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Regal Beloit Lowered to Strong Sell

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Zacks Investment Research downgraded Regal Beloit Corporation (RBC - Free Report) to a Zacks Rank #5 (Strong Sell) on Sep 5, 2013.

Why the Downgrade?

Regal Beloit Corporation’s performance for the second quarter 2013, reported on Jul 30, were quite disappointing as the company reported earnings per share of $1.13, down 24.2% year over year and 9.6% below the Zacks Consensus Estimate of $1.25. Year-to-date return for the stock is a negative 24.2%.    

Net sales declined 4.9% year over year due to the continued challenging macroeconomic environment and also lagged behind the Zacks Consensus Estimate of $823 million. Revenue generation was weak at the Electrical and Mechanical segments as a year-over-year decline of 3.9% and 14.4% respectively were recorded.

Talking of margins and profits, Regal Beloit’s gross profit was down 5.0% and gross margin was flat at 25.5%. Operating expenses in the quarter increased 9.7% while operating profit declined 21.5% year over year.

For 2013, management of Regal Beloit expects unfavorable market dynamics in the HVAC sub-segment. GAAP earnings and adjusted earnings have been guided in the range of $1.08 to $1.16 and $1.10 to $1.18 per share, respectively.

Weak results have led to downward revision in earnings estimates for Regal Beloit in the last 60 days. The Zacks Consensus Estimate has gone down by 5.7% to $4.16 for 2013 and has declined 4.6% to $4.82 for 2014.

Regal Beloit had negative earnings surprise in three out of four trailing quarters, with the average being a negative 4.2%. Also, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -3.6% and -3.9% for 2013 and 2014, respectively.

Other Stocks to Consider

Regal Beloit deals with manufacture and sales of electric motors and controls, electric generators and controls, and mechanical motion control products. The company currently has a $2.9 billion market capitalization.

Other stocks to look out for in the industry include Rexnord Corporation (RXN - Free Report) , with a Zacks Rank #1 (Strong Buy) while Plug Power Inc. (PLUG - Free Report) and AO Smith Corp. (AOS - Free Report) , each hold a Zacks Rank #2 (Buy).

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