Rexnord's (RXN) CEO Todd Adams on Q1 2017 Results - Earnings Call Transcript

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Rexnord Corp. (NYSE:RXN) Q1 2017 Earnings Conference Call August 2, 2016 8:00 AM ET

Executives

Robert McCarthy - VP IR

Todd Adams - President & CEO

Mark Peterson - SVP & CFO

Analysts

Jeffrey Hammond - KeyBanc Capital Markets

Joseph O'Dea - Vertical Research Partners

Charlie Brady - SunTrust Robinson Humphrey

Karen Lau - Deutsche Bank

Samuel Eisner - Goldman Sachs

Operator

Welcome to the Rexnord First Quarter Fiscal 2017 Earnings Results Conference Call with Todd Adams, President and Chief Executive Officer; Mark Peterson, Senior Vice President and Chief Financial Officer; and Rob McCarthy, Vice President of Investor Relations for Rexnord.

This call is being recorded and will be available on replay for a period of two weeks. The phone numbers for the replay can be found in the earnings release that company filed and an 8-K with the SEC yesterday, August 1, and also posted on the company's website at investors.rexnord.com.

At this time, for opening remarks and introductions, I'll turn the call over to Rob McCarthy.

Robert McCarthy

Thank you. Good morning and welcome everyone. Before we get started, I need to remind you that this call contains certain forward-looking statements that are subject to the Safe Harbor language contained in the press release that we issued yesterday afternoon, as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them, and why we believe they are helpful to investors and contain reconciliations to GAAP data.

Consistent with prior quarters, we will speak primarily to core growth, adjusted EBITDA, adjusted net income, and adjusted earnings per share as we feel these non-GAAP metrics provide a better understanding of our operating results. However, these measures are not a substitute for GAAP data and we urge you to review the GAAP information in our earnings release and 10-Q.

Please note that we are excluding some of the presentation of our operating results, the impact of on a non-core product line and our water management segments that we are exiting. In order to enable investors to better understand and assess our continuing core operating results.

Today's call will provide an update on our overall core performance for the first quarter of our fiscal year 2017 and our outlook for the rest of the year. We will cover some specifics on our two platforms, followed by selected highlights from our financial statements, our liquidity and our cash flow. Afterwards, we will open up the call for your questions.

And with that, I'll turn the call over to Todd Adams, President and CEO of Rexnord.

Todd Adams

Thanks, Rob, and good morning. Starting on Slide 4, first quarter of fiscal year 2017 was a solid quarter for us, with a muted macroeconomic environment. Our results were generally in line with our expectations and we continue to execute well against our strategic initiative to drive better core growth and reduce our cost from our global supply chain optimization and footprint repositioning program.

We closed the important acquisition of Cambridge adding incremental growth opportunities in our food and beverage end-markets, and increasing our relative exposure, consumer facing end-markets. At the same time, we reduced our outstanding debt by $100 million as we prepaid all of our scheduled debt repayments through 2020. Our core EPS was a bit ahead of where we had guided and we saw about 3% of tax benefit that flowed into the quarter than we had targeted to recognize in Q2.

Cash flow performance was in line with our expectations for the quarter and consistent with our historical seasonality. All in all, we delivered a solid quarter of progress against our strategic priorities of enhanced internal and external growth while driving operational excellence by leveraging the restaurant business system across the enterprise.

Including the impact of the non-strategic product line exit that we had announced last quarter, our consolidated total revenue declined 3% year-over-year. Cambridge contributed a little more than 1% to the total growth, while currency translation subtracted about 1%. Core sales were down just 1% after adjusting for the RHF product line exit which was the function of 3% core growth in our Water Management platform and a 5% core decline in our Process & Motion Control platform.

For the quarter, our adjusted earnings per share was $0.35 which benefited from solid operational execution and the $0.03 tax benefit I mentioned earlier. Looking at the performance of our platforms, our core water management platform operations delivered 3% core growth against a difficult prior year comparison and an adjusted EBITDA margin of 19%. Our growth benefited from ongoing mid-single digit growth in our North American non-resident markets and some favorable timing of project shipments to infrastructure markets with a slight drag attributable to the extensive flooding during the quarter in the south-central U.S.

Current market fundamentals and leading indicators continue to be supportive of continuing market expansion for both, new construction and retrofit applications and commercial markets and particularly in the institutional space with assembles content-rich end-market and seemingly still early in a cyclical recovery.

