Attached files
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| 8-K - 8-K - REGAL BELOIT CORP | form8-k1q2017earningsrelea.htm |
| EX-99.1 - EXHIBIT 99.1 - REGAL BELOIT CORP | a1q2017earningsannouncement.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
First Quarter 2017 Earnings Conference Call
May 9, 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,” “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. 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
Operations Update Jon Schlemmer
Summary Mark Gliebe
Q&A All
5
Adjusted Diluted EPS* Up 12.6% from Prior Year, Slightly Ahead of Our Expectations
Organic Sales Growth* Up Slightly at 0.7%
– Climate Up 3.7%
– C&I Up 1.7%
– PTS Down 5.0%
Adjusted Operating Margin* Up 100 bps
– Volume Leverage and Positive Mix in Climate Solutions
– Rightsizing of Oil & Gas Businesses
– Benefits from Simplification and SG&A Cost Controls
Strong Working Capital Management
– Improved Cash Cycle Days** by 7.6
– Paid Down $43.5 Million in Debt
– Total Debt/Adj. EBITDA* Ratio at 2.9
Opening Comments – 1st Quarter Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Overall Strong Start to the Year
** Cash Cycle Days = A/R Days Sales Outstanding + Days Inventory Outstanding – A/P Days Payable Outstanding
6
Orders Up Low Single Digits Versus Prior Year in All Three Segments
Expecting Low Single Digits Organic Sales Growth in 2017
– Two-Way Material Price Formulas Should Continue to be a Tailwind to Sales
– Middle East and Oil & Gas Comparisons Should Improve in 2H 2017
– Residential and Commercial HVAC Markets Up Mid-Single Digits
Expecting Improvement to Adjusted Operating Margin in FY 2017
– Sales Volume Growth
– Continuing Simplification Benefits
– Pressure from Commodity Inflation, Partially Offset by the Two-Way Material Price
Formulas and Recent Price Increases
Updating Total Year 2017 Adjusted EPS* Guidance to $4.55 to $4.95 Per Share
Opening Comments – Looking Forward
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
2017 Adjusted EPS Guidance Midpoint is a 7% Annual Improvement
7
Sales of $813.5 Million, Down 0.6%
– Organic Sales* of 0.7%
– Foreign Currency Translation of (0.6%)
– Business Divestiture of (0.6%)
Adjusted Operating Margin* of 9.6% Compared to 8.6% in the Prior Year
– Incremental Margins from Sales Increases in Climate Solutions and
Commercial & Industrial Systems
– Rightsizing of Our Oil & Gas Businesses
– Continuing Benefits from Simplification Initiative and SG&A Cost Savings
1st Quarter 2017 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Delivered Organic Sales Growth and Margin Expansion
8
1st Quarter 2017 Financial Results
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Adjusted Diluted EPS Up 12.6%
ADJUSTED DILUTED EARNINGS PER SHARE*
Apr 1,
2017
Apr 2,
2016
GAAP Diluted Earnings Per Share 1.02$ 0.93$
Restructuring and Related Costs 0.05 0.02
Adjusted Diluted Earnings Per Share 1.07$ 0.95$
Three Months Ended
9
Capital Expenditures
$17 Million in 1Q 2017
$75 Million Expected in FY 2017
Expect FY 2017 D&A of $145-$150 Million
Restructuring
$3.2 Million in 1Q 2017
$9.0 Million Expected in FY 2017
Effective Tax Rate (ETR)
22.5% ETR in 1Q 2017
Expect FY 2017 ETR of ~23%
Balance Sheet at April 1, 2017
Total Debt of $1,369.5 Million
Net Debt of $1,107.2 Million
1Q 2017 Debt Reduction of $43.5 Million
Total Debt/Adj. EBITDA* at 2.9
Expect FY 2017 Net Interest Expense of
$51 Million
1st Quarter 2017 Key Financial Metrics
Free Cash Flow*
$33.5 Million in 1Q 2017
72% of Net Income in 1Q 2017
̶ Consistent with 5-Year Avg. of
1st Quarter FCF of 62%
̶ Seasonal Increase in Working Capital
Cash Repatriation of $8.5 Million in March
2017, and $40 Million in April 2017
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
10
Assumptions
Low Single Digit Growth in 2017 Organic Sales, F/X Headwind
Improvement in 2017 Adjusted Operating Margin
