Robert McCarthy – VP of IR Todd Adams - President and CEO Mark Peterson - SVP and CFO.

Jeff Hammond - Forrester Research Julian Mitchell - Credit Suisse Karen Lau - Deutsche Bank Mig Dobre - Robert W. Baird Andrew Obin - BofA Merrill Lynch Patrick Wu - TD Ameritrade David Rose - Wedbush Securities. Samuel Eisner - Goldman Sachs.

Good afternoon and welcome to the Rexnord Third Quarter Fiscal 2015 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 numbers for the replay can be found in the earnings release, the company filed on an 8-K for the SEC today February 4th and 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 Rob McCarthy. Please go ahead..

Thank you. Good afternoon 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 we issued today 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 and why we use them. Today’s call will provide an update on our overall performance for the third quarter of our fiscal 2015.

We'll cover specifics on our two platforms and update our outlook, followed by an overview of our financial statements and liquidity highlights. Afterwards we’ll open the call up for your questions. Please note that we are excluding Mill Products from our analysis.

As we disclosed in May, that we’ve considering strategic alternatives for this non-core product line, and as a result have excluded Mill Products from our fiscal 2015 guidance, more on that in a few minutes. With that said, I’ll turn the call over to Todd Adams, President and CEO of Rexnord..

Thanks Rob and good afternoon everyone. Thank you for joining us today for a review of our fiscal 2015 third quarter financial results. Starting on page 4, we’re pleased to report our third quarter results that were essentially in line with our expectations for core growth, profitability and free cash flow.

Our core growth was 3%, despite a generally choppy global market environment, and as a function of 1% core growth in our Process & Motion Control Platform, and 5% core growth in our Water Management Platform.

Overall new order bookings, again, exceeded our shipments in both platforms, and we leveraged the Rexnord business system - the impact of somewhat weaker mix and adverse currency translation on our overall results.

Our adjusted EPS was $0.32 as a higher effective tax rate in shares outstanding, plus adverse currency translation were together roughly 5% drag and offset higher pre-tax earnings in the quarter.

As Mark will discuss in a few minutes, we, again, had very strong free cash flow in the quarter, which allowed us to continue to fund internal investments and growth enclose to highly strategic acquisitions in the last 90 days, while continuing to reduce our financial leverage.

With respect to our guidance, we’re nearing our range for fiscal 2015 adjusted earnings per share, to $1.52 to $1.56, to incorporate the more adverse impact of currency translation implied by current exchange rates. Turning to our PMC end markets, the main trends remain mixed, as they have all year.

We continue to see good growth in our aerospace markets and end markets like concrete and aggregates processing forest products, transportation and energy, where most of our sales are for downstream applications. And our market share continues to have significant near to medium term upside.

North American activity in our food and beverage markets is expanding, helping offset weaker demand from foreign markets. More generally, we continue to see broadly stronger domestic demand for generally uneven and modestly slower demand in markets outside of North America.

As we’ve been projecting and communicating, the order activity in both material handling continues to be relatively stable, and produced another quarter with a book to bill of one while shipments in the quarter were just slightly below our expectations for the quarter.

At this point, we continue to feel good about the prospects for PMC core growth to benefit in our fiscal ’16, from eliminating the two to three point drag from our both material handling end markets.

To close on PMC, our view for a base case is generally slower industrial growth market environment, where some near term volatility is the impact to following commodity costs, and the strengthening dollar, creates some level of end market uncertainty along with customer uncertainty over the next couple of quarters.

With that as a backdrop, we’re really leveraging and relying on the Rexnord business system to drive an even higher level of operating efficiency across all assets of the business, to create the capacity to fund initiatives that enhance the ongoing core growth trajectory of the platform.

We’ve moved aggressively over the past year, to exit parts of the mining business. And we’ve simplified and streamlined the organization around our customers to vertical markets and geographies where we need to be long-term.

As a result, we’re far better positioned to deal with the current level of uncertainty in the investor end markets, than just a year ago. Everyone who serves customers in our end markets, is going to deal with the same challenges I outlined above.

Our opportunity, and one that we have a lot of condition about, is as a result of RBS, is to continue to sustain 30% to 35% incremental EBITDA margins over the next several years, while investing organically and inorganically what makes sense to improve the fundamental growth profile of the platform, while enhancing the margins and free cash flow generated by PMC.

