Regal Beloit Corporation€¦ · 2016. 2020. High Eff. Standard. 2.9. 3.1. Sources: AHRI &...
Transcript of Regal Beloit Corporation€¦ · 2016. 2020. High Eff. Standard. 2.9. 3.1. Sources: AHRI &...
©2018 Regal Beloit Corporation
Regal Beloit CorporationInvestor Relations Presentation
June 2018
Mark GliebeChairman and Chief Executive Officer
Jon SchlemmerChief Operating Officer
Rob RehardVice PresidentChief Financial Officer
Robert CherryVice PresidentBusiness Development & Investor Relations
©2018 Regal Beloit Corporation 2
Safe Harbor StatementThe 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, including but not limited to: 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 globalelectric motor, drives and controls, power generation and power transmission 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; risks associated with global manufacturing; 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, governmentagencies 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 liabilitiesof 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; effects on earnings of anysignificant impairment of goodwill or intangible assets; losses from failures, breaches, attacks or disclosures involving ourinformation technology infrastructure and data; 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 February 27, 2018 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.
©2018 Regal Beloit Corporation 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, net debt, 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, net debt, 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.
©2018 Regal Beloit Corporation 4
Regal is…
A Leader in High Efficiency Motor & Power Transmission Systems− Well-positioned for global energy efficiency trend
A Strong Free Cash Flow Generator− Five-year average free cash flow 133% of adjusted net income*
Positioned to Drive Organic Growth through Innovation− Disruptive products for both residential and industrial applications
Delivering Results from Ongoing Simplification Initiative− Primed for margin improvement and transition to automation
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
We Create a Better Tomorrow by Efficiently Converting Power into Motion
©2018 Regal Beloit Corporation 5
Regal Overview
Founded in 1955 with Headquarters inBeloit, Wisconsin
2017 Sales of $3.4B
Sales by SegmentSales by Product
Sales by Geography Production by Geography
Commercial & Industrial Systems
Power Transmission
SolutionsClimate
Solutions
Mexico
Mexico
USA & Canada
USA & Canada
Europe
AsiaAsia
EuropeROW
28%22%
50%
Small Motors
Large Motors
Gearing
Bearings
Fans & Blowers
GeneratorsCouplings
Other
9 Straight Years of Dividend Increases
Strong Brands Associated with High Efficiency Systems
©2018 Regal Beloit Corporation 6
Segment End Markets, Products and Brands
Power Transmission
Solutions
ClimateSolutions
®
Commercial & Industrial
Systems
©2018 Regal Beloit Corporation 7
Financial Snapshot
$3.3 $3.5$3.2 $3.4
2014 2015 2016 2017
Net Sales
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
$4.31
$5.33$4.44
$4.87
2014 2015 2016 2017
$215
$292
$377
$227
2014 2015 2016 2017
$0.84 $0.90 $0.94 $1.00
2014 2015 2016 2017
Adjusted Diluted EPS*
Dividends Paid Per ShareFree Cash Flow*
(billions)
(millions)
©2018 Regal Beloit Corporation 8
0%
25%
50%
75%
100%
125%
150%
175%
200%
$-
$100
$200
$300
$400
$500
2013 2014 2015 2016 2017
Free Cash Flow* % of Adj. Net Income*
Free Cash Flow % of Adj. Net Income 5-Year Average of 133% * Non-GAAP Financial Measurement, See Appendix for Reconciliation
(millions)
Consistently Generating Cash
©2018 Regal Beloit Corporation 9
$0.62 $0.64 $0.66 $0.70
$0.74 $0.78
$0.84 $0.90
