RBC Bearings - Earnings Call - Q3 2025

Executive Summary

• Q3 FY2025 delivered solid top-line growth and material margin expansion: net sales $394.4M (+5.5% y/y), gross margin 44.3% (+205 bps y/y), GAAP diluted EPS $1.82 (+30.9% y/y), and adjusted diluted EPS $2.34 (+26.5% y/y). Adjusted EBITDA rose to $122.6M (31.1% margin). Backlog increased to $896.5M from $864.0M in Q2.
• Aerospace/Defense led growth (+10.7% y/y) while Industrial returned to growth (+2.7% y/y); segment margins were strong with A&D over ~40–40.5% and Industrial ~46.5% per management.
• Q4 FY2025 guidance indicates continued momentum: revenue $434–$444M (+4.9% to +7.3% y/y), gross margin 44.0–44.5%, SG&A 16.0–16.5% of sales; a step-up vs Q3’s guidance midpoints.
• Cash generation remained robust (free cash flow conversion 127% vs 152% last year), enabling $100M of debt repayment in the quarter and reducing trailing net leverage to ~1.8x; preferred stock conversion removes ~$23M annual cash dividends. Key catalysts: sustained A&D demand, margin trajectory, deleveraging, and tariff backdrop.

What Went Well and What Went Wrong

What Went Well

• Aerospace/Defense growth was resilient (+10.7% y/y) despite commercial aerospace OEM strike; management mitigated disruption and highlighted strong defense and space demand (space ~40% y/y).
• Margin expansion continued: gross margin 44.3% (+205 bps y/y), adjusted EBITDA margin 31.1% (+180 bps y/y), driven by favorable mix, increased A&D capacity absorption, Dodge synergies, and plant efficiencies.
• Balance sheet improved: $100M debt repaid in Q3, trailing net leverage down to 1.8x; preferred conversion eliminates ~$23M annual cash outflow. “We used our cash to continue to de-leverage…net leverage finishing the quarter at 1.8x.”

What Went Wrong

• Industrial OEM softness persisted, particularly in oil & gas due to customer over-ordering; management expects inventory normalization over ~9 months.
• SG&A rose to 17.8% of sales (from 17.1% y/y) reflecting investments in personnel, IT, and back-office support.
• Effective tax rate increased to 22.5% (from 18.1% y/y), modestly pressuring after-tax results.

Transcript

Rob Moffatt (Director of Investor Relations)

morning, and thank you for joining us for RBC Bearings Fiscal Third Quarter twenty twenty five Earnings Call. I'm Rob Moffatt, Director of Corporate Development and Investor Relations. And with me on today's call are Doctor. Michael Hartnett, Chairman, President and Chief Executive Officer Dan Bergeron, Director, Vice President and Chief Operating Officer and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may 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 listed in the press release along with a reconciliation between GAAP and non GAAP financial information. With that, I'll now turn the call over to Doctor. Harnett.

Dr. Michael Hartnett (Chairman, President, CEO)

Thank you, Rob, and good morning. I'm going to start today's call with a quick review of our financial results, and I'll finish with some high level thoughts on the industry and the outlook for the remainder of And I'll hand it over to Rob Sullivan for some more detail on the numbers. Net sales came in at $3.94,000,000 dollars a 5.5% increase over last year, driven by continued strong performance in our Aerospace and Defense segment. Total Aerospace and Defense sales were up 10.7% year over year with a 14.6% growth on the Commercial Aerospace side and a 3% growth in defense. On the industrial side, the segment grew 2.7% year over year with distribution and aftermarket up 8% and OEM down 8.2%.

Altogether, it was a solid quarter. So, I'm going to talk about some underlying trends. In aerospace and defense, we did a good job mitigating the impact from the strikes of Boeing and Textron during the quarter. Quarter by quarter cadence across commercial aerospace has been lumpy through our and I'm sure that's no surprise to anyone on this call. I would encourage you to focus on the total segment trend, which is 10.7% growth for the quarter and a 15.5% growth year to date.