Turning to our Process & Motion Control platform; we were pleased to see the stabilizing pattern at sell-through rates in our North American distribution channels that we discussed last quarter, continue in the first quarter and combine which reduced channel destocking to enable a meaningful improvement in our core growth rate when compared with last quarter and a run rate of the last four quarters. Overall, our global MRO revenue was up about 3% year-over-year on a core basis, and we're also seeing a little better day-to-day order flow in some of our smaller geographic markets.

We continue to generate positive core growth in our consumer end facing end-markets and our aerospace operations made excellent progress on recovering from the execution issues that impacted our fourth quarter. Not surprisingly, we continue to see weak order flow from most of our process industry end-user and OEM customers offset by some traction new customer wins resulting from the commercial excellence breakthroughs we've been working. But we certainly wish it was better, we see a stabilizing aftermarket as a positive compared to last year and necessary first step towards the bottoming of our direct OEM and end-user demand in coming quarters.

PMC margins in the quarter were in line with what we expected as the impact of elevated investment spending on our supply chain optimization plan accelerates over the next couple of quarters before beginning to see the benefits emerge when we go through our Q4 into our fiscal 2018. As we move through the year, PMC's reported results will benefit from the contributions from the Cambridge acquisition that closed on June 1.

You may recall Cambridge's annual revenue was about $8 million with adjusted EBITDA margins above 20%. Two months post-closing, the integration is on-track with our RBS playbook and we've already booked orders from some of the customers we identified and deliver our expected growth synergies. We continue to be quite excited about the significant growth potential we plan to capture as we leverage the complimentary market presence and value added capabilities of the two organizations.

As we've discussed previously, PMC will be generating between 20% and 25% of its global revenue in food and beverage end-markets going forward which we believe adds important long-term growth potential and stability to the PMC platform. Given our outlook to the water management platform, our expectations for bottoming demand in our industrial distribution channel and solid demand in aerospace and food and beverage end-markets, we continue to project our core growth in our fiscal 2017 to range between 2% decline and a 1% increase. We are reaffirming our guidance for adjusted earnings per share would be between $1.47 and $1.57.

Finally, a quick update on our supply chain optimization and footprint rationalization program; as we previously outlined, this program is expected to go over $30 million of annualized savings beginning at the end of our fiscal 2017, which is about eight months from now. The year-over-year impact in our fiscal 2018 or our next fiscal year will be a function of eliminating the 2017 expenses to execute the program, plus capturing the incremental benefits as we achieve the full run rate savings. The total year-over-year impact on our fiscal 2018 adjusted EBITDA is expected to be approximately $25 million.

To quickly update you, we are continuing to expand production in our new plant in Mexico and our other projects are progressing as expected. We saw a significant work to do this year but the program is well underway and we remain on-track to deliver planned savings.

Now through to Slide 5; consistent with what we presented last quarter, this slide outlines our growth assumptions for our largest share markets that account for more than 90% of our total annual revenue. Our outlook for the overall end-market growth rate in our fiscal 2017 is unchanged with the weighted average market growth ranging between flat and a 3% decline. We've made a couple of minor changes to elements of our overall end-market growth outlook to reflect our latest assessment but the impact is essentially offsetting.

We're trimming our outlook for developing our water and wastewater infrastructure demand to about flat from our previous forecast for low-single digit growth to reflect slowing project schedules primarily in the Middle East. Offsetting that is a slightly improved outlook for low-single digit growth in the rest of the world industrial distribution. Otherwise, our outlook is unchanged for our U.S. non-residential construction, our U.S. industrial distribution, European distribution, and global aerospace and food and beverage end-markets offset by ongoing headwinds in our process industry end-markets.

We expect above market core growth to be driven by our commercial excellence and innovation initiatives and we continue to project our core growth for the year will be in a range of minus 2%, plus 1%.

With that, I'll turn it over to Mark to review to the numbers.

Mark Peterson

Thanks, Todd. Slide 6 of our presentation takes the reported results and reconciled with adjusted results. Please recall we intend to exclude the financial impact of the RHF non-strategic product line exit from the calculations of our growth and our adjusted earnings metrics in order to focus on our core operating reports. We expect the impact of this product line on our consolidated GAAP financial results to rapidly diminish as we move through the current fiscal year.