Guidance
FY 2017 GAAP Diluted EPS Guidance of $4.40 to $4.80
FY 2017 Adjusted Diluted EPS* Guidance of $4.55 to $4.95
– Increase from Prior Guidance of $0.05
– Restructuring and Related Costs of $0.15 per Share
2017 Full Year Guidance
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
2017 Adjusted Diluted EPS Guidance Midpoint is a 7% Improvement
11
1Q 2017 Commercial & Industrial Systems
Sales
Organic Sales Up 1.7%, Adj Operating Margin Up 140 bps
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
$381 Million, Organic Sales* Up 1.7%
4th Consecutive Quarter of Improvement
Sales Performance
– Asia Sales Up
– Strength in Power Generation
– CHVAC and Pool Pump Up
– Diminishing Weakness in Oil & Gas
– Price ~ Flat, Improved Sequentially
Adj. Operating Margin*
7.2% of Sales
Up 140 bps from Prior Year
– Benefits from Rightsizing of Oil & Gas
Businesses and SG&A Savings
– Partially Offset by Commodity Inflation
$37
8
$38
1
1Q16 1Q17
$22
$27
1Q16 1Q17
Adj. Income from
Operations*
Organic 1.7%
Acq/Div ----%
F/X (0.8%)
12
1Q 2017 Climate Solutions
Sales
Organic Sales Up 3.7%, Adj Operating Margin Up 220 bps
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
$248 Million, Organic Sales* Up 3.7%
5th Consecutive Quarter of Improvement
Sales Performance
– NA Resi HVAC up Mid-Single Digits
– Diminishing Middle East Weakness
– Soft Heating Aftermarket
– Price ~ Flat, Improving Two-Way MPFs
Adj. Operating Margin*
13.0% of Sales
Up 220 bps from Prior Year
– Benefits from Volume and Mix
– Ongoing Simplification and Cost Controls
$24
0
$24
8
1Q16 1Q17
$26
$32
1Q16 1Q17
Organic 3.7%
Acq/Div ----%
F/X (0.4%)
Adj. Income from
Operations*
13
1Q 2017 Power Transmission Solutions
Sales
Expecting 2Q Organic Sales Growth and Margin Improvement
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
Sales
$185 Million, Organic Sales* Down 5.0%
3rd Consecutive Quarter of Improvement
Sales Performance
– Demand Patterns in Renewable Energy
– Diminishing Weakness in Oil & Gas
Order Rates Improving and Positive to
Prior Year
Adj. Operating Margin*
9.8% of Sales
Down 170 bps from Prior Year, Primarily
Impacted by the Lower Volume
$20
1
$18
5
1Q16 1Q17
$23
$18
1Q16 1Q17
Organic (5.0%)
Acq/Div (2.6%)
F/X (0.5%)
Adj. Income from
Operations*
14
Simplification Update
Progress on Simplification Continues to Drive Benefits
Three Manufacturing Programs Announced in 4Q 2016 On Schedule
– Consolidation of Mexico HVAC Motor Operations
– Consolidation of India Large Motors
– Consolidation of China Small Motors
Fourth Manufacturing Program Announced in 1Q 2017, Consolidating Pennsylvania
Motor Operation into Wausau, Wisconsin
Completed Another ERP Conversion in 1Q 2017
Opening New Sales and Distribution Facility in Monterrey Mexico
$3
$9
1Q17 FY17E
Restructuring Expenses
($ millions)
Monterrey Sales & Distribution
15
Commercial Excellence
Increasing Coverage, Adding Talent Significant Investment for Our Customers
Sales Coverage and Talent Digital Customer Experience
Adding Sales Professionals to Improve
Coverage and Distribution Focus
25% of the Positions Filled in 1Q 2017
Adding Talent to the Sales Organization
Arming Team with Common CRM Tools
High-Resolution
Product Images
16
$0.58
$0.62
$0.64
$0.66
$0.70
$0.74
$0.78
$0.84
$0.90
$0.94
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Dividends Per Share Paid
Returning Cash to Shareholders
Dividend Increase of 8% Announced May 1, 2017
17
Adjusted Diluted EPS* Up 12.6%
Organic Sales Growth Up Slightly
Orders Up Low Single Digits in All Three Segments
Adjusted Operating Margins* Up 100 bps
Reduced Debt by $43.5 Million
Began Repatriation of $150 Million of Cash
Continuing Progress on Simplification
Commercial Excellence Initiatives Underway
Raised Annual Guidance
1st Quarter Summary Comments
* Non-GAAP Financial Measurement, See Appendix for Reconciliation.
