Attached files
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| EX-99.1 - EXHIBIT 99.1 - REGAL BELOIT CORP | a2q2017earningsannouncement.htm |
| 8-K - 8-K - REGAL BELOIT CORP | form8-k2q2017earningsrelea.htm |
©2017 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
Business Development & Investor Relations
Second Quarter 2017 Earnings Conference Call
August 8, 2017
Regal Beloit Corporation
2
Safe Harbor 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 presentation 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 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 business of Emerson Electric Co. (“PTS”) 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, drives and controls, power generation and mechanical motion control 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; issues and costs arising from the
integration of acquired companies and businesses including PTS, and 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, 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 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; effect on earnings of any
significant impairment of goodwill or intangible assets; 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 March 1, 2017 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. 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
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 income, adjusted operating margin,
adjusted EBITDA, free cash flow, and free cash flow as a percentage of net income attributable to Regal Beloit
Corporation. 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, adjusted operating income and adjusted operating margin to help us manage and evaluate
our business and make operating decisions, while adjusted diluted earnings per share, adjusted EBITDA, free cash
flow and free cash flow as a percentage of net income 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 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. 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.
4
Agenda and Opening Comments
Opening Comments Mark Gliebe
Financial Update Chuck Hinrichs
Operations Update Jon Schlemmer
Summary Mark Gliebe
Q&A All
5
Adjusted Diluted EPS* Up 13.2% from Prior Year
Organic Sales Growth* Up 4.8%
– Climate Up 6.5%
– C&I Up 4.3%
– PTS Up 3.5%
Adjusted Operating Margin* Up 70 bps
– Volume Leverage
– Rightsizing of Oil & Gas Businesses
– Benefits from Simplification and SG&A Cost Controls
– Partially Offset by Commodity Inflation
Strong Free Cash Flow
– Free Cash Flow* 154% of Net Income
– Improved Cash Cycle Days** by 3.5
– Paid Down $70 Million in Debt
– Repurchased $21 Million of Common Stock
– Repatriated $110 Million in Cash Through July
Opening Comments – 2nd Quarter Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Overall Solid First Half of the Year
** Cash Cycle Days = A/R Days Sales Outstanding + Days Inventory Outstanding – A/P Days Payable Outstanding
6
Entering 3Q, Orders Up Versus Prior Year in All Three Segments
Expecting Low Single Digit Organic Sales Growth in 2017
– Broad-based End Market Growth in North America and Asia
– Middle East and Oil & Gas Comparisons Improve in 2H 2017
– Residential and Commercial HVAC Growth in 2H 2017
Expecting Improvement to Adjusted Operating Margin in FY 2017
– Strong Margin Improvement in 1H 2017
– Expecting Margin Up Modestly in 2H 2017 Over Prior Year and Sequentially
Raised Total Year 2017 Adjusted Diluted EPS* Guidance to $4.70 to $5.00 Per Share
Opening Comments – Looking Forward
2017 Adjusted Diluted EPS Guidance Midpoint is a 9% Annual Improvement
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
7
2nd Quarter 2017 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Delivered Organic Sales Growth and Margin Expansion
Sales of $869.2 Million, Up 3.6%
– Organic Sales* Up 4.8%
– Foreign Currency Translation of (0.7%)
– Business Divestiture of (0.5%)
Adjusted Operating Margin* of 10.4% Compared to 9.7% in the Prior Year
– Higher Sales in All Segments
– Benefits from Rightsizing of Our Oil & Gas Businesses
– Continuing Benefits from Simplification Initiative and SG&A Cost Savings
Pruned a Non-core Equipment Leasing Business in the C&I Systems Segment
– Restructuring and Related Costs of $3.9 Million
– SG&A Expense of $1.2 Million
8
2nd Quarter 2017 Financial Results
Adjusted Diluted EPS Up 13.2%
ADJUSTED DILUTED EARNINGS PER SHARE
Jul 1,
2017
Jul 2,
2016
GAAP Diluted Earnings Per Share 1.18$ 1.26$
