Mark Peterson – SVP and CFO Todd Adams – President and CEO.

Mig Dobre – Robert Baird Charlie Brady – BMO Capital Markets Andy Noorigian – Vertical Research Partners.

Good morning. My name is Tracy and I will be your operator for today’s call. At this time, I would like to welcome everyone to the Rexnord First Quarter Fiscal Year 2014 Earnings Results Conference Call, with Todd Adams, President and Chief Executive Officer, and Mark Peterson, Senior Vice President and Chief Financial Officer of 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, in the company filed on an 8-K with the SEC today, July 31, and they are also posted on the company’s website at www.rexnord.com.

At this time, for opening remarks and introduction, I’ll turn the call over to Mark Peterson, Senior Vice President and Chief Financial Officer of Rexnord..

Good morning. Before we get started, just a brief reminder that this call contains certain forward-looking statements that are subject to the Safe Harbor language contained in the press release we issued today as well as in our filings with the SEC. In addition, some comparisons refer to non-GAAP measures.

Our earnings release and SEC filings contain additional information about these non-GAAP measures and why we use them. Today’s call will provide an update on our overall performance for the first quarter of our fiscal 2014 including details on our two platforms, followed by an overview of our financial statements and liquidity highlights.

Afterwards, we’ll open the call up for your questions. With that, I’ll turn the call over to Todd Adams, President and Chief Executive Officer of Rexnord..

Thanks, Mark, and good morning, everyone, and thank you for joining us today for an overview of our fiscal 2014 first quarter results. Starting on page four, our first quarter sales, profits and cash flow all slightly better than what we had anticipated heading into the quarter.

With a 3% overall core growth in the quarter and a 7% increase in adjusted net income resulting in an adjusted EPS of $0.24.

When you compare our adjusted EPS to the high end of the range we provided for the first quarter of $0.19, $0.02 of the earnings beat came from better core growth and operating performance and $0.03 of the additional upside was due to a lower discrete tax rate in the quarter, a topic Mark will touch on later in the call.

Turning to the highlights for the quarter within the platforms. The momentum in water management continues to build as core sales grew 8% after having grown 11% last quarter, really all in advance of what we see is a market recovery that we should benefit from beginning in calendar year ‘14.

To add a little further color on the end markets in the group performance within the platform, the growth in operating platform in Zurn continues to accelerate again delivering mid-single-digit core growth in the quarter clearly outpacing the overall market growth while cleanly navigating through all the low led conversion issues required in the marketplace.

As far as the outlook for the non-residential construction market, we continue to see construction backlogs build in the U.S. and Canada and positive signals from the momentum related indices.

This trend coupled with all the progress we have made over the past few years on innovation, specification and operational execution gives us confidence that we will disproportionately benefit from an expected market recovery over the next several years.

Within VAG, we delivered double-digit sales growth in the quarter and our book-to-bill ratio was 1.12.

As we look at the global demand for water infrastructure, we are uniquely positioned to capture and deliver on the secular growth trend, wherever it’s happening in the world as a result of the product breadth, technical competence, and geographic capability we have established and built upon with VAG.

Over the past three to six months, we have seen the global projects front will become more robust and feel good about where the order rates are trending.

In the quarter, we have continued to expand our product basket and geographic reach by making a small tuck-in product acquisition in South Africa as well as funding in internal startup of the sales and distribution capability in France. The close-on water management, another solid quarter in advance of an improving served market environment.

As we have discussed based on the end market dynamics, we look at this business in more half years versus quarter. And 90 days into the first half of fiscal 2014, we are feeling good about each group in the platform and the aggregate for fiscal 2014 and beyond.

Moving to Process and Motion Control, core sales growth was flat year-over-year and improved sequentially from our fourth quarter amidst an overall industrial end market that was down. Our view on the overall industrial end markets and geographies isn’t too different than what many others have been saying over the course of the earnings season.

North America generally stable with little catalyst for a pronounced second half recovery; Europe bouncing along the bottom, still cautious, but generally with a view that there is little downside left; and China is struggling through a transition to a lower growth environment.

In general, it’s our view that this type of macro environment is likely a reality for the next few years. So, what we worked at really hard over the past couple of years is to continue to diversify our end markets, drive strategic initiatives to better position us to capture share in our served markets.

To hit it straight on, in general, we have gotten labeled as a mining oriented company focused on North America, primarily coal.