Turning to our Water Management Platform, we’re pleased to announce and deliver another strong quarter, with 5% overall growth and strong margin expansion, which validates our progress towards achieving a 200 basis point improvement in the platforms adjusted EBITDA margin in fiscal 2015.

Our core business grew 5%, and acquisitions contributed 3%, our currency translation reduced reported year-over-year growth by 3%.

The ongoing success of RBS directed initiatives and driving better execution and permanent cost reduction, gives us confidence in our ability to drive 20% to 25% incremental EBITDA margins into an improving set of end markets over the coming years. Market fundamentals in our Water Management Platform continued to attract to our expectations.

The recovery in the US non-residential construction sector continues to gain momentum, and we remain confident in the prospects for sustainable North American market growth over the next few years.

Our core growth continues to solve the up pace measures of overall market activity, and we continue to be excited about further merging our increase special location share, as we continue to execute on substantial pipeline of new products that are for meaningful economic and environmental for benefits to your customers.

Global - activity also remains decent for our water and water infrastructure products, with a favorable impact of our RBS directed cost reduction efforts in improving execution, or helping drive improve margins.

Looking specifically at the fourth quarter, we expect sales to be in the range of $540 million and $550 million, and adjusted EPS to be in the range of $0.54 to $0.58. And as I said earlier, this translates to adjusted earnings per share of $1.52 to $1.56 in our fiscal 2015, which implies 13% to 16% year-over-year growth.

Before I hand it over to Mark, I’ll provide a framework on how we’re thinking about the medium term performance over Rexnord, heading into next year. In the management, we’re seeing the performance we expected in the platform, both in terms of growth and profitability, based on the execution of our strategy.

This is encouraging because it’s happening against the backdrop of strengthening North American markets, and the pressing demand for enhance access to clean water across the developing world.

In PMC, we’re navigating well through a lower growth year, constrained by some moderate headwind in certain geographies and end markets that on aggregate, should improve over the next couple of years.

Macro uncertainty remains high, and we remain focused on controlling what we can control, focusing our operational execution, driving process efficiencies to the Rexnord Business System, and sustaining both internal and external investments in core growth.

In any environment, our consistently robust free cash flow underpins our ability to pull multiple levers to create shareholder value overtime. With that, I’ll turn it over to Mark to cover some additional details on the financials..

Thanks Todd. [indiscernible] prior quarters must be primarily to adjusted operating profit and EBITDA, adjusted net income, adjusted earnings per share, we put this numbers measure and provide a better understanding of our operating results. Slide 5 of the presentation reconciles our total results to the adjusted results.

Turning to page 6, you’ll find our operating performance highlights for the third quarter. If I go to the numbers, I’ll provide an update on the outcome of the strategic review of our Mill Products business. During the third quarter we signed agreements with two separate buyers and we expect the transaction to close by end of March.

As a result we’ll be presenting more products of the discontinued operation when we report our fourth quarter results. In the meantime please note that our quarterly announces continues to exclude the results of our Mill Products business in both years.

Third quarter sales increased 4% from the prior year period of $497 million, our adjusted operating income increased to $72 million. And adjusted EBITDA increased to $9 million with margins essentially flat on a year-over-year basis.

Our corporate expenses in the quarter included a $31 million non-cash pension expense due to required plan re-measurement that was driven by plan settlements we initiated in the quarter have ultimately generating $9 million of cash savings for us overtime. This non-cash charge is excluded from our adjusted EBITDA and our adjusted earnings per share.

Third quarter adjusted income was $33 million resulting in adjusted earnings per share of $0.32 which is flat on a year-over-year basis as the higher tax rate in the quarter increased shares outstanding and in favorable impact of foreign translation as we are setting our pre-tax earnings growth in the quarter.

Cash flow increased nice in our third quarter and adjusted free cash flow was up 7% year-over-year 78 million. Next I’ll take some time on slide 7, to walk through the operating performance in our Process & Motion Control platform.

Sales in the third quarter increased 3% year-over-year to $299 million as the core sales growth of 1% combined with the 4% contribution from acquisitions to overcome a 2% decline due to currency.

The core sales growth in the quarter was driven by generally stronger sales to domestic markets - they were partially offset by weaker global sales in our believe end markets as well as diminishing but expected headwind from our bulk material handling end-markets.