Turning to Slide 7, I will comment on a few key metrics from our consolidated results in the quarter. First, please note that we've excluded $6.5 million and about $17 million of RHF product line revenue from our analysis of the first quarters of fiscal 2017 and 2016 respectively. The earnings adjustments for RHF are on Slide 6 and the RHS sales and EBITDA comparisons are also detailed in our earnings release.

Turning to our core operating results, the year-over-year decline in our first quarter core growth rate is just 1%. Our decremental margin exceeded with 100% as we continue to invest in the strategic programs that we expected to deliver at accelerating benefits as we move through the current fiscal year and into our next fiscal year.

Next, as we look with the operating performance in our Process & Motion Control platform on Slide 8, you can see that PMC sales declined by 3% year-over-year as the core sales declined at moderate rate of 5% and Cambridge contributed roughly 2% in our partial quarter. Currency translation was essentially neutral. The core sales comparison benefited from ongoing stabilization in our North American distribution channels, positive overall growth and global aftermarket sales and positive growth in our consumer facing end-markets. PMC's adjusted EBITDA margin of 18.6 is expected to be the low water-mark this year as it reflects the peak impact of our investments and our innovation, market expansion, and footprint in initiatives.

Our full year core PMC is essentially unchanged although the mid-single digit core sales declined that balances positive growth in our consumer facing and aerospace end-markets with an ongoing headwind in our process industry verticals, plus a 550 basis point to 600 basis point top line contribution from Cambridge. Core PMC margins are expected to be flat to down slightly for the year as investment spending ticks up and we offset most of the top line pressure on margin with RBS led improvements and operating efficiency and the initial benefits from our supply chain and footprint initiatives. Cambridge is expected to be to slightly accretive to PMC's overall adjusted EBITDA margin in the fiscal 2017.

Turning to Slide 9, I'll make a few comments on our water management platform where we are, again, reflecting RHF product line exits in our analysis. Core growth was 3% in the quarter, as sales benefited from ongoing momentum in our non-residential construction markets and stronger project shipments for our water and wastewater infrastructure markets. Adjusted EBITDA margin was a robust 19%, despite the mixed impact of relatively stronger project shipments and our investments to support key new product introductions planned for later this year.

Our full year outlook for water management is also unchanged including another year of core growth in the mid-single digit range with relatively higher growth in our non-residential construction markets, and we expect to leveraging some modest margin expansion. As always, we caution that the timing of project shipments can increase significant variability in quarterly year-over-year core sales growth comparisons in water management.

Moving to Slide 10; we'll see that our cash position has declined, as we internally funded the Cambridge acquisition and also repaid a $100 million of outstanding debt. As a result, our net leverage ratio was increased temporarily but assuming no additional acquisitions in fiscal 2017, our robust free cash flow generation would enable us to reduce our leverage ratio over the coming quarters and finish the year back with 3.8 times low over the quarter ago. Our liquidity position remains strong and we have a patient capital structure given our maturity profile.

Going forward, we will continue to evaluate our capital allocation opportunities in the context of our overall capital structure, our liquidity requirements, and our longer term objective to reduce our financial leverage.

Before we turn the call back to the operator to take any questions you may have, I'll make a few final comments on our outlook. In addition to the outlook highlights Todd covered earlier in the call, Slide 11 of the presentation also highlights our assumptions for interest expense, depreciation and amortization, our effective tax rate, capital expenditures, and fully diluted shares outstanding for fiscal 2017.

In addition, our guidance assumes we do not incur any non-operating other income or expense as we do not forecast realized and unrealized gains or losses from foreign currency fluctuations, gains or losses on the disposal of assets or other items that are recorded in this P&L line item. Our guidance also excludes the impact of potential acquisitions and divestitures in future non-recurring items such as restructuring costs.

With respect to restructuring, I'll take a minute to provide you with an update. First, the supply chain optimization and footprint reposition program that is expected to impact our fiscal 2017 results as follows; we expect to incur approximately $8 million in net costs that are included in our adjusted operating results. We expect to report restructuring expenses of $19 million to $21 million, which are primarily made up of severance costs and are excluded from our adjusted operating results. Also excluded for our guidance for adjusted EPS is approximately $11 million of accelerated depreciation in the year. Our forecast for capital expenditures in fiscal 2017 related to this program is unchanged as they are included in our CapEx outlook of approximately 3% of sales. These figures have not changed from a quarter ago.

