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Regal Beloit Corporation Announces Third Quarter 2016 Financial Results

BELOIT, Wis., Nov. 7, 2016 /PRNewswire/ -- Regal Beloit Corporation (NYSE: RBC) today reported third quarter 2016 diluted earnings per share of $1.32.  Third quarter 2016 adjusted diluted earnings per share* were $1.31.

Key financial results for the third quarter 2016 included:

  • Total net sales of $809.6 million decreased 8.2% from the prior year and included a negative 0.6% foreign currency translation impact and a negative 0.5% divestiture impact.
  • Income from operations was $89.8 million or 11.1% of net sales which was comparable to the prior year. The prior year operating margin benefitted from a $4.9 million tariff refund that did not repeat in 2016.
  • The diluted earnings per share included a $2.2 million benefit resulting from the finalization of the 2015 tax provision.
  • Net cash provided by operating activities was $154.1 million and capital expenditures totaled $14.4 million, resulting in free cash flow of $139.7 million or 234% of net income.  The Company paid down $105.0 million of debt.

Third quarter 2016 segment results versus the prior year third quarter included:

  • Commercial and Industrial Systems Segment net sales were $389.4 million, down 8.8%.  The majority of the decrease was from the impact of weak North American and China industrial markets as well as depressed oil & gas and power generation activity.  Foreign currency had a negative 0.9% translation impact.  Operating margin increased to 9.3%, due to the Simplification initiative and the right-sizing of our oil & gas business.
  • Climate Solutions Segment net sales were $250.5 million, down 5.3%.  The majority of the decrease was from a continued decline in Middle East HVAC demand and the impact of contractual two-way material price formulas, partially offset by a strong cooling season in the North American residential HVAC market.  Foreign currency had a negative 0.4% translation impact.  Operating margin increased to 16.8%, due to increased North American HVAC volume as well as the benefits of the Simplification initiative.
  • Power Transmission Solutions Segment net sales were $169.7 million, down 11.2%.  Sales were negatively impacted by weak distribution demand and depressed oil & gas end markets.  The Mastergear divestiture had a negative 2.5% impact.  Foreign currency had a negative 0.1% translation impact.  Operating margin decreased to 6.7%, due primarily to lower volume.

*This earnings release includes non-GAAP financial measures.  Descriptions of why we believe these non-GAAP measures are useful and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included with this earnings release.

"Our results for the third quarter were generally in line with our expectations.  Sales were down due to weak global industrial end markets and the ongoing challenges in oil & gas, but were partially offset by a strong HVAC cooling season," said Regal Chairman and CEO Mark Gliebe.  "Despite the weaker sales, we maintained our operating margin as compared to the prior year and generated very strong free cash flow, which we used to pay down $105 million of debt in the quarter."

2016 Outlook

"We expect our fourth quarter organic sales growth to be in the range of flat to slightly down versus 2015, representing another quarter of sequential improvement.  Accordingly, we forecast our 2016 adjusted diluted earnings per share to be $4.40 to $4.50," continued Mr. Gliebe.

The Company forecasts 2016 GAAP diluted earnings per share of $4.45 to $4.55.

Conference Call

Regal will hold a conference call to discuss the earnings release at 9:00 AM CST (10:00 AM EST) on November 7, 2016.  Individuals who would like to participate by phone should dial 888-317-6003 and enter 8875158 when prompted.  International callers should dial 412-317-6061 and enter 8875158 when prompted.  To view the presentation during the call, please follow this link to Regal's Investors page:
http://investors.regalbeloit.com/phoenix.zhtml?c=116222&p=irol-presentations.

To listen to the live audio and view the presentation via the internet, please go to:
http://services.choruscall.com/links/rbc1611077xDtUwH3.html.

A telephone replay of the call will be available through November 14, 2016, at 877-344-7529, conference ID 10093881.  A webcast replay will be available until February 7, 2017, and can be accessed at http://investors.regalbeloit.com/phoenix.zhtml?c=116222&p=irol-calendarPast.  International callers should call 412-317-0088 using the conference ID 10093881.  To access the replay using an international dial-in number, please select the link below.
https://services.choruscall.com/ccforms/replay.html.

