Robert McCarthy - Rexnord Corp. Todd Alan Adams - Rexnord Corp. Mark W. Peterson - Rexnord Corp..

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc. Mircea Dobre - Robert W. Baird & Co., Inc. Julian Mitchell - Barclays Capital, Inc. Charles Brady - SunTrust Robinson Humphrey, Inc. Joseph John O'Dea - Vertical Research Partners LLC.

Good morning, and welcome to the Rexnord First Quarter Fiscal 2019 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 the company filed in an 8-K with the SEC yesterday, July 30. At this time, for opening remarks and introduction, I'll turn the call over to Rob McCarthy..

Thank you, Paulette. 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 the corresponding GAAP data.

Consistent with prior quarters, we will speak to core growth, adjusted EBITDA, adjusted earnings per share and free cash flow, 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 in our filings with the SEC. Please note that the presentation of our operating results is now focused on our continuing operation, as our VAG operations are now being reported as discontinued.

Today's call will provide an update on our strategic execution, our overall core performance for the first quarter of our fiscal 2019, and our outlook for fiscal year 2019. We'll cover some specifics on our two platforms, followed by selected highlights from our financial statements, and afterwards, we'll open up the call for your questions.

So, with that, I'm pleased to turn the call over to Todd Adams, President and CEO of Rexnord..

Thanks, Rob, and good morning, everyone. As you hopefully saw in our release last night (00:02:14), our first quarter results represented a solid start to what we expect will be a strong year for Rexnord, with core growth accelerating over the prior year, double-digit adjusted EBITDA growth, and by the end of the year a year of record free cash flow.

We're seeing steady growth in most of our served end markets, and more importantly, our organic initiatives around innovation, cost reduction, and commercial excellence are beginning to deliver real benefits, with more to come.

Our updated outlook for fiscal year 2019 continues to cover our continuing operations only and includes an unchanged outlook for mid-single digit core growth with acquisitions on top of that, but we've increased our expectations for our adjusted EBITDA, which we now project to be in the range of $425 million to $440 million.

VAG's operations are now reported as discontinued and the divestiture process is well advanced at this point, and we anticipate an announcement during our second quarter.

Looking more closely at our first quarter results, sales of $504 million included core growth of 4% and were up 14% on a reported basis, and generally in line with our expectations for the quarter. Core growth in our Water Management platform, which is now comprised solely of our Zurn business, was sustained at 7% year-over-year.

We delivered 3% core growth in our PMC platform and expect PMC's first half core growth will finish in the mid-single digit range as we see growth accelerating in our second quarter.

We were able to leverage the solid growth in both platforms and a 23% year-over-year growth in our overall adjusted EBITDA, which increased to $105 million, with strong incremental margins in both platforms. Adjusted EPS was $0.41 for the quarter and was up 41% over the comparable prior-year figure.

Mark will review both the consolidated results and the performance of each platform as part of his comments a little later in the call. Please turn to slide 3.

Looking at our operating platforms, our PMC platform had a strong quarter with order and revenue growth across most of our end markets, additional backlog growth and some further acceleration in sell-through of our products in our distribution channels.

We continue to aggressively work our DiRXN digital strategy, and the growing customer feedback continues to validate our practical and significantly differentiated approach to the Industrial Internet of Things.

We're continuing to invest behind our first-mover advantage, and we are on track with our plans to accelerate the introduction of additional categories of products that can easily be connected into a customer's existing control system and thereby immediately enhance the customer's process reliability and productivity with minimal incremental investment.

We're also leveraging our DiRXN platform to begin to retrofit our installed base with IIoT capabilities which offers customers immediate productivity with a very small investment. And the reception of several of our launch customers has been incredible.

We'll be demonstrating our DiRXN platform from the customer's perspective during one of the rotating breakout sessions at our upcoming Investor Day later this week.

PMC's margins were slightly better than expected, as prior SCOFR actions coupled with our aggressive approach to managing rising input costs enabled adjusted EBITDA margin to improve by 180 basis points year-over-year to 21.5%. PMC incremental margins were 33% on an as-reported basis, which includes Centa, but were above 60% on a core basis.