Second, in addition to this program, we anticipate incurring restructuring cost of approximately $4 million to $5 million related to other cost reduction initiatives during the year which is up about $2 million from last quarter's estimate.

Before we open the call up for questions, I'd like to take a minute to make one final comment on our effective tax rate. Our effective tax rate is fluctuated by quarter giving varying levels of pre-tax income as well as timing of other planning initiatives. In our first quarter, we got the new accounting standard for employee stock-based compensation. Given the timing of auction exercises between our first and second quarters, our first quarter tax provision reflected approximately $0.03 of related benefits that we originally expected to record in our second quarter.

This timing issue hasn't changed our expectations for our full year tax rate which we continue to project to be approximately 27%. Our guidance for our second quarter assumes an effective tax rate of approximately 22%.

With that, we'll open the call up for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Julian Mitchell with Credit Suisse.

Unidentified Analyst

Hi, this is Luis [ph] on Julian Mitchell. Good morning. You mentioned the Middle East when discussing the decrease in outlook for water and wastewater infrastructure, which region or country drove the raising of the guidance in Western world industrial distribution?

Todd Adams

So is the question around wastewater in the Middle East or is it around the rest of the -- helping for the changes in market outlook?

Unidentified Analyst

Just looking for some more detail about the increase in outlook for rest of the world industrial distribution.

Todd Adams

Specifically, I think when we look at rest of the world industrial distribution; it's a smack right off, both Western Europe and Southeast Asia. I think we're talking about a very small change relative to what we thought sort of 90 days ago. I think which respect to the water and wastewater infrastructure in the Middle East, I think it's just sort of prudent reality that as the price of oil has come down, some of the projects that perhaps would have been led over the course of the year, there is probably a greater likelihood that those will be delayed slightly and I think we're just trying to reflect that into the market growth outlook for the region.

Unidentified Analyst

Got it. And then could you just elaborate about how the aerospace end-market performed for the quarter for Rexnord?

Todd Adams

Sure. On a relative basis, orders were up year-over-year. Then the reality of our aerospace business is we don't have a lot of defense business, we're primarily focused on deploying platform, sort of a narrow-body platforms and the aerospace exposure is relatively small. So we think when we guided for the year to low-single digit growth for the aerospace end-market, we think that's very much intact relative to where we see things today.

Unidentified Analyst

Got it, thank you.

Operator

Our next question is from Jeff Hammond with KeyBanc Capital Markets.

Jeffrey Hammond

Good morning. So I just wanted to understand a little bit better the decremental in PMC. They look still little bit heavy and I know you mentioned kind of peak spending; so is there a way that kind of carve out what that incremental spending was? What do you think were kind of normal decremental and how mix or any kind of disruption might have impacted it?

Mark Peterson

Yes, Jeff, I'll give you an order of priority that the three things that really impacted the quarter. This quarter our scope of spending was materially higher than last year. In the last year in our first quarter we really had to start spending on. So that was a material impact on the overall margin this quarter. We also had in this quarter in both platforms, investment that we were putting in place on some growth initiatives type of new products that will be introduced in the back half of the year, sometimes in the back half, really impacting the slight team but we had some -- are getting some material investment concentrated in the quarter in both platforms. And I think lastly, year-over-year we have some additional compensation we're recorded in this quarter. Last year at this time, we were making adjustments to our outlook and rightfully so making adjustments for incentive accruals, this year we're back to full accrual. I mean those three things have been in that order really impacted the decremental in the platform.

Jeffrey Hammond

So if you kind of strip out some of that noise, you were kind of back at your normal 30% decremental?

Todd Adams

Yes. I mean, the way to think about it Jeff as Mark said, the first quarter has some elevated spending around the scope we've planned. It's kind of investment that we started to make over the course of last year that we weren't making in the first quarter of last year. And then finally there is some -- call it sort of normal timing stuff that happens throughout the year. So the short answer is absolutely going through the course of the year, the incremental margins for the year normalized right around that 30% range for the year but it sort of phases in and it's exactly as we had sort of anticipated when we guided an outline with the year. So I don't think there is anything abnormal about the quarter from our view, relative to what we had planned. And I think when you get to the end of the year; you'll see that the decrementals are again, right around that 30% range.

Jeffrey Hammond

Okay, great. And then the last comment, Mark, on the higher restructuring by $2 million, is that restructuring included or one-time?