And these are solid performance numbers. Growth in the case of defense was limited by capacity and not demand. In fact, demand is extraordinary. We are adding capacity as we speak, and adding capacity means hiring and training staff, expanding supply chain, and we are currently building plants. I want to take a second to commend the teams managing our customers, plants, people and production schedules.

There's a lot of work put into rebalancing our production cadence in order to smooth some of the customer volatility over the past two quarters. Maintaining level operating loans in our plant, that is balancing load against cost, is a critical part of RBC's performance and continues to be a key contributor to our long term gross margin expansion. On the industrial side, we were excited to see this segment return to growth. While our OEM business was down for the period, the bulk of the contraction came from the oil and gas category. Additionally, there were headwinds were also seen, but to a lesser extent in the construction and semiconductor machinery manufacturing.

We saw encouraging signs in the aftermarket of aggregate and cement, mining and metals, food and beverage and grain. Several markets were up well into the double digits, yielding a net gain of 8% over the period, evidence of how even a modest USA GDP expansion can be very impactful to this sector. Excluding the oil and gas influence, our industrial sector expanded at a 4.4% rate. Overall, the continued tailwinds of industry leading service levels, organic growth, synergies and favorable end market mix came together to put us well into the green on revenues, margins, cash flow for the quarter, which was a quarter that's the most challenging of the 4 to navigate. Gross margin for the quarter came in at $175,000,000 or 44.3% of sales, a two zero five basis point increase year over year.

The biggest drivers of our margin expansion continued to be increased absorption of our aerospace and defense capacity, ongoing synergies with Dodge and a wide range of smaller continuous improvement projects plant by plant basis we continue to identify through our RBC ops management process. Adjusted net income of $73,000,000 was up 34.7 year over year and that translated to an adjusted EPS of $2,.34 per share compared to last year's $1,.85 for a growth of 26.5%. Cash from operations came in at $84,000,000 and compares to $80,000,000 last year and free cash flow of $74,000,000 was up nicely versus the $71,000,000 last year. We used our cash to continue to deleverage the balance sheet with an impressive $100,000,000 of debt reduction in the quarter, taking our trailing net leverage to 1.8 turns. As many of you know, RBC is a cash flow rich business.

Since we acquired Dodge, we committed nearly all of our cash generation to deleveraging the balance sheet. The 2 mark, debt divided by EBITDA, was an important milestone and I'm excited to excited we were able to achieve it in just three years. Also with our preferred dividend now gone, we are excited to recapture $23,000,000 in annual expense back into our cash flow and further accelerate additional debt repayment going forward. In terms of our outlook, our A and D business remains on a path towards mid teens growth for the full year. The industrial business should finish the year roughly flat with a heavy healthy second half exit to the year.

With the new calendar year, the election behind us, many of you asked for my thoughts on the new administration and what it might mean for RBC. I've done a little bit of thinking on the topic and this is where I come out. In terms of our end markets, I don't think it changes much for commercial aerospace. The drivers here have been supply chain challenges and the broader issues at Boeing. But from what I can see, there appears to be a nice progress in addressing some of these issues and I'm optimistic that it continues.

If that happens, we should stand to benefit from some wonderful comps in the commercial aerospace business as we progress through '20 '20 05/00 or We continue to expect strong secular growth beyond 'twenty five fueled by record bookings, backlogs at Boeing and Airbus, who together have twelve years of demand sitting on their order books and build rates that need to move higher. On the defense side, with the current geopolitical backdrop and with the Republicans in charge of the House, Senate and Executive branch, it seems likely that The U. S. Defense spending will accelerate over the next four years. And in terms of international defense spending, EU members are increasingly investing 2% of GDP level and are now debating if it needs to be 3%, with Trump arguing there should be 5%.

I can't tell you exactly where things are going to shake out, but I suspect there's a good odds that it will eventually be higher than it's been at any time in post Cold War history. In the industrial business, we continue to hear from customers and distributor partners the following. Since the election, there has been a risk step up in quoting for new projects. Clearly, there's no mistake, we are moving into a drill baby drill period where renewable energy sources are out of favor worldwide. Hooray for common sense, where has it been?

