Rexnord Industries, LLC (Rexnord) has reported net sales of $443.1 million for the third quarter of fiscal 2009, down 1.3%, compared with the net sales of $449.1 million in the year-ago quarter. It has reported a net loss of $409.9 million for the third quarter of fiscal 2009, compared with the net income of $19.8 million in the year-ago quarter.
Third Quarter Highlights:
The third quarter sales declined $6 million over the prior year third quarter; third quarter consolidated core sales growth contracted by 2%; acquisitions added 5%, offset by unfavorable impact of foreign currency translation of 3% and a 1% decline from divestitures.
The power Transmission third quarter sales declined $18 million, or 6%, over the prior year third quarter to $316 million; Power Transmission core sales were flat with the third quarter 2008.
Water Management third quarter sales increased $12 million, or 11%, over the prior year third quarter to $128 million; Water Management core sales growth in the second quarter declined 6%.
Third quarter loss from operations was $355 million, which includes a $403 million intangible asset and goodwill impairment charge and a $4 million restructuring charge. Excluding these charges, third quarter income from operations was $51 million, or 11.5% of net sales. Prior year third quarter net income from operations was $79 million, or 17.5% of net sales, which included a $17 million, or 3.9% of net sales, net gain related to the Canal Street accident.
Third quarter Adjusted EBITDA declined $12 million, or 13%, from the prior year third quarter to $81 million, or 18.3% of sales; excluding $2.8 million of out-of-period business interruption insurance proceeds recorded in the prior year third quarter due to the Canal Street accident, third quarter Adjusted EBITDA decreased $9 million, or 10%, from the fiscal 2008 third quarter.
Power Transmission third quarter Adjusted EBITDA decreased $10 million, or 14%, from the prior year third quarter to $61.7 million, or 19.6% of sales; excluding the out-of-period business interruption insurance proceeds discussed above, Power Transmission third quarter Adjusted EBITDA decreased $8 million, or 11%, from the prior year third quarter.
Water Management third quarter Adjusted EBITDA decreased $2.3 million, or 10%, from the prior year third quarter to $20.6 million, or 16.2% of sales.
Leverage ratio (debt to Adjusted EBITDA) was 5.4x at the end of the third quarter of 2009, compared to 5.3x at the end of fiscal year 2008; net debt (debt less cash) decreased by $52.6 million during the first nine months of fiscal 2009; net debt leverage ratio (net debt to Adjusted EBITDA) as of the end of the third quarter of 2009 was 4.8x compared to 4.9x at March 31, 2008. Cash balances as of December 27, 2008 were $239.5 million, an increase of $97.6 million from the cash balance at March 31, 2008.
Bob Hitt, Rexnord’s chief executive officer, stated, “We experienced in our fiscal third quarter what many industrial companies saw in the third calendar quarter; a very quick and sudden slowing of order activity as a result of a weak macro-economic environment. While our core sales growth contracted only 1.7% in the quarter, our backlog declined by approximately 11% as our year over year order rate contracted just over 18% in the third quarter. As a result, we have taken action to reduce our cost structure. During the third quarter, we reduced our headcount by approximately 500 employees, or 7% of the employee base we had at the end of our second quarter and are taking additional action during our fourth quarter to further reduce our headcount by approximately another 7%. In addition to headcount actions, we are reducing cost in all areas of our business with a major focus on material cost reduction. While material costs still had a negative impact on our third quarter margin when compared to the prior year, the year over year negative margin impact was not as severe as it was through our second quarter of 2009 as the actions we have put in place to reduce material costs coupled with declining commodity costs have resulted in a reduction in our material costs during the past three months; a trend we anticipate to continue into our fourth quarter.” Hitt added, “During this challenging economic environment, we will continue to stay focused on the needs of our customers and deliver world class products and service, which is at the heart of the Rexnord Business System. We believe this customer focus, coupled with targeted growth investments and appropriate cost reduction actions, will keep us well positioned for the future.”
The third quarter core sales decline by 1.7%; adjusted EBITDA declines $11.8 million, or 12.7% to $81.0 million, or 18.3% of sales.
The Power Transmission sales in the third quarter of fiscal 2009 were $315.6 million, a decrease of $18.4 million, or 5.5%, from the prior year third quarter, which included $5.6 million of sales related to the Rexnord SAS business that was sold on March 28, 2008. Power Transmission core sales growth contracted 0.3% from the prior year third quarter. Third quarter sales growth in the end-markets of mining and energy was offset by sales declines in the majority of the other Power Transmission end-markets. Order rates across nearly all Power Transmission end-markets declined during the quarter as our customers (particularly OEMs and industrial distributors) reduced their inventory levels downward in an effort to better align their stocking levels with anticipated demand. Water Management sales in the third quarter of fiscal 2009 increased $12.4 million to $127.5 million, or 10.8%, from the prior year third quarter. The sales increase from the January 31, 2008 acquisition of GA Industries was partially offset by a 5.6% decline in Water Management core sales from the prior year third quarter. The reduction in core sales was driven by a year-over-year decline in third quarter sales to the residential construction market, which was partially offset by an increase in sales to the infrastructure and commercial construction end-markets from the prior year third quarter. Although sales to the infrastructure and commercial construction end-markets increased in the third quarter from the prior year, by the end of the third quarter, year over year sales had declined as demand in these markets continued to soften.
Adjusted EBITDA in the third quarter decreased 12.7% to $81.0 million, or 18.3% of sales, compared to $92.8 million, or 20.7% of sales, in the third quarter of fiscal 2008. The prior year third quarter included $2.8 million, or 0.6% of sales, of out-of-period business interruption insurance proceeds related to the Canal Street accident. Power Transmission Adjusted EBITDA in the third quarter decreased 14.4% to $61.7 million, or 19.6% of sales, compared to $72.1 million, or 21.6% of sales, in the prior year third quarter, which included the $2.8 million, or 0.8% of sales, of out-of-period business interruption insurance proceeds noted above. The 120 basis point decline in Power Transmission Adjusted EBITDA as a percentage of sales, excluding the impact of the out-of-period business interruption insurance proceeds, was primarily due to higher material costs in the third quarter compared to the prior year. Water Management Adjusted EBITDA in the third quarter decreased 10.0% to $20.6 million, or 16.2% of sales, from the prior year third quarter Adjusted EBITDA of $22.9 million, or 19.9% of sales. The decline in Water Management adjusted EBITDA as a percentage of sales was driven by higher material costs and a reduction in cost structure leverage due to lower core sales in the third quarter of 2009.
Gross profit margins decreased 140 basis points in the third quarter of fiscal 2009 to 31.5% from 32.9% in the prior year third quarter. This margin decrease was primarily attributable to higher material costs in Power Transmission and Water Management and reduced Water Management cost structure leverage due to lower core Water Management sales versus the comparable prior year period.
SG&A expense as a percentage of sales in the third quarter of fiscal 2009 was 17.3% compared to 16.5% in the prior year third quarter.