It has been about a month since the last earnings report for Regal Beloit . Shares have added about 18.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Regal Beloit due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Regal Beloit Q4 Earnings Top Estimates, View Solid
Regal Beloit delivered impressive results for the fourth quarter of 2020, with earnings surpassing estimates by 13.4%. This was the company’s sixth consecutive quarter of better-than-expected results. Also, its quarterly sales beat estimates by 6.5%.
Adjusted earnings in the reported quarter were $1.78 per share, surpassing the Zacks Consensus Estimate of $1.57. Also, the bottom line grew 42.4% from the year-ago quarter’s reported figure of $1.25 on sales and margin improvements.
For 2020, the company’s adjusted earnings were $5.77 per share, surpassing the Zacks Consensus Estimate of $5.57. The figure was also above the year-ago number of $5.49.
In the reported quarter, Regal Beloit’s net sales were $780.5 million, increasing 5.7% year over year. Organic sales in the quarter increased 4.9% and movement in foreign currencies benefited the company by 0.8%.
Also, the top line surpassed the Zacks Consensus Estimate of $733.2 million.
Regal Beloit reports results under four segments — Climate Solutions, Commercial Systems, Industrial Systems and Power Transmission Solutions. A brief discussion on the segments is provided below:
Revenues from Climate Solutions totaled $224.5 million, rising 8.8% year over year. It represented 28.8% of net sales. The results were affected by forex woes of 0.5% and divestiture impact of 0.1%, while gained from organic sales growth of 9.4%.
Commercial Systems’ revenues, representing 29% of net sales, were $226.4 million, up 12.1% year over year. Organic sales in the reported quarter increased 10.1%, while movement in foreign currencies benefited by 1.9%.
Industrial Systems generated revenues of $139.8 million, reflecting year-over-year growth of 1.3%. It represented 17.9% of the quarter’s net sales. Organic sales increased 0.1% year over year and foreign currency movements benefited the company by 1.2%.
Power Transmission Solutions’ revenues, representing 24.3% of net sales, were $189.8 million, down 1% year over year. Organic sales dipped 1.9% and foreign currency movements benefited results by 0.9%.
For 2020, the company’s net sales totaled $2.9 billion, decreasing 10.2% year over year. The top line was in line with the Zacks Consensus Estimate.
In the reported quarter, Regal Beloit’s cost of sales increased 3.5% year over year to $567 million. It represented 72.7% of net sales versus 74.2% recorded in the year-ago quarter. Gross profit increased 12.3% year over year to $213.5 million, while margin increased 160 basis points (bps) to 27.4%. Operating expenses of $127.8 million decreased 0.5% year over year and represented 16.4% of net sales in the quarter.
Adjusted operating profit was $100.4 million, up 29.5% year over year, while margin increased 240 bps to 12.9%. Interest expenses in the quarter were down 31.2% year over year to $8.6 million. Adjusted effective tax rate in the quarter was 21.9% versus 22.2% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting the fourth quarter of 2020, Regal Beloit had cash and cash equivalents of $611.3 million, reflecting a 25.4% increase from $487.5 million recorded in the last reported quarter. Long-term debt was flat sequentially at $840.4 million.
In 2020, the company’s net repayments under the revolving credit facility totaled $17.7 million and that for long-term debts was $50.4 million.
In the year, Regal Beloit generated net cash of $435.4 million from operating activities, reflecting year-over-year growth of 6.6%. The company’s capital investment for purchasing property, plant and equipment decreased 48.6% from the year-ago figure to $47.5 million. Free cash flow was $387.9 million, up from $316.1 million in 2019.
Free cash flow (as a percentage of adjusted net income) was 190.3% in 2020 and 174.8% in the fourth quarter of 2020.
In 2020, the company paid out dividends totaling $48.7 million to shareholders and repurchased shares worth $25 million (no buybacks were made in the second, third and fourth quarters).
The company provided financial projections for the first quarter of 2021. It predicts adjusted earnings per share of $1.55-$1.75 for the quarter, suggesting a mid-point increase of 26% from the year-ago quarter’s reported figure.
Capital expenditure for 2021 is expected to be $57 million; effective tax rate is likely to be 21%, and net interest expenses are anticipated to be $28 million. Free cash flow (as a percentage of adjusted net income) will likely be more than 100%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 7.81% due to these changes.
At this time, Regal Beloit has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Regal Beloit has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.