BELOIT, Wis., July 31 /PRNewswire-FirstCall/ — Regal Beloit Corporation (NYSE:RBC) today reported record financial results for the second quarter ended June 30, 2007. This performance was lead by the strong performance of our industrial businesses, dampened by the impact of a continuing weak residential HVAC market and commodity inflation. The Company’s initiatives continued to have a significant impact on our performance. New products and acquisition growth fueled sales, while Lean Six Sigma and productivity projects contributed to operating margins.
Net sales increased 5.6% to $459.8 million from $435.3 million in the second quarter of 2006. In the Electrical Segment, sales increased 6.1% as non-HVAC motor and generator sales increases of 9.7% and 22.3% respectively, partially offset by a 10.7% decline in residential HVAC revenues. Segment sales growth was also aided by $11.4 million of acquired sales attributed to the Sinya motor business that was purchased on May 1, 2006. Sales in the Mechanical Segment increased 2.1% from the prior year period; however, second quarter 2006 sales also included $1.7 million of sales related to the Company’s cutting tool business. Substantially, all of the assets of the Company’s cutting tools business were sold in May, 2006.
The gross profit margin for the second quarter of 2007 was 22.6% as compared to the 23.9% reported for the second quarter of 2006. The reduction was a result of continued increases in material costs and the fixed overhead absorption impact of a $25.5 million reduction in finished goods inventory. These factors were partially offset by higher selling prices and productivity improvements.
Income from operations was $60.1 million or 13.1% of sales, a 3.8% increase over the $57.9 million or 13.3% of sales reported for the second quarter of 2006. The results for the second quarter of 2006 included, on a pretax basis, a $1.6 million gain from the sale of excess property. Costs for the restructuring activities in the Electrical Segment were consistent with the prior year levels.
Net income in the second quarter of 2007 was $36.3 million, an 8.8% increase from $33.3 million reported in the second quarter of 2006. Diluted earnings per share increased 7.1% to $1.06 as compared to $0.99 for the second quarter of 2006.
“We are pleased to report record results for the second quarter despite a continuation of a challenging residential HVAC market and significant raw material inflation,” commented Henry W. Knueppel, Chairman and CEO, “The strength of the industrial and power generation business coupled with the impact of our strategic initiatives led to this performance.”
“We continue to be very encouraged about the future for our Company.” Knueppel added. “The impact of our global capabilities, energy efficiency oriented new products and other strategic initiatives position us well to continue to provide high levels of return to shareholders. As we look specifically at the third quarter, we expect continued strength in the industrial and power generation businesses, but little improvement in the residential HVAC market. The headwind on commodities will actually get worse as the current spike in prices combine with higher hedge prices. While we are taking pricing actions they will not offset this cost push for the quarter. We have also embedded in our current estimate a one time pretax charge of $1.8 million or $.033 per share due to the expected settlement of the Enron lawsuit. As such, we expect earnings per share in the third quarter to be in the range of $.87 to $.93.”
Regal Beloit will be holding a conference call to discuss second quarter financial results at 1:30 PM CT (2:30 PM EDT) today. Interested parties should call 877-209-9920. A replay of the call will be available through August 15, 2007 at 800-475-6701, access code 881234.
Regal Beloit Corporation is a leading manufacturer of mechanical and electrical motion control 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.
CAUTIONARY STATEMENT
This news release contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. 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:
— unanticipated fluctuations in commodity prices and raw material
costs;
— cyclical downturns affecting the global market for capital goods;
— economic changes in global markets where we do business, such as
currency exchange rates, inflation rates, interest rates, recession,
foreign government policies and other external factors that we
cannot control;
— unexpected issues and costs arising from the integration of acquired
companies and businesses;
— actions taken by our competitors;
— unanticipated costs associated with litigation matters;
— marketplace acceptance of new and existing products including the
loss of, or a decline in business from, any significant customers;
— the impact of capital market transactions that we may effect;
— difficulties in staffing and managing foreign operations;
— the availability and effectiveness of our information technology
systems;
— 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 February 28, 2007 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 news release are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. See also Item 1A – Risk Factors in the Company’s Annual Report on Form 10-K filed on February 28, 2007.
