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Industrial equipment manufacturer Regal Beloit Corporation’s (RBC - Analyst Report) third-quarter 2013 net income of $52.6 million or $1.16 per share dropped from $54.3 million or $1.29 per share reported in the year-ago quarter. The year-over-year decrease in earnings per share was primarily due to higher number of outstanding shares in the reported quarter.

Excluding non-recurring items, adjusted earnings for the reported quarter were $1.18 per share compared with $1.32 in the year-earlier quarter. The adjusted earnings exceeded the Zacks Consensus Estimate of $1.13.

Net sales declined 1.4% year over year to $768.2 million in the reported quarter due to the continued challenging macroeconomic environment. Revenues for the reported quarter missed the Zacks Consensus Estimate of $779 million.

Segment Analysis

Revenues from the Electrical segment decreased marginally by 0.1% year over year to $707.5 million as the North American commercial and industrial markets performed well below expectations (down 2.5%). Revenues from the North American residential HVAC (heating, ventilation, and air conditioning) sub-segment also declined 3.6% year over year. However, the decline in revenues was offset by strong performances in the non-HVAC residential business and Unico.

Net sales in the Mechanical segment were down 14.7% year over year to $60.7 million due to weaker demand from oil and gas customers.

By geographic divisions, sales from outside the U.S. accounted for 33.2% of the total revenue and were up 2.7% year over year. By product class, net sales of high efficiency products contributed 21.56% to total sales in the reported quarter.  

Margins

Regal Beloit’s gross profit for the reported quarter was $196.5 million versus $192.6 million in the year-ago quarter. While gross profit of the Electrical segment increased to $180.1 million from $173.2 million in the prior-year quarter, Mechanical segment’s gross profit decreased to $16.4 million from $19.4 million in the year-earlier quarter.

Total operating profit declined to $78.8 million in third quarter 2013 from $83.3 million in the year-ago period. By segments, operating profit in the Electrical segment decreased to $71.1 million from $73.2 million, while Mechanical segment’s operating profit was down from $10.1 million to $7.7 million in the reported quarter.  

Balance Sheet and Cash Flow

At quarter-end, Regal Beloit’s cash and cash equivalents were $462.7 million with long-term debt of $609.1 million.

Net cash provided by operating activities in the quarter was $81.2 million compared with $71.8 million in the year-ago quarter. Free cash flow represented 122.8% 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 fourth quarter with decent improvements in China. Regal Beloit also expects unfavorable market dynamics in the HVAC sub-segment with seasonality in results. Consequently, the company expects GAAP earnings in the range of 77 cents to 85 cents per share and adjusted earnings within 82 cents to 90 cents per share.

Regal Beloit currently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include EnerSys (ENS - Snapshot Report), Rexnord Corporation (RXN - Analyst Report) and Thermon Group Holdings, Inc. (THR - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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