Attached files
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| EX-99.1 - EXHIBIT 99.1 - REGAL BELOIT CORP | a3q2016earningsannouncement.htm |
| 8-K - 8-K - REGAL BELOIT CORP | form8-k3q2016earningsrelea.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
Third Quarter 2016 Earnings Conference Call
November 7, 2016
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; 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.
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 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.
4
Agenda and Opening Comments
Opening Comments Mark Gliebe
Financial Update Chuck Hinrichs
Segment Update Jon Schlemmer
Summary Mark Gliebe
Q&A All
5
Opening Comments 3rd Quarter Results
$882
$810
($5) ($5)
Prior Year FX Acquisition Organic Current Year
($63)
($49) Global Industrial
($12) Price / MPF
($9) Middle East
$7 NA HVAC
3Q Sales Versus Prior Year
(millions)
Results Generally in Line with Expectations
6
3rd Quarter Adjusted Operating Profit Margin* 11.1%
– Sequential Improvement from 2Q 2016
– Prior Year Included a 50 Basis Points Benefit from GSP Tariff Refund
– Strong Margin Performance Despite Sales Headwinds
Strong Free Cash Flow and Debt Reduction
– Delivered 234% Free Cash Flow* to Net Income
– Improved Cash Cycle Days** by 2 Days and Reduced Inventory by $26 Million
– Paid Down $105 Million in Debt
Looking Forward
– Expecting 4Q Organic Sales Growth Rate to Improve Sequentially
– Slow Start to Heating Season, Order Rates in C&I and PTS Improving
– Expecting 4Q Organic Sales Flat to Slightly Down to Prior Year
– Expecting Second Half Adj. EPS* to Increase 11% - 15% Over First Half
Opening Comments 3rd Quarter Results
* 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
Guidance Confirms Positive Second Half Momentum
7
Sales of $809.6 Million, Down 8.2%
– Foreign Currency Translation of (0.6%)
– Business Divestiture (0.5%)
– Organic Sales* of (7.1%)
Adjusted Operating Profit Margin* of 11.1%, Down 40 Basis Points from Prior Year
– Lower Sales Volume and Inventory Reduction Pressured Margins
– Simplification Initiative Benefits and Cost Controls Partially Offset Effect of
Sales Volume Decline
– Prior Year 3Q 2015 Included $4.9 Million GSP Tariff Refund, or 50 Basis Points
Benefit
Adjusted Operating Profit Margin* of 11.1%, Up 140 Basis Points from 2Q 2016
3rd Quarter 2016 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Operating Profit Margin Improving
8
3rd Quarter 2016 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
$2.2 Million, or $0.05 per share, Tax Benefit from the Finalization of our
2015 Income Taxes
ADJUSTED DILUTED EARNINGS PER SHARE Three Months Ended Nine Months Ended
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Diluted Earnings Per Share $ 1.32 $ 1.41 $ 3.51 $ 3.61
Restructuring and Related Costs 0.02 0.02 0.06 0.07
Gain on Sale of Assets (0.03 ) — (0.03 ) —
Gain on Disposal of Business — — (0.14 ) —
Purchase Accounting and Transaction Costs — — — 0.47
Venezuelan Currency Devaluation — — — 0.02
Adjusted Diluted Earnings Per Share $ 1.31 $ 1.43 $ 3.40 $ 4.17
*
9
Capital Expenditures
$14 Million in 3Q 2016, $46 Million YTD
$65 Million Expected in FY 2016
Restructuring
$1 Million in 3Q 2016, $4 Million YTD
$9 Million Expected in FY 2016
Effective Tax Rate (ETR)
20% ETR in 3Q 2016
− Benefitted from $2.2 Million
Finalization of the 2015 Tax Return
Expect 23% ETR for 4Q 2016
Balance Sheet at October 1, 2016
Total Debt of $1,511 Million
Net Debt of $1,229 Million
3Q 2016 Debt Reduction of $105 Million
Reduced Total Debt by $292 Million
Over Past 12 Months
3rd Quarter 2016 Key Financial Metrics
Free Cash Flow*
$140 Million in 3Q 2016
234% of Net Income in 3Q 2016
Improved Management of Working
Capital Reduced Inventory
$26 Million in 3Q 2016
$89 Million YTD 2016
Lower Capital Expenditures were a
Minor Benefit to FCF in 2016
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