Centa, which we acquired in February, completed its first full quarter as part of Rexnord and is off to a terrific start. Order rates and backlog have grown each month as we've owned the business and we're leveraging the Rexnord Business System both operationally and commercially to drive the process improvements we've targeted.

Work in (00:05:55) process continues, our confidence in capturing the sizable margin expansion opportunity we've identified as part of the acquisition has only increased.

Results in our Water Management platform were solid, with first quarter core growth at Zurn sustained at the 7% level we achieved in the prior quarter, as contributions from our innovation pipeline continue to contribute to above-market growth.

We see plenty of support for the solid growth we're projecting over the course of the year, particularly within institutional verticals, and we continue to invest in core product and adjacency innovation, and our digital initiatives continued to accelerate within Zurn.

Before I move on to the next slide, hopefully many of you recall we modified both our approach and the elements of our external financial guidance at the start of last fiscal year, focusing on core growth, adjusted EBITDA, and free cash flow, all on an annual basis and then updating any changes to those elements as we report earnings throughout the year.

Our objective is to provide what we hope investors appreciate, projections that are meant to be durable across a range of scenarios over the course of the fiscal year.

We would normally be hesitant to revise our fiscal year outlook after just one quarter, but the robust start to this year and the good traction we're getting with our initiatives to fully offset input cost inflation makes the low end of our previous guided range look just a little bit too conservative to us, and we're slightly increasing our outlook for adjusted EBITDA to the range of $425 million to $440 million.

Like everyone else, as best we can, we're closely monitoring the impact of the tariff situation and resulting uncertainty it's creating for our customers.

We've got a lot of conviction that our business can weather and thrive with the past, present, and future organic initiatives we control, but in general, we think the tariff situation is not particularly helpful to our customers over time. With that, please turn to slide 4.

As we announced last quarter, we plan to focus and prioritize our Water Management platform around our Zurn operations that provide and enhance water quality, safety, flow control, and conservation in primarily North American non-residential building applications.

One effect of reporting our VAG business that serves global water and wastewater infrastructure markets within discontinued operations is that investors now get a clearer view of our consolidated results across the balance of Rexnord.

As shown by the charts, removing VAG from our continuing operating results from our fiscal 2018 last year in other words reveals as a much stronger overall operating metrics for the balance of Rexnord and are a much truer reflection of the core strengths and differentiated profile of Rexnord.

For example, our consolidated fiscal year 2018 gross margin was 160 basis points higher than was originally reported a year ago when VAG was still included in our continuing operations.

Our days sales and receivables is lower by four days and our return metrics are several points higher, and headed higher this year and next as we complete our second wave of structural cost reduction initiatives.

Turning to slide 5, I'd like to take a couple of minutes and highlight the progress we've made in leveraging the Rexnord Business System to build a culture of winning and continuous improvement in our new bearings operations in Monterrey, Mexico and McAllen, Texas.

Just for perspective, in a little under three years, we've transitioned our two bearing businesses out of two existing facilities, started two true greenfield operations thousands of miles away while hiring over 500 new people.

In this quarter, we set all-time records for shipments, reduced our capacity backlog to its lowest level ever, and all of this comes within just six months after completing the transition.

The success we've seen to-date can be traced to the teams in Texas and Mexico buying in and leveraging the Rexnord Business System and building a strong culture of continuous improvement. Just this quarter, we ran a series of Kaizen events to drive a step-change in capacity and free up additional floor space.

What's so powerful about what we're doing is that not only the team's new startup absorbed what was an incredibly complex phased move of a facility amidst an accelerating demand, but shortly thereafter, they started to immediately eliminate waste and critical value streams with terrific results.

Work in process inventories were mostly eliminated by the conversion to one piece flow. Production rates jumped significantly as setup times were collapsed in two critical functions, and revising the layout in one area enabled the teams to condense its footprint by more than 20%.

