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Regal Beloit (RBC) Q4 Earnings Surpass Estimates, Up Y/Y

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Regal Beloit Corporation (RBC - Free Report) delivered better-than-expected results for the fourth quarter of 2018, with a positive earnings surprise of 7.6%. This marked the second consecutive quarter of impressive results. Notably, the company recorded a positive earnings surprise of  3.73% in the previous quarter.

The company’s adjusted earnings in the reported quarter were $1.41 per share, surpassing the Zacks Consensus Estimate of $1.31. Also, the bottom line increased 22.6% from the year-ago quarter’s number of $1.15.

For 2018, the company’s adjusted earnings per share were $6.00, above the Zacks Consensus Estimate of $5.91 and roughly 23% above the year-ago tally of $4.88.

Core Sales and Acquisitions Drive Revenues

In the reported quarter, Regal Beloit’s net sales were $881.7 million, increasing 7.4% year over year. The improvement was driven by a 5.2% contribution from organic sales growth and 3.9% benefit from acquired assets, partially offset by 1.4% adverse impact of foreign currency translation and 0.4% impact of divested assets.

Also, the top line surpassed the Zacks Consensus Estimate of $874.4 million by 0.84%.

Excluding the impact of divested business, the company’s adjusted net sales in the reported quarter were $871.9 million, up 7.7% year over year.

The company reports results under three segments — Climate Solutions, Commercial and Industrial Systems, and Power Transmission Solutions. The quarterly segmental results are briefly discussed below:

Revenues from Climate Solutions totaled $232.2 million, increasing 7.3% year over year. It represented 26.3% of net sales. Organic sales grew 9.4%, offset by forex woes of 1.2% and divestiture impact of 0.9%. Demand was healthy for commercial refrigeration and residential HV AC in North America. International business was weak in the quarter under review.

Commercial and Industrial Systems’ revenues, representing 49.5% of net sales, were $436.7 million, up 7.1% year over year. Organic sales in the reported quarter increased 1.3% and acquisitions added 7.7%, partially offset by 1.8% adverse impact of unfavorable movements in foreign currencies. The segment’s business flourished in commercial HV, power generation, and oil & gas while it was weak in Asia.

Power Transmission Solutions’ revenues, representing 24.1% of net sales, were $212.8 million, up 8.2% year over year. The organic sales growth of 9% was driven by healthy demand for oil & gas, and distribution. Forex woes had an adverse impact of 0.7%.

For 2018, the company’s net sales were $3,645.6 million, increasing 8.5% year over year. The top line was roughly in line with the Zacks Consensus Estimate of $3.64 billion.

Gross Margin Improves Y/Y

In the reported quarter, Regal Beloit’s cost of sales grew 6.6% year over year to $642 million. It represented 72.8% of net sales versus 73.4% recorded in the year-ago quarter. Gross margin increased 60 basis points (bps) to 27.2%. Operating expenses of $149.9 million increased 7.2% year over year and represented 17% of net sales in the quarter.

Adjusted operating profit was $92.9 million, up 15.8% year over year, while margin expanded 80 bps to 10.7%.

Balance Sheet and Cash Flow

Exiting the fourth quarter of 2018, Regal Beloit had cash and cash equivalents of $248.6 million, reflecting 34.8% growth from $184.4 million recorded in the last reported quarter. Long-term debt increased 2.2%, sequentially, to $1,306.6 million.

Notably, the company repaid $811.4 million of debt during 2018 while raised funds amounting to $900.2 million through debt borrowings.

In 2018, Regal Beloit generated net cash of $362.7 million from operating activities, reflecting year-over-year growth of 24.3%. The company increased the capital investment for purchasing property, plant and equipment by 19% over the year-ago tally to $77.6 million. Free cash flow was $285.1 million, increasing 25.8% from the previous year.

During the year, the company paid dividends totaling $47.2 million to shareholders and repurchased shares worth $127.8 million.

Outlook

For 2019, Regal Beloit anticipates gaining from pricing and solid product portfolio. Adjusted earnings per share are expected to be $6.15-$6.55, reflecting growth from $6.00 in 2018. Organic sales are predicted to increase in a low- to mid-single digit.

Regal Beloit Corporation Price, Consensus and EPS Surprise

Regal Beloit Corporation Price, Consensus and EPS Surprise | Regal Beloit Corporation Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $3.3 billion, Regal Beloit currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the in the Zacks Industrial Products sector are Chart Industries, Inc. (GTLS - Free Report) , Dover Corporation (DOV - Free Report) and Colfax Corporation (CFX - Free Report) . All the stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings estimates for Chart Industries have remained unchanged for 2019 while that for Dover and Colfax improved over the past 60 days. Positive earnings surprise for the last four quarters was 31.30% for Chart Industries, 6.59% for Dover and 8.88% for Colfax.

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