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Rexnord's (RXN) Diversity and SCOFR to Aid Amid Pandemic
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We have issued an updated research report on Rexnord Corporation on Jun 15.
The company specializes in making and selling water management, and process and motion control products. It has operations in Europe, the United States and Canada. Presently, it has a market capitalization of $3.5 billion and a Zacks Rank #3 (Hold).
There are a number of factors that are influencing Rexnord’s near-term prospects. A brief discussion on important factors is discussed below:
Factors Favoring Rexnord
Price Performance & Multiple Tailwinds: Market sentiments have been in favor of the company for quite some time now. Its stock price has increased 31.6% in the past three months compared with the industry’s growth of 26.2%.
The company anticipates gaining from its supply-chain optimization and footprint-repositioning programs (SCOFR), and efforts to improve operational performance. In calendar 2021, the third phase of SCOFR is predicted to yield savings of $15-$17 million. In addition, the company’s efforts to generate healthy free cash flow and lower its debts might be beneficial.
Another aspect that is worth mentioning is the company’s diversified business structure. With operations in several end markets — including non-residential construction, mining, aerospace, global water-infrastructure and food & beverage — the company is able to mitigate risks in one of the markets, with strength in others.
Shareholder-Friendly Policies: Rexnord is committed toward rewarding shareholders handsomely. It distributed dividends of $9.8 million in fiscal 2020 (ended March 2020), while bought back $100.7 million worth of shares.
It is worth mentioning here that the company initiated the payment of a quarterly dividend in January 2020 — the first quarterly dividend rate was 8 cents per share. In the same month, its board of directors approved a $300-million share buyback program. In the wake of the coronavirus outbreak, it temporarily halted its share-buyback activities, while continues with its dividend payouts.
Inorganic Activities: The company has been investing in acquisitions over time. It acquired StainlessDrains.com in June 2019, while added Just Manufacturing Co. to its portfolio in January 2020.
In addition to buyouts, Rexnord believes in divestments to restructure its portfolio. In fiscal 2019 (ended March 2019), the company divested its VAG operations from the Water Management segment.
It is worth noting here that acquired assets/divestments positively impacted its sales by 1% in fourth-quarter fiscal 2020 (ended March 2020).
Factors Working Against Rexnord
Top-Line Woes and Earnings Estimates: Rexnord is wary about the adverse impacts of the pandemic on its operations and therefore, refrained from providing any financial projections.
In the quarters ahead, the Water Management segment might suffer from the softness in the non-residential construction end market. Further, lower demand for products (especially those related to the aerospace market) might impact the Process & Motion Control segment.
Rexnord’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at 27 cents for the quarter ending June 2020 and at 38 cents for the quarter ending September 2020, reflecting declines of 20.6% and 7.3% from the respective 60-day-ago figures.
Leverage: High debts and related financial obligations can be concerning for Rexnord. The company’s long-term debts were $1,397 million exiting fourth-quarter fiscal 2020, reflecting an increase of 21.8% from the previous quarter. Further, its cash and cash equivalents were just $573.4 million at the fourth-quarter end. Interest expenses, net, totaled $13.4 million.
It is worth mentioning here that the company’s total debt to total capital increased from 45.6% in the third quarter to 52.9% in the fourth quarter of fiscal 2020. More concerning is its weak ability to repay its financial obligations, as is evident from a fall in times interest earned from 5.3x in the third quarter to 5.0x in fourth-quarter fiscal 2020. Also, the company seems more leveraged compared with the industry, with respective long-term debt to capital of 51.5% and 31.2%.
Woes Related to International Presence & Peers: Rexnord carries out its operations in the United States, Canada and Europe. The international presence has exposed the company to risks arising from unfavorable movements in foreign currencies, macroeconomic challenges, geopolitical issues and local competitive pressure. In fiscal 2020, forex woes adversely impacted its sales by 1%.
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Rexnord's (RXN) Diversity and SCOFR to Aid Amid Pandemic
We have issued an updated research report on Rexnord Corporation on Jun 15.