About the Company

Regal Beloit Corporation (NYSE: RBC) is a leading manufacturer of electric motors, electrical motion controls, power generation and power transmission products serving markets throughout the world.  The company is comprised of three business segments: Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions.  Regal is headquartered in Beloit, Wisconsin, and has manufacturing, sales and service facilities throughout the United States, Canada, Mexico, Europe and Asia.  For more information, visit RegalBeloit.com

CAUTIONARY STATEMENT

The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: With the exception of historical facts, the statements contained in this release may be forward-looking statements.  Forward-looking statements represent our management's judgment regarding future events.  In many cases, you can identify forward-looking statements by terminology such as "may," "will,"  "plan," "expect," "anticipate," "estimate," "believe," or "continue" or the negative of these terms or other similar words.  Actual results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of factors, including: uncertainties regarding our ability to execute our restructuring plans within expected costs and timing; increases in our overall debt levels as a result of the acquisition of the Power Transmission Solutions ("PTS") business from Emerson Electric Co., or otherwise and our ability to repay principal and interest on our outstanding debt; actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric motor, power generation and mechanical motion control industries; our ability to develop new products based on technological innovation and the marketplace acceptance of new and existing products; fluctuations in commodity prices and raw material costs; our dependence on significant customers; issues and costs arising from the integration of acquired companies and businesses such as PTS, including the timing and impact of purchase accounting adjustments; prolonged declines in oil and gas up stream capital spending; unanticipated costs or expenses we may incur related to product warranty issues; our dependence on key suppliers and the potential effects of supply disruptions; infringement of our intellectual property by third parties, challenges to our intellectual property, and claims of infringement by us of third party technologies; product liability and other litigation, or the failure of our products to perform as anticipated, particularly in high volume applications; economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, foreign government policies and other external factors that we cannot control; unanticipated liabilities of acquired businesses; effect on earnings of any significant impairment of goodwill or intangible assets; cyclical downturns affecting the global market for capital goods; difficulties associated with managing foreign operations; and other risks and uncertainties including but not limited to those described in Item 1A-Risk Factors of the Company's Annual Report on Form 10-K filed on March 2, 2016 and from time to time in our reports filed with U.S. Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.  The forward-looking statements included in this release are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Unaudited





(Amounts in Millions, Except per Share Data)













Three Months Ended


Nine Months Ended



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Net Sales


$

809.6



$

882.3



$

2,466.4



$

2,736.2


Cost of Sales


577.9



641.2



1,794.4



2,022.8


Gross Profit


231.7



241.1



672.0



713.4


Operating Expenses


141.9



141.0



421.5



446.5


Income From Operations


89.8



100.1



250.5



266.9


Interest Expense


14.4



15.1



44.2



45.1


Interest Income


1.1



1.0



3.4



3.1


Income Before Taxes


76.5



86.0



209.7



224.9


Provision for Income Taxes


15.4



21.7



47.5



57.8


Net Income


61.1



64.3



162.2



167.1


Less: Net Income Attributable to Noncontrolling Interests


1.5



0.9



4.4



4.5


Net Income Attributable to Regal Beloit Corporation


$

59.6



$

63.4



$

157.8



$

162.6


Earnings Per Share Attributable to Regal Beloit Corporation:









Basic


$

1.33



$

1.42



$

3.53



$

3.63


Assuming Dilution


$

1.32



$

1.41



$

3.51



$

3.61


Cash Dividends Declared


$

0.24



$

0.23



$

0.71



$

0.68


Weighted Average Number of Shares Outstanding:









Basic


44.8



44.8



44.7



44.8


Assuming Dilution


45.0



45.1



45.0



45.1


 

CONDENSED CONSOLIDATED BALANCE SHEETS



Unaudited





(Dollars in Millions)







Oct 1,
2016


Jan 2,
2016

ASSETS





Current Assets:





Cash and Cash Equivalents


$

281.6



$

252.9


Trade Receivables, less Allowances of $12.2 million in 2016 and $11.3 million in 2015