10
4th Quarter Organic Sales Growth Rate to Improve Sequentially
– Expected to be Flat to Slightly Down as Compared to Prior Year
4th Quarter Adjusted Operating Profit Margin Rate Expected to be Down Slightly
− No LIFO Impact Included in 4th Quarter Guidance
− Prior Year 4th Quarter Included $15 Million LIFO Benefit
4th Quarter 2016 GAAP EPS Guidance of $0.94 to $1.04
Full Year 2016 GAAP EPS Guidance of $4.45 to $4.55
4th Quarter 2016 Adjusted EPS Guidance of $1.00 to $1.10
− Addition of Restructuring and Related Expenses of $0.07
− Subtraction of Gain on Sales of Assets of $0.01
Full Year 2016 Adjusted EPS Guidance of $4.40 to $4.50
− Addition of Restructuring and Related Expenses of $0.13
− Subtraction of Gains on Sales of Business and Assets of $0.18
2016 Full Year Guidance
2nd Half 2016 Adj. EPS Expected to Increase 11% to 15% Over 1st Half 2016
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
11
$427
$389
($4) ($34)
Prior Year FX Organic Current Year
NA & China Ind
O&G / Power
Price / MPF
Resi Pool
Data Centers
Commercial & Industrial Systems
(millions)
($19)
($14)
($6)
3Q Sales Versus Prior Year Key Thoughts
Adj. Operating Margin* 9.0%
Down 30 bps from Prior Year but
Up 250 bps vs 2Q 2016
Realizing Benefits of
Simplification and the Right-
sizing of Oil & Gas Businesses
Margin Rate Benefitting from
Favorable Price/Cost
4Q Comparisons Improving
Maintained Margin on Lower Sales
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
12
$264
$251
($1) ($13)
Prior Year FX Organic Current Year
Middle East Mkt
Price / MPF
Comm Ref / Gen Ind
NA Resi HVAC
Climate Solutions
(millions) 3Q Sales Versus Prior Year Key Thoughts
Adj. Operating Margin* 16.9%
Up 140 bps from Prior Year
and Up 250 bps vs 2Q 2016
HVAC Volume, Simplification,
and Mix Offset the Margin
Impact of Sales Decline as
well as the Prior Year GSP
Tariff Refund
($9)
($7)
($4)
Strong Cooling Season & Improved Operating Margin
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
$7
13
Key Thoughts
Adj. Operating Margin* 7.1%
Down 370 bps from Prior Year
Margin Impacted by Lower
Volume
Distributor Destocking
Subsided in 3Q
Orders Improved Throughout
the Quarter and into October
Synergy Programs Remain
on Schedule
Power Transmission Solutions
(millions) 3Q Sales Versus Prior Year
$191
$170
($5) ($0.2)
Prior Year FX Acquisition Organic Current Year
($16)
($11) Distribution
($5) Oil & Gas
Ren Energy
Ag and Metals
Food & Bev
Expecting Improved Performance in 4Q
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
14
Customer Feedback
Positive Survey Comments
High Quality Products
Regal is a Great Company
Great Brands/Strength of Brands
Great Customer Service
Knowledgeable Field Sales
Accurate and Quick Responses
OEM Award Distributor Awards
Continuous Improvement Customers Recognizing the Improvement
2016 Customer Survey 3Q Recognition
Nearly 4,000 Responses
Achieved Highest Net Promoter Score
Quality Responsive Innovation Value
2015 2016
15
Free Cash Flow Performance
0%
25%
50%
75%
100%
125%
150%
175%
200%
$-
$100
$200
$300
$400
2011 2012 2013 2014 2015 2016e**
Free Cash Flow* % of Adj. Net Income*
** Based on Management Estimates
(millions)
Consistently Delivering Strong FCF – 129% Annual Average
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
16
3rd Quarter Sales In Line with Expectations
– Global Industrial Market Weakness
– Strong NA Residential HVAC, Offset by Middle East and MPF
Resilient Margins
Delivered 234% Free Cash Flow* to Net Income and Reduced Debt by $105 Million
Encouraging Performance Feedback from Customers
Expect 4th Quarter Organic Sales Flat to Slightly Down
– Slow Start to Heating Season
– Sequential Improvement in Organic Growth Rates in All Segments
– Sequentially Improving Two-Way Material Price Formula Impact
– Easier Comparisons in Oil & Gas and Power Gen Businesses
2nd Half Adj. EPS Guidance 11% - 15% Stronger than 1st Half 2016
Save the Date!
