Attached files
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| EX-99.1 - EXHIBIT 99.1 - REGAL BELOIT CORP | a4q2016earningsannouncement.htm |
| 8-K - 8-K - REGAL BELOIT CORP | form8-k4q2016earningsrelea.htm |
©2016 Regal Beloit Corporation, Proprietary and Confidential
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
Fourth Quarter 2016 Earnings Conference Call
February 7, 2017
Regal Beloit Corporation
2
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; 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,
immigration and the like, and other external factors that we cannot control; product liability and other litigation, or claims by
end users 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 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; 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.
3
Non-GAAP Financial Measures
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 income from operations, adjusted operating income, adjusted operating
margin, EBITDA, 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.
4
Agenda and Opening Comments
Opening Comments Mark Gliebe
Financial Update Chuck Hinrichs
Segment Update Jon Schlemmer
Summary Mark Gliebe
Q&A All
5
Overall Results In Line with Our Expectations
Organic Growth Down Slightly at (0.7%)
– Climate Organic Growth up 3.0% with Strong Residential HVAC Partially Offset by
Weakness in the Middle East
– C&I Organic Growth Slightly Up with Oil & Gas Markets Still Down but Offset by
Organic Growth in Most Other End Markets
– PTS Organic Growth was Down 7.1% Driven Primarily by Renewable Energy and
Oil & Gas
Adjusted Operating Margin*
– Copper and Steel Inflation Began Mid Quarter
– LIFO Expense of $14.5 Million in the Quarter
– Operational Improvements and Cost Controls Offset LIFO Impact
– Excluding LIFO, Adjusted Operating Margin would have been 11.4%
Strong Free Cash Flow* and Debt Reduction
– Delivered 202% Free Cash Flow* to Net Income
– Improved Cash Cycle Days** and Reduced Inventory by $25 Million
– Paid Down $100 Million in Debt
Opening Comments – 4th Quarter Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Results In Line with Our Expectations
** Cash Cycle Days = A/R Days Sales Outstanding + Days Sales Inventory Outstanding – A/P Days Payable Outstanding
6
Expecting Positive Organic Growth in 2017
– Two-Way Material Price Formulas to Be a Tailwind to Sales
– Oil & Gas and Middle East Comparisons to Improve
– Residential and Commercial HVAC Markets to Grow Mid-Single Digit
– Impact of Strong Dollar on U.S. Industrial Markets
Expecting Adjusted Operating Margin to Improve
– Sales Growth to Deliver Stronger Incremental Margins
– Price/Cost Pressure, Especially in the First Half
Guiding Total Year 2017 Adjusted EPS* of $4.50 to $4.90 per share
Opening Comments - Looking Forward
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
2017 Adjusted EPS Guidance Midpoint is a 6% Improvement
7
Sales of $758.1 Million, Down 2.0%
– Foreign Currency Translation of (0.7%)
– Business Divestiture (0.6%)
– Organic Sales* of (0.7%)
Adjusted Operating Margin* of 9.5%
