstanding at the end of first-quarter fiscal 2022 (ended Jul 3, 2021) were 25.3 million, while its long-term debts are $10.8 million.

We believe that the above-mentioned common stock offering along with preferred stocks, when converted into common stock, will increase the company’s common stock outstanding balance. A rise in shares outstanding will likely have adverse impacts on the company’s earnings per share. Also, the issuance of senior notes will inflate the debts.

Zacks Rank, Price Performance and Estimate Trend

With a market capitalization of $4.8 billion, RBC Bearings currently carries a Zacks Rank #3 (Hold). Strength in industrial markets, healthy backlog and favorable shareholder-friendly policies are beneficial. However, the persistence of weakness in the aerospace markets is concerning.

In the past three months, the company’s shares have decreased 2.3% compared with the industry’s decline of 3.9%.

 

Zacks Investment Research
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In the past 60 days, the Zacks Consensus Estimate for its earnings has decreased 3.7% to $1.05 per share for the second quarter of fiscal 2022 (ending September 2021). The consensus estimate for fiscal 2022 (ending March 2022) at $4.49 and for fiscal 2023 (ending March 2023) at $5.14 reflects 0.2% and 0.8% increases from the 60-day-ago figures, respectively.

RBC Bearings Incorporated Price and Consensus

 

RBC Bearings Incorporated Price and Consensus

RBC Bearings Incorporated price-consensus-chart | RBC Bearings Incorporated Quote

Stocks to Consider

Three better-ranked stocks in the industry are Kadant Inc. (KAI - Free Report) , Nordson Corporation (NDSN - Free Report) and EnPro Industries, Inc. (NPO - Free Report) . While Kadant and Nordson presently sport a Zacks Rank #1 (Strong Buy), EnPro Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, positive earnings surprise for the last reported quarter was 33.11% for Kadant, 14.15% for Nordson and 25.81% for EnPro Industries.