Regal Beloit Corporation (RBC) posted a net income of $25.2 million or 65 cents per share in the fourth quarter of fiscal 2010 compared with a net income of $34.7 million or 90 cents per share in the year-earlier quarter. The results were in line with the management’s EPS guidance range of 63 cents – 67 cents, but missed the Zacks Consensus Estimates of 66 cents per share.
Headquartered in Beloit, Wisconsin, Regal Beloit is a leading manufacturer of electrical and mechanical motion control products. The Company has established manufacturing, sales, and service facilities throughout the U.S., Canada, Mexico, Europe, and Asia. Regal Beloit is the second largest manufacturer of electric motors for industrial applications and motors worldwide.
Net sales came in at $555.7 million, up 20% from the year-earlier quarter and surpassed the Zacks Consensus Estimate of $513 million. The growth was powered by a rise in demand in most of the end markets, which includes a strong demand for energy efficient products. Of the total sales, $56.8 million was attributed to the businesses acquired in 2010.
On a segmental basis, Electrical segment’s sales improved 18.5% from the year-earlier quarter to $494.2 million (including $47.1 million from the acquired businesses). Residential HVAC motor business and Global generator sales were up 1.3% and 15.7% from the year-earlier quarter, respectively. Commercial and industrial motor sales grew 12.5% from the year-earlier quarter, attributed to favorable end market conditions and higher sales in North America.
Mechanical segment sales were up 33.1% from the year-earlier quarter to $61.5 million (including $9.7 million from the acquired businesses), reflecting improvement in later cycle end markets.
Regal Beloit continues to focus on the growth of international operations, which led to an increase in international sales to 36.3% of total sales from 28.6% of total sales in the year-earlier quarter.
Gross margin declined to 23.4%, from 27% in the year- earlier quarter, driven by a contraction of gross margin in Electrical segment partially offset by the growth in margins in the Mechanical segment.
Operating margin depleted to 6.9% in the quarter from 11.6% in the year-earlier quarter. The margins were under pressure, due to the impact of inflation oninput costs, especially costs for copper; not offset by a subsequent price increase and a $28.4 million change in LIFO expense. The growth in margins was also obstructed by an expense of $14.3 million pertaining to acquired businesses and $2.6 million related acquisition, resulting in expanded operating expense ratio.
Net interest expense was flat from the year-earlier quarter at $4.5 million. The effective tax rate in the quarter was 22.7%, down from 27.7% in the year-earlier quarter, led by global distribution of income and the retroactive reinstatement in the United States of the research and development tax credit.
Fiscal 2010 Highlights
Net sales for fiscal 2010 was $2,238 million, up 22.5% from the previous year (including $119.5 million from the acquired businesses), which includes strong organic growth and the benefit of acquisitions that closed in 2010.
Gross margin inched to 24.5% in fiscal 2010 from 23.2% in fiscal 2009. Operating margins grew to 10.6%, from 8.7% in fiscal 2009. The margins were positively influenced by increase in sales and productivity, which was significantly offset by commodity cost inflation exceeding price increases and the costs associated with supply chain disruptions.
Net income came in at $149.4 million or $3.84 per share in the fiscal 2010 compared with a net income of $95.0 million or $2.63 per share in the previous year.
Regal Beloit ended the year with cash, cash equivalents and investmentsof $230.8 million, down from $380 million at the end of the previous year. As of January 1, 2011, total debt was $436.9 million, down from $476.5 million at the end of January 2, 2010.
During fiscal 2010, the company generated $175.4 million of cash from operating activities compared with $314.9 million in fiscal 2009. Capital expenditure was $45.0 million, up from $33.6 million in fiscal 2009.
Guidance
Management stated that the company will continue to focus on developing and producing new and innovative, energy efficient products. The company also expects a set back in the operating margins due to an increase in commodity input costs.
Based on the expectation of sequential seasonal improvement coupled with contributions from new acquisitions, Regal Beloit projected earnings per share between 92 cents and 98 cents for the first quarter of fiscal 2011.
Meanwhile, the company’s board of directors declared a dividend of 17 cents per share payable on April 15, 2011, to shareholders of record on April 1, 2011.
We continue to maintain a Neutral recommendation on Regal Beloit. The stock at present retains its Zacks #3 Rank (short-term Hold rating), as we are encouraged by the company’s strategic acquisition activities, but remain concerned about the descended margins.
Shares of Regal Beloitwere up 2.55% and closed at $69.59 in after-hours trading. In regular trading, shares were down 1.08% and closed at $67.89.
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