Competence seems to have returned and a future lowering of interest rates appears to be inevitable. Our is a good indicator of the impact of GDP growth on our industrial aftermarket. Tariffs certainly add both spice and fuel to our business outlook, all of which are strongly a net good for RBC. The last area worth touching on is M and A. With our net leverage down to 1.8 times, we are well prepared for the next opportunity and remain busy assessing candidates.

With just 1 more quarter left in our our attention is beginning to focus on next year. If the current trend holds, it's likely that could offer an environment where all 3 of our end markets are growing in unison. It's too early to provide a concrete outlook, but that is the backdrop by which we are putting budgets together for With that, I'll now turn the call over to Rob Sullivan for more details on the financial performance. Thank you, Mike.

Robert Sullivan (VP & CFO)

As Doctor. Hartnett indicated, this was another strong quarter for RBC. Net sales growth of 5.5% drove gross margin growth of 10.6% with more than 200 basis points of percentage expansion. The quarter benefited from some favorable product mix and strong manufacturing performance on the industrial side. Those factors were in addition to the more structural drivers of our gross margin performance, including ongoing synergies and increased utilization of our aerospace and defense manufacturing assets.

On the SG and A line, we continued our investments in future growth. This includes a combination of investing in personnel costs and back office support, including IT licenses and infrastructure. This resulted in adjusted EBITDA of $12,260,000,0.0 up 12% year over year and adjusted EBITDA margin of 31.1 which was up 180 basis points year over year. Interest expense in the quarter was $1,420,000,0.0 This was down 26.4% year over year reflecting the ongoing repayment of our term loan as well as a lower rate on the loan as the sulfur base rate has moved lower. The tax rate in our adjusted EPS calculation was 22.2%, reasonably consistent versus last year's 21.3%.

Altogether, this led to an adjusted diluted EPS of $2,.34 representing growth of 26.5% year over year, an impressive result given some of the choppiness in commercial aerospace customer production schedules and the macroeconomic softness in the industrial economy. Free cash flow in the quarter came in at $7,360,000,0.0 with conversion of 127 and compares to $7,090,000,0.0 to 152% last year. As usual, we used a meaningful portion of the cash generated to continue to deleverage the balance sheet. We repaid $100,000,000 of debt during the quarter, taking our total year to date debt reduction on the facilities to $19,540,000,0.0 dollars And in terms of our free cash flow generation going forward, the October '15 automatic conversion of our mandatory convertible preferred stock removed the cash dividend payment, reducing our future total cash outlays by approximately $23,000,000 on an annualized basis. This is roughly 9.5% of total free cash flow. With our trailing net leverage now at 1.8 turns and heading even lower going forward, our balance sheet is in an increasingly attractive position to pursue additional accretive M and A and our team remains busy growing our funnel with potential deal flow. Looking into the we are guiding to revenues of $4.34,000,000 dollars to $4.44,000,000 dollars representing year over year growth of 4.9% to 7.3%. That guidance embeds an operating environment that's fairly similar to the On the gross margin side, we are projecting gross margins of 44% to 44.5%, which would be an increase of roughly 115 basis points year over year at the midpoint. And for SG and A, we expect SG and A as a percentage of sales to be between 1616.5% range during the In closing, this was another strong quarter for RBC. We remain focused on leveraging our core strength in engineering, manufacturing and product development to drive both organic and inorganic growth, continued margin excellence and high levels of free cash flow conversion. With that, operator, please open the call for Q and A.

Operator (participant)

Thank you. We'll now be conducting a question and answer session. Our first question is from Pete Skibitski with Alembic Global. Please proceed with your question.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Hey, good morning guys. Nice performance. Mike, I'll echo you that it was good to see industrial return to growth. Can you talk more about oil and gas, kind of what you saw in the quarter that was was it lack of spending because of the election? And then when you talk about increased code activity at industrial, does that include oil and gas?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes. Well, on the oil and gas side of things, That's a boom, robust industry. And when it's booming, they want materials faster than you can make materials. And they ultimately over order their materials because the trees never stopped growing. And so the trees stopped growing and they had too many materials.

