More than a month has gone by since the last earnings report for Rexnord Corporation (RXN - Free Report) . Shares have added about 4.6% in that time frame.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Rexnord Beats Q1 Earnings, Sales, Maintains FY18 View
Rexnord kept its earnings streak alive in first-quarter fiscal 2018 (ended Jun 30, 2017). Its adjusted earnings came in at $0.27 per share, surpassing the Zacks Consensus Estimate of $0.26 by 3.8%. On a year-over-year basis, the bottom line declined 22.9% from $0.35.
Net sales totaled $487.7 million, beating the Zacks Consensus Estimate of $484.75 million by 0.6%. On a year-over-year basis, the top line increased 3% on the back of core sales growth of 3% and acquisition gains of 3%, partially offset by 2% adverse impact from RHF product line exit and 1% negative influence from forex woes.
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 $287.7 million, up 9.1% year over year. It represented 59% of total revenue. The segment's results benefited from improved demand in the end markets served, reviving aftermarket sales, innovation investments and benefits from cost-saving measures.
Water Management revenues, representing 41% of total revenue, were $200 million, down 3.9% year over year. However, results declined 0.8% year over year, excluding the impact of RHF product line exit. Growth in nonresidential construction end markets was offset by unfavorable project timings in water infrastructure end markets.
Margins: Rexnord's margin profile in the quarter improved on the back of healthy sales performance, partially offset by rise in cost of sales and operating expenses.
Cost of sales in the quarter grew 1.7% year over year, representing 63.9% of net sales, down from 64.9% in the year-ago quarter. Gross margin jumped 100 basis points (bps) year over year to 36.1%.
Selling, general and administrative expenses, as a percentage of revenues, decreased 10 bps year over year to 22.5%. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter were $86 million, up 8.9% year over year.
Balance Sheet and Cash Flow: Exiting the first quarter of the fiscal year, Rexnord had cash and cash equivalents of $516.2 million, up from $490.1 million in the preceding quarter. Long-term debt was roughly flat at $1,602.8 million.
In the fiscal first quarter, the company generated cash of $37 million from its operating activities, up 88.8% from $19.6 million recorded in the year-ago quarter. Spending on property, plant and equipment decreased 42.5% to $6.9 million. During the quarter, the company repaid debts of $4.2 million.
Outlook: For fiscal 2018, Rexnord anticipates benefiting from innovation of new products and strengthening consumer driven end markets. Also, the company is on track to reap benefits from its supply-chain optimization and footprint-repositioning programs completed in the fiscal first quarter.
Sales in the Process & Motion Control segments will likely benefit from innovation investments and cost-saving measures. Core sales growth in the segment is predicted to be in low-single-digits. Also, the company predicts positive core growth (in mid-single-digits) in the Water Management segment.
The company reaffirmed its previously provided fiscal 2018 guidance. Core sales growth is predicted to be in low single-digit. Adjusted EBITDA will be within $365-$385 million while GAAP net income will be $87-$107 million. The effective tax rate is expected to be around 32% while capital expenditure is anticipated to be approximately 2-2.5% of sales. Free cash will exceed net income.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the past month as none of them issued any earnings estimate revisions.
At this time, the stock has an average Growth Score of C, while its Momentum is lagging a bit with a D. Meanwhile, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for value investors than those looking for growth.
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.