Regal Beloit (RBC) Misses on Q3 Earnings, Guidance Narrowed

Industrial goods manufacturer Regal Beloit Corporation RBC reported relatively healthy third-quarter 2017 results on the back of modest organic growth and positive order trends. Adjusted earnings for the quarter were $1.37 per share compared with $1.31 in the year-ago period. However, adjusted earnings missed the Zacks Consensus Estimate by a penny.

On a GAAP basis, the company reported earnings of $62.2 million or $1.39 per share compared with $59.6 million or $1.32 per share in the year-earlier quarter. The year-over-year increase in earnings was primarily attributable to higher revenues.

Regal Beloit Corporation Price, Consensus and EPS Surprise

 

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

Net sales improved to $856.9 million from $809.6 million in the year-earlier quarter, largely driven by organic growth across all segments. Quarterly revenues beat the Zacks Consensus Estimate of $839 million.

GAAP operating income improved to $94 million from $89.8 million in the prior-year quarter. Adjusted operating income was $92.5 million compared with $89.7 million in the year-ago quarter for respective adjusted operating margins of 10.8% and 11.1%.

Segmental Analysis

Revenues from the Power Transmission Solutions segment increased 13.7% year over year to $192.9 million. Sales were backed by improved oil & gas and renewable energy end-market demand. Adjusted operating margin increased to 11.9% from 7.1% in the prior-year quarter due to strong volume and lower expenses.

Net sales in the Commercial and Industrial System segment were $408 million, up 4.8% year over year driven by strength in North America, Asia, oil & gas and commercial HVAC (heating, ventilation, and air conditioning) markets. Adjusted operating margin fell to 7.5% from 9% due to commodity inflation.

Net sales from the Climate Solutions segment were $256 million, up 2.2% year over year due to strength in the North American residential HVAC market and strength in Europe, Middle East and Asia. Adjusted operating margin decreased to 15.3% from 16.9% due to lower aftermarket sales, commodity inflation and supply chain disruptions in the prior quarter.

Balance Sheet and Cash Flow

At the quarter end, Regal Beloit had cash and cash equivalents of $186.6 million while long-term debt was $1,113.8 million. The company paid down $86.6 million of debt during the quarter and repurchased $23.4 million worth of shares.

Net cash from operating activities totaled $86.1 million, down from $154.3 million in the year-ago period, bringing the respective year-to-date tallies to $235 million and $330.4 million. Free cash flow was 113.8% of net income or $70.8 million compared with the respective tallies of 234.7% or $139.9 million in third-quarter 2016.

Narrowed Guidance

Regal Beloit continues to focus on simplification initiatives to lower operating costs and improve margins in the future. The company expects organic growth for the year in low single digits with healthy demand trends. Consequently, Regal Beloit narrowed its adjusted earnings per share guidance in the range of $4.80-$4.90 from the earlier expectation of $4.70-$5.00 while GAAP earnings are expected in the range of $4.64-$4.74 compared with earlier projection of $4.51-$4.81.  

Regal Beloit has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Danaher Corporation DHR, Honeywell International Inc. HON and Leucadia National Corporation LUK, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Danaher has a long-term earnings growth expectation of 10.6%. It has beaten earnings estimates in each of the trailing four quarters with an average positive surprise of 2.6%.

Honeywell has a long-term earnings growth expectation of 9.2%. It has beaten earnings estimates thrice in each of the trailing four quarters with an average positive surprise of 1.2%.

Leucadia has a long-term earnings growth expectation of 18%. It has beaten earnings estimates thrice in the trailing four quarters with an average positive surprise of 21.2%.

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