RBC Bearings (NYSE: ROLL) makes plain, roller, and ball bearings, and sells them to aerospace and industrial end markets. ROLL also competes with the machine tools oligopoly of Kennametal (KMT), Timken Company (TKR), and Stanley Works (SWK) by producing niche military parts, including bearings designed for U.S. military vehicles and weaponry.
ROLL has passed rigorous product examinations given by the U.S. Military. These credentials give ROLL military market power and opportunities for lucrative replacement parts sales. Besides the U.S. Military, ROLL sells bearings to other large customers, from Boeing to General Electric. Being dependent on large customers and two end markets means ROLL rises and falls with its customers. ROLL has also been affected by rising raw materials prices, particularly steel prices. Traditionally ROLL has passed on these costs to customers, a risky maneuver that may not be sustainable in the future.
In 2010, (ROLL's fiscal year ends April 3 of each year), ROLL had total revenues of $275 million, a decrease from the previous year's revenues of $356 million in 2009. Unsurprisingly, this negatively impacted its net income as well. For 2010, its net income was $24.4 million, a decline from its 2009 net income of $34.5 million.
Roll operates in three main segments: i) Plain Bearings, ii) Roller Bearings, and iii) Ball Bearings.
Plain Bearings correct the expected misalignments that occur in mechanical and aeronautical engineering. For example, when aeronautical vehicles face high pressure, plain bearings keep the structure rigid. These products are used in mining and construction equipment, missile launchers, and aircraft landing controls and landing gear. In 2010, this segment posted total revenues of $134 million.
Tapered roller bearings can withstand heavy axial and radial forces, so they are ideal for trucks and aircrafts. Roller bearings are also used in aircraft hydraulics, military and commercial trucks, packaging machinery, and gear pumps. This segment earned a total of $73.2 million in 2010.
Ball bearings are used for high-speed applications. Products are used for radar and night vision systems and semiconductor equipment. This segment posted total revenues of $45.4 million in 2010.
In the machine tools industry, RBC Bearings competes in an oligopoly against Timken Company (TKR), Stanley Works (SWK), and Kennametal (KMT). These three companies have pricing power and more capital for investments and acquisitions, so ROLL and other smaller cap companies, such as Kaydon (KDN) with wind energy products, find niche products to gain revenue. ROLL makes niche products in the military industry. ROLL passed rigorous military product examinations and these products have received increased demand for the Iraq War.
RBC's bearing products are used in several military applications, such as fighter jets, troop transports, naval vessels, helicopters, gas turbine engines, armored vehicles, guided weaponry and satellites. ROLL's advantage in the military market is that their bearing products are custom designed to conform to U.S. military specifications. Product approval for use on military equipment is a lengthy process ranging from six months to six years. Such rigorous standards often makes ROLL the only producer of certain military products. ROLL's largest defense customers include the U.S. Department of Defense and all branches of the U.S. Military. Since ROLL is a producer of these unique products, it also replaces and repairs these unique products.
Steel is ROLL's primary material used in manufacturing, especially its aerospace bearings line. Nearly a quarter of the company's costs are for steel purchases. It takes ROLL up to three months to pass on costs to consumers through pricing and surcharges. In periods of rapid price growth, such as from March 2006 to March 2008 when the average price of scrap metal has increased from $212.50/tonne to $500/tonne, ROLL may see its costs rise faster than their ability to pass these onto customers.