$0.94 $1.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dividend Increase of 8% Announced April 30, 2018
Dividends Paid Per Share
Returning Cash to Shareholders
©2018 Regal Beloit Corporation 10
Capital Allocation Priorities
Acquisitions
Targeted Transactions to Strengthen the Core and Drive Shareholder Value
Share Repurchase
Opportunistically Repurchase Shares while Maintaining Financial Flexibility
Balance Sheet Targets
Disciplined Approach to Drive Long-Term Shareholder Value
Debt/EBITDA* Ratio: 1.5 – 3.5
Capital Expenditures: 2.5% – 3.0% of Sales
Cash Dividends: 20% – 24% Payout Ratio
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
©2018 Regal Beloit Corporation 11
Enterprise Strategy
FOUNDATIONAL PERFORMANCECORE CAPABILITIES
Top QuartileCash Generation
Improving Margins
Customer Favored
Unique Culture
Innovative
Strong Operators
Drives Long Term Growth and Improved Returns
• Focus on Core
KEY ELEMENTS
• Innovate to Grow• Simplification
©2018 Regal Beloit Corporation 12
Enterprise Strategy – Performance Targets
Adj. Operating Margins*
200 – 250 bps
ROIC*
300 – 400 bps
Organic Sales Growth*
2% – 4% CAGR
By 2019
Strategy Drives Sustainable Improvements in Financial Performance
Free Cash Flow to Net Income*
100% – 125%
* Non-GAAP Financial Measurement, See Appendix for Reconciliation
©2018 Regal Beloit Corporation 13
Focus On Core Businesses Where We Can Differentiate with Technology
Increase the Focus on the Distribution Channel to Drive Growth
Selectively Prune Businesses Where We Do Not Have a Clear Advantage or Scale
Management Incentivized to Deliver Organic Revenue Growth and Operating Margin Improvement
Balanced Capital Deployment Between Share Repurchases and Acquisitions
Focus on the Core
Acquisition First
Serial Acquirer
Organic First
Targeted Acquisitionsto
©2018 Regal Beloit Corporation 14
Innovate to Grow
Energy Efficiency Internet of ThingsDisruptive Technology
HP Range Year Markets< 1.0 2011 Furnaces
BoilersAppliances
0.5 - 1.0 2015 FurnacesAir Handlers
3.0 – 15.0 2017 Ind. FansPumps
Efficient motors use electronics Every motor can be a sensor Every motor can communicate Every motor can be programmed
Commercial Refrigeration Effective March of 2017 Requires ECM type motor
Commercial HVAC Effective July of 2018 Expecting shift to ECM
Fan Energy Rating (FER) Effective July of 2019 Expecting significant shift
to ECM
Data Analytics
Predictive Maintenance
©2018 Regal Beloit Corporation 15
IE3 Efficiency Industrial Motors
Fan Energy Rating (FER)
Walk in Coolers & Freezers
Comm. Ref. Equipment
Multi-Year Trend Favors High Efficiency Suppliers
Energy Efficiency Requirements Increasing
Commercial HVAC
2017 2018 2019 2020
©2018 Regal Beloit Corporation 16
Industry Units by Motor Type(million units)
2016 2020
High Eff
Standard
2.93.1
Sources: AHRI & Management estimates
Fan Energy Rating (FER)
New National Furnace Standard
Electrical Efficiency Requirement
High Efficiency Motor Mandate
7/1/19 Effective Date
Furnace Fan Regulation Impact
Significant Industry Mix Shift by 2020
©2018 Regal Beloit Corporation 17
Four Paths To Meet FER Regulation
Blower Housing
Blower Motor
Gas Modulation
Heat Exchanger
70%
82%
93%
100%
% of Volume
©2018 Regal Beloit Corporation 18
Full Range of FER Solutions
Best FER Solution Set
Customer Benefits Full Range of Solutions Highest Motor Efficiency
with Proven Reliability Premium Solution for Most
Difficult Applications
Regal Benefits Full Customer Engagement Est. $40-$60 Million
Incremental Sales by 2020
DEC Star® BlowerHighest Efficiency
Solution
ECM 3.0+High Efficiency
Motor
Ensite™
ECM Motor
Efficiency and Features
©2018 Regal Beloit Corporation 19
Disruptive Technology – DEC Star® Blower
Innovative First to Market New Technology in the Motor,
Drive, Blower Constructionand Blower Wheel
