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Regal Beloit (RBC) Up 9% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Regal Beloit Corporation (RBC - Free Report) . Shares have added about 9% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is RBC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Regal Beloit Q1 Earnings & Revenues Top, '18 View Up

Regal Beloit reported decent first-quarter 2018 results, supported by strong organic sales growth and favorable foreign currency translation impact.

On a GAAP basis, the industrial goods manufacturer reported net income of $58.4 million or $1.31 per share compared with $46.3 million or $1.02 per share in the year-earlier quarter. The year-over-year improvement was primarily due to higher revenues across segments.

Adjusted earnings for the reported quarter were $1.34 per share compared with $1.07 in the year-ago quarter. The figure surpassed the Zacks Consensus Estimate of $1.26.    

Net sales increased to $878.8 million from $813.5 million in the year-earlier quarter, driven by strong organic sales growth across all three operating segments. Moreover, quarterly revenues beat the Zacks Consensus Estimate of $867 million.

GAAP operating income improved to $88.2 million from $75 million in the prior-year quarter. Adjusted operating income was $89.6 million compared with $78 million in the year-ago quarter. Adjusted operating margin came in at 10.2%, up 60 basis points year over year.

Segmental Analysis

Revenues from Power Transmission Solutions segment increased 11% year over year to $204.9 million. Sales were driven by rise in demand in the oil & gas and renewable energy end markets. Operating margin at the segment increased to 13.1% from 9.7% in the prior-year quarter.

Net sales from Commercial and Industrial Systems segment were $414 million, up 8.6% year over year, driven by strength in commercial HVAC (heating, ventilation and air conditioning), oil & gas and power generation. Operating margin at the segment increased to 7% from 6.7% in the prior-year quarter.

Net sales from Climate Solutions segment improved 4.9% year over year to $259.9 million, owing to strength in North American residential HVAC, partially offset by commercial refrigeration. Operating margin of the segment declined to 12.4% from 12.7% in the year-ago quarter.

Balance Sheet and Cash Flow

As on Mar 31, 2018, Regal Beloit’s cash and cash equivalents were $169.9 million while long-term debt was $1,081.5 million.

Net cash from operating activities for the first three months of 2018 totaled $42.5 million, down from $50.5 million in the year-ago period.

Free cash flow for the reported quarter amounted to $23.2 million or 39.7% of net income compared with the respective tallies of $33.5 million and 72.4% in the prior-year period. During the quarter, Regal Beloit repurchased 351,000 shares for $26 million.

The company closed the acquisition of Nicotra Gebhardt, shortly after the end of the reported quarter. The acquired company’s portfolio of products is complementary to Regal Beloit’s existing air moving systems, allowing it to offer customers a more complete lineup of energy efficient solutions.

2018 Outlook

For 2018, Regal Beloit raised its adjusted earnings per share to $5.60-$6.00 from $5.35-$5.75 expected earlier. It expects the Nicotra Gebhardt acquisition to be 13-15 cents accretive to adjusted earnings in 2018. The company projects GAAP earnings per share between $5.29 and $5.69, up from prior expectations of $5.19-$5.59.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.4% due to these changes.

Regal Beloit Corporation Price and Consensus

VGM Scores

At this time, RBC has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise RBC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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