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Rexnord (RXN) to Exit RHP Product Line, Reviews '16 Outlook

Machinery company Rexnord Corporation RXN recently announced its decision to exit its non-strategic Rodney Hunt Fontaine (“RHF") product line. Citing the best interest of the shareholders behind the divestment, the company also reviewed its guidance for fourth-quarter and fiscal year 2016.

As revealed, the operations of the RHF product line were included within Rexnord’s Water Management platform. The exit decision was made after the company realized that its efforts to integrate this business with its less-vertically-integrated operating model would not generate enough returns.

Preliminary data shows that the RHF product line generated revenue of approximately $7 million and a loss of $10 million of adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) in fourth-quarter fiscal 2016. These figures compare unfavorably with Rexnord’s expectations of $14 million revenue and zero contribution to EBITDA. In addition, the RHF product line is estimated to have generated $39 million in revenue and a loss of $21 million of adjusted EBITDA for fiscal 2016.

Rexnord Corporation will release its fourth-quarter fiscal 2016 results on May 18, 2016 after the market closes. The Zacks Consensus Estimate for earnings is pegged at 38 cents for the fourth quarter and at $1.39 for fiscal 2016.

Rexnord has revised its guidance for fourth-quarter 2016, predicting revenue to be roughly $492 million and adjusted earnings to be within 35−36 cents per share range. These projections are below the earlier forecasts of $500−$515 million revenue and 35−39 cents earnings per share.  

For fiscal 2016, Rexnord expected core growth to decline 3% versus 2−3% fall predicted earlier. Adjusted earnings will be in a range of $1.45−$1.46. At year-end, the company’s cash and cash equivalents is estimated to be $484 million and free cash flow to be $167 million. Financial leverage ratio is estimated at 3.9x.

With a market capitalization of $2.3 billion, Rexnord Corporation presently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the machinery industry include Pioneer Power Solutions, Inc. PPSI, Emerson Electric Co. EMR and Regal Beloit Corp. RBC. While Pioneer Power Solutions sports a Zacks Rank #1 (Strong Buy), both Emerson Electric and Regal Beloit Corporation carry a Zacks Rank #2 (Buy).

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