– Investor Day on March 10th, 2017 in NYC
Summary
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
©2016 Regal Beloit Corporation, Proprietary and Confidential
Questions and Answers
18
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHARE
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Diluted Earnings Per Share 1.32$ 1.41$ 3.51$ 3.61$
Restructuring and Related Costs 0.02 0.02 0.06 0.07
Gai on Sale of Assets (0.03) - (0.03) -
Gain on Disposal of Business - - (0.14) -
Purchase Accounting and Transaction Costs - - - 0.47
Venezuelan Currency Devaluation - - - 0.02
Adjusted Diluted Earnings Per Share 1.31$ 1.43$ 3.40$ 4.17$
Three Months Ended Nine Months Ended
Minimum Maximum
2016 Diluted EPS Annual Guidance 4.45$ 4.55$
Restructuring and Related Costs 0.13 0.13
Gain on Sale of Assets (0.04) (0.04)
Gain on Disposal of Business (0.14) (0.14)
2016 Adjusted Diluted EPS Annual Guidance 4.40$ 4.50$
RECONCILIATION OF 2016 ADJUSTED ANNUAL GUIDANCE
19
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING INCOME
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Income from Operations 36.2$ 38.8$ 42.2$ 40.7$ 11.4$ 20.6$ 89.8$ 100.1$
Gain on Sale of Assets (1.2) - - - - - (1.2) -
Restructuring and Related Costs 0.2 0.9 0.2 0.3 0.7 - 1.1 1.2
Gain on Disposal of Business - - - - - - - -
Adjusted Income from Operations 35.2$ 39.7$ 42.4$ 41.0$ 12.1$ 20.6$ 89.7$ 101.3$
GAAP Operating Margin % 9.3 % 9.1 % 16.8 % 15.4 % 6.7 % 10.8 % 11.1 % 11.3 %
Adjusted Operating Margin % 9.0 % 9.3 % 16.9 % 15.5 % 7.1 % 10.8 % 11.1 % 11.5 %
ADJUSTED OPERATING INCOME
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Income from Operations 83.0$ 113.6$ 102.9$ 117.8$ 64.6$ 35.5$ 250.5$ 266.9$
Gain on Sale of Assets (1.2) - - - - - (1.2) -
Purchase Accounting and Transaction Costs - - - - - 29.8 - 29.8
Restructuring and Related Costs 1.0 4.7 2.0 (0.7) 1.2 0.6 4.2 4.6
Venezuelan Currency Devaluation - 1.5 - - - - - 1.5
Gai on Di posal of Business - - - - (11.6) - (11.6) -
Adjusted Income from Operations 82.8$ 119.8$ 104.9$ 117.1$ 54.2$ 65.9$ 241.9$ 302.8$
GAAP Operating Margin % 7.1 % 8.6 % 13.8 % 14.2 % 11.5 % 6.1 % 10.2 % 9.8 %
Adjusted Operating Margin % 7.1 % 9.0 % 14.1 % 14.1 % 9.7 % 11.3 % 9.8 % 11.1 %
Nine 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
20
Appendix Non-GAAP Reconciliations
FREE CASH FLOW RECONCILIATION
Oct 1,
2016
Oct 3,
2015
Oct 1,
2016
Oct 3,
2015
Net Cash Provided by Operating Activities 154.1$ 131.5$ 328.4$ 267.2$
Additions to Property Plant and Equipment (14.4) (20.7) (46.1) (65.4)
Free Cash Flow 139.7$ 110.8$ 282.3$ 201.8$
Free Cash Flow as a Percentage of Net Income Attributable to Regal Beloit
Corporation 234.4 % 174.8 % 178.9 % 124.1 %
Three Months Ended Nine Months Ended
ORGANIC GROWTH
Three Months
Ended
Nine Months
Ended
Net Sales 809.6$ 2,466.4$
Net Sales from Businesses Acquired - (35.9)
et Sales from Businesses Divested 4.8 6.8
Impact from Foreign Currency Exchange Rates 4.9 26.1
Adjusted Net Sales 819.3$ 2,463.4$
Net Sales Ended Oct 3, 2015 882.3$ 2,736.2$
Organic Growth % (7.1)% (10.0)%
Net Sales Growth % (8.2)% (9.9)%
Oct 1, 2016
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$ 203.0$
Goodwill and Asset Impairments and Other, Net - - 81.0 159.5 92.7 -
Tax Effect from Goodwill Impairments and Asset Impairments and Other, Net - - (6.4) (12.3) (21.8) -
Adjusted Net Income 152.3$ 195.6$ 194.6$ 178.2$ 214.2$ 203.0$
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$ 411.0$
Additions to Property, Plant and Equipment (57.6) (91.0) (82.7) (83.6) (92.2) (65.0)
Grants Received for Capital Expenditures - 8.7 1.6 - - -
Free Cash Flow 207.7$ 269.4$ 223.9$ 214.6$ 288.9$ 346.0$
Free Cash Flow as a Percentage of Adjusted Net Income 136.4% 137.7% 115.1% 120.4% 134.9% 170.4%
Fiscal Years
Fiscal Years
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
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