The combined annualized savings of the week's activities approaches $800,000 and demonstrates the power of continuous improvement, associate engagement, and drives real value for shareholders. And I hope it highlights the compounding effects that RBS drives even in an already high performing location. With that, I'll turn the call over to Mark..

Process & Motion Control. Total sales increased 16% year-over-year at PMC with core sales growth of 3% in the first quarter that was 5% outside of our aerospace end markets and came on top of PMC's 5% core growth from the year-earlier quarter.

Currency translation added 2% and the acquisition of Centa added 11% to our sales growth in its first full quarter since the acquisition. PMC experienced solid growth in its process industry and consumer-facing end markets during the quarter, and we saw some accelerations in sell-through in our North American industrial distribution channel.

Our sales to aerospace customers were temporarily down year-over-year in the quarter, as certain shipments we expected to make in our first quarter will ship in our second quarter.

As a result, we expect core growth for our aerospace operations to strengthen significantly in our second quarter and contribute to PMC delivering solidly mid-single digit core growth in the first half of our fiscal year.

In the top right-hand corner of the slide, you can see the unchanged end market assumption that's supporting our outlook for mid-single digit core sales growth at PMC that is incorporated into our fiscal 2019 guidance.

Our fiscal 2019 outlook continues to assume positive growth across PMC's primary end markets in the process, consumer and aerospace sectors and in our distribution channels. PMC's EBITDA and margins were slightly ahead of our expectation, as adjusted EBITDA increased 26% year-over-year and margin improved year-over-year by 180 basis points to 21.5%.

PMC benefited from strong operational execution, pricing was positive and we were successful in managing the growing impact of materials cost inflation in the quarter.

The structural benefits from the first wave of our Supply Chain Optimization and Footprint Repositioning initiatives that were completed in the last year's second quarter were also fully reflected in PMC's first quarter results as the incremental EBITDA margin excluding the Centa acquisition was over 50% in our first quarter.

We continue to expect PMC to deliver margin expansion for the full year, and we expect to see another quarter of strong year-over-year margin expansion in our second quarter, as we finish annualizing the structural savings from the first wave of SCOFR actions that were completed within last year's second quarter.

I'll note more to say about our building and management and the inflationary environment in just a few minutes. But before that, I'd like to highlight another significant innovation from Rexnord, our run dry (00:13:56) modular conveying chain.

Dry-PT is designed to maintain a low level of friction between the conveying chain and the bottle run without lubrication and perform at a high level under stress. Dry-PT is designed to reduce ultimate water consumption and is designed specifically to optimize high-speed PET bottling applications.

Launched first in Europe and now in North America, Dry-PT has earned strong acceptance from customers by demonstrating its ability to reliably reduce lubrication requirements and related water consumption without sacrificing reliability and durability. We expect to earn a greater share of the available market as a result.

With that, I'll turn to slide 10 and discuss our Water Management platform. During our first quarter, our Water Management platform delivered a 10% net sales increase that was a function of 7% year-over-year core sales growth and a 3% contribution from World Dryer.

Top line results in line with our expectations, as Zurn's growth continues to benefit from several important product launches that occurred over the last year, including the EZ1 drain system and the Sundara line of solid-surface fixtures.

Today, I'd like highlight our recent launch of new designs tool for plumbing specificiers, Zurn proprietary inSpec digital specification tool.

inSpec has been designed with several new features and capabilities that can meaningfully improve the plumbing, design, engineer's productivity including easier project management, easier design deliberation, and easier similar construction. We are garnering terrific feedback and believe that inSpec can help drive incremental growth over time.

As illustrated by our unchanged underlying end market outlook that is summarized in the slide, we remain confident that Zurn can deliver mid-single-digit core growth in what continues to be a solid U.S. nonresidential construction market. Forward indicators of activity like the Dodge Momentum and ABI Design Indexes and U.S.

construction employment continue to signal growth and our results demonstrate the contractors remain very busy.

Given solid fundamental demand growth and the ongoing talent (00:15:55) from our investment and innovation, we expect a somewhat easier comparison in the second quarter to contribute to a relatively stronger year-over-year core growth from Water Management in our second quarter.

