Regal Beloit Corporation Announces Fourth Quarter 2018 Financial Results

BELOIT, Wis., Feb. 4, 2019 /PRNewswire/ -- Regal Beloit Corporation (NYSE: RBC) today reported fourth quarter 2018 diluted earnings per share of $1.28, up 11% from the prior year. Fourth quarter 2018 adjusted diluted earnings per share* were $1.41, up 23% from the prior year. Full year 2018 diluted earnings per share were $5.26, up 11% from the prior year. Full year 2018 adjusted diluted earnings per share were $6.00, up 23% from the prior year.

Key financial results for the fourth quarter 2018 included:

• Total net sales of $881.7 million increased 7.4% from the prior year and included a negative 1.4% impact from foreign currency, a negative 0.4% impact from the businesses divested/to be exited, and a positive 3.9% impact from acquisitions. The result was a positive organic sales growth rate of 5.2%.
• Income from operations was $89.8 million or 10.2% of net sales, up 60 basis points from prior year. Adjusted income from operations was $92.9 million or 10.7% of adjusted net sales, up 80 basis points from prior year.
• Net cash provided by operating activities was $112.4 million and capital expenditures totaled $18.4 million, resulting in free cash flow of $94.0 million or 169.1% of net income.
• Repurchased 645,349 shares for a total of $49.5 million.

Fourth quarter 2018 segment results versus the prior year fourth quarter included:

• Commercial and Industrial Systems Segment net sales were $436.7 million, an increase of 7.1%. Acquisitions had a positive impact of 7.7%, and foreign currency had a negative 1.8% impact. The result was a positive organic sales growth rate of 1.3% driven by strength in power generation, oil & gas, and commercial HVAC partially offset by weakness in Asia. Operating margin was 7.4%. Excluding $1.7 million in restructuring and related costs and other net adjustments of $0.3 million, adjusted operating margin was 7.8%.
• Climate Solutions Segment net sales were $232.2 million, an increase of 7.3%. The business to be exited had a negative 0.9% impact, and foreign currency had a negative 1.2% impact. The result was an organic sales growth rate of 9.4% driven by strength in North American residential HVAC and commercial refrigeration partially offset by weakness in international markets. Operating margin was 14.3%. Excluding restructuring and related costs of $0.4 million and other net adjustments of negative $0.3 million, adjusted operating margin was 15.0% of adjusted net sales.
• Power Transmission Solutions Segment net sales were $212.8 million, an increase of 8.2%. Foreign currency had a negative 0.7% impact. The result was a positive organic sales growth rate of 9.0% driven by increased demand in distribution and oil & gas. Operating margin was 11.5%. Excluding restructuring and related costs of $0.1 million and other net adjustments of $0.9 million, adjusted operating margin was 11.9%.

*This earnings release includes non-GAAP financial measures.  Descriptions of why we believe these non-GAAP measures are useful and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included with this earnings release.

"The fourth quarter was a strong close to a record year. Organic sales were up 5.2% and adjusted EPS were up 23%," said Regal Chairman and CEO Mark Gliebe. "We ended the year with organic sales up 5.7% and adjusted EPS of $6.00, up 23%. Further we had the second consecutive year of improving adjusted operating margin and the eighth consecutive year of free cash flow exceeding adjusted net income."

2019 Outlook

"Looking forward, we are entering the new year with momentum. Overall, we expect continued growth in 2019 despite tougher year-over-year comparisons. We expect a carryover price benefit from 2018, and we expect to see a positive impact from our new products targeted for the upcoming energy efficiency regulations. For 2019, our guidance assumes total year organic growth to be up low to mid-single digits, and we are expecting a third consecutive year of improvement in our adjusted operating margin."

We are expecting adjusted diluted earnings per share of $6.15 to $6.55, which would make 2019 another record year for earnings," continued Mr. Gliebe.

The Company forecasts 2019 GAAP diluted earnings per share of $6.59 to $6.99. The difference between the GAAP diluted earnings per share guidance and the adjusted diluted per share guidance relates to expected restructuring and related costs of $0.18 per share, gain on the sale of assets related to the recent divestiture of the engineered drives and control systems business of $0.70 per share, and remaining CEO transition costs of $0.08 per share.

The Company's 2019 guidance excludes the sales and earnings from a number of businesses that have been or are expected to be divested or exited. The divestiture or exit of some of these businesses has not been previously disclosed. Please see the table in the appendix for details.

Conference Call

Regal will hold a conference call to discuss the earnings release at 9:00 am CST (10:00 am EST) on Tuesday, February 5, 2019. To listen to the live audio and view the presentation during the call, please visit Regal's Investors website: http://investors.regalbeloit.com. To listen by phone or to ask the presenters a question, dial 1.888.317.6003 (U.S. callers) or 1.412.317.6061 (international callers) and enter 8263623# when prompted.