In reality, we’ve worked really hard to advance and position our self to serve the large more diverse end market of both material handling and conveyance of all sorts of materials iron ore, copper, gold, potash, cement globally.

The application of conveyance is the constant rugged processing of materials and the fact that the overall process tonnage of these various materials is growing. We like the long-term outlook for this market and in the near-term our outlook contemplates the challenges in these end markets.

Said in other way, we are not as heavily tied to the new CapEx trends that other companies are service this end market. And to keep it in perspective it only represents 12% of Rexnord revenues where as our water markets represent 37% of revenues.

As a follow-on point to the diversity within the platform, I will highlight our next two largest end markets in PMC.

Aerospace including beverage which I agree to about 27% of PMC sales and 17% of Rexnord sales, the Aerospace market which for us is primarily large commercial aircraft programs at a book to bill ratio of over 1.1 in the quarter and is really well positioned for the long-term growth as a result of the increased content we’ve won over the past several years on the major commercial aircraft programs as well as the organic growth priorities we’ve driven.

This content growth combine with the favorable outlook for the overall aerospace demand should be a real positive for us over the next several years.

Turning to food and beverage, demand in North America and Europe was strong in the quarter and we are beginning to get some good wins in adjacent markets like industrial, automated and tool handling and automate that utilizes similar product technology for different conveyance applications.

To summarize on Process and Motion Control we have pockets of solid demand as well as pockets of weaker near in demand as well as somewhat sluggish overall industrial environment based on a relatively stable level of global industrial production.

Taken as a whole, it’s not ideal but we do feel like the aggregate demand across the platform has stabilized both sequentially and compared to this time a year ago while broadly tracking to our expectation so far this fiscal year.

Next I will skip around just a bit to cover our outlook for the second quarter as well as the full year which is on page 10 of the presentation. Looking at our second quarter we anticipate sales to be in the range of $510 million to $520 million with core growth of approximately 3% at the midpoint.

We expect adjusted earnings per share in the range of $0.23 to $0.25 inclusively of a 35% tax rate in the second quarter which impacts the second quarter by a penny or two compared to our full year rate. And Mark will cover the effective tax rate in our first quarter and second quarter shortly.

Our view on the overall market remains cautious and the growth in profitability we are planning for the balance of the year is largely driven by our strategic initiatives and execution. Based on our first quarter results and current outlook we believe some of the downside risk we were anticipating 90 days ago has moderated.

As a result we expect core growth for the year to be in the range of 2% to 4% with Process and Motion Control group improving only modestly in the second half.

Mark will fill in some of the blanks later in the call, but we are raising the low end of our adjusted earnings guidance by $0.02 resulting in an adjusted EPS for the 4 year for $1.12 to $1.18. All these numbers exclude the impact of acquisitions which we don’t predict or improving our guidance but may likely occur over the course of the year.

One final comment I will make before turning it over to Mark. As we outlined in the press release in mid-Junes, our Board concluded its review our strategic alternative process majority shareholders sold about 7.5 million shares in a market with secondary offering in June.

As we’ve been on the road and spoken to shareholders much of the discussion has been about the decision to commence the process, the decision on the conclusion of the process and the speculation as to rationale. All of which creates a sentiment that’s openly focused on the past and not on the future opportunity for value creation of Rexnord.

From our prospective our focus has been and will remain outperforming our competition and the overall growth in our served markets which we believe over time will generate significant shareholder value.

Without getting too far ahead of myself or confident that we are were doing that today and we are investing in our business to extend our competitive advantages and believe that we are truly well positioned in each of our platforms moving forward.

As we look out over the next couple of years we seen number of catalysts that you will continue to drive and create value including leveraging our free cash flow to de-lever while investing more in M&A as well as an opportunity for a significant refinancing event within 9 months and a recovery in a number of our core end markets.

I want to thank all of our customers, suppliers and shareholders for their support during the strategic review process and most importantly our associates their focus and dedication to serving our customers. And we all look forward to executing our strategic plan over the coming years.

With that I will turn it over to Mark to cover the financials?.

Thanks Todd. Consistent with prior quarters we will speak primarily to adjusted operating profit and EBITDA, adjusted net income and adjusted earnings per share as we feel these non-gap metrics provide a better scenario of our operating results. Slide fie of the presentation takes report of results and reconcile the adjusted results.

