Industrial equipment manufacturer Regal Beloit Corporation (RBC) reported fourth-quarter 2013 net loss of $33.2 million or 74 cents per share versus net income of $29.9 million or 70 cents per share in the year-ago quarter. The results were impacted by goodwill and asset impairments and higher share count.
For full-year 2013, the company reported net income of $120.0 million or $2.64 per share versus $195.6 million or $4.64 per share in 2012.
Excluding non-recurring items, adjusted earnings per share in the quarter of 2013 were 97 cents compared to 76 cents in the year-earlier quarter. The adjusted earnings handily beat the Zacks Consensus Estimate of 84 cents.
Adjusted earnings per share for full-year 2013 were $4.36 compared with $4.73 in 2012. Adjusted earnings for the reported year comfortably beat the Zacks Consensus Estimate of $4.23.
Net sales rose 1.6% year over year to $727.3 million in the reported quarter. The increase in sales was driven by revenue growth in North American residential heating, ventilation and air conditioning (HVAC), healthy power generation, robust oil and gas and China-based businesses, partially offset by weaker revenues in North American commercial & industrial motors and weaker India and Australia-based businesses. Revenues for the reported quarter beat the Zacks Consensus Estimate of $715 million.
For 2013, net sales edged down 2.2% year over year to $3,095.7 million and missed the Zacks Consensus Estimate of $3,112 million.
Segment Analysis
Revenues from the Electrical segment increased by 2.8% year over year to $664.9 million. Revenues from the North American residential HVAC sub-segment also increased 4.8% year over year.
Net sales in the Mechanical segment were $62.4 million versus $68.7 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 36.3% of total revenue and were up 1.0% year over year. By product class, net sales of high efficiency products contributed 22.1% to total sales in the reported quarter.
Margins
Regal Beloit’s gross profit for the reported quarter was $178.0 million versus $160.7 million in the year-ago quarter. While gross profit of the Electrical segment increased to $161.5 million from $142.4 million in the prior-year quarter, Mechanical segment’s gross profit decreased to $16.5 million from $18.3 million in the year-earlier quarter.
Operating loss was $27.8 million in fourth quarter 2013 versus an operating income of $47.1 million in the year-ago quarter. The operating loss was due to expense for goodwill and asset impairements. By segments, operating loss in the Electrical segment was $22.5 million versus operating profit of $39.6 million in the year-ago quarter. Mechanical segment’s operating loss was $5.3 million versus operating profit of $7.5 million in the prior-year period.
Balance Sheet and Cash Flow
At year-end 2013, Regal Beloit’s cash and cash equivalents were $466.0 million compared with $375.3 million in the prior period. Long-term debt was $609.0 million compared with $ 754.7 million in the prior period.
Net cash provided by operating activities for full year 2013 was $305.0 million compared with $351.7 million in the year-ago period. Free cash flow stood at $223.9 million at the end of Dec 28, 2013 versus $269.4 million in the year-ago period.
The company declared a quarterly dividend of 20 cents per share payable on April 11, 2014, to shareholders of record at the close of business on Mar 28.
Acquisition
Subsequent to the quarter end, Regal Beloit acquired Hy-Bon Engineering Company, Inc. (Hy-Bon), a leader in vapor recovery solutions for oil and gas applications, for an undisclosed amount. The strategic move reflects Regal Beloit’s intention to expand business with a strong service infrastructure. For 2014 and 2015, Hy-Bon is expected to be accretive to earnings per share by 3 cents to 6 cents and by 8 cents to 12 cents, respectively.
Guidance
Management expects seasonality in residential HVAC, modest growth in its commercial and industrial motors businesses and continued growth in both its China and global power generation businesses in the first quarter of 2014. The company expects the markets in India and Australia to remain challenging and modest overall revenue growth in the first quarter with some margin headwinds which are likely to moderate by the end of the second quarter. The company expects first quarter earnings per share to be 90 cents to 98 cents and adjusted earnings in the range of 99 cents to $1.07.
Regal Beloit currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the industry include EnerSys (ENS), Badger Meter Inc (BMI) and Watts Water Technologies, Inc (WTS). All of these have a Zacks Rank #2 (Buy).
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