Regal Beloit Reports Second Quarter 2011 Financial Results

- Record Sales In Second Quarter

- Incremental Warranty Expense Negatively Impacted Second Quarter Profits

- Strong Operating Cash Flow

Aug 04, 2011, 18:14 ET from Regal Beloit Corporation

BELOIT, Wis., Aug. 4, 2011 /PRNewswire/ -- Regal Beloit Corporation (NYSE: RBC) today reported financial results for the second quarter ended July 2, 2011.  Net sales of $681.8 million increased 16.7% compared to $584.2 million for the second quarter of 2010.   Diluted earnings per share were $0.88 compared to $1.07 for the second quarter of 2010.  The decrease was primarily driven by the previously announced incremental warranty expense of $28.0 million (or $0.44 diluted earnings per share). Excluding the incremental warranty accrual of $28.0 million, second quarter 2011 diluted earnings per share would have been $1.32.

"Outside of the disappointing news regarding the warranty expense, we were pleased with our second quarter results.   Excluding the incremental warranty expense, our earnings would have come in slightly higher than our earlier guidance." commented Mr. Mark Gliebe, Chief Executive Officer.   "The balance of our businesses paid off with strong sales growth in our North American Commercial and Industrial businesses, our Mechanical business and our International-based businesses offsetting weaker sales in HVAC.   The other positive news is that we have made real progress in our pursuit to close the acquisition of A.O. Smith's Electrical Products Company.  We believe we will close the transaction within the month."

NET SALES

(In millions)

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

% Change

July 2, 2011

July 3, 2010

% Change

Net Sales

$         681.8

$        584.2

16.7%

$     1,344.4

$     1,091.5

23.2%

Net Sales by Segment:

 Electrical segment

$         611.3

$        522.8

16.9%

$     1,205.6

$        980.0

23.0%

 Mechanical segment

$           70.5

$          61.4

14.8%

$         138.8

$        111.5

24.6%

Net sales for the second quarter 2011 increased $97.6 million compared to the second quarter of 2010, including $60.0 million of incremental sales from the five businesses acquired in 2010 (the "acquired businesses").  Sales growth was primarily driven by increased demand for North American commercial and industrial motors, generators, and mechanical products and higher international sales growth.

In the Electrical segment, net sales for the second quarter 2011 increased $88.5 million compared to the second quarter 2010, including $60.0 million of incremental net sales from the acquired businesses.  North American residential HVAC net sales decreased 9.7% in the second quarter 2011 compared to the second quarter 2010, due primarily to the reduced federal tax incentives for high efficiency products and continued weakness in the housing market.  North American commercial and industrial net sales increased 19.9% for the second quarter 2011 compared to the second quarter 2010 driven by improving economic conditions, the impact of the EISA legislation which increased the sales of energy efficient motors and a strong recovery in our generator business.  

In the Mechanical segment, net sales for the second quarter of 2011 increased $9.1 million compared to the second quarter 2010.  This increase was driven primarily by improving demand in later cycle end markets.

Net sales to regions outside of the United States were 36.6% of total net sales for the second quarter 2011 compared to 31.7% of total net sales for the second quarter 2010.  Second quarter 2011 net sales of high efficiency products were 17.8% of total net sales and increased 9.6% compared to the second quarter 2010.  The impact of foreign currency exchange rates increased total net sales by 2.5% for the second quarter 2011 compared to the second quarter 2010.

GROSS PROFIT

(In thousands)

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Gross Profit

$     150,669

$      143,504

$     315,480

$      274,419

 As a percentage of net sales

22.1%

24.6%

23.5%

25.1%

Gross Profit

 Electrical segment

$     130,298

$      125,748

$     275,903

$      242,798

   As a percentage of net sales

21.3%

24.1%

22.9%

24.8%

 Mechanical segment

$       20,371

$        17,756

$       39,577

$        31,621

   As a percentage of net sales

28.9%

28.9%

28.5%

28.4%

The $28 million increased warranty accrual was reflected in the Electrical segment's Cost of Sales in the second quarter 2011.  Excluding the $28 million increased warranty accrual, the Gross Profit as a percentage of net sales in the second quarter 2011 would have been 26.2% and year to date 2011 would have been 25.5%.  The Gross Profit as a percentage of net sales for the Electrical segment in the second quarter 2011 would have been 25.9% and year to date 2011 would have been 25.2%.  

