It has been about a month since the last earnings report for Regal Beloit (RBC Quick QuoteRBC - Free Report) . Shares have lost about 1.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Regal Beloit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Regal Beloit Beats on Q1 Earnings, Gives Solid View

Regal Beloit reported better-than-expected results for the first quarter of 2021. Its earnings surpassed estimates by 17.86%, whereas sales exceeded the same by 4.37%.

Adjusted earnings in the reported quarter were $1.98 per share, surpassing the Zacks Consensus Estimate of $1.68. Also, the bottom line grew 51.1% from the year-ago quarter’s $1.31 on sales and margin improvements.

In the first quarter, Regal Beloit announced that it signed an agreement with Rexnord Corporation to combine operations with the latter’s Process and Motion Control segment. The deal will be completed in fourth-quarter 2021.

Revenue Details

In the reported quarter, Regal Beloit’s net sales were $814.1 million, increasing 10.9% year over year. Organic sales in the reported quarter increased 9.1% and movement in foreign currencies benefited the company by 1.8%.

Improvements in industrial markets boosted the quarterly performance. Along with this, strengthening data and pool center markets; heating, ventilation and air conditioning markets; and others were tailwinds.

Also, the top line surpassed the Zacks Consensus Estimate of $778 million.

Regal Beloit reports results under four segments — Climate Solutions, Commercial Systems, Industrial Systems and Power Transmission Solutions. A brief discussion on the segments is provided below:

Revenues from Climate Solutions totaled $239.1 million, rising 13.8% year over year. It represented 29.4% of net sales. The results benefited from organic sales growth of 14%, while foreign currency translation had a negative impact of 0.2%.

Commercial Systems’ revenues, representing 29.1% of net sales, were $237 million, up 18.9% year over year. Organic sales in the reported quarter increased 15.9% and movements in foreign currencies benefited the top line by 2.9%.

Industrial Systems generated revenues of $136.4 million, reflecting year-over-year growth of 5.2%. It represented 16.8% of the reported quarter’s net sales. Organic sales increased 1.5% year over year and foreign currency movements benefited the company by 3.7%.

Power Transmission Solutions’ revenues, representing 24.7% of net sales, were $201.6 million, up 3.3% year over year. Organic sales increased 1.8% and foreign currency movements benefited results by 1.5%.

Margin Picture

In the reported quarter, Regal Beloit’s cost of sales increased 7.1% year over year to $568.7 million. It represented 69.9% of net sales versus 72.3% recorded in the year-ago quarter. Gross profit increased 20.7% year over year to $245.4 million, while margin increased 250 bps to 30.1%. Operating expenses of $148.3 million increased 12.5% year over year and represented 18.2% of net sales in the reported quarter.

Adjusted operating profit was $113.1 million, up 42.8% year over year, while margin increased 310 bps to 13.9%. Interest expenses in the first quarter expanded 8.6% year over year to $12.6 million. Adjusted effective tax rate in the reported quarter was 23.2% versus 22.1% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter of 2021, Regal Beloit had cash and cash equivalents of $566.4 million, reflecting a 7.3% decrease from $611.3 million recorded in the last reported quarter. Long-term debt decreased 6.4% sequentially to $786.9 million.

In the reported quarter, the company’s repayments of long-term debts totaled $50.1 million.

In the first quarter, Regal Beloit generated net cash of $49.5 million from operating activities, reflecting a year-over-year decline of 51.8%. The company’s capital investment for purchasing property, plant and equipment decreased 1.8% from the year-ago figure to $10.7 million. Free cash flow was $38.8 million, down from $91.8 million in the year-ago quarter.

Free cash flow (as a percentage of adjusted net income) was 59.1% in the first quarter of 2021 versus 195.7% in the year-ago quarter.

In the first quarter, the company paid out dividends totaling $12.2 million to shareholders. Notably, it refrained from repurchasing its shares in the reported quarter.

Outlook

The company provided financial projections for the second quarter of 2021. It predicts adjusted earnings per share of $1.85-$2.05 for the quarter, suggesting a mid-point increase of 100% from the year-ago quarter’s figure.

Sales for the second quarter are predicted to increase in high-20% on a year-over-year basis.

Capital expenditure for 2021 is expected to be $57 million, effective tax rate is likely to be 21%, and net interest expenses are anticipated to be $28 million. Free cash flow (as a percentage of adjusted net income) will likely be more than 100%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 5.64% due to these changes.

VGM Scores

Currently, Regal Beloit has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Regal Beloit has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.