Rexnord (RXN) Beats Q4 Earnings, Down Y/Y; Revenues Lag

Machinery company Rexnord Corporation RXN reported better-than-expected bottom line for fourth-quarter fiscal 2016 (ended Mar 31, 2016). The company's adjusted earnings of 37 cents per share came in above the Zacks Consensus Estimate of 36 cents. However, the results declined 43.1% over the year-ago tally of 65 cents.

For fiscal 2016, Rexnord's adjusted earnings were $1.47 per share, above the Zacks Consensus Estimate of $1.39 but below the year-ago tally of $1.88.

Talking about Rexnord's top-line results, net sales in the quarter were $492.6 million, slightly below the Zacks Consensus Estimate of $499 million. Also, the result was down 5% from the prior year period. The year-over-year fall was triggered by a 3% decline in core sales and a 4% negative impact from foreign currency translation.   

For fiscal 2016, the company's net sales were $1,923.8 million, down 6.2% year over year.

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 $294 million, down 10% year over year. It represented 59.7% of net sales.

Water Management revenues were $199 million, reflecting a year-over-year growth of 4.3% and accounting for 40.3% of net revenue. Excluding the results of RHF product line, the segment generated net sales of $191 million.

Margins

In the quarter, Rexnord's cost of sales inched down 1.3% year over year, representing 65.9% of net sales versus 63.5% in the year-ago quarter. The company's margin profile suffered from lower revenue generation and increased proportion of cost of sales in the company's revenues. Gross margin fell 240 basis point (bps) year over year to 34.1%.

Selling, general and administrative expenses, as a percentage of revenue, declined 80 bps year-over-year to 20.2%. Adjusted earnings before interest, tax, depreciation and amortization in the quarter were $93.3 million, down 5.9% year over year.

Balance Sheet and Cash Flow

Exiting fourth-quarter fiscal 2016, Rexnord had cash and cash equivalents of $484.6 million, up from $436.4 million in the preceding quarter. Long-term debt fell 0.2% sequentially to $1,899.9 million.

In fiscal 2016, Rexnord generated cash of $219 million from its operating activities, down from $245.9 million recorded in the previous year. Investment on property, plant and equipment increased 6.8% year over year to $52.1 million. During the period, the company bought back shares worth $40 million.

Event Worth A Watch: Concurrent with the earnings release, Rexnord announced that the company signed an agreement to acquire Cambridge International Holdings Corporation, supplier of metal conveying and engineered woven metal solutions, for $210 million. The completion of the transaction, subject to satisfaction of closing conditions, is expected in the next 30 days.

Outlook

For fiscal 2017, Rexnord expects uncertainties in the process industry end markets to offset the benefits from improvement in water-focused end markets and stable aerospace and food and beverage end markets. The company anticipates its adjusted earnings to be within $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 18%, while capital expenditure is anticipated to be approximately 3% of sales. Free cash will exceed net income.

For first-quarter fiscal 2017, Rexnord projects adjusted earnings within 28−30 cents per share. Sales are predicted in a range of $457−$467 million.

By second quarter fiscal 2017, Rexnord expects to realize $30 million in annual cost-savings from its supply-chain optimization and footprint-repositioning programs.

With a market capitalization of $2.1 billion, Rexnord Corporation presently carries a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the machinery industry include SPX FLOW, Inc. FLOW, Eaton Corporation plc ETN and ESCO Technologies Inc. ESE. While SPX FLOW sports a Zacks Rank #1 (Strong Buy), both Eaton Corporation and ESCO Technologies carry a Zacks Rank #2.

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