So it's really an inventory correction. And we're studying it and it's it'll blend down over the next nine months and sort of get back to a more normal level. But basically, we had a few customers who over ordered.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Got it. Okay, makes sense.

Rob Moffatt (Director of Investor Relations)

Just to give you a little more color on that, this is Rob Moffett. I'd ex the Oil and Gas headwind that OEM business, we've been down about 2%, two point five %, so it's a big chunk of that delta in the industrial OEM.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Got you. That's helpful, guys. I appreciate it. And then just everybody's going to be worried going to the weekend about this tariff issue. Mike, you don't sound too worried.

Can you give us more color in terms of what allows you to retain confidence that that won't be a major roadblock for you?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, sure. I mean, it's Mexico and China really, right? I mean, that's the 2 issues. First of all, our Mexico plants, we have 3 plants in Mexico. The materials are shipped in from The U.

S. The value added is minimal and then they're shipped back out. So, any tariff that's applied to Mexico will be easily absorbed and it's just not it's not that big a number. Easily be absorbed in our cost structure and then pass along as in our pricing. It's a non issue.

So the other part of Mexico is our commercial contracts where we actually sell product out of Mexico directly to customers. Our contracts have triggers in them, which anticipate or anticipate some government action that's unforeseen. And it allows us to renegotiate a contract. And how did we learn that? Well, we learned that during the pandemic when they showed up at the plant with guns drawn and shut down our plants.

So we decided, it would be nice to have a clause in these contracts going forward to say, if there's anything crazy like that, that happens between the governments, that there's a way to mitigate our business model. So, yes, that's kind of baked into our contracts. And also, for the most part, our contracts for commercial items are FOB plant. And I'm sure we have belts and suspenders on this thing as far as that's concerned.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Got it. Correct.

Dr. Michael Hartnett (Chairman, President, CEO)

So now China is another issue. And if Trump does his 10% tariff on China, I will be incredibly disappointed. I mean, all the huffing and puffing he did and he's going to do 10%. First of all, 10%, we won't even feel it in our numbers. It's just it will be insignificant.

If he does 50% and he puts the same program in place he's putting in place for the steel industry, for the bearing industry, what do do you think is going to happen to bearings? Probably a shortfall, right?

Shortfall, what happens, supply and demand, how about that equation, how does that balance out? So it's going to follow the same path as the steel industry if there's a very strong tariff. I'm praying for a strong tariff.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Got it. Got it. Okay. Okay. That's very helpful. I appreciate the whole context.

Dr. Michael Hartnett (Chairman, President, CEO)

And I think 1 other thing, there's RBC is a made in The USA company for the most part. We make our products here. I mean, there's some augmentation by other by foreign sources, but not a lot and nothing that we can't recover with our own plants. So, we make it here. And for the most part, more or less, we sell 90% of our sales are here.

That's a big distinction between us and what other people consider as our peers.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Very helpful. Very helpful. I'll end on a defense note and maybe a less controversial 1. You talked about the need to increase submarine capacity. I think you painted that you need to increase munitions capacity as well.

I'm just wondering if you can update us on the CapEx impact and the schedules for your capacity expansion in defense?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes. Well, you won't the CapEx won't be extraordinary. We as far as the submarine business is concerned, we're, yes, we're building out 100000 plus plant in Tucson. It's a leased building, so there's no brick and mortar there. And we'll move machinery from 1 of the Tucson plants into this third plant over the course of the year and allow more manufacturing capacity inside the base Tucson plant for the submarine business.

So that's ongoing. The capital impact is well within our normal capital budget.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Okay. And that sounds like not something that would take a long time, I guess, is the first point. The second point is that I guess the free cash flow drop down should be pretty strong, I would think.

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, it's going to be same as it's been.

Pete Skibitski (Director - Aerospace & Defense Equity Research)

Correct. Thanks for the color. Appreciate it, guys.