501.0



462.0


Inventories


685.6



775.0


Prepaid Expenses and Other Current Assets


129.7



145.3


Total Current Assets


1,597.9



1,635.2







Net Property, Plant, Equipment and Noncurrent Assets


2,879.2



2,956.5


Total Assets


$

4,477.1



$

4,591.7







LIABILITIES AND EQUITY





Current Liabilities:





Accounts Payable


$

343.6



$

336.2


Other Accrued Expenses


255.5



270.3


Current Maturities of Debt


100.8



6.3


Total Current Liabilities


699.9



612.8







Long-Term Debt


1,409.7



1,715.6


Other Noncurrent Liabilities


265.2



280.5


Equity:





Total Regal Beloit Corporation Shareholders' Equity


2,062.8



1,937.3


Noncontrolling Interests


39.5



45.5


Total Equity


2,102.3



1,982.8


Total Liabilities and Equity


$

4,477.1



$

4,591.7


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW




Unaudited







(Dollars in Millions)









Three Months Ended


Nine Months Ended



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

CASH FLOWS FROM OPERATING ACTIVITIES:









Net income


$

61.1



$

64.3



$

162.2



$

167.1


Adjustments to reconcile net income and changes in assets and liabilities (net of acquisitions) to net cash provided by operating activities:









Depreciation and amortization


37.6



42.0



116.6



120.1


Excess tax expense (benefits) from share-based compensation


0.1



(0.1)



0.2



(1.3)


Loss (Gain) on disposal of assets, net


(0.1)



1.1



0.9



1.8


Gain on disposal of business






(11.6)




Share-based compensation expense


3.0



3.5



10.1



10.6


Loss on Venezuela currency devaluation








1.5


Change in operating assets and liabilities, net of acquisitions


52.4



20.7



50.0



(32.6)


Net cash provided by operating activities


154.1



131.5



328.4



267.2


CASH FLOWS FROM INVESTING ACTIVITIES:









Additions to property, plant and equipment


(14.4)



(20.7)



(46.1)



(65.4)


Proceeds from sales of assets


1.5





1.6



7.8


Net sales (purchases) of investment securities


(15.0)



2.1



(10.5)



(5.7)


Business acquisitions, net of cash acquired




(0.2)





(1,400.7)


Proceeds from sale of business


0.5





25.5




Net cash used in investing activities


(27.4)



(18.8)



(29.5)



(1,464.0)


CASH FLOWS FROM FINANCING ACTIVITIES:









Net (repayments) borrowings under revolving credit facility


(12.0)



(37.0)



10.0



(1.0)


Net (repayments) proceeds from short-term borrowings


(0.1)



(1.3)



(6.8)



3.5


   Proceeds from long-term debt








1,250.0


Repayments of long-term debt


(92.9)



(40.8)



(218.1)



(72.2)


Dividends paid to shareholders


(10.8)



(10.2)



(31.3)



(29.9)


Proceeds from the exercise of stock options




0.1



0.5



3.8


Excess tax benefits (expense) from share-based compensation


(0.1)



0.1



(0.2)



1.3


Repurchase of common stock




(12.0)





(12.0)


Distributions to noncontrolling interest






(0.3)



(0.3)


Purchase of subsidiary shares from noncontrolling interest




(0.2)



(19.6)



(1.4)


   Financing fees paid








(17.8)


Net cash (used in) provided by financing activities


(115.9)



(101.3)



(265.8)



1,124.0


EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS


(0.7)



(4.4)



(4.4)



(6.7)


Net  increase (decrease) in cash and cash equivalents


10.1



7.0



28.7



(79.5)


Cash and cash equivalents at beginning of period


271.5



247.6



252.9



334.1


Cash and cash equivalents at end of period


$

281.6



$

254.6



$

281.6



$

254.6


 

SEGMENT INFORMATION















Unaudited















(Dollars In Millions)

















Three Months Ended



Commercial & Industrial
Systems


Climate Solutions


Power Transmission
Solutions


Total Regal



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
 2016


Oct 3,
 2015

Net Sales


$

389.4



$

426.8



$

250.5



$

264.4



$

169.7



$

191.1



$

809.6



$

882.3



















Operating Margin


9.3

%


9.1

%


16.8

%


15.4

%


6.7

%


10.8

%


11.1

%


11.3

%

Adjusted Operating Margin Percentage*


9.0

%


9.3

%


16.9

%


15.5

%


7.1

%


10.8

%


11.1

%


11.5

%


















Components of Net Sales:

















