Rexnord (RXN) Tops Q2 EPS by 10c, Revenues Beat

Rexnord (NYSE: RXN) reported Q2 EPS of $0.47, $0.10 better than the analyst estimate of $0.37. Revenue for the quarter came in at $494 million versus the consensus estimate of $442.46 million.

September Quarter Highlights

• Net sales were $494 million and 5% below sales in last year’s September quarter (-7% core sales(1), +1% acquisitions, +1% foreign currency translation).
• Net income from continuing operations was $45 million (diluted EPS of $0.37), compared with $57 million (diluted EPS of $0.46) in the year-ago quarter.
• Net income(2) was $45 million (diluted EPS of $0.37), compared with $51 million (diluted EPS of $0.46) in the year-ago quarter.
• Adjusted EPS(1) was $0.47 compared with $0.51 in the year-ago quarter.
• Adjusted EBITDA(1) was $109 million (22.0% of net sales) compared with $118 million (22.7% of net sales) in last year's September quarter.
• Net debt leverage ratio at 2.0x.

Todd Adams, Chair and Chief Executive Officer, commented, “We had an outstanding third quarter that demonstrated the compounding benefits of our long-term strategy to drive sustainable competitive advantages throughout our businesses coupled with our investments in growth and the power of the Rexnord Business System and culture. The incredible dedication of our associates to drive continuous improvement and superior service levels while practicing extensive safety protocols enabled us to deliver exceptional service and value to our customers amidst a period of unprecedented challenges. Given the confidence we have in our business outlook and robust free cash flow, we elected to end most furlough activity in the September quarter and to reinstate (except for the executive leadership team) merit-based compensation increases. We resumed our share repurchase activity ($15 million in the quarter and $96 million year to date) and anticipate leveraging all of the elements within our stated capital allocation strategy in the fourth quarter and into next year. As we look ahead to 2021, we expect to realize the first $12 million to $14 million of structural cost savings as we conclude the third phase of our Supply Chain Optimization and Footprint Repositioning (“SCOFR”) initiatives.”

“The trajectory of most end markets in our Process & Motion Control (“PMC”) platform continued to improve with sales down only 9% year over year in the September quarter in non-aerospace end markets after experiencing a comparable 15% decline in the June quarter. The improvement was balanced between improved sell-through activity by our industrial distribution partners and OEM/end user demand across most of PMC’s industrial end markets, and in particular from our power generation, marine and consumer-facing end markets. Sales to our aerospace end markets declined 36% year over year compared with a 19% decline in the June quarter, and we expect the order rates within our aerospace end markets to stabilize over the next few quarters.”

“We continue to drive differentiated growth and profitability within our Water Management (“WM”) platform as sales grew 8% and EBITDA grew 11% year over year (delivering a 28% Adjusted EBITDA margin) as specification-driven demand improved across all verticals and the momentum around our touchless and hygienic solutions continues to build. We’ve been investing over the past several years to build upon our competitive advantages and see significant runway for growth as we build out our market-leading solutions for both retrofit and new construction applications. As a result, we expect WM order and sales growth to far outpace underlying market growth going forward.”

December Quarter Outlook

Adams continued, “As we look to the fourth quarter, we have high confidence in the resilience of our business model, execution and strategy. However, we’re going to continue to be guarded in our external outlook due to the potential range of outcomes based on things outside our control, namely the current realities of the ongoing pandemic. Based on the permanent cost reduction initiatives we have implemented, our order backlogs heading into the December quarter, our October results to date and an anticipated range of demand patterns through December, we expect our core sales to decline between 7% and 11%, our total segment (before unallocated corporate expenses) Adjusted EBITDA margin to range between 21.5% and 23% and our corporate expenses to approximate $9 million.”

For earnings history and earnings-related data on Rexnord (RXN) click here.

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