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Why Is Rexnord (RXN) Up 5.3% Since the Last Earnings Report?

It has been about a month since the last earnings report for Rexnord Corporation RXN. Shares have added about 5.3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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 catalysts.

Third-Quarter Fiscal 2017 Results Highlights

Rexnord Corporation reported better-than-expected bottom-line results for third-quarter fiscal 2017 (ended Dec 31, 2016). Adjusted earnings came in at $0.25 per share, roughly 4.2% above the Zacks Consensus Estimate of $0.24. However, the bottom line fell nearly 40.5% from the year-ago tally of 42 cents.

Net sales in the quarter were $451.8 million, below the Zacks Consensus Estimate of $458.5 million. Also, the results fell nearly 1.8% year over year due to core sales decline of 5% and 1% adverse impact of unfavorable foreign currency translations. This was partially offset by 4% positive impacts of acquisition/divestiture gains.

In fourth-quarter fiscal 2016, the company announced its decision to exit its non-strategic RHF product line. The operations of the RHF product line were included within Rexnord's Water Management platform. Excluding revenues of $2.4 million generated from this business, the quarter's adjusted revenues were $449.4 million.

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 $270.3 million, up 1.7% year over year. It represented 59.8% of total revenue.

Water Management revenues, representing 40.2% of total revenue, were $181.5 million, down 6.6% year over year.

Adjusted revenues (revenues excluding the contribution from the RHF product line) were $179.1 million.

Margins: In the quarter, Rexnord's cost of sales decreased 1% year over year, representing 66.1% of net sales, up from 65.6% in the year-ago quarter. Gross margin inched down 50 basis points (bps) year over year to 33.9%.

Selling, general and administrative expenses, as a percentage of revenues, increased 270 bps year over year to 22.1%. Adjusted earnings before interest, tax, depreciation and amortization in the quarter were $79.2 million, down 14% year over year.

Balance Sheet and Cash Flow: Exiting the third quarter of the fiscal year, Rexnord had cash and cash equivalents of $429.3 million, above $208.5 million recorded in the preceding quarter. Long-term debt was $1,610.1 million, down 11.6% sequentially.

In the first nine months of fiscal 2017, Rexnord generated cash of $122.1 million from its operating activities, down from $150.2 million recorded in the year-ago period. Spending on property, plant and equipment increased 66.7% year over year to $44 million. During the period, the company repaid long-term debts of $1,881.8 million.

Outlook: For fiscal 2017, Rexnord has lowered its adjusted earnings guidance to $1.27-$1.33 per share from the previous projection of $1.32-$1.38 due to the adverse impacts of capital market transactions. Core sales are predicted to decline roughly 3% (unchanged). The effective tax rate is expected to be around 25% (unchanged), while capital expenditure is anticipated to be approximately $58 million. Free cash will exceed net income.

Rexnord expects to realize $30 million in annual cost-savings from its supply-chain optimization and footprint-repositioning programs by the end of fiscal 2017.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Rexnord Corporation Price and Consensus

 

Rexnord Corporation Price and Consensus | Rexnord Corporation Quote

VGM Scores

At this time, Rexnord's stock has a subpar Growth score of 'D', a grade with the same score on the momentum front. 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is suitable solely for value investors.

Outlook

The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the RXN shares in the next few months.


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