Mark Peterson

That would be an expression that we would exclude from adjusted EPS, some additional pass over initiatives that we'll be executing over the next two quarters but that restructuring -- there is more tide to our normal operating business but those restructuring costs will be excluded from our results.

Jeffrey Hammond

Okay, perfect. Thanks, guys.

Operator

The next question is from Joe O'Dea with Vertical Research Partners.

Todd Adams

Joe, you may be on mute.

Operator

The next question is from Charlie Brady with SunTrust Robinson.

Charlie Brady

Thanks, good morning. Just back on Jeff's question on the decremental, so from your comments Todd, we should expect an improvement as we go to the year to get to that 30% right since we are starting below that now, we should see sequential improvement through the year or that will be a lot more lumpy as we go through the other quarters?

Todd Adams

No, Charlie. I think what you'll see is a sequential improvement each quarter from here.

Charlie Brady

Got it. Can you just talk a little bit more about the commentary around the new products; obviously it sounds like you upped your spend on that. Was it up from kind of what we thought looking in or was it up from -- internally you've advanced that forward or put some more investment into that relative to real expectations? And maybe talk about if you can -- to the extent you can where those products are going into from an end market perspective? I know you can't get specific on the products.

Mark Peterson

It's difficult for me to comment what you thought looking in. I can tell you that as we went to the back half of last year, we've spend a lot of time thinking how -- in planning how we accelerate our core growth and a lot of that has to do with new product categories as well as getting into some adjacencies. And so as we went through the back half of last year and early this year, those development and working things through the stage gate is really accelerating so that these products are ready to be commercialized really over the back half of the year. And so from our standpoint, the growth investments we've started to make last year, we'll conclude some of those this year and to be perfectly honest with you, we'll probably re-up and do some more in the second half.

And so I think what we're trying to articulate is that we think investing in adjacencies, investing in new products that give us an advantage with first step customers in the industrial world, and consumer facing end-markets and frankly, into some of the non-res markets is a great investment for us because we've got the brand, we've got the commercial resources in place and we're going to continue to accelerate that. So I don't think it any different than what we told anybody at this point, but we're pretty excited about what we're thinking to do for us in the second half and then into next year.

Charlie Brady

Right. Okay, one more real quick; in the press release you talk about the water benefit from timing of shipments in waste water. Can you just give me a little more color on that; was that tied to stuff in the Middle East that maybe got advanced and now in the back half of the year because oil is slowing or is it something else?

Todd Adams

No, I wouldn't read anything into it other than as we go through each and every quarter, there is going to be some quarters that are -- they compare favorably as a result of project shipment timing in the prior year or not. In this quarter, I think we had some more shipments for water infrastructure projects than we had in the first quarter of last year. So I wouldn't read anything more into it than that. All we're trying to articulate is that the growth in that part of the business is little bit ahead of the growth in the overall segment.

Charlie Brady

Got it, thanks a lot.

Operator

[Operator Instructions] And our next question is from Karen Lau with Deutsche Bank.

Karen Lau

Thank you, good morning. So sorry, one more on the decremental and PMC; the $8 million of net cost from the footprint realignment, are we still looking at $14 million of charges and then $6 million of benefits; is that how we get to the $8 million for the year?

Mark Peterson

That's right, Karen.

Karen Lau

Okay. So is the way to think about it at the first half is probably all cost and then, second half is all benefit. I was just trying to pass-out like exactly how much of the redundancy cost impacts your decrementals in the first quarter and how should we think about it going forward?

Mark Peterson

That's a fair assessment, Karen. In the first half of the year, it's primarily all cost, as you said; the second half of the year, it's going to be more benefit. And you look at the expense by quarter, it doesn't change to materially by quarters and we'll having about that $14 million spurred over the quarter, think about that what's impacted in the first half of the year and you start giving the benefit in the back half addressing $6 million income, and I think you're thinking about it just right.

Karen Lau

Okay, got it. So is the expectation that if we look at the top line trajectory assuming things kind of stable, you may be able to get back to flattish or maybe slightly up organic sales in PMC. Should we then expect the resulting incremental margins to be much stronger than the normal 35% because you have this benefit coming and then with the cost sections and everything, incremental on that slightly positive top line should be much stronger than normal towards the back half?

