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Rexnord (RXN) Beats Q1 Earnings & Revenues; Keeps View

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Machinery company Rexnord Corporation kept its earnings streak alive in first-quarter fiscal 2017 (ended Jun 30, 2016), with a positive earnings surprise of 16.7%. The company’s adjusted earnings were 35 cents per share, above the Zacks Consensus Estimate of 30 cents. Also, the bottom line exceeded the year-ago tally of 32 cents by 9.4%.  

 

Talking about Rexnord’s top-line results, net sales in the quarter were $471.8 million, above the Zacks Consensus Estimate of $459.8 million. However, the top line declined 2.7% from $485.1 million generated in the year-ago quarter. The year-over-year fall was triggered by a 1% decline in core sales, 2% negative impact due to exit from the Rodney Hunt Fontaine (RHF) product line and 1% from forex losses, partially offset by 1% gain from acquired assets.

In fourth-quarter fiscal 2016, the company announced its decision to exit its non-strategic RHF product line. The operations of the RHF product line were included within Rexnord’s Water Management platform. Excluding revenues of $6.5 million generated from this business, the quarter’s adjusted revenues were $465.3 million.

Segmental Revenues

Rexnord reports its top-line results under two heads, Process & Motion Control and Water Management. The segmental quarterly results are briefly discussed below:

Revenues from Process & Motion Control totaled $263.7 million, down 2.9% year over year. It represented 55.9% of revenues.

Water Management revenues, representing 44.1%, were $208.1 million, down 2.5% year over year.

Adjusted revenues (revenues excluding the contribution from the RHF product line) were $201.6 million.

Margins

In the quarter, Rexnord’s cost of sales decreased 2.8% year-over-year, representing 64.9% of net sales, marginally down from 65% in the year-ago quarter. Gross margin inched up 10 basis point (bps) year-over-year to 35.1%.

Selling, general and administrative expenses, as a percentage of revenue, increased 190 bps year-over-year to 22.6%. Adjusted earnings before interest, tax, depreciation and amortization in the quarter were $79 million, down 9.3% year over year.

Balance Sheet and Cash Flow

Exiting first-quarter fiscal 2017, Rexnord’s cash and cash equivalents were $183.2 million, significantly down from $484.6 million in the preceding quarter. Long-term debt fell 4.1% sequentially to $1,821.3 million.

In the first quarter, Rexnord generated cash of $19.6 million from its operating activities, up from $7.9 million recorded in the year-ago quarter. Investment in property, plant and equipment increased 55.8% year over year to $12 million.

Outlook

Going forward, Rexnord anticipates benefiting from improvement in nonresidential construction, aerospace, and food and beverage end markets, partially offset by the persistent weakness in the industrial end-markets.

For fiscal 2017, Rexnord has kept its adjusted earnings guidance stable at $1.47−$1.57 per share range. Core sales will decline 2% to improve at least 1%. The effective tax rate is expected to be around 27%, while capital expenditure is anticipated to be approximately 3% of sales. Free cash will exceed net income.

For second-quarter fiscal 2017, Rexnord projects adjusted earnings within 36−39 cents per share. Sales are predicted in a range of $492−$502 million.

Rexnord expects to realize $30 million in annual cost-savings from its supply-chain optimization and footprint-repositioning programs by the end of fiscal 2017.

REXNORD CORP Price, Consensus and EPS Surprise

REXNORD CORP Price, Consensus and EPS Surprise | REXNORD CORP Quote

Zacks Rank & Stocks to Consider

With a market capitalization of $2.1 billion, Rexnord Corporation presently carries a Zacks Rank #3 (Hold). Some stocks performing well and carrying high investment value in the machinery industry include Stanley Black & Decker Inc. (SWK - Free Report) , Franklin Electric Co., Inc. (FELE - Free Report) and AO Smith Corp. (AOS - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

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