Turning to profitability, adjusted operating income and EBITDA margin declined year-over-year as we anticipated. We remain focused on leveraging the Rexnord Business System to effectively manage our cost structure while continuing to invest in our strategic growth initiatives.

Turning to page 8, I'll make a few comments on our Water Management platform. Water Management sales in the third quarter increased 5% from the prior year to $198 million. Core sales growth contributed 5% and acquisitions accounted for 3% while currency had a negative 3% impact.

On a year-over-year basis, third quarter adjusted operating income increased by 160 basis points and our EBITDA margin increased 130 basis points to 16.3%. Margins benefited from the ongoing success of RBS directed initiatives on driving execution proficiency and cost reduction as well as higher year-over-year sales.

We remain on track for margins in Water Management to expand by at least 200 basis points in our fiscal 2015. Moving to slide 9, I'll touch on our capital structure and liquidity. We finished the third quarter with $395 million of cash and $725 million of total liquidity.

Total debt was $1,928 million and net debt was $1,533 million resulting in a net debt leverage ratio of 3.6 times at December 31st 2014. Before we turn the call back to the operator to take any questions you may have I'll make a few formal comments on our outlook.

In addition to the elements of guidance that Todd has earlier in the call, based on the presentation also outlines our assumptions for an incremental margin, interest expense, depreciation and amortization, stock option an LIFO expense, our effective tax rate, free cash flow, capital expenditures and fully diluted shares outstanding for fiscal 2015.

In addition, our guidance assumes to be not incurring, 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 for other items that are recorded in this P&L line item.

Our guidance also excludes the Mill Products business, the impact of potential acquisitions and divestitures in the future non-recurring items such as restructuring costs. With that, I'll turn the call back to Rob..

Thank Mark and Todd and thanks to everyone for joining us on the call today. We appreciate your interest in RXN and look forward to providing further updates when we announce our fiscal year 2015 fourth quarter results in mid-May. With that I’ll turn the call back over to the operator and we’ll open it up for your questions..

[Operator Instructions] And our first question comes from Jeff Hammond. Please go ahead..

So on bulk handling I guess a lot of that goes to mining, we've been hearing kind of more recent negativity I think you’re saying, you’re seeing stability.

What’s the risk that we see maybe some risk into fiscal ‘16 on mining based on that some of that anecdotal commentary?.

Sure and just to mention it for you Jeff, the order of magnitude for us is about 12% or so of PMC sales and at one point that was close to 20. And when we entered the year we knew we were going to work through, call it a two to three point headwind at the Rex level regarding that reduction backlog.

So where we sit today is, orders have been stable, book-to-bill above one for the last four quarters in line with what we had been projecting. I suppose there is always some level of risk but I think the order of magnitude of that risk on go forward basis is greatly diminished just based on where we're running.

And I think the overall impact of the company is in a much more way given the actions we took around mill products and everything else. So maybe that helps in terms of how to think about the risk getting in to next year related to mining..

Okay and then I think you mentioned in a presentation robust order rates and order management, is there any kind of quantification you can put around that.

And any color you can add that the kind of, where you’re seeing it?.

Again our joint business in the non-residential construction market continues to, the underlying market continues to get better and our performance continues to add pace, the underlying growth of the market, we showed good growth there. We again built backlog in our Water Infrastructure business.

And so year-to-date we're positioned I think quite well both to finish out fiscal ‘15 and then as we head into next year. In both cases we see accelerating growth in non-res construction. And we see, with some of the backlog that we've been able to build this year, a solid year next year on the Water Infrastructure side.

So in Water I would say that we're pretty confident that they are no headwinds. And it really comes down to execution..

And our next question comes from Julian Mitchell. Please go ahead..

Hi. Thank you. Just a question on the Process & Motion Control margins because I guess in Q1 they were sort of up a bit, Q2 down a little bit year-on-year, Q3 down a bit more. On the top line core and reported is still being positive. So I just wonder is there something going with the mix inside PMC that’s starting to drag on the overall margins.

If there is when do you think that may end?.

Julian, its Todd. There was a little bit of adverse mix the last couple of quarters really around a slightly weaker European food and bev business that we have that’s quite profitable it got better in our third quarter. We are also putting some growth investment in heading into next year.

So it’s a little bit of adverse mix and any given 90 day period depending on some of the various projects and other things that we're working on. Mix could vary a little bit but it’s nothing that we step back and say long term there’s an issue at all.