Turning to page 6, I will discuss our operating performance highlights for the first quarter. First quarter sales increased 2% from the prior year period to $509 million driven by our core sales growth of 3%.

Adjusted operating income was $55 million in the first quarter or 12.8% of sales and our adjusted EBITDA was $92 million or 18.2% of sales in the first quarter. First quarter adjusted net income increased 7% year-over-year to $24 million resulting in adjusted earnings per share of $0.24.

This compares to adjusted earnings per share of $0.23 in the prior year. Free cash flow was a use of $35 million in the quarter and improved $17 million or 33% over the prior year quarter. Next I’ll take some time on slide 7 to walk through the operating performance in our Process and Motion Control platform.

Sales in the first quarter was $315 million, core sales growth improved sequentially from down 4% in our 2013 fourth quarter to flat year-over-year and our first quarter has growth and sales to our food and beverage and non-U.S. mining end markets offset by slower global industrial demand in the majority of a remaining end market.

Turning to profitability in PMC, adjusted EBITDA was $71 million in the quarter or 22.5% of sales and in line with our expectations. Our first quarter margin reflects certain investments we have made it successfully drive our share gain strategy in certain key geographies.

Looking forward, we anticipate the PMC margin to be approximately 25% for the year. Turning to page 8, I’ll make a few comments on our Water Management Platform. Water Management sales in the first quarter increased 8% in the prior year to $194 million.

Core sales growth was also 8% in the quarter driven by market share gains in our end markets and increased alternative market sales in our non-residential construction end market.

First quarter adjusted EBITDA was $30 million and adjusted EBITDA as a percentage of sales was in line with our expectations at 15.3% which is consistent with our fourth quarter 2013 margin on slightly lower seasonal sales sequentially. Moving to slide 9, I’ll touch on a few cash flow and liquidity highlights.

We finished the quarter with $335 million of cash, $657 million of liquidity and no meaningful debt maturity until 2018. Total debt at the end of the quarter was $1,958 million and net debt was $1,623 million resulting in a net debt leverage ratio of four times.

And we discussed in our last call, we replace our term loans in the quarter resulting a 75 basis point reduction in the interest rate to 275 basis points with a 1% LIBOR floor. In connection with this re-pricing, we also prepaid $150 million of the term loans.

As we look at the remainder of a fiscal year, we anticipate our net debt leverage to decline over the balance of the year through a combination of incremental earnings and strong free cash flow generation Next I’ll provide a few financial metrics under our credit agreement and bond indenture.

First, under the credit agreement, our senior secured leverage ratio is 1.15 times versus our covenant of five times and the cumulative credit basket was $619 million.

Under our bond indenture, we finished the quarter with a fixed charge coverage ratio of 2.8 times and the restricted payment basket totaled $540 million inclusive of the $25 million general basket. Before discuss some of the details or outlook, I want to comment on our effective tax rate.

As we discussed in our last call, we anticipate an effective tax rate of 31% to 33% for the fiscal year that range remains unchanged.

What you saw in our first quarter was a timing impact of recognizing certain discrete tax benefits in the quarter, which will be effectively down based on the amount of pretax income resulting in an effective tax rate of 14%.

Because these items are recognizing the first quarter, we will have a higher tax rate in our second, third, and fourth quarter that will ultimately blend to a 31% to 33% rate for the year. With respect to our second quarter, our effective tax rate will be approximately 35%.

When we walk our first quarter earnings per share to the midpoint of the second quarter guidance add approximately $0.04 for the expected increase in profitability, but then to attract $0.04 for the change in tax rates sequentially.

Before we turn the call back to the operator to take any questions you may have, I’ll make a few final comments and our outlook.

Page 10 of the presentation reiterates the guidance I discussed earlier in the call and also highlights our assumptions for interest expense, depreciation or amortization, stock option expense, effective tax rate, capital expenditures, or diluted shares outstanding for fiscal 2014.

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 loss from foreign currency fluctuations, gains or loss 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 in divestures and future non-referring items such as restructuring cost. With that, I’ll turn the call back over to the operator and open up to any questions..

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Mig Dobre from Robert Baird. Please go ahead..

Good morning, gentlemen. Thank you for taking my question. First question from me would be on core growth little bit better than what I originally anticipated here. I’m wondering can you give us an update is to how you’re thinking about core growth segment level both PMC and Water and what’s baked into a current outlook for the remainder of….

Sure. Maybe when we walked into the year we felt pretty optimistic that’s the water business was going to continue to accelerate and that is clearly playing out.

