Baldor Electric Company 2nd Quarter and YTD 2006 Results and Discussion

FORT SMITH, Ark., July 13 -- Baldor Electric Company markets, designs, and manufactures industrial electric motors, drives, and generators and is based in Fort Smith, Arkansas. Today Baldor announced unaudited results of the second quarter and first six months of 2006.

                       2nd Quarter                     Year
  (in thousands      2006      2005               2006      2005
   except per       Jul 1     Jul 2              Jul 1     Jul 2
   share data)       2006      2005     % Chg.    2006      2005   % Chg.

  Net Sales        $205,607  $178,292    15.3%  $397,921  $348,888  14.1%
  Cost of Sales     152,155   132,398            291,857   259,220
  Gross Profit       53,452    45,894    16.5%   106,064    89,668  18.3%
  SG&A               32,610    29,896             66,066    58,846
  Operating Profit   20,842    15,998    30.3%    39,998    30,822  29.8%
  Other Expense       1,366       576              2,502     1,081
  Earnings Before
   Income Taxes      19,476    15,422    26.3%    37,496    29,741  26.1%
  Income Taxes        7,079     5,710             13,731    11,007
  Net Earnings      $12,397    $9,712    27.6%   $23,765   $18,734  26.9%

  Earnings Per
   Share - Diluted    $0.38     $0.29    31.0%     $0.72     $0.55  30.9%
  Dividends Per
   Share              $0.17     $0.15    13.3%     $0.33     $0.30  10.0%

  Average Shares
   Outstanding       32,796    33,739             33,127    33,769

John McFarland, Chairman and CEO, commented on the Company's results, "We are pleased to announce record sales of $205.6 million for the second quarter, a 15% increase over last year. Net earnings were up 28% and earnings per share improved to $0.38, a 31% increase. Operating margin increased to 10.1% from 9.0% one year ago."

McFarland also said, "Super-E(R) high-efficiency motors and large motors (60 horsepower and above) continue to grow at more than twice our overall sales growth. We believe we are gaining market share in both of these areas. We recently completed the expansion of our facility in Mississippi to support the growth of these products."

                          Balance Sheet Summary

  (in thousands)                                    2006           2005
                                                 Jul 1 2006     Jul 2 2005
  Cash & Marketable Securities                     $34,504        $43,215
  Trade Receivables - net                          128,335        110,870
  Inventories                                      118,489        122,894
  Working Capital                                  213,464        218,821
  Total Debt                                       115,418        104,025
  Shareholders' Equity                             295,618        291,455

  Cash Flow from Operations (YTD)                  $13,510        $16,582

   2nd Quarter Operating Margins
   http://www.baldor.com/images/06Q2_OperatingMargins.jpg

  The following are answers to questions recently asked by shareholders.

  Q  ...  Why did your debt balance go up?

During the quarter, we repurchased 1.1 million shares of our stock. In order to do so, we borrowed $30 million early in the quarter. Our strong cash flow allowed us to repay $10 million of this debt during the quarter, and we expect to repay the remaining $20 million before the end of the year. The reduction in the shares outstanding due to the repurchase will add approximately $0.05 to earnings per share in 2007.

Q ... Where did you see strength in your business during the quarter?

Sales growth was broad-based, both by industry and geography. High electricity costs continue to support higher Super-E high efficiency motor sales, while investments in oil and gas are driving the large motor business. During the past three months, 14% of our sales came from new customers, which we believe is another indicator of market share gain.

During the quarter, motor sales were up 19%, generator sales increased 6%, and drives sales improved 2%. International sales were up 7% for the quarter.

Q ... What happened to raw material prices during the quarter?

Material costs continued to rise during the quarter. The larger than anticipated increase in the price and usage of copper during the quarter had a negative impact on margins. As a result of higher material cost, we announced a 7% price increase effective August 7.

Q ... Operating margin improved again this quarter. Can you improve this margin further?

Yes. Operating margin is affected by three components, SG&A, manufacturing expense and material cost. SG&A is at a 20-year low. We believe we have opportunities to improve it further. Manufacturing expenses are at their lowest point in over 5 years. Increased volumes and the expansion of our Columbus and Oshkosh facilities will help continue the progress we've made in manufacturing. Our price increase in August, along with improved product designs, should offset rising material costs.

Q ... Why has your generator growth slowed over the past two quarters?

During the first half of 2005, military business accounted for over $2.7 million of generator sales. We had almost no military business during the first half of 2006. We expect military shipments to resume during early 2007. Sales to non-military customers are up 21% in the first half of 2006. We expect military shipments to continue to be a smaller percentage of our overall generator business.

Q ... How does business look for the balance of the year?

We believe it looks strong. While shipments were up 15% during the quarter, our incoming order rates increased 20%, with June having the highest percentage increase of any month in nearly 2 years.

Q ... When is your next public presentation?

The Company will hold an Analyst Day in Boston on October 17, 2006. Management will also make a presentation at the Better Investing National Convention in Columbus, OH, on Friday, September 8, 2006.

This document contains statements that are forward-looking, i.e. not historical facts. The forward-looking statements contained in this document ("optimistic", "will", "continue", "expect", "believe", "should") are based on the Company's current expectations and some of them are subject to risks and uncertainties. Accordingly, you are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) changes in economic conditions, (ii) developments or new initiatives by our competitors in the markets in which we compete, (iii) fluctuations in the costs of select raw materials, (iv) the success in increasing sales and maintaining or improving the operating margins of the Company, and (v) other factors including those identified in the Company's filings made from time-to-time with the Securities and Exchange Commission. These statements should be read in conjunction with the Company's most recent annual report (as well as the Company's Form 10-K and other reports filed with the Securities and Exchange Commission) containing a discussion of the Company's business and of various factors that may affect it.