In fact we think that heading into next year we're pretty confident in that 30% to 35% incremental margin for the year going forward. So little bit of adverse mix, little bit of investment like you’d expect us to do on any given quarter but nothing really to report on..

Thanks and then just on energy if you could just quantify sort of the exposure there in revenue terms and if it’s any different in terms of the share of earnings..

Sure the overall energy exposure in PMC as a percentage is little bit less than mining. So it’s probably about 6% or so of total sales. Of total Rexnord sales and most of that is downstream so we don’t really see much of anything at this point where we could look out and say that’s the major for.

So it’s a relatively small piece of Rexnord, bigger piece of PMC but in any even we're seeing really good growth because we're focused on energy as a vertical that we wanted to get into.

So our relative share is small, so even though the market maybe a little bit choppy I think we continue to have opportunity to grow inside of energy clearly over the long-term and even over the next year or so..

And just lastly quickly food and beverage, what’s the update there on those orders, I guess they softened about sort of five, six months ago, any change in trend on those?.

We saw a little bit better so we did see some of the seasonality come back, recall that most of the maintenance and other project work is done over the winter months as they run these lines over the summer. We did see a little bit of an improvement back to not quite normal seasonality but clearly a trajectory up.

And so I think we're seeing a little bit of recovery there and as we head into next year I think we’ll hope to continue to see that progress as we normally would..

And our next question comes from Karen Lau. Please go ahead..

So just a follow-up on PMC margins, you said that food and beverage mix was actually, well food and beverage market was actually better sequentially but if I look at the EBITDA margins for PMC sequentially it’s down about 80 but I guess that’s what actually help you sequentially.

So would you attribute this sequential, sequentially lower margins to just investment spending or there any other end markets that got worse in the quarter, that dragged the mix?.

Yeah the only markets got worse over the course of the quarter I think when you step back Karen I think you could be mixing a little bit of the sequential versus the year-over-year. Sequentially it did get a little bit better but you’re comparing a different quarter, this year to last.

And so I don’t know that there’s a way to answer your question other than to say relative to the prior year food and beverage down a little bit which hurts our mix. And we put investments in, it did get better sequential but the comps in Q2 were to last quarter’s comps, the comps in Q3 out of this quarter’s comp.

So in general I think you’ve got it right..

So it’s more of a - your quarterly seasonal thing in terms of the margin..

Yeah whatever happened last year in the second quarter is influenced by, it could be a variety of other end markets right. And so I think the biggest thing that we see is food bev got better sequentially relative to the prior year the mix is a little bit of adverse.

And we've got some investments in the third quarter relative to the last year as well..

Okay and puts and takes that we have to pay attention to regarding fourth quarter margins in PMC because last year was very strong. I believe you closed Euroflex in January which has much high EBITDA margin.

So sequentially anything we should, do you expect that jump sequentially?.

Sequentially they’ll go up, last year I think if you saw through it, margins in the fourth quarter were 29% which included I think if you recall sort of the last big backlog reduction related to mining. So we don’t have that this year so I would say that you will see margins move sequential up in our fourth quarter from our third.

They’ll probably still be down a little bit from last year’s fourth quarter really based on some project shipment that happened last year that doesn’t repeat in. I think we've been pretty clear about that all year along..

Okay and then just a more general question, given the lower high commodity prices, are you seeing more push back in terms of pricing increases from either your distributors or end users.

And what do expect in terms of price cost, rest of the year and going into next year?.

It’s a great question Karen. We haven’t seen any push back as of yet, I think for us as we head into next year, there’s clearly going to be a bit of a tailwind opportunity around commodity cost and input cost that we’ll benefit from, to date we really haven’t seen or heard much of a pushback from our customers.

And I think that’s one of the things we’ll just have to wait and see. And I think it’s a little bit too early to call it and I think we know the input cost across a variety of commodities and things like freight should help us but to call what the price impact is going to be next year, it’s probably a little bit early to do that at this point..

Okay but near term you expect size cost to be more positive as the input cost gets lower..

I think that’s right..

Okay. And then lastly if I may, what’s the book to bill for VAG. And it looks like what infrastructure business is down, mid-single digit.

Is it just timing or are you seeing some push out in terms of what infrastructure projects in Europe or emerging markets?.