So, when you look at the full year I would say that the guidance would have sort of mid to low high single digit core growth embedded in there and when you look at process in most control with still be in that very low single digit number 1% to 2% sort of that range..

Even though arguably speaking you have done quite a bit better than originally anticipated in the first quarter?.

Well, it didn’t – at some point we probably revisited but I think given we get nine months left of our fiscal year there is still fair amount of uncertainty. I think we’re going to view that the end markets and industrial side taken as a whole our still mixed I think we’re doing really good job of taking share where we can at in the end.

I think it’s couldn’t at this point keep that level of guidance and obviously run through a higher level internally..

Sure. And I guess my follow up would be really on the margin side and obviously you have spoken of incremental EBITDA margins in the 30s previously and performance in a current quarter it’s been a little bit difference from that. I’m also getting the sense that looking at your PMC incremental margin guidance for the year.

You’re looking something lower than you having past.

Can you give us sense for how you’re thinking going forward and what are some other puts and takes here?.

Sure. I’ll start by saying if you look at our guidance we clearly had anticipated the margins to be whether where in the quarter. It was embedded in the guidance we provide I think the strategy that we deployed it’s really to grow the install base.

Because if you look at the model and process in motion control we go in and we solve complex problems in market systems where the cost of down time and its very high.

And everything we make generally where is out so by growing install base you in essence set up the back so we are aggressively growing sort of end users and OEMs maybe there was a little bit of timing in terms of projects to OEMs and end users that sort of fell into the first quarter versus the second may have impacted to the way of the margin.

By taking as a whole I don’t think for walking away from the 30% incremental but I do think at this quarter was consistent what we thought. So, I don’t think there is any change and where we thinking about it.

In fact I think overtime we’re going continue to accelerate the investments are ongoing install base because in the business model in the backend is so robust. And I think this is testament to the effectiveness of the strategy of investing to grow the core in the install base knowing that down the road its sets up larger annuity for us as a company.

Same thing on water side effectively what we’re doing there is you’ve see a market turning and we’re investing in alternative channels, we’re investing in additional products to put into our basket to cell to customer globally as well as setting up capabilities in countries and geographies we don’t have that today.

So, I think it’s entirely consistent with driving growth recognizing the fact we know that the margins we’re going be there as we execute..

Great, thanks. I’ll jump back in the queue..

Our next question comes from Charlie Brady from BMO Capital Markets. Please go ahead..

Thanks. Good morning guys..

Good morning..

Good morning, Charlie..

It just quick back on the margins again in this quarter I understand that there inline what you expectation was but it sounds like there is some incremental spend that’s going on for growth purposes A is a correct.

B, what is the impact on margins going forward on those kind growth initiatives?.

I’ll take it by platform, absent a little bit of shipment mix in the quarter relative to some end user and OEM projects. There is not kind of incremental spend in processing in motion control meeting. There is not spend as much as it is a targeted placement of growing the installed base in the couple places.

So, that process in motion control, on the water side there is clearly additional investment that we put in around developing some further developing some alterative channels through buying groups and other things as well as expanding in certain geography. So, that is through spend that we feel really good about given where the market is pointing to.

So, on process in motion control I wouldn’t read into the fact that we’re spending a bunch of money beyond really targeted placement of growing our installed base in water we clearly are spending a little money to make sure that we are setup as broadly as we can be for the market recovery..

Okay, that’s helpful, thanks.

And can you just – in the stock-based comp and LIFO added back into adjusted earnings, how much of stock comp and LIFO is embedded in the full year guidance?.

Well, if you look really on the based on the page 10 of the presentation we lay our stock comp assumption of approximately $10 million and LIFO will be approximately $4 million to $5 million of LIFO..

Okay $4 million to $5 million in the LIFO, thanks..

Yep, $4 million to $5 million to LIFO for the full year..

Can you talk about market share gains in water, can you quantify how much of that kind of adding to I guess a baseline level of growth..

Well, I think if you would look at any I’ll say readily available metrics around place or non-res starts etcetera. You will see that market is still contracting and is expect to contract in the inflection point is really towards the end of the calendar year and growth behind next year.

When you look at that contrasted with Zurn business growing in the mid-single-digit consistently over a period of time then if you look at some of the more readily public companies we can peak with growing substantially below that.