Operator (participant)

Thank you. Our next question is from Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Steve Barger (Managing Director - Equity Research)

Thanks. Good morning.

Robert Sullivan (VP & CFO)

Good morning, Steve.

Steve Barger (Managing Director - Equity Research)

Mike, I know it's early to talk about but you did mention how comps and conditions should allow for strong growth in aerospace. Just based on what you know now about demand and your capacity, are you thinking mid teen growth against the mid teens comp or does the growth rate actually accelerate? I guess just trying to figure out how good you think this could be?

Dr. Michael Hartnett (Chairman, President, CEO)

Now we're talking about commercial aerospace, right?

Steve Barger (Managing Director - Equity Research)

I guess the segment of aerospace.

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, okay. It's going to be very good. But let's put it this way, we're at 15% Boeing really hasn't been building aircraft.

Steve Barger (Managing Director - Equity Research)

Right. So you have to layer that if nothing else changes, it just accelerates the growth rate?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes. If nothing else changes, it just accelerates. We have a lot of content out of those pipes. So, yes, it's 15% for Commercial Aerospace should be a I don't want to say it's a floor because I think the floor should be higher. I mean, it's going to be.

Steve Barger (Managing Director - Equity Research)

And presumably, and I'm not trying to nail you down to anything, but just based on the conditions, the twelve year backlog that you talked about, like this shouldn't end anytime soon. You should have, not to put words in your mouth, but like you must have as good a visibility right now into aerospace as you've had in a long time?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, I mean, our visibility in the aerospace is the same as everybody else's. We look at Boeing skyline and we say a little more than enough to hope that they make it and that all happens for us. That's where the risk is. I mean, our we have contracts in place we're going through 02/30 for all of our stuff. So all they have to do is make a plane and we'll send them the components they need. So it's really in there.

Steve Barger (Managing Director - Equity Research)

Understood. And similar question for industrial. If I heard you right, you said 4% growth ex oil and gas this quarter. If we assume oil and gas gets back to growth, does this feel like we're heading back to a mid single digit kind of growth environment for industrial I think

Dr. Michael Hartnett (Chairman, President, CEO)

I think oil and gas from what we know about inventories and absorption rates is going to take a little bit longer. It will phase in at the end of the year.

Steve Barger (Managing Director - Equity Research)

Understood. Thanks very much.

Dr. Michael Hartnett (Chairman, President, CEO)

Yes.

Operator (participant)

Thank you. Our next question is from Michael Ciarmoli with Truist Securities. Please proceed with your question. Michael, is your line on mute?

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Sorry, can you guys hear me now? Yes. Thanks for taking the question. Nice results. Hey, Mike, just to maybe stay on that line.

I guess first with oil and gas, I mean you mentioned the drill, baby drill. Are you kind of seeing any tangible evidence of more planned spending? I mean if we do see a pretty steep reduction in oil prices, I mean or energy prices, these companies usually aren't incentivized to spend. They want to continue to deploy capital to shareholders. So, do you really think you see large scale projects pick up in that kind of environment?

Dr. Michael Hartnett (Chairman, President, CEO)

Well, hard to say. I mean, you got 2 forces in balance there, right? Consumption and supply and there always seems to be a problem with supply. Whether it's a war or it's an embargo or it's something else, there's always seems to be an interruption that's unpredictable that changes the game for a year or so. So I think it needs something like that to accelerate it, but I wouldn't rule something like that out.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Okay, fair. And then just a follow-up on where Steve was going with Arrow, if I'll put words in your mouth, if 15% is a floor next year, how do we think about your contract renewals that have been coming due? Do you kind of maybe juice any growth rate a bit with some pricing on top of the volume assuming Boeing, Airbus and the supply chains kind of start to normalize here?

Dr. Michael Hartnett (Chairman, President, CEO)

Our current contracts term out at the with Boeing. I think Airbus too. I'm sure Airbus. So the new contracts and the new pricing and the new mix takes effect So yes, and it's better. I mean, since the old let's put it this way, since the old contracts were signed, the producer price index has probably gone up somewhere between 3035%.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Okay. That's helpful.

