Industrial equipment manufacturer
Regal Beloit Corporation
) 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 |
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
Revenues from the
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
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.
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
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.
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 (
). 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.
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. (
) and Powell Industries, Inc. (
), both carrying a Zacks Rank #2 (Buy).
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