Rexnord FY14 Earnings Beat Ests; Guides Higher - Analyst Blog

Rexnord Corporation RXN reported its fiscal fourth-quarter 2014 (ended Mar 31, 2014) results, with 61.7% year-over-year increase in its adjusted net income and earnings at 50 cents per share. The bottom-line result was up 56.3% compared with earnings of 32 cents per share recorded in the year-ago quarter.

In fiscal 2014, the company's adjusted earnings were $1.39 per share, up 41.8% year over year and above the Zacks Consensus Estimate of $1.27. Also, the result was at the top-end of the company's guidance range of $1.35–$1.39.

Revenues

Rexnord generated net revenues of $569.7 million in fiscal fourth-quarter 2014, up 5.4% year over year. The top-line improvement can be attributed to 4% increase in core sales and 2% contribution from acquisitions, offset partially by 1% negative impact from foreign currency translation.

Rexnord reports its top-line results under two heads — Process & Motion Control and Water Management. A brief discussion on the segments' quarterly result is provided below:

The Process & Motion Control segment generated net revenues of $358.7 million, up 5.4% year over year. As a percentage of revenue, the segment's sales were 63.0% of the company's net revenues.

Sales at the Water Management segment were $211.0 million, reflecting an increase of 5.4% year over year and accounted for 37.0% of the company's net revenues.

Margins

Rexnord's cost of sales increased 5.5% year over year and represented 63.4% of net revenues, up 10 basis points (bps) from 63.3% in the year-ago quarter. Gross margin came in at 36.6%. Selling, general and administrative expenses, as a percentage of total revenue, went down by 20 bps to 19.9%.

Adjusted earnings before interest, tax, depreciation and amortization were $119.5 million, up 3.9% year over year. Adjusted EBITDA margin was 21.0%.

Balance Sheet

Exiting fiscal fourth-quarter 2014, Rexnord had cash and cash equivalents of $339.0 million versus $192.7 million recorded at the preceding quarter-end. Long-term debt inched down 0.5% sequentially to $1,943.0 million.
 
Cash Flow

In fiscal 2014, Rexnord generated cash of $144.4 million from its operating activities, reflecting an increase of 40.9% year over year. The company's investment on property, plant and equipment were down 13.1% year over year at $52.2 million.

Higher cash flow generation from operating activities and lower capital spending led to an increase of nearly 40.9% in free cash flow to $144.4 million.

Outlook

For fiscal 2015, Rexnord anticipates adjusted earnings in the $1.60−$1.70 per share range, up 19% year over year at mid-point. Core sales growth is expected to be within 3−5%, with nearly 2−4% growth expected in the first half of the year while 4−6% growth in the second half.

Adjusted EBITDA margin is expected to be roughly 30% and free cash flow to exceed the adjusted net income.

For fiscal first-quarter 2015, Rexnord anticipates adjusted earnings to be in the 24−26 per share cents range. Sales are expected to lie in the $500−$510 million range.

Rexnord Corporation is a well-known mechanical components manufacturer and currently has a $2.6 billion market capitalization. The company carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include EnerSys ENS, AO Smith Corp. AOS and ESCO Technologies Inc. ESE. All of these companies hold a Zacks Rank #2 (Buy).

 

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