Yeah in the quarter it was flat relative to the prior year. And the book-to-bill was 104 I think to the first nine months it’s probably that 105, 106 range. And again for us to think about the book-to-bill in halves for this business and sales for the year.

So we’ll see low to mid-single digit growth for the year we would have built backlog heading into next year.

And I think that’s really sort of a function of some of the timing of these things and when they get booked and when they ultimately ship but generally order rates tracking to where we expected them to and entering the year with a bigger backlog than we started..

Okay, thanks very much..

Our next question comes from Mig Dobre. Please go ahead..

Todd just going back three months ago in your outlook you were calling for organic growth in the second half of 3% to 4%, you did 3% in the current quarter, you are guiding for 1% in the fourth quarter, are you going to comment at about 2% versus 3% to 4%.

And I’m just sort of looking to clarify that the delta here is the result of the weakness in this beverage end markets rather than that along with maybe something else, whether it’s on deferral projects in water or anything else in PMC that we need to be aware of?.

Sure I don’t think there’s anything pronounced Mig I think the key point of core growth in context is less than $5 million for us. And so if you look at our order rates that we saw in our third quarter they were probably actually a little bit better than we thought. The delivery dates on some of those maybe were into our fiscal ‘16.

So again in both platforms we will have built backlog both through nine months and for the year. So while the core growth rate on a shipment basis for the fourth quarter is probably down little bit. I think if you were to look at that second half order rate growth versus where we were 90 days ago, it’s probably a little bit better.

So I don’t think there’s any pronounced, I think food and beverage is getting better as we expected. It’s sort of when we called it down I think we got it generally right.

And we're seeing it progress with the normal seasonality and some of the improvement opportunities that we saw around penetrating other, some other geographies and maybe getting after a little bit different way. So I don’t think there’s anything to read into 3% to 4% for the second half and something looks more like 2%.

Its $5 million and order rates were actually little bit better..

Sure that’s helpful I appreciate that. And since you volunteered some comments about fiscal ‘16 sort of sticking with PMC since we're no longer going to have this 2% to 3% drag from bulk material handling.

Is it fair to say that considering that you are also maybe seeing things pick up in food and beverage that we should be expecting this business to outgrow industrial production by at least 2% to 3%?.

It’s a little bit early for fiscal ‘16 guidance Mig but I think - it was a strong effort and I won’t give you the Marshawn Lynch answer. But I will give you answer which is all things being equal. Yeah we lose the headwind, we should get some price. And I think we’ll see better core growth in PMC in our fiscal ‘16 than we saw in ‘15.

I think that’s a very good base case assumption at this point..

And then the last question for me going back to pricing, considering the amount of currency volatility we're seeing out there, I’m wondering are you seeing any competitive pressure for instance in PMC from some of your European and Japanese competitors.

And at the same time in your Water business thinking of PAG kind of weak here or healthy at all?.

It’s a good question Mig at this point I think again it’s pretty early. We haven’t seen anything at this point. You’re right on the Water Infrastructure structure side where we do have some opportunities globally given the weakening Euro.

In PMC the - remember these are components they are relatively small portion of the overall cost of the program or project. And so that the price impact on this is not, not usually the swing vote if you know what I mean, it’s more the product quality, the reputation, the breadth of the portfolio in the service and follow-up afterward.

So I don’t think we've seen it yet, it’s something we're going to watch closely but at this point we haven’t seen that happening. We're - but it’s a good question..

And what about VAG?.

I thought sort of led with that which is - obviously again these are long, long lead time projects. And so the ability to see if the impact of price on a very near term decision, we wouldn’t see the impact of that for quite a while.

And so at this point we have seen any of that obviously it’s an opportunity for us because we do manufacture all over the world and our functional currencies are those, currency is at a weaker relative to the U.S. So we've got an opportunity. But I don’t think it’s anything that’s going to be pronounced particularly in the next year..

And our next question comes from Andrew Obin. Please go ahead..

Hey just a follow-up on the growth I understand, so as we think about sort of quarter-to-quarter right I mean internally followed up you guys. You have the business that’s exposed to the industrials, you have the business that’s exposed to the construction but generally it sort of grow in line with the rest of my coverage.

But I think the rest of my coverage inflected positively this quarter, with pretty good outlook for next quarter.

