Rexnord Corporation reported better-than-expected results for the second quarter of 2021, with earnings surpassing the Zacks Consensus Estimate by 16%. Also, its sales exceeded the same by 4.4%.
The machinery company’s adjusted earnings in the reported quarter were 58 cents per share, surpassing the Zacks Consensus Estimate of 50 cents. The bottom line increased 61.1% from the year-ago quarter earnings of 36 cents on the back of improved sales performance and margins.
Sales Details
In the reported quarter, Rexnord’s net sales were $568.3 million, increasing 26.5% from the year-ago quarter. The results benefitted from 21% growth in core sales, 3% gain from foreign currency translations and 3% contribution from acquisitions/divestitures.
Its net sales surpassed the Zacks Consensus Estimate of $544.2 million.
The company reports results under two segments — Process & Motion Control, and Water Management. In February, Rexnord signed an agreement with Regal Beloit Corporation (RBC - Free Report) to combine its Process & Motion Control segment with the latter. The transaction is predicted to be complete in fourth-quarter 2021. Preparations for the merger are on track/or as planned by the parties.
The second-quarter segmental results are briefly discussed below:
Revenues from Process & Motion Control totaled $324.6 million, up 18.3% year over year. It represented 57.1% of the company’s quarterly net sales. Core sales in the reported quarter increased 16% year over year, driven by 21% growth in the non-aerospace business, partially offset by a 15% decline in the aerospace business. Foreign currency translations benefited the company by 4%, while divestitures had an adverse impact of 2%.
Water Management’s revenues, representing 42.9% of net sales, were $243.7 million, up 39.5% year over year. Core sales in the reported quarter increased 29%, whereas acquired assets (Hadrian) contributed 9% to sales growth. The rise in core sales was driven by high product demand. Foreign currency translations had a positive impact of 1% in the quarter.
Margin Profile
In the reported quarter, Rexnord’s cost of sales increased 22.2% year over year to $332.5 million. It represented 58.5% of net sales versus 60.6% recorded in the year-ago quarter. Gross margin increased 210 basis points (bps) to 41.5%. Selling, general and administrative expenses of $122 million increased 21.8% year over year and represented 21.5% of net sales versus 22.3% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $133.4 million, up 26.5% from the year-ago quarter. Adjusted EBITDA margin was 23.5% in the quarter under review, increasing 50 bps from the year-ago quarter. For the Process & Motion Control segment, adjusted EBITDA margin increased 260 bps year over year to 24.2%, whereas that for the Water Management segment decreased 230 bps to 26.8%.
Adjusted operating income increased 34.8% year over year to $110.3 million, whereas margin grew 120 bps to 19.4%. Interest expenses, net, in the reported quarter were $11.7 million, down 12.7% year over year.
Balance Sheet and Cash Flow
Exiting the second quarter of 2021, Rexnord had cash and cash equivalents of $390.7 million, reflecting 27.1% growth from $307.3 million recorded in the last reported quarter. Long-term debt was stable sequentially at $1,189.5 million.
In the quarter under review, the company generated net cash of $73.7 million from operating activities, increasing 54.8% year over year. Capital investment for purchasing property, plant and equipment declined 43.5% to $4.8 million. Free cash flow was $68.9 million, increasing from $39.1 million in the prior-year quarter.
In the first half of 2021, the company paid out dividends totaling $21.6 million, reflecting an 11.3% increase from the year-ago comparable period. It also repurchased shares worth $0.9 million during the same period.
Outlook
For the third quarter of 2021, the company expects Water Management sales to increase in high-teens, with double-digit core sales growth. Adjusted EBITDA margin for the segment is expected to be 26-27%.
Sales for the Process & Motion Control segment are anticipated to increase by mid-teens on a year-over-year basis. Adjusted EBITDA margin for the segment is expected to be 23-24%.
Corporate expenses for the third quarter are expected to be $10 million.
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Rexnord Corporation reported better-than-expected results for the second quarter of 2021, with earnings surpassing the Zacks Consensus Estimate by 16%. Also, its sales exceeded the same by 4.4%.