I think it’s pretty fair to conclude that there is a market share gain that’s occurring in the non-res construction market in the U.S. The same is true and we would look at the water infrastructure market globally.

We are talking about a business it’s growing north of 10% and it’s not consistent by geography and it is project based, but we feel like based on our coverage we’ve got 250 direct sellers all over the world, we’ve got low cost manufacturing and the ability to fill really any project anywhere in the world, we clearly feel like we’ve got an advantage there that we are capitalizing on by one doing some tuck-in acquisitions in geographies and adding to the product basket as well as setting up capabilities in countries that have a reasonable line of growth and large markets that we don’t currently serve so, I would say that we are pretty confident to share gains just based on those two things..

Thank you..

Our next question comes from Andy Noorigian from Vertical Research Partners. Please go ahead..

Hi, good morning guys..

Good morning, Andy..

One quick follow-up on the water investment, when do those rapid or is that something kind of going off to the rest of the year and we don’t see that kind of anniversary into next year..

I think it’s going to be an ongoing thing for us, we’ve got two fantastic groups here in Zurn and VAG that have been – I’ll say substantially reconfigured and organized over the last couple of years and we really now ready for what we feel is strong growth market going forward that doesn’t mean that we are not going to see the margin expansion that we would expect to see in that business overtime so, EBITDA margins is 15, we clearly see on a combined basis up into the high teens over the next several years and you will see it improved sequentially and you will see it improved for the year.

So, I wouldn’t say that these are one-time investments. I would say that the recurring investments are going to make to support what is a great growth business..

Okay.

And then in VAG kind of outgrowing double digit is that a mix negative on the margin there in the business?.

It would be mixed negative relative to where Zurn margins are yet at present, when we look at the fundamental margin profile of VAG versus Zurn, it’s just a different market and a different business so there is going to be an adverse mix relative to Zurn, however, we feel like we can get the VAG margins up to what the fleet average is today and beyond over the next several years..

Okay.

And a rough question for you is there any color you can provide on the PMC short cycle distributer markets especially towards the end of the quarter and may be how that continued at least anecdotally into July?.

Anecdotally, if we go back a couple of quarters the sell through in distribution in December was really poor minus 5% or 6%, it went to minus 1% or 2% in March and it was actually plus 2% on a sell through basis for our categories and our products in the June quarter.

So we are seeing it progressed sort of in line with what we had expected I think the first week of July sort of tough read just based on the holiday but for the quarter. We don’t see this contracting we see a sort of and that sort of similar to 2% sort of sell through when you look at the second quarter or second quarter..

Thank you very much..

(Operator Instructions) Our next question comes from Julian Mitchell from Credit Suisse. Please go ahead..

Hi guys. It’s Charlie for Julian. Just a quick question on the mining you guys mentioned in perception as a mining company and I’m kind of moving away from that.

Just in known for the year I think you would mentioned you want to confirm just for the year can have what the base wasn’t 13 in terms of kind percentage of sales mining contributes to PMC and just kind what you’re expectation for growth.

How much growth will be down this year?.

We’ll if you want to – at the Rexnord level it’s about 4% if we look at it what was a percentage of PMC it was about 19% last year, which compares to 27% for aerospace in food and beverage. We put the – when we walked into the year we felt when we have planned that market to be down between 10% and 15%.

So, we start doing the math I think you can see that $250 million market for us what we substantially migrated away from coal, coal is a big piece two or three years ago its only about third today another market outside in the US representing the line share of the market. So that’s those are the statistics around the market and everything else..

Sure.

So, obviously underlying growth in the rest of the business and then just real quickly you would mentioned just pot ash and obviously (indiscernible) past couple of days that’s still fairly you mean agriculture is still fairly small for you guys, right?.

It is but it’s a growing will most of the comments I made around diversifying end markets. So, there is a tremendous opportunity for growth if you look at the pot ash market in Canada.

So, we’ve been working with really the end users the drive specification of our products and we see that is a growth market for us over the next couple of years, that’s really when you look at what we’re trying to do its really grow content in adjacent markets with new customers.

And I think it’s right down on the fair way of what is we’re doing to diversify that end market to something that’s fundamentally less volatile then some of the historical applications..

Okay, thanks..

We have no further questions in the queue at this time..

Great, and thank you everyone for joining us on the call today. We appreciate your interest and support and look forward to providing you further updates when we announce our fiscal 2014 results in November. Thanks a lot..

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect..