Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - REGAL BELOIT CORP | a2q2016earningsannouncement.htm |
| 8-K - 8-K - REGAL BELOIT CORP | form8-k2q2016earningsrelea.htm |
Regal Beloit Corporation
Second Quarter 2016
Earnings Conference Call
August 9, 2016
Mark Gliebe
Chairman and
Chief Executive Officer
Jon Schlemmer
Chief Operating Officer
Chuck Hinrichs
Vice President
Chief Financial Officer
Robert Cherry
Vice President
Investor Relations
Safe Harbor Statement
This presentation 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: uncertainties
regarding our ability to execute our restructuring plans within expected costs and timing; increases in our overall debt levels
as a result of the acquisition of the Power Transmission Solutions (“PTS”) business from Emerson Electric Co., or otherwise
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, power generation and mechanical motion control
industries; our ability to develop new products based on technological innovation and the marketplace acceptance of new
and existing products; fluctuations in commodity prices and raw material costs; our dependence on significant customers;
issues and costs arising from the integration of acquired companies and businesses such as PTS, including the timing and
impact of purchase accounting adjustments; prolonged declines in oil and gas up stream capital spending; 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; product liability and other litigation, or the failure of our products
to perform as anticipated, particularly in high volume applications; 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, foreign government policies and other external factors that we cannot control; unanticipated liabilities of acquired
businesses; effects on earnings of any significant impairment of goodwill or intangible assets; cyclical downturns affecting
the global market for capital goods; difficulties associated with managing foreign operations; 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 March 2, 2016 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
presentation are made only as of their respective dates, and we undertake no obligation to update these statements to
reflect subsequent events or circumstances.
p 2
Non-GAAP Financial Measures
p 3
We prepare financial statements in accordance with accounting principles generally accepted in the United
States (“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. 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. In addition, since our
management often uses these non-GAAP financial measures to manage and evaluate our business, make
operating decisions, and forecast our future results, we believe disclosing these measures helps investors
evaluate our business in the same manner as management. 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 presentation, we disclose the following non-GAAP financial measures, and we reconcile these measures
in the Appendix to the most directly comparable GAAP financial measures: adjusted diluted earnings per share
(both historical and projected), adjusted operating profit, adjusted operating profit margin, free cash flow, and
free cash flow as a percentage of net income attributable to Regal Beloit Corporation.
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 less the amount of sales attributable to any divested businesses (“acquisition sales”), and the impact
of foreign currency translation. The impact of foreign currency translation is determined by translating the
respective period’s sales (excluding acquisition sales) using the same 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. We use the term “acquisition growth” to refer to the
increase in our sales between periods that is attributable to acquisition sales.
Agenda
Opening Comments Mark Gliebe
Financial Update Chuck Hinrichs