Todd Adams

Karen, I'll segment maybe my response in two ways. I don't think we're guiding for quarter relative to PMC over the course of the year. I think we're looking at better comparable as we move throughout the year, and the completion of all the cost reductions associated with our supply chain optimization and foot print rationalization program. What that does mean is that as we move forward with the benefit of that in next year and with flat growth, you should see incremental margins, I would say above that 30% that we're talking about on the upside. And if we do see growth, I think the short answer is we'll absolutely see very strong incrementals which is the entire sort of rational for the program which is to eliminate fixed costs, allow better leverage, allow cash flow improvement, and really prepare us for either a better environment or frankly a worse environment. And I think that's really the way to think about the overall intent of the program, but you're right, early on if we do see some growth in PMC, this will definitely enhance the incremental margins that we currently see.

Karen Lau

Okay, got it. And then aftermarket or MO turning -- I think kind of doing better. Can you give us an update on what you're seeing in terms of pricing in the channels, is it still kind of depressed or would you be able to get back to more normal type of pricing in the aftermarket channel?

Todd Adams

I think a couple of things; with respect to price through industrial distribution and we haven't seen pressure, I would say that the pricing environment in industrial distribution that we see and experience has been relatively stable, not just in the last year but really historically for a very long period of time. And so we're not seeing the price pressure there. We think we see sort of normal price, albeit low-single digits, we're not seeing any sort of deflationary pressure there, nor do we expect any sort of big change to the upside. I think that pricing with respect to the U.S. industrial distribution channel has been relatively stable for us.

Karen Lau

Okay, got it. And then, lastly, any updates you can provide with the mid-range products; is it launched on-schedule in July and any update on further plans in the second half, things like that?

Todd Adams

I don't think we're going to comment specifically. I can tell you that some of the mid-tier products that we had targeted to launch have been launched, we've seen some of the initial stocking orders placed by distribution, there will be more as we go through the second half. And all indications and sell-through rates and the hick up rates have been very good so far. So all things seem to be on-track with respect to this year product categories that we talked about.

Karen Lau

Got it, thank you.

Operator

The next question is from Samuel Eisner with Goldman Sachs.

Samuel Eisner

Good morning, everyone. So just going back on the timing question, I know that you guys qualitative gave some details on it. Did you give any numbers regarding how much the timing actually benefited water management in the quarter?

Todd Adams

The question is regarding what -- the water management top line?

Samuel Eisner

Yes, the top line, the timing benefit associated with some of those product deliveries on a dollar basis.

Todd Adams

We didn't. I wouldn't think that -- all we kind of do is articulate that. Again, the water infrastructure part of the platform grew a little bit faster as a result of some project shipments than the core non-res business. So we didn't articulate what that was but I wouldn't read into it as it being a big number.

Samuel Eisner

Got it. And then with regards to the investment spending for new product initiatives; again, another question about numbers here but did you give any or can you give any clarity on the actual dollar value of spending associated with growth initiatives embedded in the quarter?

Todd Adams

We didn't. Again, it's in both segments, but by order of magnitude I think it's greater than $5 million when you look at Rexnord.

Samuel Eisner

Got it, that's helpful there. A couple of other housekeeping questions here; just -- the time line -- I know that you guys are adjusting out Rodney Hunt [ph] here, but obviously this is a business that you're looking at either closing down or looking to divest. Any kind of update on the timeline for the ultimate decision for that business?

Mark Peterson

Yes. I think from a timing standpoint, the decision was made. We're accessing the product line. We right now plan to have a backlog that has to be built out. That backlog should be completed during end of our second and early into our third fiscal year quarter, that will be done behind as we'll be completely out of that product line.

Samuel Eisner

That's pretty helpful. And then lastly, Todd, any questions or any commentary on July here, obviously, we're kind of through the month. I was wondering -- I think you gave some initial comments in your prepared remarks but any color on book of PMC as well as water management about how order trends have been? Is there continued stabilization that you called out in the quarter as it relates to the aftermarket? Thanks.

Todd Adams

I think as we look at July, it's clearly on-track with the way we've guided for the second quarter. And the book-to-bill really in July was greater for us in each of the platforms.

Samuel Eisner

Thanks so much.

Operator

The next question is from Nick Dolbert [ph] with Robert Baird.