Water Management EBITDA margin increased over 100 basis points year-over-year as the benefits of strong volume growth during the quarter were leveraged with solid execution and our cost inflation countermeasures to deliver 15% year-over-year EBITDA growth.

We remain confident in Zurn's ability to manage rising materials cost through a combination of materials cost actions, supply chain management, and flex price increases, and we continue to expect our Water Management platform to deliver year-over-year margin expansion in our fiscal 2019.

Second quarter margins are expected to expand sequentially, but are likely to be down year-over-year in this unusually difficult comparison from a year ago was influenced by the cadence in certain investment spending, in favorable product and project mix. That's a good way to enter the next slide, slide 11.

We understand that investors are closely monitoring the potentially adverse impact of tariffs and higher cost raw materials and freight transportation more broadly. And our objective continues to be to fully offset the impact of inflation on our margins.

We are working several strategies to manage in the current environment, but we believe that our business model in both platforms supports our efforts.

Our products are going to be a relatively small portion of the customers' investment but have an outsized impact on system productivity and reliability, so we continue on that basis and the superior productivity and reliability that our brand represents.

We also have the flexibility to react quickly with selective pricing actions in our distribution channels that become necessary when cannot fully offset cost inflation with supply chain management, engineered solutions and incremental productivity initiatives.

The impact is also mitigated by our steady transition over time to a so-called DPAT model, or design procure assemble test and away from a historical model of highly and vertically-integrated manufacturing.

For example, we exited multiple foundries as part of SCOFR 1, which reduces our fixed costs and affords us greater control over a more flexible cost structure.

Besides aggressively working our global supply chain, we're looking at alternative materials where possible and our established value add/value engineering program has a funnel of product redesigns and reengineering initiatives that we are leveraging to identify incremental cost savings opportunities.

To date, price realization has developed favorably and our team is executing well on alternative materials cost reduction initiatives. We maintain a favorable price cost gap in our first quarter and our objective continues to be to at least neutralize any impact on our EBITDA margins and a new platform for the fiscal year.

Moving on to slide 12, you can see in the chart at the top left that our financial leverage as measured by our net debt leverage ratio was 2.7 times. Free cash flow's typically lighter in our first half and is developing consistent with our expectations to deliver at least $200 million of free cash flow for the full year.

Given our expectations for free cash flow to expand in fiscal 2019 and given our strong overall liquidity, we believe we have ample resources to continue to execute our bolt-on acquisition strategy while maintaining a leverage ratio in a range between 2 and 3 times.

Before we open the call for questions, I'd like to comment on the accounting for VAG and then speak to restructuring expenses and our effective tax rate before we take your questions. First, as we have highlighted, VAG's financial results are being reported as discontinued operations.

They're related to assets and liabilities and then classified as held for sale. And we reported, through discontinued operations, a $44 million write-down in the intangible assets in the quarter.

I'd also like to point out (00:19:28) in our press release include revenue and adjusted EBITDA for the continuing operations of our water platform for the four quarters of last year to assist your financial modeling and analysis.

Second, and in terms of our cost reduction initiatives, we continue to project total restructuring expenses of $11 million to $13 million in our fiscal 2019. These costs are primarily net of severance costs and are excluded from our adjusted operating results.

Next, our effective tax rate will fluctuate by quarter given varying levels of pre-tax income as well as the timing of other planning initiatives. We anticipate our fiscal 2019 adjusted net income will incorporate an effective tax rate of approximately 29% which is unchanged from last quarter.

For the second quarter, we anticipate a rate of 29% to 30%. Turning to slides in the appendix, first, we're going to include certain other assumptions incorporated into our guidance for fiscal 2019 on a separate slide. I need to remind you that our guidance only covers our continuing operations.

And in addition, our guidance excludes the impact of potential acquisitions, potential accounting gains or losses and future non-recurring items such as restructuring costs.