Got it. And then just further back on tariffs, maybe with the China topic, I think when you guys we saw this years ago in 2018 you commented, I guess you don't really have a lot of direct competition in China, a lot of commoditized markets. Does that really then move the needle for you guys if the tariffs into China are pretty significant? Just given that you don't play a lot of the commoditized market? I mean, you don't have a lot of China's competition, right?

I mean, the customers you're dealing with are looking for more ruggedized, high quality differentiated bearings like you provide versus the commoditized market. So I mean, does it really move the needle?

Dr. Michael Hartnett (Chairman, President, CEO)

Well, you're talking about exports into China?

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

I guess in both cases, right? I mean, do you sell directly that much into China right now? And presumably, would there be a lot of substitute if those tariffs on products coming out of China are material? Do you think you'll get a lot of business from commercial sales force?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, we sell it to China now, but it's not material. It isn't worth talking about.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Okay.

Got it. And then I guess last 1 for me. Anything else you can say on kind of M and A? I know you talked about the leverage being down. You've got more cashier with the preferreds rolling off.

I mean, just anything close to the finish line, any specific adds, whether it's market you're looking to expand, any kind of color you can maybe tell us?

Dr. Michael Hartnett (Chairman, President, CEO)

Sure. Well, certainly, we have the balance sheet that I would support expansion. On the other hand, we have an unprecedented amount of projects, internal projects underway that we're developing for organic growth that are either in production or close to production. So our first order of business is to look internally and make sure that these projects and products are well managed and we don't disappoint our customers. So, that's our first order of priority.

On acquisitions, we continue to review candidates. They I don't know how many, 0.5 dozen come over the Transom every month, that kind of a rate. And we're looking we look at fit with our markets, fit with our ability to sell, our ability to understand those markets. We look for scale, scale is important. And we've gotten to the point where we'll accept no less than a top tier management.

So, Dodge completely spoiled us. Yes. So, right? We look at every one of them and we say, is it as good as Dodge? And is it a yay or a nay in terms of management team? And so we're looking for another guess.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

So that rules out, should we think about ruling out kind of fixer uppers or a company with maybe inferior margins? I've always looked at those as saying you could deploy your toolkit and there'd be a tremendous opportunity for accretion. But if you're accepting no less than top tier management, presumably the financials would be pretty good?

Dr. Michael Hartnett (Chairman, President, CEO)

Well, we were able to help Dodge out with their margins and that all worked out well for everybody. So, I think we wanted a management team basically that knows the game, has a lot of experience in the industry and in the business and is willing to work with us. And that's what we found with that. And so, that's all kind of gray stuff when you're doing your diligence. You have to make a call about exactly that.

And that's where we are. I mean, we've made bids on some of the candidates we've seen over the last quarter. And I can only say that there's way too much private equity flowing around. And so whatever we do will be expensive.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Got it. That's helpful. Thanks, guys.

Rob Moffatt (Director of Investor Relations)

I appreciate to add on to that. This is Rob Moffett.

I mean, to Doctor. Hartnett's earlier point, when we look to and the amount of organic growth that's out there, we don't need to take risks on M and A. Number 1 focus is just heads down in capturing the organic growth that's there and we can wait for the right pitch to come across the plate whether it's product set, management team, etcetera. But there's a lot of opportunity that we're focused on organically where we don't feel pressured to take a risk.

Michael Ciarmoli (Managing Director - Aerospace & Defense Equity Research)

Yes, makes sense. Got it. Helpful. Good stuff. Thanks, guys.

Operator (participant)

Our next question is from Ross Berenbaum with William Blair. Please proceed with your question.

Ross Sparenblek (Equity Research Analyst)

Hey, good morning, gentlemen.

Dr. Michael Hartnett (Chairman, President, CEO)

Hey, Ross.

Ross Sparenblek (Equity Research Analyst)

Hey, guys. Apologies if I missed it, but did you provide the gross margins by segment between aero and industrial? That will be in the Q.

Dr. Michael Hartnett (Chairman, President, CEO)

Okay. All right.

