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Regal Beloit's (RBC) Restructuring Move to Aid Amid Pandemic
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We have issued an updated research report on Regal Beloit Corporation (RBC - Free Report) on Jun 5.
The company specializes in manufacturing electrical and mechanical motion control products — including transfer switches, electric motors, blowers, electric generators, power generation components, gearboxes and others. Presently, its market capitalization is $3.4 billion.
There are a number of factors that are influencing Regal Beloit’s near-term prospects. A brief discussion on important factors is discussed below:
Factors Favoring Regal Beloit
Price Performance & Restructuring Benefits: Market sentiments have been in favor of the company for quite some time now. Its stock price has increased 12.8% in the past three months compared with the industry’s growth of 1.7%.
The company anticipates gaining from its organizational restructuring initiatives — which will essentially enhance accountability, focus and transparency in its Industrial Systems and Commercial Systems segments. In first-quarter 2020, the company’s restructuring-related savings were $4 million, while the same is likely to exceed $38 million in 2020.
Shareholder-Friendly Policies: Regal Beloit is committed toward rewarding shareholders handsomely. It distributed dividends of $12.2million in the first quarter of 2020, while bought back $25 million worth of shares.
It is worth mentioning here that the company announced a hike of 7% in its quarterly dividend rate in April 2019 and share buyback program of $250 million in October 2019. In the wake of the coronavirus outbreak, it temporarily halted its share-buyback activities, while continues with its dividend payouts.
Tailwinds: In the wake of the coronavirus outbreak, Regal Beloit initiated certain cost-saving measures that are likely to help it deal with some financial stress. Notably, the initiatives include the reduction in compensation, furloughs, lowering of discretionary spending and hiring freeze.
Factors Working Against Regal Beloit
Top-Line Woes and Earnings Estimates: Regal Beloit is wary about the adverse impacts of the pandemic on its operations. It believes that lower demand due to the pandemic will lower order rates in the HVAC business and thus, will adversely impact the Climate Solutions segment in the quarters ahead. Further, the Commercial Systems segment will suffer from weakness in the pool pump business.
The Industrial Systems segment will likely face headwinds from the pandemic-induced low demand in the core industrial and power generation end markets. Also, weakness in oil and gas markets (both upstream and midstream), general industrial, and metals markets will likely impact the Power Transmission Solutions segment.
The company expects sales to fall significantly in the second quarter.
Regal Beloit’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at 53 cents per share for the second quarter, reflecting a decline of 54.7% from the 60-day-ago period. Likewise, estimates of $3.69 for 2020 and $5.38 for 2021 reflect declines of 25% and 15.1% from the respective 60-day-ago figures. The stock currently carries a Zacks Rank #4 (Sell).
Leverage: High debts and related financial obligations can be concerning for Regal Beloit. The company’s long-term debts were $1,364.3 million exiting first-quarter 2020, reflecting an increase of 20% from fourth-quarter 2019. Further, the company’s cash and cash equivalents were just $604.5 million at the first-quarter end. Interest expenses totaled $11.6 million.
It is worth mentioning here that the company’s total debt to total capital increased from 33.7% in the fourth quarter of 2019 to 38.5% in the first quarter of 2020. More concerning is its weak ability to repay its financial obligations, as is evident from a fall in times interest earned from 6.7x in the fourth quarter of 2019 to 6.0x in the first quarter of 2020.
Woes Related to International Presence & Divestments, Peers: Regal Beloit carries out its operations in Asia, Canada, the United States, Europe and Mexico. The international presence has exposed the company to risks arising from unfavorable movements in foreign currencies, macroeconomic challenges, geopolitical issues and local competitive pressure. In first-quarter 2020, forex woes adversely impacted its sales by 0.7%.
Also, divestments were an issue for the company in the first quarter, with an adverse impact of 3.5% on sales. Though done in the best interest of shareholders, these moves can be concerning in the near term.
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Regal Beloit's (RBC) Restructuring Move to Aid Amid Pandemic
We have issued an updated research report on Regal Beloit Corporation (RBC - Free Report) on Jun 5.
