Regal Beloit (RBC) To Sell Drives & Control Business By 1Q19

Regal Beloit Corporation (NYSE:RBC) announced that it agreed to sell its highly engineered drives and control systems business (Regal Drive Technologies) for an undisclosed amount. The other party to the transaction is an associate of Sun Capital Partners, Inc.

Regal Drive Technologies is primarily engaged in manufacturing starters, engineered controls and drives. The business, employing roughly 450 people, is anticipated to generate revenues of $131 million and earnings of 18 cents per share in 2018.

Details of the Divestment Deal

It’s worth mentioning here that Regal Drive Technologies is reported under Regal Beloit’s Commercial and Industrial Systems segment. This segment — accounted for roughly 49.9% of third-quarter 2018 revenues — primarily engages in manufacturing motors (medium and large), generators, custom drives, controls and systems. These products are used in industrial and commercial equipment; oil & gas systems; and commercial heating, ventilation and air conditioning (HVAC).

The divestment, once completed, will help Regal Beloit to concentrate on its core businesses by using the freed-up resources more effectively.

Subject to the receipt of customary regulatory approvals, Regal Beloit anticipates this divestment deal to close in the first quarter of 2019.

Snapshot of Regal Beloit’s Inorganic Initiatives

In addition to divestment, Regal Beloit engages in business acquisitions to gain access to new customers, regions and product lines.

In April 2018, the company acquired Nicotra Gebhardt S.p.A — specialist in making, selling and servicing blowers and fans. Its leading product brands are Gebhardt and Nicotra. This acquired business was integrated with Regal Beloit’s Commercial & Industrial Systems.

It’s worth mentioning here that acquisitions and net of divestitures added approximately 4.1% to the company’s sales growth in the third quarter of 2018.

Zacks Rank & Stocks to Consider

With a market capitalization of nearly $3.3 billion, Regal Beloit currently carries a Zacks Rank #3 (Hold). Strengthening segmental businesses, synergistic gains from acquired assets and improved productivity will be advantageous for the company in the quarters ahead. However, rising costs — mostly due to inflation in the prices of steel and aluminum — as well as the cyclical nature of the business and customer concentration risks might be dragging.

In the past 30 days, the company’s Zacks Consensus Estimate for earnings per share remained unchanged at $5.92 for 2018 and $6.53 for 2019. On a year-over-year basis, estimates for 2018 and 2019 represent growth of 21.6% and 10.4%, respectively.

Regal Beloit Corporation Price and Consensus