Segment Update Jon Schlemmer
Summary Mark Gliebe
Q&A All
p 4
Opening Comments 2nd Quarter Results
p 5
$942
$839
($2) ($9)
Prior Year FX Acquisition Organic Current Year
($92)
($50) Global Industrial
($17) Two-Way MPFs
($13) Middle East
($ 9) HVAC/Water
Results Generally In Line with Expectations
2Q Sales Versus Prior Year (millions)
Opening Comments 2nd Quarter Results
> 2nd Quarter Adjusted Operating Profit Margin* 9.7%
Volume Driving $21 Million of Operating Profit Reduction
Simplification/Cost Savings Partially Offsetting Declines
> Cash/Debt
Delivered 175% Free Cash Flow* to Net Income
Improved Cash Cycle Days** by 7 Days and Reduced Inventory $45 Million
Closed on the Sale of Mastergear
Paid Down $93 Million in Debt
> Looking Forward
Expecting 2H Organic Growth Rates to be Meaningfully Better than 1H
Expecting 2H Margin Rates to Further Increase
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
p 6
Expecting Second Half Adj. EPS* to Increase 8% - 18% Over First Half
** Cash Cycle Days = A/R Days Sales Outstanding + Days Sales Inventory Outstanding – A/P Days Payable Outstanding
> Sales of $839 Million, Down 11.0%
– Foreign Currency Translation of (1.0%)
– Business Divestiture (0.2%)
– Organic Sales* of (9.8%)
> Adjusted Operating Profit Margin* of 9.7%, Down 220 Basis Points from
Prior Year
– Lower Sales Volume Pressured Margins
– Simplification Initiative Benefits and Cost Controls Partially Offset Effect of
Sales Volume Decline
> Operating Expense Down $16.7 Million
– Includes $11.6 Million Gain from Sale of Mastergear
– $5.1 Million Benefit Primarily from Cost Actions
2nd Quarter 2016 Financial Results
p 7
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
2nd Quarter 2016 Financial Results
p 8
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
ADJUSTED DILUTED EARNINGS PER SHARE*
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Diluted Earnings Per Share 1.26$ 1.39$ 2.19$ 2.20$
Purchase Accounting and Transaction Costs - 0.11 - 0.47
Restructuring and Related Costs 0.02 0.03 0.04 0.05
Venezuelan Currency Devaluation - - - 0.02
Gain on Disposal of Business (0.14) - (0.14) -
Adjusted Diluted Earnings Per Share 1.14$ 1.53$ 2.09$ 2.74$
Three Months Ended Six Months Ended
Annual Impact of Mastergear Divestiture ($ Million)
Sales $22.0
Operating Profit $4.0
Capital Expenditures
> $17 Million in 2Q 2016
> $32 Million in 1H 2016
> $80 Million Expected in FY 2016
Effective Tax Rate (ETR)
Balance Sheet at July 2, 2016
> Total Debt of $1,614 Million
> Net Debt of $1,343 Million
> 2Q 2016 Debt Reduction of
$93 Million
> Reduced Total Debt by $266
Million Over Past 12 Months
2nd Quarter 2016 Key Financial Metrics
Free Cash Flow*
> $99 Million in 2Q 2016
> 175% of Net Income in 2Q 2016
> Improved Management of Working
Capital – Reduced Inventory
$45 Million in 2Q 2016 and
$64 Million in 1H 2016
p 9
> 24.9% ETR in 2Q 2016
> Expect 23% ETR for 2H 2016
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
2016 Full Year Guidance
> 2nd Half Organic Sales Expected to be Down Low Single Digits
Warmer Weather Driving Strong HVAC Demand
Normal Heating Season vs Prior Year
Easier Comparisons in Oil and Gas Businesses
Sequentially Improving Two-Way Material Price Formula Impact
Lower Impact of F/X Translation
> 2nd Half Operating Profit Margins
Favorable Price/Cost Impact as Lagging Realization of Lower Cost Commodities
Simplification and Restructuring Actions Especially in Oil & Gas Businesses
> Full Year 2016 GAAP EPS Guidance of $4.32 to $4.52
> Full Year 2016 Adjusted EPS* Guidance of $4.35 to $4.55
Addition of Restructuring and Related Expenses of $0.20
Subtraction of Gains on Sales of Businesses of $0.17
p 10 * Non-GAAP Financial Measurement, See Appendix for Reconciliation
Second Half Adj. EPS Expected to be 8% - 18% Higher than First Half
$441
$395