And you guys are decelerating, and should we think about you just sort of its being more choppy quarter-to-quarter than an average industrial, it’s just because the mix of business is so eclectic, is that the right comment?.

We certainly don’t think so, I’m really to be [indiscernible] not familiar with your coverage universe?.

Well its multi-industrial company as we ship [indiscernible]. And every majority of multi-industrial companies accelerated this quarter and guided to good quarterly growth and you guys decelerated. And you’re sort of saying we're decelerating next year but its only 5 million but you’re a smaller company, so 5 million is a bigger number for you guys.

So that’s what I’m trying to understand..

Again so we had 3% core growth in the quarter and we've got a couple of points of headwind in there from a mining backlog reduction, that’s been true all year. As we look to our fourth quarter our order rates through the first nine months of the year were a little bit better than that.

And so we're going to exit our fiscal ‘15 into ‘15 with a higher backlog. I think it’s entirely realistic to assume at this point all things being equal that our growth rate on a core basis heading into fiscal ‘16 is going to be better than ‘15. If you’re asking me -.

Yeah that’s exactly what I was looking for..

If you’re asking me to analyst your coverage universe and how we correlate to that, I think that’s a - the discussion that you’re -.

No, no I totally get, it’s just the general, I’m just trying to figure out where you fit versus the general trend. And just let me ask a question on M&A. Have you seen any change in the market given the restrictions that were put on private equity bidders in terms of leverage. I would assume that’s the meaningful positive for you guys.

But is it early enough to see any difference or one of the companies we applied. Look there is just not enough volume out there to really make a judgment call at this point..

Yeah I don’t think we really have seen anything meaningful related to that yet Andrew..

And our next question comes from Charlie Boorady. Please go ahead..

Hi, guys this is Patrick Wu standing in for Charlie. I just wanted to get a little more granular on the water treatment side? On VAG in certain, I know you guys mentioned that there was growth there.

But can you maybe talk about, in more specifics what the growth was, was it double-digits, or high single-digits? And sort of what the cadence of sales was over the course of the quarter, would be helpful..

Hey Patrick I think I got the question and maybe just get a little bit closer to phone.

I think you asked for some color around the split of sales in Water Management also the cadence of sales over the course of the quarter, is that, did I get it right?.

Sure and also perhaps more granular growth rates for VAG and Zurn would be helpful as well..

Yeah we saw Zurn grow high single-digits, VAG was flat on a shipment basis in the quarter. And I wouldn’t say that there was anything at all unusual about the way the quarter unfolded in terms of the cadence of shipments or orders in the platform in general.

And traditionally it’s not, that’s tied to construction so in Zurn you would see sequentially sales get a little bit weaker in the winter months. And as the North American construction season winds down and then picks up in the summer but nothing abnormal throughout the course of the quarter..

The SG&A expense seems to be quite high this quarter, what was sort of, what was attributable to that?.

Well this Mark, from a - when you look at the GAAP number we reported that $31.4 million non-cash pension charge, when you strip that out our SG&A in terms of sales actually improved year-over-year. So it’s that non-recurring, non-cash and I referred to in my script..

Okay and that’s all that’s SG&A..

Correct..

It’d be awfully tough to spend that much in a quarter but I think when you chat with Rob or Mark I think they can take what it was and how it got recorded. That explains I think everything you’re looking at..

Perfect and going back to a question earlier about the 3% to 4% organic growth that you guys mentioned earlier in the year. And now you’re expecting obviously 1% growth in the fourth quarter.

How much of that can you pin on currency weakness versus overall macro economy weakness? Is there, how would you provide color from that standpoint?.

Sure I think the color we gave, when we updated our guidance at the end of second quarter was 3% to 4% core growth for the second half. That number feels more like 2% today than 3% to 4%. And none of it would really have to do with currency.

It would have been really the some of the orders that we recorded in the course of the third quarter, were really phased and dated for early ‘16. So if currency would have nothing to do with the core rate, Norwood acquisitions or acquisitions or divestiture.

So I think the comparison Patrick was really 3% to 4% versus 2% and that point or so is really a function of order phasing versus anything we're seeing at end market basis..

And our next question comes from David Rose. Please go ahead..

I had a couple of follow-ups, before then maybe we can just go a little bit deeper Water Management side. If you could provide a little bit more color on the benefits which you achieved and you had some really great incrementals, maybe break it down into fixed cost absorption materials, maybe scrap.