Restructuring and Related Costs 0.12 0.02
Gain on Disposal of Businesses - (0.14)
Gain on Sale of Assets (0.01) -
Adjusted Diluted Earnings Per Share 1.29$ 1.14$
Three Months Ended
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
9
Capital Expenditures
$16.7 Million in 2Q 2017
~$75 Million Expected in FY 2017
Expecting FY 2017 D&A of ~$145 Million
Restructuring
$7.7 Million in 2Q 2017
~$13 Million Expected in FY 2017
Effective Tax Rate (ETR)
21.6% ETR in 2Q 2017
– 22.5% Excluding Restructuring
Expecting FY 2017 ETR of ~22%
Balance Sheet at July 1, 2017
Total Debt of $1,300.2 Million
Net Debt of $1,056.5 Million
2Q 2017 Debt Reduction of $70.3 Million
Total Debt/Adj. EBITDA* at 2.7
2nd Quarter 2017 Key Financial Metrics
Free Cash Flow*
$81.7 Million in 2Q 2017
154.2% of Net Income in 2Q 2017
Cash Repatriation of $41.8 Million in 2Q
2017 and $109.7 Million through July 2017
Repurchased 267,604 Shares Totaling
$21.0 Million in 2Q 2017
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
10
Assumptions
Low Single Digit Growth in FY 2017 Organic Sales
Expecting Modest Improvement in Adjusted Operating Margin in 2H 2017
Guidance
Raised FY 2017 GAAP Diluted EPS Guidance to $4.51 to $4.81
Raised FY 2017 Adjusted Diluted EPS* Guidance to $4.70 to $5.00
– Restructuring and Related Costs of $0.21 per Share
– Gain on Sale of Assets of ($0.02) per Share
Updated Forecast on 2017 Full Year Effective Tax Rate to 22%
2017 Full Year Guidance
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
2017 Adjusted Diluted EPS Guidance Midpoint is a 9% Improvement
11
2Q 2017 Commercial & Industrial Systems
Sales
Expecting Sequential Margin Improvement in 2H 2017
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
Organic Sales* Up 4.3%
5th Consecutive Quarter of Improvement
Sales Performance
– Asia Up
– Strength in Oil & Gas and Power Gen
– Commercial HVAC Up
– Distribution Down Slightly
– Price Up Slightly, Improved Sequentially
Adj. Operating Margin*
6.7% of Sales
Up 20 bps from Prior Year
– Benefits from Rightsizing of Oil & Gas and Strong Asia Performance
– Partially Offset by Volume Ramp Challenges, Commodity Inflation and the Exit of
a Non-Core Business
$39
5
$40
7
2Q16 2Q17
$26
$27
2Q16 2Q17
Adj. Income from
Operations*
($ millions)
12
2Q 2017 Climate Solutions
Sales
Organic Sales Up 6.5%, Adj. Operating Margin Up 70 bps
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
Organic Sales* Up 6.5%
6th Consecutive Quarter of Improvement
Sales Performance
– NA Resi HVAC Up Low Teens
– HVAC Aftermarket Flat
– Commercial Refrigeration Down
– Price Up Slightly, Improving Two-Way MPFs
Adj. Operating Margin*
15.1% of Sales
Up 70 bps from Prior Year
– Benefits from HVAC Volume, Simplification and Mix
– Partially Offset by Commodity Inflation
Expecting Pressure on 2H 2017 Margins
$25
5
$27
1
2Q16 2Q17
$37
$41
2Q16 2Q17
Adj. Income from
Operations*
($ millions)
13
2Q 2017 Power Transmission Solutions
Sales
Organic Sales Up 3.5%, Adj. Operating Margin Up 160 bps
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
Organic Sales* Up 3.5%
4th Consecutive Quarter of Improvement
Sales Performance
– Renewable Energy, Oil & Gas and
Commercial HVAC Up
– Distribution Flat
Expecting Positive 2H 2017 Organic Growth
Adj. Operating Margin*
11.7% of Sales
Up 160 bps from Prior Year
– Benefits from Volume, Price, Synergies and
Cost Controls
Expecting 2H Margins Similar to 1H 2017
$18
9
$19
1
2Q16 2Q17
$19
$22
2Q16 2Q17
Organic 3.5%
Divestiture (2.0%)
F/X (0.5%)
Adj. Income from
Operations*
($ millions)
14
Investor Day Updates
New Sales Positions Filled
Added Sales Leadership Talent in Key
Roles
Implemented New Compensation Plan
Driving Organic Sales Growth Ramping Up Production to Meet Demand
UlteMAX™
Motor & Control
Commercial Excellence Innovation
Digital Customer Experience (DCX)
Invested in a Product Information
Management Tool (PIM)
Great Progress on 360-Spin Product
Images
New RegalBeloit.com and Marathon®
Product Websites
15
Adjusted Diluted EPS* Up 13.2%
Organic Sales Growth Up 4.8%
Orders Up in All Three Segments
Adjusted Operating Margin* Up 70 bps
Free Cash Flow* 154% of Net Income
Reduced Debt by $70 Million
Repurchased $21 Million of Common Stock
Total Debt/Adj. EBITDA* at 2.7
Repatriation of $110 Million of Cash through July
Continuing Progress on Focus, Innovation and Simplification
Raised Annual Adj. Diluted EPS Guidance – Represents 9% Increase
at the Midpoint over Prior Year
