Regal Beloit Corporation (RBC - Snapshot Report) reported diluted earnings per share of $1.49 in the second quarter of 2012 compared to 88 cents per share in the year-ago quarter and $1.16 in the first quarter of 2012, beating the Zacks Consensus Estimate of $1.45 per share comprehensively. The results were also ahead of the company?s guidance range of $1.42 to $1.48 per share.
The impressive performance in the quarter was driven by the company?s growing North American commercial and industrial, mechanical and global Unico businesses; which neutralized the negative effect of the company?s clouded HVAC, European, and Asian businesses.
Revenue
Net sales spiked 26.7% year over year and 7% sequentially to $863.9 million, although the sales missed the Zacks Consensus Estimate of $892 million. The improvement was triggered by the company?s expanded operations during the quarter. The negative foreign currency translation reduced the net sales by 2.1% from the year-ago quarter.
Segment Analysis
Revenues from the Electrical segment climbed 28.2% year over year and 7.1% sequentially to $783.6 million, mostly driven by its business acquisition activity. However, excluding the company?s business acquisitions, the electrical segment?s sales dropped 6.6% year over year due to the fall in the revenues accrued from Regal Beloit?s HVAC, European, and Asian businesses. The North American residential HVAC motor sales declined 11.9% owing to the unfavorable effect of the R22 dry ship conversion. The North American commercial and industrial motor net sales jumped 1.3% year over year in the quarter.
Net sales in the mechanical segment hiked 13.9% year over year and 5% sequentially to $80.3 million. Sales from the North America Mechanical segment (the company?s acquired and divested businesses excluded) surged 9.1%, neutralizing the downturn in the European and Asian markets. The sales outside the United States grew 9.5% year over year.
Margins
Gross profit in the quarter was $220.1 million, up 46% year over year while gross margin increased to 25.5% in the second quarter of 2012 from 22.1% a year ago. Operating margin in the quarter was 12.0% as compared to 8.0% in the year-ago quarter and 9.8% in the prior quarter.
On a segmental basis, the gross margin of the Electrical Segment was 25.2% in the quarter versus 21.3% in the year-ago quarter. The Mechanical Segment?s gross margin declined 50 basis points year over year to 28.4%.
Operating margin of the Electrical Segment in the quarter was 11.7%, surging from 7.4% in the prior year quarter. Mechanical Segment reported 14.7% operating margin in the quarter versus 14.0% in the year-ago quarter.
Balance Sheet and Cash flows
Exiting the second quarter, Regal Beloit?s cash and cash equivalents were $190.9 million? versus $164.2 million in the previous quarter. Inventories were $583.9 million compared with $590.6 million in the first quarter of 2012. Long-term debt at the end of 2Q12 was $899.8 million versus $971.0 million at the end of 1Q12.?
Net cash flow from operating activities in the quarter was $135.9 million compared with $53.4 million in the prior-year quarter. The effective tax rate in the quarter was 30.5% versus 28.6% in the prior year quarter.
Guidance
Management expects that the clouded fiscal scenario and negative foreign currency translation would affect the company?s revenue stream and profits, although the HVAC business is likely to improve on the back of warm summer and reduced effect of R22 conversion. Additionally, revenues for the Unico business are also projected to be high in the upcoming quarter.
Regal Beloit expects that the adjusted earnings per share (excluding the restructuring charges of 10 cents per share) will be within the range of $1.32 to $1.40 per share for the third quarter of fiscal 2012.
Our Recommendation
Regal Beloit currently has a Zacks Rank#3 which implies a short-term (1-3 months) ?Hold? rating on the stock.
Read the full analyst report on RBC
Source: http://www.zacks.com/stock/news/80128/regal-beloit-beats-revenue-surge
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