KMTUY Komatsu Ltd (PK)

Industrial equipment manufacturer Regal Beloit Corporation (RBC) reported first quarter 2013 net income of $50.7 million or $1.09 per share compared to $49.9 million or $1.16 per share in the year-ago quarter. The year-over-year decrease in earnings per share was primarily due to higher outstanding shares in the reported quarter. The reported earnings missed the Zacks Consensus Estimate by 6 cents. Excluding one-time items, adjusted earnings for first quarter 2013 were $1.08 per share vis-à-vis $1.15 per share in the year-earlier quarter.

Net sales declined 3.7% year over year to $778.2 million in the reported quarter due to the continued challenging macroeconomic environment. Unico, the wholly-owned subsidiary of the company, recorded strong sales during the quarter, while the residential HVAC (heating, ventilation, and air conditioning) business expanded slightly. However, Regal Beloit witnessed low demand for its other businesses.

Segment Analysis

Revenues from the Electrical segment declined 2.8% year over year to $711.0 million as the U.S. commercial and industrial markets performed below expectations. However, revenue from the North American residential HVAC sub-segment increased 3.5% year over year.

Net sales in the Mechanical segment were down 12.2% year over year to $67.2 million despite accretive acquisitions.

By geographic divisions, sales from outside the U.S. accounted for 33.6% of the total revenue and decreased 6.8% year over year. By product class, net sales of high efficiency products were up 3.5% and contributed 19.6% to total sales in the reported quarter.  

Margins

Regal Beloit’s gross profit for the reported quarter was $199.5 million versus $197.6 million in the year-ago quarter. While gross profit of the Electrical segment increased to $181.3 million from $178.8 million in the prior-year quarter, it decreased marginally in the Mechanical segment to $18.2 million from $18.8 million in the year-earlier quarter.

Total operating profit declined to $75.9 million in first quarter 2013 from $79.1 million in the year-ago period. By segments, operating profit decreased to $67.3 million in the Electrical segment from $69.4 million, while Mechanical segment’s operating profit was down from $9.7 million to $8.6 million in the reported quarter.

Balance Sheet and Cash flows

At quarter-end, Regal Beloit’s cash and cash equivalents were $411.9 million with long-term debt of $754.5 million.

Net cash provided by operating activities in the quarter was $66.0 million compared with $68.5 million in the year-ago quarter. Free cash flow represented 91.7% of net income for the reported quarter.  

Guidance

Management expects the listless demand in the North American commercial and industrial markets to continue in the second quarter, adversely affecting its performance in both its operating segments. Regal Beloit also expects unfavorable market dynamics in the HVAC sub-segment. Consequently, the company expects GAAP earnings in the range of $1.17 to $1.25 per share and adjusted earnings within $1.19 to $1.27.

Regal Beloit currently has a Zacks Rank #3 (Hold). Other players in the industry worth mentioning include Alamo Group, Inc. (ALG), Komatsu Ltd. (KMTUY), and AO Smith Corp. (AOS), each carrying a Zacks Rank #2 (Buy).

 
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