2nd Quarter Summary Comments
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Overall Solid First Half of the Year
16
Questions and Answers
17
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHARE
Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
GAAP Diluted Earnings Per Share 1.18$ 1.26$ 2.20$ 2.19$
Restructuring and Related Costs 0.12 0.02 0.17 0.04
Gain on Disposal of Businesses - (0.14) - (0.14)
Gain on Sale of Assets (0.01) - (0.01) -
Adjusted Diluted Earnings Per Share 1.29$ 1.14$ 2.36$ 2.09$
Three Months Ended Six Months Ended
RECONCILIATION OF 2017 ADJUSTED ANNUAL GUIDANCE Minimum Maximum
2017 Diluted EPS Annual Guidance 4.51$ 4.81$
Restructuring and Related Costs 0.21 0.21
Gain on Sale of Assets (0.02) (0.02)
2017 Adjusted Diluted EPS Annual Guidance 4.70$ 5.00$
18
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING INCOME
(Dollars in Millions) Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
GAAP Income from Operations 20.6$ 25.1$ 40.2$ 36.1$ 22.2$ 30.2$ 83.0$ 91.4$
Restructuring and Related Costs 6.9 0.7 0.6 0.5 0.2 0.5 7.7 1.7
Gain on Disposal of Businesses - - - - - (11.6) - (11.6)
Gain on Sale of Assets (0.3) - - - - - (0.3) -
Adjusted Income from Operations 27.2$ 25.8$ 40.8$ 36.6$ 22.4$ 19.1$ 90.4$ 81.5$
GAAP Operating Margin % 5.1 % 6.4 % 14.9 % 14.2 % 11.6 % 16.0 % 9.5 % 10.9 %
Adjusted Operating Margin % 6.7 % 6.5 % 15.1 % 14.4 % 11.7 % 10.1 % 10.4 % 9.7 %
ADJUSTED OPERATING INCOME
(Dollars in Millions) Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
GAAP Income from Operations 46.4$ 46.8$ 71.4$ 60.7$ 40.0$ 53.2$ 157.8$ 160.7$
Restructuring and Related Costs 8.6 0.8 1.7 1.8 0.6 0.5 10.9 3.1
Gain on Disposal of Businesses - - - - (0.1) (11.6) (0.1) (11.6)
Gain on Sale of Assets (0.4) - - - - - (0.4) -
Adjusted Income from Operations 54.6$ 47.6$ 73.1$ 62.5$ 40.5$ 42.1$ 168.2$ 152.2$
GAAP Operating Margin % 5.9 % 6.1 % 13.8 % 12.3 % 10.6 % 13.6 % 9.4 % 9.7 %
Adjusted Operating Margin % 6.9 % 6.2 % 14.1 % 12.6 % 10.8 % 10.8 % 10.0 % 9.2 %
Total Regal
Three Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Six Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions
19
Appendix Non-GAAP Reconciliations
FREE CASH FLOW RECONCILIATION
(Dollars in Millions) Jul 1,
2017
Jul 2,
2016
Jul 1,
2017
Jul 2,
2016
Net Cash Provided by Operating Activities 98.4$ 117.5$ 148.9$ 176.1$
Additions to Property Plant and Equipment (16.7) (16.8) (33.7) (31.7)
Free Cash Flow 81.7$ 100.7$ 115.2$ 144.4$
Free Cash Flow as a Percentage of Net Income
Attributable to Regal Beloit Corporation 154.2 % 177.9 % 116.0 % 147.0 %
Three Months Ended Six Months Ended
20
Appendix Non-GAAP Reconciliations
ORGANIC SALES GROWTH
(Dollars in Millions)
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Net Sales 407.4$ 270.5$ 191.3$ 869.2$
Net Sales from Business Divested - - 3.8 3.8
Impact from Foreign Currency Exchange Rates 4.2 0.5 1.0 5.7
Adjusted Net Sales 411.6$ 271.0$ 196.1$ 878.7$
Net Sales Three Months Ended July 2, 2016 394.7$ 254.5$ 189.4$ 838.6$
Organic Sales Growth % 4.3 % 6.5 % 3.5 % 4.8 %
Net Sales Growth % 3.2 % 6.3 % 1.0 % 3.6 %
ORGANIC SALES GROWTH
(Dollars in Millions)
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Net Sales 788.6$ 518.2$ 375.9$ 1,682.7$
Net Sales from Business Divested - - 9.0 9.0
Impact from Foreign Currency Exchange Rates 7.1 1.5 2.1 10.7
Adjusted Net Sales 795.7$ 519.7$ 387.0$ 1,702.4$
Net Sales Six Months Ended July 2, 2016 772.3$ 494.3$ 390.2$ 1,656.8$
Organic Sales Growth % 3.0 % 5.1 % (0.8)% 2.8 %
Net Sales Growth % 2.1 % 4.8 % (3.7)% 1.6 %
Three Months Ended
July 1, 2017
Six Months Ended
July 1, 2017
21
Appendix Non-GAAP Reconciliations
(Dollars in Millions)
LTM Jul 1, 2017
Net Income Attributable to Regal Beloit Corporation 204.5$
Plus: Minority Interest 5.6
Plus: Taxes 53.8
Plus: Interest Expense 58.0
Less: Interest Income (4.2)
Plus: Depreciation and Amortization 145.2
Plus: Restructuring and Related Costs 14.6
Less: Gain on Sale of Assets (2.1)
Less: Gain on Disposal of Business (0.1)
Adjusted EBITDA 475.3$
Current Maturities of Debt 100.7$
Long-Term Debt 1,199.5
Total Debt 1,300.2$
Total Debt/Adjusted EBITDA 2.7
ADJUSTED EBITDA AND TOTAL DEBT/ADJUSTED EBITDA RECONCILIATION
22
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
2018 63 64 63 61 251
Regal operates on a 52/53 week fiscal year ending on the Saturday
closest to December 31
Fiscal Years 2015, 2016, 2017 and 2018 have 52 weeks
Fiscal Year 2014 had 53 weeks