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Rexnord (RXN) Q4 Earnings Surpass Estimates, Improve Y/Y

Zacks Equity Research

Rexnord Corporation RXN reported results for fourth-quarter fiscal 2020 (ended Mar 31, 2020), wherein earnings surpassed estimates by 7.8% and net sales were line with the same.

The machinery company’s adjusted earnings in the reported quarter were 55 cents per share, surpassing the Zacks Consensus Estimate of 51 cents. Also, the bottom line gained 7.8% from the year-ago quarter number of 51 cents on sales growth.

For fiscal 2020, the company’s adjusted earnings were $2.01, reflecting an increase of 8.6% on a year-over-year basis.

Rexnord Corporation Price, Consensus and EPS Surprise

 

Rexnord Corporation Price, Consensus and EPS Surprise

Rexnord Corporation price-consensus-eps-surprise-chart | Rexnord Corporation Quote

Core Sales and Acquisitions Drive Revenues

In the reported quarter, Rexnord’s net sales were $547 million, increasing 1.8% year over year. The improvement was driven by a 1% contribution from core sales growth and 1% from the net positive impact of acquisitions/divestitures.

For fiscal 2020, net sales were $2,068.3 million, up 0.8% year over year.

The company reports results under two segments — Process & Motion Control, and Water Management. The quarterly segmental results are briefly discussed below:

Revenues from Process & Motion Control totaled $363.6million, down 2.5% year over year. It represented 66.5% of the company’s quarterly net sales. Core sales in the quarter declined 1% as gains from consumer-facing and aerospace end markets were more than offset by the adverse impacts of soft demand in industrial process markets and product line simplification actions. Unfavorable movements in foreign currencies affected results by 1%.

Water Management’s revenues, representing 33.5% of net sales, were $183.4 million, up 11.4% year over year. Core sales in the quarter grew 7%, backed by demand growth in building construction markets in North America. However, product line simplification actions played spoilsport in the quarter. Also, acquisitions added 4% to sales growth in the quarter.

Margin Improves Y/Y

In the reported quarter, Rexnord’s cost of sales decreased 1.5% year over year to $330.5million. It represented 60.4% of net sales versus 62.5% recorded in the year-ago quarter. Gross margin increased 210 bps to 39.6%. Selling, general and administrative expenses of $112.8 million increased 3.2% year over year and represented 20.6% of net sales versus 20.3% in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $124 million, up 3.3% year over year. Adjusted EBITDA margin was 22.7%, up roughly 40 bps from the prior-year quarter. For the Process & Motion Control segment, adjusted EBITDA margin decreased 40 bps to 23.8%, while that for the Water Management segment expanded 110 bps to 25.6%.

Balance Sheet and Cash Flow

Exiting the fiscal fourth quarter, Rexnord had cash and cash equivalents of $573.4 million, reflecting a 107% increase from $277 million recorded in the last reported quarter. Long-term debt increased 21.8% sequentially to $1,397 million.

Notably, the company repaid $835.6 million of debt in fiscal 2020. Proceeds from the borrowings of debt totaled $1,050 million during the fiscal year.

In fiscal 2020, the company generated net cash of $298.6 million from operating activities, reflecting 15.7% year-over-year growth. It decreased the capital investment for purchasing property, plant and equipment by 7.8% from the previous year to $41.4 million. Free cash flow was $257.2 million, increasing 20.6% from the year-ago figure.

During the period, the company repurchased shares worth $100.7 million.

Important Events

A week before releasing results, Rexnord communicated that its board of directors approved the payment of a quarterly dividend to shareholders. The dividend of 8 cents per share will be distributed to shareholders of record as of May 20 on Jun 8.

Outlook

Rexnord noted that the company is transitioning to a Dec 31 fiscal year-end in 2020 to enable investors to better evaluate its operating and financial performance compared with a larger of peers.

Notably, the company has not provided any guidance for the next nine months of 2020 on end-market uncertainties, owing to the coronavirus outbreak. However, based on the recent and anticipated order trends through June, Rexnord expects its sales in the June quarter to fall 18-23%. Also, it expects total segment adjusted EBITDA margin of 21-23%, while corporate expenses are anticipated to be $7 million.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks are Intellicheck, Inc. IDN, AZZ Inc. AZZ and Broadwind Energy Inc. BWEN. All the companies currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intellicheck delivered a positive earnings surprise of 70.24%, on average, in the trailing four quarters.

AZZ delivered a positive earnings surprise of 6.17%, on average, in the trailing four quarters.

Broadwind delivered a positive earnings surprise of 50.00%, on average, in the trailing four quarters.

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