($7) ($39)
Prior Year FX Organic Current Year
O&G / Power
MPF / Price
China
Resi Pool
Data Centers
Commercial & Industrial Systems
p 11
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
(millions)
Second Half Margin Rate Expected to Increase Sequentially
($21)
($9)
($8)
2Q Sales Versus Prior Year Key Thoughts
> N.A. C&I Motors Sales Flat
> Adj. Operating Margin* 6.5%
Down 340 bps from Prior Year
but Up 70 bps vs 1Q 2016
> Oil & Gas and Power Gen Drove
~50% of the Margin Decline
> Beginning to See Benefits of
Restructuring/Resizing of Oil &
Gas Businesses
> Expecting Improvements in 2H
Margin Rate from Favorable
Price/Cost
> Easier Oil & Gas Comparisons
in 2H
$286
$254
($2) ($30)
Prior Year FX Organic Current Year
Middle East Mkt
MPF / Price
NA HVAC/Water Htr
Aftermarket
Com Refrigeration
Climate Solutions
p 12
(millions) 2Q Sales Versus Prior Year Key Thoughts
> HVAC Demand Picked Up in
June after a Slow Start and
Have Remained Strong into 3Q
> Adj. Operating Margin* 14.4%
Down 80 bps from Prior Year
but Up 360 bps vs 1Q
> Margin Improvements Expected
to Continue in 2H
> Simplification and Cost Savings
Helped to Offset the Volume
Decline
> Expecting Normal Heating
Season
($13)
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
($9)
($5)
($4)
Warm Weather Driving Stronger 3rd Quarter Demand
Key Thoughts
> Adj. Operating Margin* 10.1%
Down 170 bps from Prior Year and
Down 140 bps from 1Q 2016
> Closed on the Sale of Mastergear
> Synergies and Cost Saving
Benefits Helped Offset the Volume
Decline
> Orders Weakened Throughout the
Quarter but Easier Comparisons in
2H from Oil & Gas
> Synergy Programs Remain on
Accelerated Schedule and
Additional Cost Actions Initiated
Power Transmission Solutions
p 13
(millions)
Weak Industrial Markets Persist
2Q Sales Versus Prior Year
$215
$189
($2) ($0.5)
Prior Year FX Acquisition Organic Current Year
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
($24)
($10) Oil & Gas
($7) Ag and Metals
($4) Distribution
Ren Energy
Mat Handling
Energy Legislation and New Products
p 14
Future Revenue and Margin Growth
Simplification and Cost Savings
Standard
Standard Axial ECM
Growth Momentum Continuing to Execute
> Cost Reduction Programs Underway
- 8 Production Line Transitions
- 7 Warehouses Consolidating to 2
- 80% on Common ERP Platform
- 5th Design Platform Consolidation
> Restructuring and Resizing the Oil &
Gas Businesses
> Additional Simplification and Synergy
Programs to be Initiated in 2H
> Restructuring and Related Expenses
Estimated to be $14 Million for 2016
NEW
NEW
®
Free Cash Flow Performance
p 15
0%
30%
60%
90%
120%
150%
$-
$50
$100
$150
$200
$250
$300
$350
2011 2012 2013 2014 2015 2016e**
Free Cash Flow* % of Adj. Net Income*
Consistently Delivering Strong FCF – 129% Annual Average
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
** Based on Management Estimates
(millions)
Summary
> 2nd Quarter Sales
Oil & Gas and Power Generation Market Headwinds
Global Industrial Market Weakness
> Margin Decline Mainly Driven by Oil & Gas and Power Generation
> Delivered 175% Free Cash Flow* to Net Income and Reduced Debt
by $93 Million
> 2nd Half Organic Sales Expected to be Down Low Single Digits
Warmer Weather Driving Strong HVAC Demand
Normal Heating Season vs Prior Year
Easier Comparisons in Oil & Gas and Power Gen Businesses
Sequentially Improving Two-Way Material Price Formula Impact
Lower Impact of F/X Translation
> 2nd Half Adjusted EPS* Up 8% to 18% Over 1st Half
Favorable Price/Cost Impact
Simplification and Cost Saving Actions Benefit the 2H
p 16
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
Questions and Answers
p 17
p 18
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHARE*
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Diluted Earnings Per Share 1.26$ 1.39$ 2.19$ 2.20$
Purchase Accounting and Transaction Costs - 0.11 - 0.47