17 Patents Issued & Pending
Helps Meet Difficult FER and SEER Regulations with One Simple Upgrade
Benefits Substantial Improvement
in Energy Efficiency Less Noise Less Weight Uniform Airflow
Standard Blower DEC Star® Blower
©2018 Regal Beloit Corporation 20
Scaling Axial Technology
Growth Opportunities in Both Existing and New Markets for Regal
UlteMAX™
Motor & ControlDEC Star® Blower
HVAC SolutionAxial
Draft InducerAxial
Gas Pre-Mix
2011 2013 2015 2017
©2018 Regal Beloit Corporation 21
Disruptive Technology – UlteMAX™ Motor
Differentiated Form Factor Delivers Significant Value
Customer Benefits Compact Form Factor 50% – 75% Lower Weight Higher Efficiency
UlteMAX™
Motor & ControlStandard
Industrial Motor
Regal Benefits Significant Customer
Interest First Sales in 2017 Est. $70 Million
Incremental Sales by 2023
©2018 Regal Beloit Corporation 22
UlteMAX™ Motor – Industrial Applications
Innovative First to Market Revolutionary Form Factor New Technology in the Motor, Drive 8 Patents Issued and Pending
Improving Energy Efficiency with Less Weight and Lower System Cost
Benefits to Customers Substantial Improvement in
Energy Efficiency 50% - 75% Less Weight and Size
Standard Air Handling Axial Air Handling
©2018 Regal Beloit Corporation 23
Simplification
ERPs
Manufacturing Footprint
Design Platforms
Suppliers
Completed thru 2016
Reducing Our Costs and Making it Easy for the Customer
Planned for 2017-2019
75% of Sales on One ERP 90% of Sales on One ERP
1,845,000 sq ft Reduced15% Reduction
Another 1,100,000 sq ft Cumulative 25% Reduction
4 Major Design PlatformsConsolidated
1 Additional Design Platformto be Consolidated
~1,400 SuppliersConsolidated
~500 More Suppliersto Consolidate
©2018 Regal Beloit Corporation 24
Leveraging Simplification
Energy Efficiency Disruptive Technology Internet of Things
Enables
Enables
Enables
Rooftop Consolidation Automation
ERP Consolidation Digital Customer Experience
Platform Consolidation Innovation
1,845K sq ft consolidated
75%revenue on one system
4 design platforms eliminated
©2018 Regal Beloit Corporation 25
Nicotra Gebhardt – Transaction Overview
Closed on Acquisition of Nicotra Gebhardt on April 10, 2018
A Premier Air Moving Business with ~$150 Million in Annual Sales
Adds to Regal’s Growing Lineup of Energy Efficient Air Moving Systems
Integrating into Commercial and Industrial Systems Segment
©2018 Regal Beloit Corporation 26
Nicotra Gebhardt – Product Offering
Ventilation Unit
Packaged Air Conditioning
Air Handling Unit
Roof Fan
©2018 Regal Beloit Corporation 27
Key Takeaways
Regal is…
A Leader in High Efficiency Motor & Power Transmission Systems
A Strong Free Cash Flow Generator
Positioned to Drive Organic Growth through Innovation
Delivering Results from Ongoing Simplification Initiative
We Create a Better Tomorrow by Efficiently Converting Power into Motion
©2018 Regal Beloit Corporation
Thank You
Mark GliebeChairman and Chief Executive Officer
Jon SchlemmerChief Operating Officer
Rob RehardVice PresidentChief Financial Officer
Robert CherryVice PresidentBusiness Development & Investor Relations
©2018 Regal Beloit Corporation 29
Appendix Non-GAAP Reconciliations
(Dollars in Millions)FREE CASH FLOW Dec 28, 2013 Jan 3, 2015 Jan 2, 2016 Dec 31, 2016 Dec 30, 2017Net Cash Provided by Operating Activities 305.0$ 298.2$ 384.3$ 442.3$ 291.9$ Additions to Property Plant and Equipment (82.7) (83.6) (92.2) (65.2) (65.2) Grants Received for Capital Expenditures 1.6 - - - Free Cash Flow 223.9$ 214.6$ 292.1$ 377.1$ 226.7$
(Dollars in Millions)ADJUSTED NET INCOME EXCLUDING ASSET WRITE DOWNS Dec 28, 2013 Jan 3, 2015 Jan 2, 2016 Dec 31, 2016 Dec 30, 2017GAAP Net Income (Loss) Attributable to Regal Beloit Corporation 120.0$ 31.0$ 143.3$ 203.4$ 213.0$ Goodwill and Asset Impairments and Other, Net 81.0 159.5 92.7 - - Tax Effect from Goodwill and Asset Impairments and Other, Net (6.4) (12.3) (21.8) - - Adjusted Net Income 194.6$ 178.2$ 214.2$ 203.4$ 213.0$
