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Industrial equipment manufacturer Regal Beloit Corporation (RBC - Analyst Report) reported second quarter 2013 net income of $51.1 million or $1.13 per share compared with $62.7 million or $1.49 per share in the year-ago quarter. The year-over-year decrease in earnings per share was primarily due to higher outstanding shares in the reported quarter. The reported earnings missed the Zacks Consensus Estimate of $1.24.

Net sales declined 4.9% year over year to $822.0 million in the reported quarter due to the continued challenging macroeconomic environment. Revenues for the reported quarter marginally missed the Zacks Consensus Estimate of $823 million.

Segment Analysis

Revenues from the Electrical segment declined 3.9% year over year to $753.3 million as the North American commercial and industrial markets performed below expectations (down 5.9%). Revenues from the North American residential HVAC sub-segment decreased 6.8% year over year.

Net sales in the Mechanical segment were down 14.4% year over year to $68.7 million due to weaker demand from oil and gas customers.

By geographic divisions, sales from outside the U.S. accounted for 32.6% of the total revenue and declined 3.6% year over year. By product class, net sales of high efficiency products contributed 19.6% to total sales in the reported quarter.  

Margins

Regal Beloit’s gross profit for the reported quarter was $209.2 million versus $220.1 million in the year-ago quarter. While gross profit of the Electrical segment decreased to $191.5 million from $197.3 million in the prior-year quarter, it plummeted to $17.7 million from $22.8 million in the year-earlier quarter in the Mechanical segment.

Total operating profit declined to $81.1 million in second quarter 2013 from $103.3 million in the year-ago period. By segments, operating profit decreased to $72.7 million in the Electrical segment from $91.5 million, while Mechanical segment’s operating profit was down from $11.8 million to $8.4 million in the reported quarter.

Balance Sheet and Cash flows

At quarter-end, Regal Beloit’s cash and cash equivalents were $414.4 million with long-term debt of $757.5 million.

Net cash provided by operating activities in the quarter was $91.3 million compared with $135.9 million in the year-ago quarter. Free cash flow represented 126.6% of net income for the reported quarter.  

Guidance

Management expects the listless demand in the North American commercial and industrial markets to continue in the third quarter with decent improvements in China. Regal Beloit also expects unfavorable market dynamics in the HVAC sub-segment. Consequently, the company expects GAAP earnings in the range of $1.08 to $1.16 per share and adjusted earnings within $1.10 to $1.18 per share.

Regal Beloit currently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include Lindsay Corporation (LNN - Analyst Report), Komatsu Ltd. (KMTUY) and Plug Power Inc. (PLUG - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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