Regal Beloit Meets Q2 Earnings Estimates, Revenues up Y/Y - Analyst Blog

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Industrial equipment manufacturer Regal Beloit Corporation ( RBC ) reported second-quarter 2014 adjusted earnings of $1.27 per share, up 12.4% from $1.13 in the year-ago quarter. Results, driven by revenue growth, productive acquisitions and operational improvements, were in line with the Zacks Consensus Estimate.


Regal Beloit Corporation - Earnings Surprise | FindTheBest


Net income came in at $56.2 million or $1.24 per share versus $51.1 million or $1.13 per share in the year-ago quarter. The year-over-year increase in earnings was led by revenue growth as well cost efficiencies.

Net sales improved 3.5% year over year to $850.4 million, but missed the Zacks Consensus Estimate of $861 million. Sales were driven by growth in the company's residential heating, ventilation and air conditioning (HVAC), European, global power generation and mechanical businesses.

Segment Analysis

Revenues from the Electrical segment continued to show strength, increasing 3.7% year over year to $780.9 million, of which $31.8 million was contributed by last-year acquisitions. Revenues were buoyed by the North American residential HVAC sub-segment (up 3.3% year over year). However, the North American commercial and industrial motor sub-segment was down 2.7% from the prior-year quarter, hurt by weaker demand from commercial and industrial refrigeration as well as irrigation.

Net sales in the Mechanical segment were $69.5 million versus $68.7 million in the prior-year quarter. North American sales climbed 2.6% year over year, boosted by growth in a number of businesses including Milwaukee Gear.

By geographic divisions, international sales accounted for 33.6% of total revenues and remained relatively flat year over year. By product class, sales of high efficiency products increased 4.4% year over year, contributing 20% to total sales.

Margins

Regal Beloit's gross profit for the quarter remained flat year over year at $211 million. While gross profit from the Electrical segment increased marginally to $193.3 million from $191.5 million, that from the Mechanical segment remained flat year over year at $17.7 million.

Operating income was $87.7 million, up 8.1% from $81.1 million in the year-ago quarter. The impressive year-over-year increase was driven by improved operating efficiency in the electrical segment. By segments, operating income in the Electrical segment was $79.5 million, versus $72.7 million in the year-ago quarter. Mechanical segment's operating income came in at $8.2 million, compared with $8.4 million in the prior-year period.

Acquisitions

In order to streamline its manufacturing footprint, the company acquired Benshaw Inc., a producer of custom-made low and medium voltage drives and soft starters, from Curtiss-Wright Corporation ( CW ). The deal, valued at $50 million, is an excellent strategic fit for Regal Beloit's existing custom electronic drives and controls businesses. The custom drives business of the acquired company also complements Unico, a wholly owned subsidiary of Regal Beloit offering innovative motion-control solutions.

The transaction is expected to be dilutive to Regal Beloit's second-half 2014 earnings per share by a couple of cents. But for 2015, Benshaw is anticipated to be accretive to earnings by 6 to 9 cents per share.

 Balance Sheet and Cash Flow

At quarter end, Regal Beloit's cash and cash equivalents were $445.3 million with long-term debt of $608.8 million.

Net cash from operating activities was $99.5 million, compared with $91.3 million in the year-ago period. Free cash flow increased to $78.9 million from $64.7 million in the year-ago period.

Last week, the company announced a quarterly dividend of 22 cents or 88 cents per share on an annualized basis. Regal Beloit's long-term strategy features a steady dividend payout, in order to provide lucrative risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company's most attractive traits.

Guidance

Management expects modest growth in residential HVAC, robust performance from the mechanical business and relatively flat performance in the commercial and industrial businesses in the third quarter of 2014.

With modest organic revenue growth expectations, the third quarter is expected to face operating margin headwinds from lower sales and profits from Venezuelan operations. The company expects third-quarter GAAP earnings per share to be within $1.05-$1.13 and adjusted earnings in the range of $1.12-$1.20.

Regal Beloit currently holds a Zacks Rank #3 (Hold). Other stocks that look promising in the industry include Emerson Electric Co. ( EMR ) and Powell Industries, Inc. ( POWL ), both carrying a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EMR , RBC , CW , POWL

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