Free Cash Flow as a Percentage of Adjusted Net Income Excluding AssetWrite Downs Attributable to Regal Beloit Corporation 115.1% 120.4% 136.4% 185.4% 106.4%
Five Year Average Free Cash Flow to Adjusted Net Income 132.7%
Twelve Months Ended
Twelve Months Ended
©2018 Regal Beloit Corporation 30
Appendix Non-GAAP Reconciliations
ADJUSTED DILUTED EARNINGS PER SHAREDec 30,
2017Dec 31,
2016
GAAP Diluted Earnings Per Share 4.74$ 4.52$
Restructuring and Related Costs 0.22 0.10
Gain on Disposal of Businesses - (0.14)
Gain on Sale of Assets (0.07) (0.04)
Provisional Benefit of the New US Tax Legislation (0.02) -
Adjusted Diluted Earnings Per Share 4.87$ 4.44$
Twelve Months Ended
©2018 Regal Beloit Corporation 31
Appendix Non-GAAP ReconciliationsTOTAL DEBT/ADJUSTED EBITDA(Dollars in Millions)
LTM Dec 30, 2017 Net Income Attributable to Regal Beloit Corporation 213.0$ Plus: Minority Interest 5.1 Plus: Taxes 59.1 Plus: Interest Expense 56.1 Less: Interest Income (3.2) Plus: Depreciation and Amortization 137.2 Plus: Restructuring and Related Costs 14.1 Less: Gain on Sale of Assets (3.9) Less: Gain on Disposal of Business (0.1)
Adjusted EBITDA 477.4$
Current Maturities of Debt 101.2$ Long-Term Debt 1,039.9
Total Debt 1,141.1$
Total Debt/Adjusted EBITDA 2.4
©2018 Regal Beloit Corporation 32
Appendix Non-GAAP Reconciliations
ORGANIC SALES GROWTH(Dollars in Millions)
Commercial & Industrial Systems Climate Solutions
Power Transmission Solutions Total Regal
Net Sales 1,604.3$ 990.6$ 765.4$ 3,360.3$
Net Sales from Business Divested - - 9.0 9.0
Impact from Foreign Currency Exchange Rates (2.5) (0.7) (1.6) (4.8)
Adjusted Net Sales 1,601.8$ 989.9$ 772.8$ 3,364.5$
Net Sales Twelve Months Ended Dec 31, 2016 1,530.9$ 960.0$ 733.6$ 3,224.5$
Organic Sales Growth % 4.6 % 3.1 % 5.3 % 4.3 %
Net Sales Growth % 4.8 % 3.2 % 4.3 % 4.2 %
Twelve Months Ended December 30, 2017
ADJUSTED OPERATING INCOME(Dollars in Millions) Dec 30,
2017Dec 31,
2016Dec 30,
2017Dec 31,
2016Dec 30,
2017Dec 31,
2016Dec 30,
2017Dec 31,
2016
GAAP Income from Operations 100.0$ 103.5$ 140.6$ 129.9$ 89.5$ 87.2$ 330.1$ 320.6$
Restructuring and Related Costs 10.9 2.5 2.5 2.6 0.7 1.7 14.1 6.8
Gain on Disposal of Businesses - - - - (0.1) (11.6) (0.1) (11.6)
Gain on Sale of Assets (1.1) (1.7) - - (2.8) - (3.9) (1.7)
Adjusted Income from Operations 109.8$ 104.3$ 143.1$ 132.5$ 87.3$ 77.3$ 340.2$ 314.1$
GAAP Operating Margin % 6.2 % 6.8 % 14.2 % 13.5 % 11.7 % 11.9 % 9.8 % 9.9 %
Adjusted Operating Margin % 6.8 % 6.8 % 14.4 % 13.8 % 11.4 % 10.5 % 10.1 % 9.7 %
Total Regal
Twelve Months EndedCommercial & Industrial
Systems Climate SolutionsPower Transmission
Solutions
©2018 Regal Beloit Corporation 33
Appendix Non-GAAP ReconciliationsRETURN ON INVESTED CAPITAL (ROIC)(Dollars in Millions) Dec 30,
2017Dec 31,
2016
Cash and Cash Equivalents (139.6)$ (284.5)$
Current Maturities of Debt 101.2 100.6$
Long-Term Debt 1,039.9 1,310.9
Total Net Debt 1,001.5$ 1,127.0$
Total Regal Beloit Corporation Shareholders' Equity 2,325.5$ 2,038.8$
Noncontrolling Interests 29.2 39.4$
Total Equity 2,354.7$ 2,078.2$
Total Invested Capital 3,356.2$ 3,205.2$
Average Total Invested Capital 3,280.7$ 3,328.5$
Adjusted Income from Operations 340.2$ 314.1$
Less: Income Tax Provision* 21.7 % 21.4 %
Adjusted Income from Operations after Tax 266.4$ 246.9$
Return on Invested Capital 8.1 % 7.4 %
*2017 Tax Rate adjusted for impact of the Tax Cuts and Jobs Act of 2017.
Twelve Months Ended
©2018 Regal Beloit Corporation 34
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