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.
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