Dr. Michael J. Hartnett
Oxford-headquartered RBC Bearings, Inc. tells the story of how Dr. Michael J. Hartnett, President and CEO, used to help out at the age of 12 at his dad's tool and dye plant in Waterbury. He later bought a failing bearings company in New Jersey, moved it to Connecticut, and turned it into one of the leading suppliers in the aerospace industry in North America. Hartnett holds a helicopter swashplate bearing manufactured by his company.
Growing up in Waterbury, Michael Hartnett apprenticed at his dad's tool-and-dye factory, building a work ethic and a love of engineering that forms the DNA of his brand of entrepreneurship.
Now 70 and chairman and CEO of the Oxford-based RBC Bearings Inc., Hartnett presides over a modern manufacturing success story. His publicly traded Connecticut company has become a leader in the precision manufacturing of bearings and highly engineered components for the aerospace and defense industry.
"I started in this plant as a manufacturing engineer," he said, pointing around at the aircraft products facility in Torrington. At the time, the place belonged to his former employer The Torrington Co., a subsidiary of Ingersoll-Rand Inc. Working at his father's factory was not an option – the business had been unsuccessful and his family's financial constraints meant he had to get a job quickly.
While at The Torrington Co., Hartnett earned a Ph.D. in applied mechanics from the University of Connecticut and built his reputation in the field of tribology – the study of friction. Eighteen years later, he was looking for a change.
"I needed that next step in my career and I didn't see it at Ingersoll-Rand," Hartnett said. A friend who owned RBC, then based in Trenton, N.J., asked him to manage the company's newly acquired, struggling operation in Los Angeles. RBC itself was struggling and its New York-based investors "had become disenchanted," he said.
Juan Febles, a machine operator at RBC Bearings, Inc. in Oxford, produces bearing rings on the shop floor.
Within months Hartnett had made the Los Angeles operation profitable through an old-fashioned approach to strengthening balance-sheet fundamentals, re-engineering each production method and process around a budget. Two years later in 1992, at 43, he bought the company, forking out $100,000 of his own money. The rest was put in by Aurora Capital Group, a private equity firm in Los Angeles, which exited in 1997.
Hartnett moved RBC – originally the Roller Bearing Co. of America when it was founded in 1919 -- to Connecticut because of the state's reputation for a skilled workforce. The state was a heartland of the bearings industry in the mid-1900s with big players, such as TRW and SKF. "There were half a dozen plants in Torrington alone," he said. "We have employees who worked for every one of those companies." RBC currently has about 3,500 employees, of which 700 are in Connecticut. Harnett's son and daughter are also in the business.
When Hartnett joined RBC, revenue was $35 million. For the fiscal year ending March 2015, net revenue stood at $445.3 million. RBC went public in August 2005 at $14.50 per share and is trading at close to $70 currently. The majority of that growth was driven by acquisitions – more than two dozen to date. The company has engineering centers and 33 plants in the U.S., Mexico, France, Switzerland and Poland. "We continue to look to acquire businesses in the U.S. and make at least two to three bids every month," Hartnett said.
The most recent acquisition, Dover Corp.'s Sargent Aerospace & Defense for $500 million, is expected to align well with the rest of RBC. "When we bought Sargent, it was a $200 million gross revenue company, and $100 million was spent on purchase materials alone," Hartnett said. RBC made the materials that Sargent purchased.
The second quarter adjusted gross profit margin of 37.9 percent, which includes Sargent, is among the strongest in the industry. However sales of $149 million and operating profit of $29.2 million were below analyst expectations.
"We have revenue constraints in some of the Sargent plants," Hartnett said. "When Dover was working on selling Sargent, they got behind. Now we're trying to get them to catch up and they won't be fully caught up until April of next year."
Seventy percent of the company's sales, which accrued from aerospace, were offset by weakness in the defense and industrial segments – mining, oil and gas. "There was a mining bubble," Hartnett said. "Now we're seeing a steady state demand for mining products principally driven by the after market."
Currently, a half of RBC's revenue is from proprietary designed bearings for which no other supplier is approved. "In the other 50 percent of our business, we compete on service levels," Hartnett said. Providing quality service and building strong business relationships make it difficult for new overseas competitors from Asia to compete in the U.S., Hartnett said.
"We work with a Chinese company that has very good technology and manufacturing. But they don't know the U.S. market and that's a barrier," Hartnett said. "They don't have people on the ground here, they don't have the reputation. How do they get Boeing or GE to talk to them? They don't know how to start because their access to the market is undeveloped. It takes time and money and that's why they want to partner with us."
The company has routinely received Supplier of the Year awards from Boeing Co. and Embraer Aircraft. Despite its strong position, RBC's top competitors – Rexnord Corp., Minebea Co., Ltd., SKF AB and New Hampshire Ball Bearings Inc. – make for a vigorous marketplace. Hartnett said RBC's orders from United Technologies Corp., for instance, amount to $30 million, whereas the company's target is $100 million. Despite the highly competitive marketplace, the future offers promise: according to the Freedonia Group, the global demand for ball, roller and plain bearings is projected to rise from $74 billion to $104.5 billion between 2014 and 2018.
Walter Liptak, an analyst at Global Hunter Securities, said RBC is well positioned in relation to competition due to its proprietary designs. "They engineer very high-quality products," he said.