Organic Sales Growth


(7.9)

%


(5.0)

%


(4.9)

%


(7.0)%



(8.5)

%


(7.1)

%


(7.1)

%


(5.9)

%

Acquisitions, Net of Divestitures


%


(0.6)

%


%


%


(2.5)

%


191.1

%


(0.5)

%


15.2

%

Foreign Currency Impact


(0.9)

%


(4.0)

%


(0.4)

%


(1.7)

%


(0.1)

%


(0.7)

%


(0.6)

%


(3.0)

%

 

SEGMENT INFORMATION















Unaudited














(Dollars In Millions)

















Nine Months Ended



Commercial & Industrial
Systems


Climate Solutions


Power Transmission
Solutions


Total Regal



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Net Sales


$

1,161.7



$

1,324.2



$

744.8



$

830.9



$

559.9



$

581.1



$

2,466.4



$

2,736.2



















Operating Margin


7.1

%


8.6

%


13.8

%


14.2

%


11.5

%


6.1

%


10.2

%


9.8

%

Adjusted Operating Margin Percentage*


7.1

%


9.0

%


14.1

%


14.1

%


9.7

%


11.3

%


9.8

%


11.1

%


















Components of Net Sales:

















Organic Sales Growth


(10.8)

%


(3.9)

%


(9.7)

%


(3.8)

%


(8.5)

%


0.3

%


(10.0)

%


(3.5)

%

Acquisitions, Net of Divestitures


%


2.1

%


%


%


5.0

%


194.3

%


1.0

%


16.7

%

Foreign Currency Impact


(1.4)

%


(3.9)

%


(0.7)

%


(1.6)

%


(0.2)

%


(1.1)

%


(1.0)

%


(2.9)

%

 

NON-GAAP MEASURES AND OTHER DEFINITIONS
Unaudited
(Dollars in Millions, Except per Share Data)

We prepare financial statements in accordance with accounting principles generally accepted in the United States ("GAAP"). We also periodically disclose certain financial measures in our quarterly earnings releases, on investor conference calls, and in investor presentations and similar events that may be considered "non-GAAP" financial measures. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. In addition, since our management often uses these non-GAAP financial measures to manage and evaluate our business, make operating decisions, and forecast our future results, we believe disclosing these measures helps investors evaluate our business in the same manner as management. This additional information is not meant to be considered in isolation or as a substitute for our results of operations prepared and presented in accordance with GAAP.

In this earnings release, we disclose the following non-GAAP financial measures, and we reconcile these measures in the tables below to the most directly comparable GAAP financial measures: adjusted diluted earnings per share (both historical and projected), adjusted operating profit, adjusted operating profit margin, free cash flow and free cash flow as a percentage of net income attributable to Regal Beloit Corporation.

In addition to these non-GAAP measures, we also use the term "organic sales" to refer to GAAP sales from existing operations excluding sales from acquired businesses recorded prior to the first anniversary of the acquisition less the amount of sales attributable to any divested businesses ("acquisition sales"), and the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period's sales (excluding acquisition sales) using the same currency exchange rates that were in effect during the prior year periods. We use the term "organic sales growth" to refer to the increase in our sales between periods that is attributable to organic sales. We use the term "acquisition growth" to refer to the increase in our sales between periods that is attributable to acquisition sales.



