As has been our practice, the appendix to today's presentation also includes a reference table to help you determine the appropriate incremental quarterly share count used for modeling our adjusted diluted earnings per share under the if-converted method, if it is applicable.

As illustrated on slide 19, the if-converted method was slightly less than $0.01 diluted through adjusted EPS in the first quarter and therefore applies even though our adjusted EPS of $0.41 will be the benefit.

Lastly, we included a scheduled pre-tax and after-tax impacts of each adjustment in our calculation of adjusted net income, plus the reconciliation tables related to adjusted EBITDA and adjusted earnings per share that are included in our earnings release each quarter. With that, we'll open the call up for questions..

Thank you. We will now begin the question-and-answer session. And our first question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead..

Hey good morning, guys..

Hey, Jeff..

Good morning, Jeff..

Hey. So looks like relative to normal seasonality, strong start to the year and 2Q seems to be shaping up well. Can you just talk about how you're thinking about the second half in terms of tough comps or any slowing just within the guidance? Thanks..

Yeah. Jeff, it's Todd. Embedded in the guidance really is mid-single-digit core growth over the course of the year. We expect to be there for the first half and the second half as well. And so I'm not particularly worried about tough comps as we go through the year. We think the momentum in both platforms is strong.

The reality is most of the pricing actions that Mark talked about in his comments really sort of benefit the second half. And so with steady end market demand, the price impact, we expect to see solid core growth over the course of the year..

Okay.

Can you give a little more color on what you're doing on price kind of order of magnitude and where you're putting price through most aggressively?.

Yeah. Obviously, we're not going to comment on discrete price increases other than to say, with being the market leader, we have the ability to gain price, as Mark talked about in his comments.

And I think we're taking advantage of being the leader, but doing it smartly and trying to stay in front of what we see as potential cost inflation throughout the year. So we will see that play out over the second half, but suffice to say that we have the ability to pass on price.

We've been doing it and we'll continue to do it selectively and smartly, but it should be at worst, margin-neutral as we go through the year..

Okay. And then just one quick one on water. The margins looked particularly strong there and I guess it's hard to kind of see with the VAG pull out, what – maybe just talk about how you saw those versus your expectations. Any positive surprises there? Thanks, guys..

You bet. In our release, we do a little bit of reconciliation so you can actually see the margins over time. And so the Zurn business has solidly been in the mid-20%s as we've worked it up over the years.

And so from a quarter perspective, the margins weren't a surprise to us and we continue to see opportunities to improve the margin profile of the business going forward with the things we've done with SCOFR, continued focus on RBS, and likely a SCOFR 2 and potentially a SCOFR 3 down the road, so strong margins that should continue to go higher..

Our next question comes from Mig Dobre from R.W. Baird. Please go ahead..

Yes. Good morning, gentlemen. And maybe to go back to this question on margin in Water Management.

Asked differently, when I'm looking at this 35% incremental EBITDA margin, I mean this is quite good, and again I am wondering whether or not there were some – anything that was special about this quarter or if we should sort of range our expectations going forward in this area, this 35% area, especially since you're talking about incremental price increases and things like that down the line?.

Well Mig we'd obviously not likely to change your expectations too much, but the profit in the business in the quarter and really last year benefited from no one-time or unusual items.

As we go through and we've been talking about it for a while, the mix towards institutional offers us – it's a higher margin mix for us just based on the content that would go in the buildings and the products that the margins we make on those products.

So fundamentally, the margins and the incrementals are tracking to what we'd expect given the projects and the mix, but that's just sort of the way the business has performed for a while.

So we're optimistic that with the price increases, and again with further cost reductions and leveraging RBS, we have the ability to continue to generate strong incrementals over the course of the year and in the future..

Okay. So basically steady as she goes from here with this kind of performance. That's kind of what you're saying. You also talked about new product introductions and that's something that we've heard in the past within this segment.

Maybe a little more color here and help us understand if these new product introductions, well, first, the magnitude and then, are these accretive to margin? Is that also part of the story?.

They are. We want launched a number of products really over the course of the last year and into this year that all have a favorable margin profile relative to some of the legacy products. At the same time, the legacy products are also highly profitable.