– Included $14.5 Million LIFO Expense, Not Included in our Earlier Guidance
– 4Q15 Included $15.3 Million LIFO Benefit
– Excluding LIFO Impact, 4Q16 Adj. Operating Margin* was 11.4% compared
to 8.3% in 4Q15
– Higher LIFO Expense Offset by Operational Improvements and Cost Controls
– LIFO Expense Driven by Spike in Commodity Prices in Nov. and Dec. 2016
• Steel up 13%
• Copper up 20%
4th Quarter 2016 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Organic Growth and Adjusted Operating Margin Met Expectations
8
4th Quarter 2016 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
$2.6 Million of Restructuring and Related Costs
$0.5 Million Gain on Sale of Assets
Adjusted EPS* of $1.04 In Line
ADJUSTED DILUTED EARNINGS PER SHARE*
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
GAAP Diluted Earnings (Loss) Per Share 1.01$ (0.43)$ 4.52$ 3.18$
Goodwill Impairment - 1.30 - 1.29
Venezuelan Asset Write Down - 0.29 - 0.28
Restructuring and Related Costs 0.04 0.06 0.10 0.13
Gain on Sale of Assets (0.01) - (0.04) -
Gain on Disposal of Real Estate - (0.05) - (0.04)
Purchase Accounting and Transaction Costs - - - 0.47
Venezuelan Currency Devaluation - - - 0.02
Gain on Disposal of Business - - (0.14) -
Adjusted Diluted Earnings Per Share 1.04$ 1.17$ 4.44$ 5.33$
Three Months Ended Twelve Months Ended
9
Capital Expenditures
$19 Million in 4Q 2016
$65 Million in FY 2016
Restructuring
$2.6 Million in 4Q 2016
$6.8 Million in FY 2016
Effective Tax Rate (ETR)
17% ETR in 4Q 2016
LIFO Expense Impacted Mix of Earnings,
Reducing ETR
Balance Sheet at December 31, 2016
Total Debt of $1,412 Million
Net Debt of $1,127 Million
4Q 2016 Debt Reduction of $100 Million
FY 2016 Debt Reduction of $315 Million
Total Debt/EBITDA* at 3.0
4th Quarter 2016 Key Financial Metrics
Free Cash Flow*
$92 Million in 4Q 2016
202% of Net Income in 4Q 2016
$374 Million in FY 2016
184% of Net Income in FY 2016
$114 Million Inventory Reduction in FY 2016
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
10
Growth in 2017 Organic Sales, FX Headwind
Improvement in 2017 Adjusted Operating Margin
FY 2017 GAAP EPS Guidance of $4.35 to $4.75
FY 2017 Adjusted EPS* Guidance of $4.50 to $4.90
− Restructuring Costs of $9 Million, or $0.15 EPS
Key Assumptions:
− Capital Expenditures of ~ $75 Million
− Free Cash Flow* > 100% of Net Income
− Debt Reduction of > $200 Million
− Net Interest Expense of ~ $47 Million
− ETR of ~ 23%
2017 Full Year Guidance
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
11
Commercial & Industrial Systems
AHR Expo Feature - UlteMAX™ 4Q 2016 Key Thoughts
Organic Growth Turned Positive – UlteMAX™ Promising!
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
• $369 Million
• Organic Sales* Up 0.5%
• 3rd Consecutive Quarter of
Improvement
• Strength in Data Centers and
Pump Offset by Weakness in
Oil & Gas and Power Gen
Adj. Operating Margin*
• 5.8% of Sales
• $8.4 Million LIFO Expense
• Up 50 bps excluding LIFO
Benefits
• Compact Form Factor
• 50 – 75% Lower Weight
• Higher Efficiency
UlteMAX™
Motor & Control
Standard
Industrial Motor
12
Climate Solutions
Organic Growth Turned Positive – DEC Star™ Penetrating!