ADJUSTED DILUTED EARNINGS PER SHARE


Three Months Ended


Nine Months Ended



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Diluted Earnings Per Share


$

1.32



$

1.41



$

3.51



$

3.61


Restructuring and Related Costs


0.02



0.02



0.06



0.07


Gain on Sale of Assets


(0.03)





(0.03)




Gain on Disposal of Business






(0.14)




Purchase Accounting and Transaction Costs








0.47


Venezuelan Currency Devaluation








0.02


Adjusted Diluted Earnings Per Share


$

1.31



$

1.43



$

3.40



$

4.17











 

ADJUSTED OPERATING INCOME






















Three Months Ended







Commercial & Industrial
Systems


Climate Solutions


Power Transmission
Solutions


Total Regal



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Income from Operations


36.2


38.8


42.2


40.7


11.4


20.6


89.8


100.1

Gain on Sale of Assets


(1.2)







(1.2)


Restructuring  and Related Costs


0.2


0.9


0.2


0.3


0.7



1.1


1.2

Gain on Disposal of Business









Adjusted Income from Operations


$     35.2


$      39.7


$     42.4


$    41.0


$  12.1


$   20.6


$  89.7


$ 101.3


















GAAP Operating Margin %


9.3 %


9.1 %


16.8 %


15.4 %


6.7 %


10.8 %


11.1 %


11.3 %

Adjusted Operating Margin %


9.0 %


9.3 %


16.9 %


15.5 %


7.1 %


10.8 %


11.1 %


11.5 %

 

ADJUSTED OPERATING INCOME


















Nine Months Ended



Commercial & Industrial
Systems


Climate Solutions


Power Transmission
Solutions


Total Regal



Oct 1,
2016


Oct 3,
2015


Jul 2,
2016


Jul 4,
2015


Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Income from Operations


$       83.0


$       113.6


$     102.9


$     117.8


$    64.6


$     35.5


$ 250.5


$   266.9

Gain on Sale of Assets


(1.2)







(1.2)


Purchase Accounting and Transaction Costs







29.8



29.8

Restructuring and Related Costs


1.0


4.7


2.0


(0.7)


1.2


0.6


4.2


4.6

Venezuelan Currency Devaluation1



1.5







1.5

Gain on Disposal of Business






(11.6)



(11.6)


Adjusted Income from Operations


$        82.8


$       119.8


$     104.9


$     117.1


$    54.2


$     65.9


$ 241.9


$   302.8

















GAAP Operating Margin %


7.1 %


8.6 %


13.8 %


14.2 %


11.5 %


6.1 %


10.2 %


9.8 %

Adjusted Operating Margin %


7.1 %


9.0 %


14.1 %


14.1 %


9.7 %


11.3 %


9.8 %


11.1 %

 

FREE CASH FLOW RECONCILIATION


Three Months Ended


Six Months Ended



Oct 1,
2016


Oct 3,
2015


Oct 1,
2016


Oct 3,
2015

Net Cash Provided by Operating Activities


154.1


$    131.5


$   328.4


$   267.2

Additions to Property Plant and Equipment


(14.4)


(20.7)


(46.1)


(65.4)

Free Cash Flow


$   139.7


$    110.8


$   282.3


$   201.8

Free Cash Flow as a Percentage of Net Income Attributable to Regal Beloit Corporation


234.4 %


174.8 %


178.9 %


124.1 %

 

RECONCILIATION OF 2016 ADJUSTED ANNUAL GUIDANCE


Minimum


Maximum

2016 Diluted EPS Annual Guidance


$     4.45


$      4.55

Restructuring and Related Costs


0.13


0.13

Gain on Sale of Assets


(0.04)


(0.04)

Gains on Disposals of Businesses


(0.14)


(0.14)

2016 Adjusted Diluted EPS Annual Guidance


$     4.40


$      4.50

 

ORGANIC GROWTH


Three
Months
Ended


Nine
Months
Ended



Oct 1,
2016


Oct 1,
2016

Net Sales


$ 809.6


$2,466.4

Net Sales from Businesses Acquired



(35.9)

Net Sales from Businesses Divested


4.8


6.8

Impact from Foreign Currency Exchange Rates


4.9


26.1

Adjusted Net Sales


$ 819.3


$2,463.4






Net Sales Ended Oct 3, 2015


$ 882.3


$2,736.2

Organic Growth %


(7.1)%


(10.0)%

Net Sales Growth %


(8.2)%


(9.9)%

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/regal-beloit-corporation-announces-third-quarter-2016-financial-results-300358003.html

SOURCE Regal Beloit Corporation

Robert Cherry, VP - Investor Relations, 608-361-7530, robert.cherry@regalbeloit.com