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Regal Beloit (RBC) Beats Q3 Earnings Estimates, Sales Miss

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Industrial goods manufacturer Regal Beloit Corporation (RBC - Free Report) reported lackluster third-quarter 2016 results with a significant year-over-year decline in net sales and earnings owing to macroeconomic woes. On a GAAP basis, the company reported a net income of $59.6 million or $1.32 per share compared with $63.4 million or $1.41 per share in the year-earlier quarter. The year-over-year decline in GAAP earnings was primarily due to lower revenues.

Adjusted earnings for the quarter were $1.31 per share compared with $1.43 per share in the year-ago quarter. Although adjusted earnings declined significantly year over year, it beat the Zacks Consensus Estimate of $1.26.

Net sales fell to $809.6 million from $882.3 million in the year-earlier quarter owing to depressed oil & gas markets, adverse foreign currency translation and an adverse impact due to divestiture. Quarterly revenues missed the Zacks Consensus Estimate of $829 million.

Gross profit for the reported quarter was $231.7 million compared with $241.1 million a year ago. GAAP operating income decreased to $89.8 million from $100.1 million with respective GAAP operating margins of 11.1% and 11.3%. Adjusted operating income was $89.7 million compared with $101.3 million in the year-ago quarter for respective adjusted operating margins of 11.1% and 11.5%.  

Segment Analysis

Revenues from the Power Transmission segment decreased 11.2% year over year to $169.7 million. Sales were affected by headwinds in the oil & gas market and weak distribution demand. Operating margin decreased to 6.7% from 10.8% in the prior-year quarter, primarily due to lower volume.

Net sales in the Commercial and Industrial System segment were $389.4 million, down 8.8% year over year. The decline in segment revenue was due to sluggishness in the oil & gas sector, a slowdown in the industrial markets of China and North America, and adverse foreign currency translation effect. Operating margin increased to 9.3% from 9.1% due to simplification initiatives and right-sizing of oil & gas business.

Net sales from the Climate Solutions segment were $250.5 million, down 5.3% year over year due to a downturn in the Middle East HVAC (heating, ventilation, air conditioning) market, partially offset by higher demand in the residential North American HVAC market. Operating margin improved to 16.8% from 15.4% due to increased North American HVAC volume and simplification initiatives.

Balance Sheet and Cash Flow

At the quarter end, Regal Beloit’s cash and cash equivalents were $281.6 million, while long-term debt was $1,409.7 million. The company paid down $105.0 million of debt during the quarter.

Net cash from operating activities during the quarter totaled $154.1 million, up from $131.5 million in the year-ago period. Free cash flow was 234.4% of net income or $139.7 million during the reported quarter compared with the respective tallies of 174.8% and $110.8 million in the year-earlier quarter.

REGAL BELOIT Price, Consensus and EPS Surprise

 

REGAL BELOIT Price, Consensus and EPS Surprise | REGAL BELOIT Quote

Guidance Narrowed

Regal Beloit’s third-quarter results were severely impacted by the fragilities in the oil & gas sector and the overall industrial end markets. The company expects its sales to be affected by the continued weakness in industrial markets. Regal Beloit trimmed its guidance for 2016 and currently anticipates adjusted earnings per share in the range of $4.40–$4.50 per share, compared with the earlier projection of $4.35–$4.55. GAAP earnings are expected to be within $4.45–$4.55 per share. Regal Beloit continues to focus on simplification initiatives to lower operating costs and improve margins in the future.

Regal Beloit presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include II-VI Incorporated , AO Smith Corp. (AOS - Free Report) and Crane Co. (CR - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

II-VI Incorporated is currently trading at a forward P/E of 25.0x and has beaten estimates in each of the trailing four quarters for an average earnings surprise of 39.8%.

AO Smith has a long-term earnings growth expectation of 10.7% and is currently trading at a forward P/E of 24.4x.

Crane has a long-term earnings growth expectation of 8.7% and is currently trading at a forward P/E of 15.9x.

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