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
AHR Expo Feature - DEC Star™
Sales
• $215 Million
• Organic Sales* Up 3%
• 4th Consecutive Quarter of
Improvement
• Low Double-Digit Growth in
NA Resi HVAC
Adj Operating Margin*
• 12.8% of Sales
• Up Substantially Excluding
$6.3 Million of LIFO Expense
Benefits
• Solves Difficult FER Platforms
• Lower Noise
• Compact Design
• Highest Efficiency
Regal’s
DEC Star™
Customer Unit
With DEC Star™
4Q 2016 Key Thoughts
13
Power Transmission Solutions
Organic Growth Rates to Improve
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
• $174 Million
• Organic Sales* Down 7%
• Lower Renewable Energy and
Oil & Gas Demand
Adj. Operating Margin*
• 13.3% of Sales
• Cost Actions, Synergies and SG&A
Benefitted Adj. Operating Margin
AHR Expo Feature
Benefits
• Leveraging Browning® Brand to
Cross-Sell Marathon® Motors
• Added Motor Selection Capability
4Q 2016 Key Thoughts
14
Simplification Update
Exiting 3 Rooftops, Expecting Benefits in Late 2017 and 2018
Closure of
Monterrey Mexico
HVAC Motors
Consolidation of
India
Large Motors
Consolidation of
China
Small Motors
15
Customer Recognition
OEM Award
Continuous Improvement Customers Recognizing the Improvement
Performance Excellence Customer Recognition
A key component of the Regal Business
System
Focused on Continuous Improvement
Resulted in a 2 point improvement in
delivery
Resulted in a 38% improvement in
delivered quality
16
Border Adjustability Tax
Discussion
17
4th Quarter Results in Line with Expectations
Sales Down Slightly
Operational Improvements Offset the $14.5 Million LIFO Expense
Delivered 202% Free Cash Flow* to Net Income and Reduced Debt
by $100 Million
4th Quarter Review
• Non-GAAP Financial Measurement, See Appendix for Reconciliation.
18
Full Year 2016 Results
– 17 Day Reduction in Cash Cycle Days**
– Free Cash Flow* 184% of Net Income
– $315 Million Debt Reduction
– 20% Total Shareholder Return***
Building Momentum into 2017
– Significant Progress on Simplification
– Investing in Innovative New Products
– Customer Performance and Focus
Save the Date! Regal Investor Day on March 10th, 2017 in NYC
Full Year Review
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
** Cash Cycle Days = A/R Days Sales Outstanding + Days Sales Inventory Outstanding – A/P Days Payable Outstanding
*** Total Shareholder Return = % Change in Stock Price plus Dividends Paid in 2016
©2016 Regal Beloit Corporation, Proprietary and Confidential
Questions and Answers
20
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHARE
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
GAAP Diluted Earnings (Loss) Per Share 1.01$ (0.43)$ 4.52$ 3.18$
Goodwill Impairment - 1.30 - 1.29
Venezuelan Asset Write Down - 0.29 - 0.28
Restructuring and Related Costs 0.04 0.06 0.10 0.13
Gain on Sale of Assets (0.01) - (0.04) -
Gain on Disposal of Real Estate - (0.05) - (0.04)
Purchase Accounting and Transaction Costs - - - 0.47
Venezuelan Currency Devaluation - - - 0.02
Gain on Disposal of Business - - (0.14) -
Adjusted Diluted Earnings Per Share 1.04$ 1.17$ 4.44$ 5.33$
Three Months Ended Twelve Months Ended
RECONCILIATION OF 2017 ADJUSTED ANNUAL
GUIDANCE Minimum Maximum
2017 Diluted EPS Annual Guidance 4.35$ 4.75$
Restructuring and Related Costs 0.15 0.15
2017 Adjusted EPS Annual Guidance 4.50$ 4.90$
21
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING INCOME