The machinery company’s adjusted earnings in the reported quarter were 58 cents per share, surpassing the Zacks Consensus Estimate of 50 cents. The bottom line increased 61.1% from the year-ago quarter earnings of 36 cents on the back of improved sales performance and margins.
Sales Details
In the reported quarter, Rexnord’s net sales were $568.3 million, increasing 26.5% from the year-ago quarter. The results benefitted from 21% growth in core sales, 3% gain from foreign currency translations and 3% contribution from acquisitions/divestitures.
Its net sales surpassed the Zacks Consensus Estimate of $544.2 million.
The company reports results under two segments — Process & Motion Control, and Water Management. In February, Rexnord signed an agreement with Regal Beloit Corporation (RBC - Free Report) to combine its Process & Motion Control segment with the latter. The transaction is predicted to be complete in fourth-quarter 2021. Preparations for the merger are on track/or as planned by the parties.
The second-quarter segmental results are briefly discussed below:
Revenues from Process & Motion Control totaled $324.6 million, up 18.3% year over year. It represented 57.1% of the company’s quarterly net sales. Core sales in the reported quarter increased 16% year over year, driven by 21% growth in the non-aerospace business, partially offset by a 15% decline in the aerospace business. Foreign currency translations benefited the company by 4%, while divestitures had an adverse impact of 2%.
Water Management’s revenues, representing 42.9% of net sales, were $243.7 million, up 39.5% year over year. Core sales in the reported quarter increased 29%, whereas acquired assets (Hadrian) contributed 9% to sales growth. The rise in core sales was driven by high product demand. Foreign currency translations had a positive impact of 1% in the quarter.
Margin Profile
In the reported quarter, Rexnord’s cost of sales increased 22.2% year over year to $332.5 million. It represented 58.5% of net sales versus 60.6% recorded in the year-ago quarter. Gross margin increased 210 basis points (bps) to 41.5%. Selling, general and administrative expenses of $122 million increased 21.8% year over year and represented 21.5% of net sales versus 22.3% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $133.4 million, up 26.5% from the year-ago quarter. Adjusted EBITDA margin was 23.5% in the quarter under review, increasing 50 bps from the year-ago quarter. For the Process & Motion Control segment, adjusted EBITDA margin increased 260 bps year over year to 24.2%, whereas that for the Water Management segment decreased 230 bps to 26.8%.
Adjusted operating income increased 34.8% year over year to $110.3 million, whereas margin grew 120 bps to 19.4%. Interest expenses, net, in the reported quarter were $11.7 million, down 12.7% year over year.
Balance Sheet and Cash Flow
Exiting the second quarter of 2021, Rexnord had cash and cash equivalents of $390.7 million, reflecting 27.1% growth from $307.3 million recorded in the last reported quarter. Long-term debt was stable sequentially at $1,189.5 million.
In the quarter under review, the company generated net cash of $73.7 million from operating activities, increasing 54.8% year over year. Capital investment for purchasing property, plant and equipment declined 43.5% to $4.8 million. Free cash flow was $68.9 million, increasing from $39.1 million in the prior-year quarter.
In the first half of 2021, the company paid out dividends totaling $21.6 million, reflecting an 11.3% increase from the year-ago comparable period. It also repurchased shares worth $0.9 million during the same period.
Outlook
For the third quarter of 2021, the company expects Water Management sales to increase in high-teens, with double-digit core sales growth. Adjusted EBITDA margin for the segment is expected to be 26-27%.
Sales for the Process & Motion Control segment are anticipated to increase by mid-teens on a year-over-year basis. Adjusted EBITDA margin for the segment is expected to be 23-24%.
Corporate expenses for the third quarter are expected to be $10 million.
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They include a medical manufacturer that gained +11,000% in the last 15 years… a rental company absolutely crushing its sector… an energy powerhouse planning to grow its already large dividend by 25%... an aerospace and defense standout that just landed a potentially $80 billion contract… and a giant chipmaker building huge plants in the U.S.
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