Regal Beloit Beats Q1 Earnings by a Whisker - Analyst Blog

Industrial equipment manufacturer Regal Beloit Corporation RBC reported first-quarter 2014 adjusted earnings of $1.04 per share compared with $1.08 in the year-earlier quarter. Although the adjusted earnings decreased year over year, it marginally beat the Zacks Consensus Estimate by a penny.

Net income for the reported quarter was $43.8 million or 96 cents per share versus $49.5 million or $1.09 per share in the year-ago quarter.  The year-over-year decline in earnings is primarily attributable to higher cost of sales and restructuring expenses.

Net sales improved 3% year over year to $801.2 million and exceeded the Zacks Consensus Estimate of $795 million. Higher sales in the reported quarter were driven by growth in the North American residential heating, ventilation and air conditioning (HVAC) market; healthy power generation; and solid performance in Europe and China.

Segment Analysis

Revenues from the Electrical segment increased 3.6% year over year to $736.8 million, buoyed by the North American residential HVAC sub-segment (up 5.3%) and partially offset by the North American commercial and industrial motor sub-segment (down 3.6%).

Net sales in the Mechanical segment were $64.4 million versus $67.2 million in the year-ago quarter, driven by lower sales in the natural gas fracturing end market.

By geographic divisions, sales from outside the U.S. accounted for 33.9% of total revenue and remained flat year over year. By product class, net sales of high efficiency products contributed 19.9% to total sales in the reported quarter.

Margins

Regal Beloit's gross profit for the reported quarter declined to $194.4 million from $199.5 million in the year-ago quarter with a slump in both the operating segments. While gross profit of the Electrical segment decreased to $178.3 million from $181.3 million, Mechanical segment's gross profit dipped to $16.1 million from $18.2 million in the year-earlier quarter.

Operating income was $69.7 million in first-quarter 2014 versus $75.9 million in the year-ago quarter. The year-over-year decline was primarily due to restructuring expenses. By segments, operating income in the Electrical segment was $62.8 million versus $67.3 million in the year-ago quarter. Mechanical segment's operating income was $6.9 million compared with $8.6 million in the prior-year period.

 Balance Sheet and Cash Flow

At quarter end, Regal Beloit's cash and cash equivalents were $406.4 million with a long-term debt of $608.9 million.

Net cash provided by operating activities for the reported quarter was $45.8 million compared with $66.0 million in the year-ago period. The decline in net cash from operations was largely due to the restructuring initiatives of the company, including consolidation of manufacturing footprint, design platforms and ERP systems. Free cash flow decreased to $23.5 million from $45.4 million in the year-ago period.

The company announced a 10% year-over-year hike in its dividend payout to a quarterly payment of 22 cents or 88 cents per share on an annualized basis. A steady dividend payout is part of the long-term strategy of Regal Beloit to provide attractive risk-adjusted returns to its stockholders. In addition, decent dividend increases at periodic intervals have been one of the company's most attractive features.

Guidance

Management expects seasonality in residential HVAC, modest growth in its commercial and industrial motors businesses and continued growth in global power generation businesses in the second quarter of 2014. The company expects second quarter GAAP earnings per share to be $1.19 to $1.27 and adjusted earnings in the range of $1.24 to $1.32.

Regal Beloit currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the industry include Plug Power Inc. PLUG, AO Smith Corp. AOS and AVT, Inc. (AVTC), each carrying a Zacks Rank #2 (Buy).