OPERATING EXPENSES

(In thousands)

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Operating Expenses

$        95,860

$          76,705

$      196,551

$        144,855

 As a percentage of net sales

14.1%

13.1%

14.6%

13.3%

Operating Expenses by Segment:

 Electrical segment

$        85,374

$          66,913

$      175,466

$        127,618

   As a percentage of net sales

14.0%

12.8%

14.6%

13.0%

 Mechanical segment

$        10,486

$            9,792

$        21,085

$          17,237

   As a percentage of net sales

14.9%

16.0%

15.2%

15.5%

INCOME FROM OPERATIONS

(In thousands)

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Income from Operations

$        54,809

$          66,799

$      118,929

$        129,564

 As a percentage of net sales

8.0%

11.4%

8.9%

11.9%

Income from Operations by Segment:

 Electrical segment

$        44,924

$          58,835

$      100,437

$        115,180

   As a percentage of net sales

7.4%

11.3%

8.3%

11.8%

 Mechanical segment

$           9,885

$            7,964

$        18,492

$          14,384

   As a percentage of net sales

14.0%

13.0%

13.3%

12.9%

Operating expenses for the second quarter 2011 increased $19.2 million including (i) $10.5 million related to the acquired businesses, ($2.4 million of which was intangible amortization), and (ii) an incremental $1.5 million of acquisition-related expenses.

Net interest expense for the second quarter 2011 was $4.4 million, compared to $4.0 million for the second quarter 2010. The effective tax rate for the second quarter 2011 was 28.6% as compared to 31.9% in the second quarter 2010, due to changes in the global distribution of income.  

Net income attributable to Regal Beloit Corporation for the second quarter 2011 was $34.3 million compared to $41.7 million for the second quarter 2010.  Fully diluted earnings per share for the second quarter 2011 were $0.88 compared to $1.07 for the second quarter 2010.

Net cash provided by operating activities was $53.4 million for the second quarter 2011.  Capital expenditures were $10.8 million.  Cash and investments totaled $275.3 million at July 2, 2011, an increase of $44.4 million from January 1, 2011.

"As we look forward to the third quarter we are excited and optimistic about the closing of the A.O. Smith transaction and the integration of our two teams.  Our financing is in place and our teams have done much of the upfront integration planning." continued Mr. Gliebe.  "In terms of our business outlook, while we see continuing softness in our HVAC business, we are also seeing continuing strength in our commercial and industrial and mechanical businesses.   Accordingly, we are projecting third quarter diluted earnings per share of $1.11 to $1.17.  Our guidance for the third quarter does not include the impact of closing on the acquisition of the Electrical Products Company of A. O. Smith but does include an incremental $4.4 million interest expense related to acquisition financing."  

Regal Beloit will hold a conference call pertaining to this news release at 9:00 AM CDT (10:00 AM EDT) on Friday, August 5, 2011.  To listen to the call and view the presentation slides via the internet, please go to http://www.regalbeloit.com/ or at: http://www.videonewswire.com/event.asp?id=80923. Individuals who would like to participate by phone should dial 800-860-2442, referencing Regal Beloit. International callers should dial 412-858-4600, referencing Regal Beloit.  

A telephone replay of the call will be available through November 5, 2011, at 877-344-7529, conference ID 10002134. International callers should call 412-317-0088 using the same conference ID.  A webcast replay will be available until November 5, 2011, and can be accessed at http://www.regalbeloit.com/rbceventspresentations.htm or at http://www.videonewswire.com/event.asp?id=80923.

Regal Beloit Corporation is a leading manufacturer of electric motors, mechanical and electrical motion controls and power generation products serving markets throughout the world.  Regal Beloit is headquartered in Beloit, Wisconsin, and has manufacturing, sales, and service facilities throughout the United States, Canada, Mexico, Europe and Asia.  Regal Beloit's common stock is a component of the S&P Mid Cap 400 Index and the Russell 2000 Index.

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 press 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: 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, including the timing and impact of purchase accounting adjustments; difficulties consummating the pending acquisition of the Electrical Products Company of A.O. Smith Corporation that may have a negative impact on our results of operations; 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; increases in our overall debt levels as a result of acquisitions or otherwise and our ability to repay principal and interest on our outstanding debt; 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; 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, 2011 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 presentation 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 EARNINGS

Unaudited

Dollars in Thousands, Except Dividends Declared and Per Share Data

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net Sales

$    681,785

$         584,181

$   1,344,440

$       1,091,499

Cost of Sales

531,116

440,677

1,028,960

817,080

Gross Profit

150,669

143,504

315,480

274,419

Operating Expenses

95,860

76,705

196,551

144,855

Income From Operations

54,809

66,799

118,929

129,564

Interest Expense

4,814

4,480

9,905

9,541

Interest Income

419

514

736

1,155

Income Before Taxes & Noncontrolling Interests

50,414

62,833

109,760

121,178

Provision For Income Taxes

14,429

20,058

32,952

38,535

Net Income

35,985

42,775

76,808

82,643

Less: Net Income Attributable to Noncontrolling Interests, net of tax

1,655

1,055

3,641

3,161

Net Income Attributable to Regal Beloit Corporation

$       34,330

$           41,720

$        73,167

$            79,482

Earnings Per Share of Common Stock:

Basic

$           0.89

$               1.09

$             1.89

$                2.10

Assuming Dilution

$           0.88

$               1.07

$             1.87

$                2.05

Cash Dividends Declared

$           0.18

$               0.17

$             0.35

$                0.33

Weighted Average Number of Shares Outstanding:

Basic

38,667,034

38,310,371

38,646,873

37,878,189

Assuming Dilution

39,212,535

38,954,418

39,182,215

38,796,187

SEGMENT INFORMATION

Unaudited

Dollars in Thousands

Mechanical Segment

Electrical Segment

Three Months Ended

Three Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net Sales

$               70,471

$                 61,391

$             611,314

$               522,790

Income from Operations

9,885

7,964

44,924

58,835

Mechanical Segment

Electrical Segment

Six Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net Sales

$             138,836

$               111,464

$          1,205,604

$               980,035

Income from Operations

18,492

14,384

100,437

115,180

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in Thousands

(Unaudited)

ASSETS

July 2, 2011

January 1, 2011

Current Assets:

Cash and Investments

$          275,348

$           230,858

Trade Receivables, less Allowances of $10,646 in 2011 and $10,637 in 2010

410,565

331,017

Inventories

436,375

390,587

Prepaid Expenses and Other Current Assets

117,426

135,589

Total Current Assets

1,239,714

1,088,051

Property, Plant, Equipment and Noncurrent Assets

1,406,829

1,361,085

Total Assets

$       2,646,543

$        2,449,136

LIABILITIES AND  EQUITY

Current Liabilities:

Accounts Payable

$          279,311

$           231,705

Other Accrued Expenses

196,884

159,000

Current Maturities of Debt

14,282

8,637

Total Current Liabilities

490,477

399,342

Long-Term Debt

428,044

428,256

Other Noncurrent Liabilities

247,457

224,376

Equity:

Total Regal Beloit Corporation Shareholders' Equity

1,442,037

1,361,960

       Noncontrolling Interests

38,528

35,202

Total Equity

1,480,565

1,397,162

Total Liabilities and Equity

$       2,646,543

$        2,449,136

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

Unaudited

Dollars in Thousands

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$     35,985

$       42,775

$     76,808

$       82,643

Adjustments to reconcile net income to net cash provided  by operating activities (net of acquisitions):

Depreciation and amortization

22,027

18,874

43,626

35,899

Excess tax benefits from stock-based compensation

(593)

(741)

(1,003)

(1,411)

Loss on disposition of property, net

301

1,368

488

1,368

Stock-based compensation expense

4,480

1,708

6,235

3,065

Change in assets and liabilities

(8,825)

(8,622)

(16,578)

(21,837)

Net cash provided by operating activities

53,375

55,362

109,576

99,727

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property, plant and equipment

(10,796)

(6,991)

(38,525)

(18,232)

Purchases of investment securities

-

(89,744)

-

(187,877)

Sales of investment securities

-

62,460

55,998

131,529

Business acquisitions, net of cash acquired

(13,456)

(75,863)

(22,053)

(75,863)

Sale of property, plant and equipment

193

67

209

67

Net cash used in investing activities

(24,059)

(110,071)

(4,371)

(150,376)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of convertible debt

-

(38,728)

-

(38,728)

Net (repayments of) proceeds from short-term borrowings

(4,904)

(7,072)

5,118

(8,733)

Payments of long-term debt

(39)

(57)

(88)

(103)

Net repayments under revolving credit facility

(2,845)

-

-

(2,863)

Dividends paid to shareholders

(6,569)

(5,997)

(13,130)

(11,978)

Proceeds from the exercise of stock options

1,190

1,766

1,756

2,989

Excess tax benefits from stock-based compensation

593

741

1,003

1,411

Financing fees paid

(1,874)

-

(1,874)

-

Net cash used in financing activities

(14,448)

(49,347)

(7,215)

(58,005)

EFFECT OF EXCHANGE RATES ON CASH

1,023

(1,584)

2,827

(1,266)

Net increase (decrease) in cash and cash equivalents

15,891

(105,640)

100,817

(109,920)

Cash and cash equivalents at beginning of period

259,457

258,142

174,531

262,422

Cash and cash equivalents at end of period

$   275,348

$     152,502

$   275,348

$     152,502

SOURCE Regal Beloit Corporation



RELATED LINKS

http://www.regal-beloit.com