A month has gone by since the last earnings report for Rexnord (RXN - Free Report) . Shares have added about 4.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Rexnord due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Rexnord Earnings & Revenues Surpass Estimates in Q2
Rexnord reported better-than-expected second-quarter fiscal 2019 (ended Sep 30, 2018) results, delivering positive earnings and sales surprises of 12.2% and 2.1%, respectively.
The machinery company’s adjusted earnings were 46 cents per share, surpassing the Zacks Consensus Estimate of 41 cents. Also, the bottom line increased 37.5% from the year-ago figure of 32 cents.
In the reported quarter, Rexnord’s net sales were $524.8 million, increasing 15.6% year over year. The improvement was driven by 9% contribution from core sales growth and 8% from positive impact of acquisitions, partially offset by 1% negative impact of currency translation.
Also, the top line surpassed the Zacks Consensus Estimate of $514 million.
The company reports results under two segments — Process & Motion Control and Water Management. The quarterly segmental results are briefly discussed below:
Revenues from Process & Motion Control totaled $348.7 million, increasing 16% year over year. It represented 66.4% of net sales. The segment’s results benefited from improved demand in its end markets, resulting in 7% growth in core sales and 10% gains from the acquisition of Centa Power. However, movements in foreign currencies negatively impacted results by 1%.
Water Management revenues, representing 33.6% of net sales, were $176.1 million, up 15% year over year. Core sales growth of 12% was driven by rise in demand across North American building construction end markets. Also, acquisition of World Dryer added 3% on a year-over-year basis.
In the reported quarter, Rexnord’s cost of sales jumped 14.8% to $321.6 million. It represented 61.3% of net sales versus 61.7% recorded in the year-ago quarter. Gross margin improved 40 basis points (bps) to 38.7%.
Selling, general and administrative expenses of $109.6 million increased 15.4% year over year and represented 20.9% of net sales.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $114.8 million, up 20.2%. Adjusted EBITDA margin was 21.9%, up 90 bps.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Rexnord had cash and cash equivalents of $223.5 million, up from $193.2 million in the fiscal 2018 end. Long-term debt dipped 1.1% sequentially to $1,336.6 million.
For the first six months of fiscal 2019, free cash flow was $57.5 million versus $44.6 million in the similar period of fiscal 2018.
For fiscal 2019, the company anticipates core sales growth in the higher end of the mid-single digit range. Gains from cost-reduction initiatives and improved operating leverage will prove beneficial. Adjusted EBITDA is projected to be $433-$443 million.
Net income will likely be $147-$154 million. Free cash flow will exceed net income.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Rexnord has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Rexnord has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.