A webcast replay will be available at the link above, and a telephone replay will be available at 1.877.344.7529 (U.S. callers) or 1.412.317.0088 (international callers), replay access code 10127498#. Both will be accessible until May 7, 2019.

About the Company

Regal Beloit Corporation (NYSE: RBC) is a leading manufacturer of electric motors and controls, power generation products and power transmission products serving customers throughout the world. We create a better tomorrow by developing and responsibly producing energy-efficient products and systems.

Our company is comprised of three operating segments: Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions. Regal is headquartered in Beloit, Wisconsin and has manufacturing, sales and service facilities worldwide. For more information, visit RegalBeloit.com.

CAUTIONARY STATEMENT

The following is a cautionary statement made under the Private Securities Litigation Reform Act of 1995: With the exception of historical facts, the statements contained in this release may be forward-looking statements.  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," "expect," "intend," "estimate," "forecast," "anticipate," "believe," "should," "project" or "plan" or the negative of these terms or other similar words.  These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including but not limited to: uncertainties regarding our ability to execute our restructuring plans within expected costs and timing; our overall debt levels and our ability to repay principal and interest on our outstanding debt; actions taken by our competitors and our ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries; our ability to develop new products based on technological innovation and marketplace acceptance of new and existing products; fluctuations in commodity prices and raw material costs; our dependence on significant customers; risks associated with global manufacturing; issues and costs arising from the integration of acquired companies and businesses and the timing and impact of purchase accounting adjustments; prolonged declines in one or more markets we serve; economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that we cannot control; product liability and other litigation, or claims by end users, government agencies or others that our products or our customers' applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims; unanticipated liabilities of acquired businesses; unanticipated adverse effects or liabilities from business exits or divestitures; unanticipated costs or expenses we may incur related to product warranty issues; our dependence on key suppliers and the potential effects of supply disruptions; infringement of our intellectual property by third parties, challenges to our intellectual property, and claims of infringement by us of third party technologies; effects on earnings of any significant impairment of goodwill or intangible assets; losses from failures, breaches, attacks or disclosures involving our information technology infrastructure and data; cyclical downturns affecting the global market for capital goods; and 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 27, 2018 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 release are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances.

NON-GAAP MEASURES AND OTHER DEFINITIONS
Unaudited
(Dollars in Millions, Except per Share Data)

We prepare financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We also periodically disclose certain financial measures in our quarterly earnings releases, on investor conference calls, and in investor presentations and similar events that may be considered "non-GAAP" financial measures. This additional information is not meant to be considered in isolation or as a substitute for our results of operations prepared and presented in accordance with GAAP.

In this earnings release, we disclose the following non-GAAP financial measures, and we reconcile these measures in the tables below to the most directly comparable GAAP financial measures: adjusted diluted earnings per share (both historical and projected), adjusted income from operations, adjusted operating margin, adjusted net sales, adjusted net income attributable to Regal Beloit Corporation, free cash flow, free cash flow as a percentage of adjusted net income attributable to Regal Beloit Corporation, adjusted income before taxes, adjusted provision for income taxes, adjusted effective tax rate, net sales from ongoing business, adjusted income from operations of ongoing business, ongoing business adjusted operating margin and adjusted diluted earnings per share for ongoing business. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. Our management primarily uses adjusted income from operations and adjusted operating margin to help us manage and evaluate our business and make operating decisions, while adjusted diluted earnings per share, adjusted net sales, adjusted net income attributable to Regal Beloit Corporation, free cash flow, free cash flow as a percentage of adjusted net income attributable to Regal Beloit Corporation, adjusted income before taxes, adjusted provision for income taxes, adjusted effective tax rate, net sales from ongoing business, adjusted income from operations of ongoing business, ongoing business adjusted operating margin and adjusted diluted earnings per share for ongoing business are primarily used to help us evaluate our business and forecast our future results. Accordingly, we believe disclosing and reconciling each of these measures helps investors evaluate our business in the same manner as management.

In addition to these non-GAAP measures, we also use the term "organic sales" to refer to GAAP sales from existing operations excluding sales from acquired businesses recorded prior to the first anniversary of the acquisition ("net sales from business acquired") and excluding sales from business divested/to be exited ("net sales from business divested/to be exited") recorded prior to the first anniversary of the exit and excluding the impact of foreign currency translation. The impact of foreign currency translation is determined by translating the respective period's organic sales using the currency exchange rates that were in effect during the prior year periods. We use the term "organic sales growth" to refer to the increase in our sales between periods that is attributable to organic sales. For further clarification, we may use the term "acquisition growth" to refer to the increase in our sales between periods that is attributable to acquisition sales.