The company specializes in manufacturing electrical and mechanical motion control products — including transfer switches, electric motors, blowers, electric generators, power generation components, gearboxes and others. Presently, its market capitalization is $3.4 billion.
There are a number of factors that are influencing Regal Beloit’s near-term prospects. A brief discussion on important factors is discussed below:
Factors Favoring Regal Beloit
Price Performance & Restructuring Benefits: Market sentiments have been in favor of the company for quite some time now. Its stock price has increased 12.8% in the past three months compared with the industry’s growth of 1.7%.
The company anticipates gaining from its organizational restructuring initiatives — which will essentially enhance accountability, focus and transparency in its Industrial Systems and Commercial Systems segments. In first-quarter 2020, the company’s restructuring-related savings were $4 million, while the same is likely to exceed $38 million in 2020.
Shareholder-Friendly Policies: Regal Beloit is committed toward rewarding shareholders handsomely. It distributed dividends of $12.2million in the first quarter of 2020, while bought back $25 million worth of shares.
It is worth mentioning here that the company announced a hike of 7% in its quarterly dividend rate in April 2019 and share buyback program of $250 million in October 2019. In the wake of the coronavirus outbreak, it temporarily halted its share-buyback activities, while continues with its dividend payouts.
Tailwinds: In the wake of the coronavirus outbreak, Regal Beloit initiated certain cost-saving measures that are likely to help it deal with some financial stress. Notably, the initiatives include the reduction in compensation, furloughs, lowering of discretionary spending and hiring freeze.
Factors Working Against Regal Beloit
Top-Line Woes and Earnings Estimates: Regal Beloit is wary about the adverse impacts of the pandemic on its operations. It believes that lower demand due to the pandemic will lower order rates in the HVAC business and thus, will adversely impact the Climate Solutions segment in the quarters ahead. Further, the Commercial Systems segment will suffer from weakness in the pool pump business.
The Industrial Systems segment will likely face headwinds from the pandemic-induced low demand in the core industrial and power generation end markets. Also, weakness in oil and gas markets (both upstream and midstream), general industrial, and metals markets will likely impact the Power Transmission Solutions segment.
The company expects sales to fall significantly in the second quarter.
Regal Beloit’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at 53 cents per share for the second quarter, reflecting a decline of 54.7% from the 60-day-ago period. Likewise, estimates of $3.69 for 2020 and $5.38 for 2021 reflect declines of 25% and 15.1% from the respective 60-day-ago figures. The stock currently carries a Zacks Rank #4 (Sell).
Regal Beloit Corporation Price and Consensus
Regal Beloit Corporation price-consensus-chart | Regal Beloit Corporation Quote
Leverage: High debts and related financial obligations can be concerning for Regal Beloit. The company’s long-term debts were $1,364.3 million exiting first-quarter 2020, reflecting an increase of 20% from fourth-quarter 2019. Further, the company’s cash and cash equivalents were just $604.5 million at the first-quarter end. Interest expenses totaled $11.6 million.
It is worth mentioning here that the company’s total debt to total capital increased from 33.7% in the fourth quarter of 2019 to 38.5% in the first quarter of 2020. More concerning is its weak ability to repay its financial obligations, as is evident from a fall in times interest earned from 6.7x in the fourth quarter of 2019 to 6.0x in the first quarter of 2020.
Woes Related to International Presence & Divestments, Peers: Regal Beloit carries out its operations in Asia, Canada, the United States, Europe and Mexico. The international presence has exposed the company to risks arising from unfavorable movements in foreign currencies, macroeconomic challenges, geopolitical issues and local competitive pressure. In first-quarter 2020, forex woes adversely impacted its sales by 0.7%.
Also, divestments were an issue for the company in the first quarter, with an adverse impact of 3.5% on sales. Though done in the best interest of shareholders, these moves can be concerning in the near term.
Three companies that compete with Regal Beloit are Rexnord Corporation , Altra Industrial Motion Corp. and ABB Ltd . All these stocks presently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Today's Best Stocks from Zacks
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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