Where do we see kind of the break through on that? And how much of it is repeatable?.

Well I think the, David you know the story but we've been telling folks for a while that with all the productivity, with all your efficiency, with some of the quality improvements we're making in North America in infrastructure and in Zurn, we felt like that over time we could get the overall platform margin to the high-teens.

We set a goal for 200 basis point improvement in margin for this year. We're tracking to that, you’ll see again another 100 plus points of margin improvement heading into next year and beyond. So it’s really a combination of ongoing initiatives both upon fixed costs and then quality and everything else.

And where we are today is reaping the benefits of that. So I think you’ll continue to see the margins pick up. A lot of it is fixed and permanent. So none of the margin improvement in the quarter is I would say temporary transitory, its hardest to keep and there’s more to come..

And nothing is specific, now there’s nothing really - I mean there’s nothing which you can, I understand the overall efficiencies in the RBS but there isn’t anything in particular that really drove it, it’s a combination of everything..

Well yeah, it’s a lot of everything and actions that we took last year in the fourth quarter. I mean last year in the fourth quarter we made a conscious effort to get ahead of what we saw coming in North America, we got a bunch of fixed cost. We exited a foundry, we've done a lot of things and as a result of that we're getting the benefit of that.

In our fiscal ‘15 we will get the benefit in ‘16 and ‘17. So I’m giving you the - maybe don’t worry about it version but yeah there’s a lot of discrete items that have taken place from quality improvements to additional sourcing opportunities, fixed cost reductions, exiting foundries.

There’s a long, long list of things that our management teams are doing to deliver the result. But that’s just part of what it is we do. And maybe that’s why I’m talking passed it a little bit, that’s the expectation around here. And I think you’ll continue to see us to do it. And we’ll get the benefits on an ongoing basis.

So maybe Rob can take you through some discrete examples..

Sure we can do that later on. And then the last couple ones, the pension you mentioned $9 million in cash savings.

Can you kind of walk us through how that comes about?.

Well, David, it’s going to be, it’s cash contribution saving over time. And what you’re doing by settling up some of these pension obligations, you’re reducing your exposure to the new amortization table sort of coming into play.

And over the next several years you effectively benefit from that with having to just lower your ultimate contribution into the plan. So it’s -.

So you're pre-funding some of this now?.

Pardon..

I’m sorry, is part of it pre-funding then?.

No, if there’s no P&L this was just literally cash funding that will incur over the next call it five years plus or minus. So not really material for any given year, for a nice benefit four to five year period..

Okay that’s helpful.

And then the last one quickly so if you can maybe go a little bit deeper on the M&A activity, how would you characterize the environment, are you feeling a little bit better? You got Rodney on board, can you give us a little bit more color in terms of what type of activity we should expect? Is it going to be accelerating or would you say it’s a little bit slower than you like?.

I don’t know if we're going to give you any sort of green light or red light on M&A other than, it’s always going to be part of the value creation story at Rexnord. I think I feel better about the funnel today than we did six months, six months from now we're going to feel better about the funnel. And then it comes down to timing.

And as you know these things are not easy to predict and we're not going to get into the business of predicting them. But I would tell you that we fully expect that M&A to be big part of the Rexnord story.

Free cash flow supports it and then we're going to do everything we can to allocate it to the higher growth, better margin businesses that enhance the overall profile of the company over time. We've done that this year with three deals.

And again I would say that over the course of the next year you should expect more from us David but to give you any discrete sort of red light, green light every 90 days doesn’t - I don’t think its impact full. But yeah we feel good about it in general..

Okay I appreciate that thank you..

And our next question comes from Samuel Eisner. Please go ahead..

On the food and beverage comments you guys were giving during the beginning portion of the Q&A, can you just comment about, is there a normal seasonal trend where you would see the sequential uplift in the third quarter.

And can you just comment about how the difference in the food and beverage business versus that normal seasonal trend sequentially?.

Sure when talk about food and beverage we are talking about the conveyance of beverage and food through packaging and bottling systems. During the summer months, food manufacturers are running that equipment full out to meet the demand in the warmer months in the western hemisphere.

Over the winter months that’s when they do capital upgrades, change packaging and also do a significant amount of maintenance, so for us Sam that would be our Q3 and our Q4. So in terms of just a general year, about 40% to 45% of our year is in the first half of our fiscal year and our balance is in the second half.