Unidentified Analyst

Good morning. Just going back to your pricing comments, I know you talked about industrial MRO. I'm wondering if you can talk a little more broadly about the rest of your business. And also related to this, maybe an update on how you're thinking about raw materials in each of your segments? What are some of your big exposures and have you seen any moveable changes thus far this year?

Todd Adams

Sure, I think the pricing question, maybe Mark will take the raw materials question. So if you were to look at the business from the industrial side, clearly there is a big MRO that we cover. I think as it relates to OEMs and end users depending on customer; depending on end-market and depending on if it's a first fit or it's an application that we currently have. The pricing is going to vary Nick; I wouldn't think that we're seeing any sort of significant pressure one way or another. I think that's historically been the way we've characterized it, we haven't really seen anything change. If it goes through opportunity by opportunity, there are certain instances in a mining or energy application; pricing has been a little bit sharper in the last year. I think the short answer is, yes. As it relates to consumer end-markets and other things, we haven't seen that sort of -- having to sharpen the pencil as much as we would in some of those end-markets.

So I think it's more end-market customer application and opportunity specific as it relates to -- again, we haven't seen any significant price pressure whatsoever, I think we're continuing to monitor price in the market and be pretty prudent with respect to where we position ourselves compared to competition. So I think we probably know this but price for us has never been a big positive nor has it been a big negative whether it's been great or whether it's been a pretty difficult time because at the end of the day these are application-engineered products. And again, price has typically been pretty stable for us, really for a very long time.

Mark Peterson

I mean regarding the material side of the equation, I guess same store is very similar to what Todd talked about, material for us. We haven't experienced any significant increases or significant decreases in the overall pricing of material costs. So we don't buy -- we're not buying raw copper, we're not buying a lot of raw commodities, majority that we're buying at the value [ph]. So over the last year when you saw the material cost decline significantly as you know you didn't hear us talking about a huge benefit in our P&L. There has been some uptick in that commodity cost, we're not seeing that -- the price impact on the negative side either coming through. So we're kind of looking at where we sit today and we spent a lot of time, obviously given where the commodity costs have gone. We haven't seen and we don't anticipate seeing any real material adverse impact on our material cost front going forward.

Unidentified Analyst

I appreciate the color there. And then my follow-up is on water management. I'm wondering if you can sort of help us a little bit; think about this business sequentially, there are all sorts of moving pieces here including some of the timing of these projects. Can you talk about the natural seasonality? What we should be expecting for instance second quarter versus the back half of the year, sequentially?

Todd Adams

Sure. Again, I think it's been fairly consistent. As we've talked, as it relates to significant projects in the water and waste water infrastructure, a piece of that's going to happen periodically, depending on when the customer wants a particular delivery and/or the prior year comparison. So I don't think that there is a natural seasonality there that we can perfectly clarify for you. I think as it relates to the non-res part of the platform, obviously, the June and September quarters are the construction season in North America. So those are going to be quarters with higher revenues relative to our December and March quarter. And so if you think about how it's going to progress, the first half for water management is typically a little bit higher than the second half when you look through it. I think that this year it will play out in a similar way. As it relates to core growth, I think you're going to see core growth get a little bit better in the second quarter, and core growth probably a little bit better in the second half. So I think that's the way it will lay sort of layout based on the backlog sits and where we see the end-markets.

Unidentified Analyst

Yes, I appreciate that Todd. It's just that the comps look very different. And you have your easiest comp next quarter and your toughest comp I believe on a core growth basis in the fourth quarter. That's why I'm trying to basically triangulate if the second quarter indeed should be the highest in terms of both revenue and organic growth for the year in your mind.

Todd Adams

Nick, I think you'll see it when we get there. And again, I think what we're trying to articulate is, we have a lot of confidence that the non-res business is going to perform throughout the year and have the traditional seasonality that we expect based on the project shipments that we see in our backlog and the order rates that we have in our water infrastructure business, that's the way we've guided the year, that's the way we've guided the market outlook and that's what embedded in our outlook. So I think you're just going to have to wait and see. And to the extent you want to talk to Rob offline, he can may help you get a little better.

Unidentified Analyst

I appreciate that. Thank you.

Operator

We have no further questions at this time. So I'd like to turn the call over to Rob McCarthy for closing remarks.

Robert McCarthy

Thank you, everybody, for joining us on the call today. We appreciate your interest in Rexnord and we'll look forward to joining you again to provide further updates when we announce our fiscal 2017 second quarter results in early November. Have a great day.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.

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