STATEMENTS OF INCOME
In Thousands of Dollars(Unaudited)
Three Months Ended Six Months Ended
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
Net Sales $459,795 $435,269 $878,441 $833,595Cost of Sales 355,919 331,244 677,338 636,290
Gross Profit 103,876 104,025 201,103 197,305
Operating Expenses 43,821 46,159 93,717 95,821
Income From Operations 60,055 57,866 107,386 101,484
Interest Expense 4,425 5,454 9,491 10,249
Interest Income 241 140 330 260
Income Before Taxes &
Minority Interest 55,871 52,552 98,225 91,495Provision For
Income Taxes 18,973 18,847 33,663 33,189Income Before
Minority Interest 36,898 33,705 64,562 58,306Minority Interest in
Income, Net of Tax 645 396 1,496 1,209Net Income $36,253 $33,309 $63,066 $57,097
Earnings Per Share of Common Stock:
Basic $1.15 $1.08 $2.02 $1.86
Assuming Dilution $1.06 $0.99 $1.86 $1.71
Cash Dividends Declared $0.15 $0.14 $0.29 $0.27
Weighted Average Number of Shares Outstanding:
Basic 31,546,970 30,816,156 31,180,641 30,759,004
Assuming Dilution 34,177,529 33,644,909 33,862,524 33,301,719
CONDENSED BALANCE SHEETS
In Thousands of DollarsASSETS
(Unaudited) (Audited)
Current Assets: June 30, December 30,
2007 2006Cash and Cash Equivalents $53,136 $36,520
Receivables and Other Current Assets 325,833 263,470
Inventories 235,848 275,138
Total Current Assets 614,817 575,128
Net Property, Plant and Equipment 274,078 268,880
Goodwill 546,251 546,152
Other Noncurrent Assets 50,890 53,359
Total Assets $1,486,036 $1,443,519
Liabilities and Shareholders’ Investment
Accounts Payable $133,592 $108,050
Commercial Paper Borrowings 9,650 49,000
Other Current Liabilities 118,269 101,491
Long-Term Debt 292,103 323,946
Other Noncurrent Liabilities 117,370 111,057
Shareholders’ Investment 815,052 749,975
Total Liabilities and
Shareholders’ Investment $1,486,036 $1,437,519SEGMENT INFORMATION
In Thousands of Dollars
(Unaudited)Mechanical Segment
Second Quarter Ending Six Months Ending
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
Net Sales $54,136 $53,042 $105,982 $106,003
Income from Operations 8,954 7,134 15,280 10,841Electrical Segment
Second Quarter Ending Six Months Ending
June 30, July 1, June 30, July 1,
2007 2006 2007 2006
Net Sales $405,659 $ 382,227 $ 772,459 $ 727,592
Income from Operations 51,101 50,732 92,106 90,643CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands of Dollars
(Unaudited)
Six Months Ended
June 30, 2007 July 1, 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $63,066 $57,097
Adjustments to reconcile net income to
net cash provided by operating activities;
net of effect of acquisitions
Depreciation and amortization 20,367 16,826
Minority interest 1,496 1,209
Excess tax benefit from
stock-based compensation (6,590) (1,750)
Loss (gain) on sale of assets 51 (1,850)
Stock-based compensation expense 1,871 1,725
Change in assets and liabilities, net 19,849 (37,027)
Net cash provided by operating activities 100,110 36,230CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (17,863) (17,873)
Purchases of short-term investments, net – (10,263)
Business acquisitions, net of cash acquired (2,425) (10,962)
Sale of property, plant and equipment – 15,541
Net cash used in investing activities (20,288) (23,557)CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowing 8,200 –
Payments of long-term debt (278) (241)
Net repayments under revolving
credit facility (31,600) (38,600)
Net (repayments) proceeds from
commercial paper borrowings (39,350) 20,000
Dividends paid to shareholders (8,709) (7,980)
Proceeds from the exercise of stock options 1,403 4,239
Excess tax benefits from
stock-based compensation 6,590 1,750
Distributions to minority partners (106) –
Financing fees paid (551) –
Net cash used in financing activities (64,401) (20,832)EFFECT OF EXCHANGE RATE ON CASH 1,195 (18)
Net increase (decrease) in cash and
cash equivalents 16,616 (8,177)
Cash and cash equivalents at
beginning of period 36,520 32,747
Cash and cash equivalents at
end of period $53,136 $24,570
Source: Regal Beloit Corporation