So we always see a seasonal sort of a lift in our second half. We saw a seasonal lift in our third quarter from our second as we had expected. And we’ll see that continuing to our fourth quarter and then as we start our fiscal year, you’ll see that sort of moderate down.

The relative growth rates over the prior year I think are the more important thing we didn’t see. We saw a weak second quarter, which why we modified the guidance. We saw the sequential uplift that we saw but on a relative basis it’s probably still a little bit less that what we would have liked to see..

Got it. Very, very helpful there and then on the commentary regarding orders and backlog it sounded though that you’ll be in a better position on backlog entering 2016. Has the timing of when you anticipate to recognize the revenue out of that backlog change that all versus say at this point in last year.

Just want to understand how that backlog timing is going to be phasing out?.

I don’t think we have, so we're going to start the year with a backlog that’s meaningfully higher. And I don’t think we've seen a big shift in how that will be recognized over the course of the year.

So from a modeling standpoint, I don’t want to model any different other than to say we started this year with a little bit more of fiscal ‘16 in the bag than we did last year..

Got it.

And then since we are in about a month into the, I guess the fourth quarters here, can you maybe comment about any trends that you’ve seen through January particularly and potentially translate on the general industrial market?.

Sure I think in general industrial it’s been a little choppy if you look at what happened with the oil and commodity cost really from late November through December and January, it’s materially different than I think a lot of people’s planning assumptions.

So we typically would see the annual budgets to get - and people began to spend against those early in the calendar year. I think people are just generally more cautious as we started the year. But beyond that I think it’s a little bit too early too early to say that we're seeing discrete changes in end market activity because of energy.

I think people are just a general, I’ll say little more cautious sentiment around some of the industrial customers as we start 2015..

Great and if I can just make one more, the investment spending that you guys called out in the quarter, is that in for particular project, is that just the normal investment spending in the segment. Just any kind of color on that would be helpful..

It’s ongoing, investments really around growth in some vertical markets and regions that we see, that we want to sort of get ahead of us, as we head into our fiscal ‘16..

And our next question comes from Karen Lau. Please go ahead..

I just want to follow-up on the 1% core growth in fiscal 4Q.

Are we sort of looking at down low single for PMC and then sort of mid-single for Water Management?.

Yeah Karen you got that right PMC we think will be in that lower single-digit range and the Water growth would be on high, you’re thinking about that exactly right..

Okay, so it looks like the NCS tougher comps year-over-year but Water Management you actually if I remember correctly you had some weather issue last year in fourth quarter and some I think Water Infrastructure shipment got pushed into fiscal first half.

So are you not expecting any like easier, benefit from easier compare because you did 5% in the third quarter.

And you’re not assuming the rate to accelerate in 4Q?.

Fourth quarter though the overall core growth in the water platform will accelerate from what we had in the third quarter. As you may recall it was kind of flip so we had a little bit of a tougher comp water, in our third quarter, little bit of an easier comp basically tied to project shipments in the fourth quarter.

On the PMC side we're facing a little tougher comp and our fourth quarter just had a little - we shipped a lot of bulk material handling at the backlog in the fourth quarter which drove the growth and the margin. And that’s ahead of force in PMC that’s why you see that low single-digit growth expectation on fourth quarter on PMC..

I think Karen maybe just to, maybe to put some perspective on it. Water will grow mid high single-digits this year. We expect the end markets to continue to recover into next year and we've built some backlog on the Water Infrastructure side. So rather then get I think stuck on a quarter and a comp, what happened last year which is important.

We got a guide to it but I think what Mark’s telling you is, mid high single-digit this year moving to probably mid higher plus single digits next year given everything we see..

Yeah I understand I just wanted to see if you guys are baking any conservatives, given the choppiness in the market.

That make sense, any I guess lastly have you seen any changes in competitive dynamics in PMC given one of your key competitor now has a different owner?.

Now we have not I think it closed this week so it would be early to call that but again we're not, we're focused on what we're doing, we're obviously very keenly aware what’s happened in the marketplace.

And we feel good about where we're at?.

And I’m not showing any further questions at this time. I’ll now turn the call back over to Rob McCarthy..

Thanks everybody for your interest in Rexnord. And we look forward to catching up with you in about three months from now. Thank you..

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