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
GAAP Income (Loss) from Operations 20.5$ (59.7)$ 27.0$ 28.9$ 22.6$ 16.7$ 70.1$ (14.1)$
Goodwill Impairment - 79.9 - - - - - 79.9
Venezuelan Asset Write Down - 12.8 - - - - - 12.8
Gain on Sale of Assets (0.5) - - - - - (0.5) -
Restructuring and Related Costs 1.5 2.1 0.6 2.2 0.5 - 2.6 4.3
Gain on Disposal of Real Estate - - - (3.4) - - - (3.4)
Adjusted Income from Operations 21.5$ 35.1$ 27.6$ 27.7$ 23.1$ 16.7$ 72.2$ 79.5$
GAAP Operating Margin % 5.6 % (16.1)% 12.5 % 13.7 % 13.0 % 8.7 % 9.2 % (1.8)%
Adjusted Operating Margin % 5.8 % 9.5 % 12.8 % 13.2 % 13.3 % 8.7 % 9.5 % 10.3 %
ADJUSTED OPERATING INCOME
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
GAAP Income from Operations 103.5$ 53.9$ 129.9$ 146.7$ 87.2$ 52.2$ 320.6$ 252.8$
Goodwill Impairment - 79.9 - - - - - 79.9
Venezuelan Asset Write Down - 12.8 - - - - - 12.8
Gain on Sale of Assets (1.7) - - - - - (1.7) -
Purchase Accounting and Transaction Costs - - - - - 29.8 - 29.8
Restructuring and Related Costs 2.5 6.8 2.6 1.5 1.7 0.6 6.8 8.9
Venezuelan Currency Devaluation - 1.5 - - - - - 1.5
Gain on Disposal of Real Estate - - - (3.4) - - - (3.4)
Gain on Disposal of Business - - - - (11.6) - (11.6) -
Adjusted Income from Operations 104.3$ 154.9$ 132.5$ 144.8$ 77.3$ 82.6$ 314.1$ 382.3$
GAAP Operating Margin % 6.8 % 3.2 % 13.5 % 14.1 % 11.9 % 6.8 % 9.9 % 7.2 %
Adjusted Operating Margin % 6.8 % 9.1 % 13.8 % 13.9 % 10.5 % 10.7 % 9.7 % 10.9 %
Twelve Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Total Regal
Three Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions
22
Appendix Non-GAAP Reconciliations
ORGANIC GROWTH
Three Months
Ended
Twelve Months
Ended
Net Sales 758.1$ 3,224.5$
Net Sales from Businesses Acquired - (35.9)
Net Sales from Businesses Divested 4.8 11.6
Impact from Foreign Currency Exchange Rates 5.1 31.2
Adjusted Net Sales 768.0$ 3,231.4$
Net Sales Ended Jan 2, 2016 773.5$ 3,509.7$
Organic Growth % (0.7)% (7.9)%
Net Sales Growth % (2.0)% (8.1)%
Dec 31, 2016
FREE CASH FLOW RECONCILIATION
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
t Ca h Provided by Op rating Activities 111.2$ 113.9$ 439.6$ 381.1$
Additions to Property Plant and Equipment (19.1) (26.8) (65.2) (92.2)
Free Cash Flow 92.1$ 87.1$ 374.4$ 288.9$
Free Cash Flow as a Percentage of Net Income
Attributable to Regal Beloit Corporation 202.0 % 168.8 % 184.1 % 134.9 %
Three Months Ended Twelve Months Ended
23
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING MARGIN WITHOUT LIFO
Dec 31,
2016
Jan 2,
2016
Dec 31,
2016
Jan 2,
2016
djusted Income from Operations 72.2$ 79.5$ 314.1$ 382.3$
LIFO Expense (Benefit) 14.5 (15.3) 14.5 (18.8)
Adjusted Income from Operations without LIFO 86.7$ 64.2$ 328.6$ 363.5$
Net Sales 758.1$ 773.5$ 3,224.5$ 3,509.7$
Adjusted Operating Margin without LIFO 11.4 % 8.3 % 10.2 % 10.4 %
Three Months Ended Twelve Months Ended
EBITDA RECONCILIATION
Dollars in Millions FY 2016
Net Income 203.4$
Plus: Minority Interest 5.9
Plus: Taxes 57.1
Plus: Interest Expense 58.7
Less: Interest Income (4.5)
Plus: Depreciation 93.4
Plus: Amortization 62.0
EBITDA 476.0$
24
Appendix Regal Shipping Days
1Q 2Q 3Q 4Q FY
2014 63 63 63 64 253
2015 64 63 64 59 250
2016 64 64 63 60 251
2017 64 63 63 60 250
Regal operates on a 52/53 week fiscal year ending on the Saturday
closest to December 31
Fiscal Years 2015, 2016 and 2017 have 52 weeks
Fiscal Year 2014 had 53 weeks