The company specializes in making and selling water management, and process and motion control products. It has operations in Europe, the United States and Canada. Presently, it has a market capitalization of $3.5 billion and a Zacks Rank #3 (Hold).
There are a number of factors that are influencing Rexnord’s near-term prospects. A brief discussion on important factors is discussed below:
Factors Favoring Rexnord
Price Performance & Multiple Tailwinds: Market sentiments have been in favor of the company for quite some time now. Its stock price has increased 31.6% in the past three months compared with the industry’s growth of 26.2%.
The company anticipates gaining from its supply-chain optimization and footprint-repositioning programs (SCOFR), and efforts to improve operational performance. In calendar 2021, the third phase of SCOFR is predicted to yield savings of $15-$17 million. In addition, the company’s efforts to generate healthy free cash flow and lower its debts might be beneficial.
Another aspect that is worth mentioning is the company’s diversified business structure. With operations in several end markets — including non-residential construction, mining, aerospace, global water-infrastructure and food & beverage — the company is able to mitigate risks in one of the markets, with strength in others.
Shareholder-Friendly Policies: Rexnord is committed toward rewarding shareholders handsomely. It distributed dividends of $9.8 million in fiscal 2020 (ended March 2020), while bought back $100.7 million worth of shares.
It is worth mentioning here that the company initiated the payment of a quarterly dividend in January 2020 — the first quarterly dividend rate was 8 cents per share. In the same month, its board of directors approved a $300-million share buyback program. In the wake of the coronavirus outbreak, it temporarily halted its share-buyback activities, while continues with its dividend payouts.
Inorganic Activities: The company has been investing in acquisitions over time. It acquired StainlessDrains.com in June 2019, while added Just Manufacturing Co. to its portfolio in January 2020.
In addition to buyouts, Rexnord believes in divestments to restructure its portfolio. In fiscal 2019 (ended March 2019), the company divested its VAG operations from the Water Management segment.
It is worth noting here that acquired assets/divestments positively impacted its sales by 1% in fourth-quarter fiscal 2020 (ended March 2020).
Factors Working Against Rexnord
Top-Line Woes and Earnings Estimates: Rexnord is wary about the adverse impacts of the pandemic on its operations and therefore, refrained from providing any financial projections.
In the quarters ahead, the Water Management segment might suffer from the softness in the non-residential construction end market. Further, lower demand for products (especially those related to the aerospace market) might impact the Process & Motion Control segment.
Rexnord’s earnings estimates have been lowered in the past 60 days. The Zacks Consensus Estimate is pegged at 27 cents for the quarter ending June 2020 and at 38 cents for the quarter ending September 2020, reflecting declines of 20.6% and 7.3% from the respective 60-day-ago figures.
Rexnord Corporation Price and Consensus
Rexnord Corporation price-consensus-chart | Rexnord Corporation Quote
Leverage: High debts and related financial obligations can be concerning for Rexnord. The company’s long-term debts were $1,397 million exiting fourth-quarter fiscal 2020, reflecting an increase of 21.8% from the previous quarter. Further, its cash and cash equivalents were just $573.4 million at the fourth-quarter end. Interest expenses, net, totaled $13.4 million.
It is worth mentioning here that the company’s total debt to total capital increased from 45.6% in the third quarter to 52.9% in the fourth quarter of fiscal 2020. More concerning is its weak ability to repay its financial obligations, as is evident from a fall in times interest earned from 5.3x in the third quarter to 5.0x in fourth-quarter fiscal 2020. Also, the company seems more leveraged compared with the industry, with respective long-term debt to capital of 51.5% and 31.2%.
Woes Related to International Presence & Peers: Rexnord carries out its operations in the United States, Canada and Europe. The international presence has exposed the company to risks arising from unfavorable movements in foreign currencies, macroeconomic challenges, geopolitical issues and local competitive pressure. In fiscal 2020, forex woes adversely impacted its sales by 1%.
Three companies in the industry that compete with Rexnord are Regal Beloit Corporation (RBC - Free Report) , Eaton Corporation plc (ETN - Free Report) and SPX FLOW, Inc. (FLOW - Free Report) . All these stocks presently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>