Restructuring and Related Costs 0.02 0.03 0.04 0.05
Venezuelan Currency Devaluation - - - 0.02
Gain on Disposal of Business (0.14) - (0.14) -
Adjusted Diluted Earnings Per Share 1.14$ 1.53$ 2.09$ 2.74$
Three Months Ended Six Months Ended
Minimum Maximum
2016 EPS Annual Guidance 4.32$ 4.52$
Restructuring and Related Costs 0.20 0.20
Gains on Disposals of Businesses (0.17) (0.17)
2016 Adjusted EPS Annual Guidance 4.35$ 4.55$
RECONCILIATION OF 2016 ADJUSTED ANNUAL GUIDANCE
p 19
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING INCOME
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Income from Operations 25.1$ 41.5$ 36.1$ 43.7$ 30.2$ 18.0$ 91.4$ 103.2$
Purchase Accounting and Transaction Costs - - - - - 7.1 - 7.1
Restructuring and Related Costs 0.7 2.0 0.5 (0.1) 0.5 0.2 1.7 2.1
Gain on Disposal of Business - - - - (11.6) - (11.6) -
Adjusted Income from Operations 25.8$ 43.5$ 36.6$ 43.6$ 19.1$ 25.3$ 81.5$ 112.4$
GAAP Operating Margin % 6.4 % 9.4 % 14.2 % 15.3 % 16.0 % 8.4 % 10.9 % 11.0 %
Adjusted Operating Margin % 6.5 % 9.9 % 14.4 % 15.2 % 10.1 % 11.8 % 9.7 % 11.9 %
ADJUSTED OPERATING INCOME
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Income from Operations 46.8$ 74.8$ 60.7$ 77.1$ 53.2$ 14.9$ 160.7$ 166.8$
Purchase Accounting and Transaction Costs - - - - - 29.8 - 29.8
Restructuring and Related Costs 0.8 3.9 1.8 (1.1) 0.5 0.5 3.1 3.3
Venezuelan Currency Devaluation - 1.5 - - - - - 1.5
Gain on Disposal of Business - - - - (11.6) - (11.6) -
Adjusted Income from Operations 47.6$ 80.2$ 62.5$ 76.0$ 42.1$ 45.2$ 152.2$ 201.4$
GAAP Operating Margin % 6.1 % 8.3 % 12.3 % 13.6 % 13.6 % 3.8 % 9.7 % 9.0 %
Adjusted Operating Margin % 6.2 % 8.9 % 12.6 % 13.4 % 10.8 % 11.6 % 9.2 % 10.9 %
Three Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Six Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
p 20
Appendix Non-GAAP Reconciliations
ORGANIC GROWTH
Three Months
Ended
Six Months
Ended
Net Sales 838.6$ 1,656.8$
Net Sales from Businesses Acquired - (35.9)
Net Sales from Businesses Divested 2.0 2.0
Impact from Foreign Currency Exchange Rates 9.3 21.2
Adjusted Net Sales 849.9$ 1,644.1$
Net Sales Ended July 4, 2015 942.2$ 1,853.9$
Organic Growth % (9.8)% (11.3)%
Jul 2, 2016
FREE CASH FLOW RECONCILIATION
Jul 2,
2016
Jul 4,
2015
Jul 2,
2016
Jul 4,
2015
Net Cash Provided by Operating Activities 116.1$ 118.2$ 174.3$ 135.7$
Additions to Property Plant and Equipment (16.8) (23.5) (31.7) (44.7)
Fr e Cash Flow 99.3$ 94.7$ 142.6$ 91.0$
Free Cash Flow as a Percentag of Net Income Attributable to
Regal Beloit Corporation 175.4 % 150.8 % 145.2 % 91.7 %
Three Months Ended Six Months Ended
p 21
Appendix Non-GAAP Reconciliations
ADJUSTED NET INCOME
Dollars in Millions 2011 2012 2013 2014 2015 2016 (E)
GAAP Net Income Attributable to Regal Beloit Corporation 152.3$ 195.6$ 120.0$ 31.0$ 143.3$ 200.0$
Goodwill and Asset Impairments and Other —$ —$ 81.0$ 159.5$ 92.7$ —$
Tax Effect from Goodwill and Asset Impairments and Other —$ —$ (6.4)$ (12.3)$ (21.8)$ —$
Adjusted Net Income 152.3$ 195.6$ 194.6$ 178.2$ 214.2$ 200.0$
FREE CASH FLOW
Dollars in Millions 2011 2012 2013 2014 2015 2016 (E)
GAAP Net Cash Provided by Operating Activities 265.3$ 351.7$ 305.0$ 298.2$ 381.1$ 387.0$
Additions to Property, Plant and Equipment (57.6)$ (91.0)$ (82.7)$ (83.6)$ (92.2)$ (80.0)$
Grants Received for Capital Expenditures —$ 8.7$ 1.6$ —$ —$ —$
Free Cash Flow 207.7$ 269.4$ 223.9$ 214.6$ 288.9$ 307.0$
Free Cash Flow as a Percentage of Adjusted Net Income 136.4% 137.7% 115.1% 120.4% 134.9% 153.5%
Fiscal Years
Fiscal Years
Appendix Regal Shipping Days
p 22
1Q 2Q 3Q 4Q FY
2014 63 63 63 64 253
2015 64 63 64 59 250
2016 64 64 63 60 251
> Regal operates on a 52/53 week fiscal year ending on the Saturday
closest to December 31
> Fiscal Years 2015 and 2016 have 52 weeks
> Fiscal Year 2014 had 53 weeks