Ross Sparenblek (Equity Research Analyst)

I guess the insight here though is that aero was the heavy lift this quarter?

Robert Sullivan (VP & CFO)

Sorry. Just give me a sec, Ross,

I'll pull it out for you. Industrial margins were exceptional again, as you would expect. Aerospace margins this quarter were over 40.5 and industrial margins were 46.5%.

Ross Sparenblek (Equity Research Analyst)

Oh, wow. I mean that implies that you guys really aren't seeing much from the widebody ramp and or contract renewals as I guess you previously noted. So there's still a pretty significant leg up here. On the industrial side, do you get the sense that you're towards the end of the Dodge synergies then?

Dr. Michael Hartnett (Chairman, President, CEO)

I think we'll have Dodge synergies for the next ten years. It just doesn't seem to end. It doesn't seem to end.

Ross Sparenblek (Equity Research Analyst)

Okay. Maybe on the warehouse business, could you provide us what the growth was in the quarter between aftermarket and aero? I know that's or OEM, I know that's stepping up here as those warranties lap.

Dr. Michael Hartnett (Chairman, President, CEO)

Ross, you're asking for aftermarket versus OEM aero?

Ross Sparenblek (Equity Research Analyst)

No, sorry. The Dodge warehouse.

Dr. Michael Hartnett (Chairman, President, CEO)

Yes, that was up.

Yes, I got it right here. And the solid performance across OEM and aftermarket, it was up about 7% on a year over year basis.

Ross Sparenblek (Equity Research Analyst)

Okay. Would I just frame the OEM and aftermarket?

Yes. So maybe just to kind of frame the industrial runway at the end of the year in 2026, roughly of industrial is stable and modest growth. The warehouse is coming back and then semiconductor and oil and gas are still around trough levels. Any sense on kind of where that stands on peak to trough or maybe just trough to normalize levels for OEM and semiconductor as those begin to come back?

Dr. Michael Hartnett (Chairman, President, CEO)

Yes. We're starting to see semiconductor work its way back. We're seeing orders from customers that were non existent a year ago. These are old customers for us, so that we know who they are and what they use and so on.

So, yes, we're starting to see that trickle back. It hasn't reached the Gallup yet. Let's just put it that way.

Ross Sparenblek (Equity Research Analyst)

Okay. I'm just trying to assess expectations on there if there's a lift above 4% growth in the near term if those did meaningfully accelerate. But it sounds like you guys have a lot still ahead of you. So congrats on the quarter and I'll leave it there.

Dr. Michael Hartnett (Chairman, President, CEO)

Thanks Ross.

Ross Sparenblek (Equity Research Analyst)

Thank you.

Operator (participant)

Our next question is from Jordan Lianney with Bank of America. Please proceed with your question.

Jordan Lyonnais (Equity Research Associate)

Could you guys give a little more detail on what the growth was for space and which end markets and defense you guys saw the most growth for and expectations for going forward?

Dr. Michael Hartnett (Chairman, President, CEO)

Pulling up space for you. Hold on a second.

Jordan Lyonnais (Equity Research Associate)

Thanks.

Dr. Michael Hartnett (Chairman, President, CEO)

The space was solid again. It was another quarter with, in ballpark, call it, 40% year over year growth. The rest of defense was pretty balanced.

Jordan Lyonnais (Equity Research Associate)

Okay, awesome.

Dr. Michael Hartnett (Chairman, President, CEO)

Couple of categories, the missiles and guided munitions are strong, fixed wing military strong on the defense side, but pretty balanced across the board.

Jordan Lyonnais (Equity Research Associate)

Great. Thank you guys so much.

Dr. Michael Hartnett (Chairman, President, CEO)

Got it.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Doctor. Hartnett for any closing comments.

Dr. Michael Hartnett (Chairman, President, CEO)

Okay. Well, this concludes our conference call for the and I appreciate everybody's participation and all the good questions. We look forward to talking to you again. I think that's in May 0.

0 May 0. 0 May 0. Thank you. This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.