1Q Adjusted Diluted EPS* Up 12.6%
18
Questions and Answers
19
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHARE
Apr 1,
2017
Apr 2,
2016
GAAP Diluted Earnings Per Share 1.02$ 0.93$
Restructuring and Related Costs 0.05 0.02
Adjusted Diluted Earnings Per Share 1.07$ 0.95$
Three Months Ended
RECONCILIATION OF 2017 ADJUSTED ANNUAL GUIDANCE Minimum Maximum
2017 Diluted EPS Annual Guidance 4.40$ 4.80$
Restructuring and Related Costs 0.15 0.15
2017 Adjusted Diluted EPS Annual Guidance 4.55$ 4.95$
20
Appendix Non-GAAP Reconciliations
ADJUSTED OPERATING INCOME
(Dollars in Millions) Apr 1,
2017
Apr 2,
2016
Apr 1,
2017
Apr 2,
2016
Apr 1,
2017
Apr 2,
2016
Apr 1,
2017
Apr 2,
2016
GAAP Income from Operations 25.8$ 21.7$ 31.2$ 24.6$ 17.8$ 23.0$ 74.8$ 69.3$
Gain on Disposal of Business (0.1) - - - - - (0.1) -
Gain on Sale of Assets - - - - (0.1) - (0.1) -
Restructuring and Related Costs 1.7 0.1 1.1 1.3 0.4 - 3.2 1.4
Adjusted Income from Operations 27.4$ 21.8$ 32.3$ 25.9$ 18.1$ 23.0$ 77.8$ 70.7$
GAAP Operating Margin % 6.8 % 5.7 % 12.6 % 10.3 % 9.6 % 11.5 % 9.2 % 8.5 %
Adjusted Operating Margin % 7.2 % 5.8 % 13.0 % 10.8 % 9.8 % 11.5 % 9.6 % 8.6 %
Total Regal
Three Months Ended
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions
21
Appendix Non-GAAP Reconciliations
FREE CASH FLOW RECONCILIATION
(Dollars in Millions) Apr 1,
2017
Apr 2,
2016
Net Cash Provided by Operating Activities 50.5$ 58.6$
Additions to Property Plant and Equipment (17.0) (14.9)
Free Cash Flow 33.5$ 43.7$
Free Cash Flow as a Percentage of Net Income
Attributable to Regal Beloit Corporation 72.4 % 105.0 %
Three Months Ended
ORGANIC SALES GROWTH
(Dollars in Millions)
Commercial & Industrial
Systems Climate Solutions
Power Transmission
Solutions Total Regal
Net Sales 381.2$ 247.7$ 184.6$ 813.5$
et Sales from Business Divested - - 5.2 5.2
Impac fr m Foreign Currency Exchange Rates 2.9 1.0 1.1 5.0
Adjusted Net Sales 384.1$ 248.7$ 190.9$ 823.7$
Net Sales Three Months Ended Apr 2, 2016 377.6$ 239.8$ 200.8$ 818.2$
Organic Sales Growth % 1.7 % 3.7 % (5.0)% 0.7 %
Net Sales Growth % 1.0 % 3.3 % (8.1)% (0.6)%
Three Months Ended
Apr 1, 2017
22
Appendix Non-GAAP Reconciliations
(Dollars in Millions)
LTM Apr 1, 2017
Net Income 208.1$
Plus: Minority Interest 6.1
Plus: Taxes 58.2
Plus: Interest Expense 58.1
Less: Interest Income (4.4)
Plus: Depreciation and Amortization 149.7
Plus: Restructuring and Related Costs 8.6
Less: Gain on Asset Sales (1.8)
Less: Gain on Disposal of Business (11.7)
Adjusted EBITDA 470.9$
Current Maturities of Debt 100.4$
Long-Term Debt 1,269.1
Total Debt 1,369.5$
Total Debt/Adjusted EBITDA 2.9
ADJUSTED EBITDA AND TOTAL DEBT/ADJUSTED EBITDA RECONCILIATION
23
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