And I don't know that we're going to get into the magnitude of the product launches, but they've clearly grown well above the market, sort of in line with our expectations primarily based upon the value that they delivered in customers.

If you think about reducing build cost, accelerating the build cycle, these are products that play right in to what end users and contractors want which is to reduce labor costs and overall build cost as they build buildings..

Okay. I want to switch to maybe asking you a question about the overall guidance. You raised the low end of EBITDA. Obviously, there's still a range out there.

You sound confident overall, but I'm wondering what are the puts and takes to low end versus the high end? I don't know if this is a range of growth that you have in mind really for the full year or if it's mixed or if there're other cost elements here that might not necessarily be obvious from the outside? Any help would be useful..

Yeah. I think what you see, Mig, is we've got a mid-single-digit expectation for growth and that translates to what we think is a range of EBITDA, $425 million to $440 million. And so, to the degree we migrate towards the higher end of mid-single-digit, I'd suspect you'd see the EBITDA range towards the higher end of that.

Obviously, we're also working cost levers, productivity and price increases. And so, I don't want to say it's linear, but we see good growth over the course of the year and I think we're comfortable that the earnings range that we've got, we hope, turns out to be something that we land in or potentially towards the high end.

And that's really – that's the way to interpret it. I don't think there's a lot of science behind it, but it's more art. We're trying to manage the business smartly over time. And with nine months left in our fiscal year, we're just trying to give you our best look of what we think the range of outcomes is.

But clearly after the good start, we felt like it was prudent to pick the bottom end of the prior range up a little bit..

Sure. But if I understand this, you're saying that it's a function of top-line variation, maybe a little stronger, maybe a little bit weaker around that mid-single-digit range. It's not something within the margin specifically that generate the low-end versus high-end of EBITDA..

And obviously I think – correct. But that being said, if mid-single-digit as we interpreted, is 4% to 6%, we wouldn't be comfortable telling you that 5% is the midpoint of the range because we do other things to try to drive the earnings higher with cost reductions and other productivity.

So, it's not linear per se, but it is sort of our best shot at what we think the range of outcomes looks like from here, assuming margins are relatively consistent with where they've been and where they're tracking..

Got it. That's helpful. Lastly for me. Within the quarter, you had a segment leadership change in Water Management.

Maybe tell us a little bit about that if you can and whether or not that involves any other changes within the business?.

I don't think we're going to spent a lot of time commenting on it, Mig, other than to say we made some strategic decisions with respect to the portfolio as well as some decisions around the org structure to drive what we think is the most effective growth in profit we can. And so as a result of that, we made a change.

We're very comfortable with the change we make. And as you can see, the business is performing quite well and we expect it to continue to perform quite well. And so like anything else, the structure of the organization needs to match the strategy and the execution, and we're optimistic that you'll see that continue over the course of the year..

Thank you..

Our next question comes from Julian Mitchell from Barclays. Please go ahead..

Thank you. Good morning. Maybe just a first question on the free cash flow, it was down quite a bunch year-on-year because of, I guess, inventories and accruals. Wondered if that was simply a function of the top-line outlook? For example, one of your or another industrial company today talked about how they were pre-buying inventory because of tariffs.

So I wondered if there was any of that in your free cash or it was simply because the orders and top-line looks so good..

I'll give you sort of the view that we have, which is, for the year, we expect free cash flow to exceed net income, which is going for $200-million-ish. Obviously, last year, there was a bit of an anomaly in the way the first quarter cash flow rolled out. It was seasonally stronger due to the timing of a few things.

This year, those things sort of normalized, and we did do some buy-aheads for inventory in advance of the tariffs, but also to reflect the strength of the top line that we're seeing in Zurn.

So, if you think about the Zurn business, the seasonal quarters, the seasonal high quarters are the June and September quarters based on the non-residential construction cycle in North America. And so, with that strength, with tariffs, and the unusual nature of last year, you sort of get to the root of your question.

All that being said, over the course of the year, we still expect the $200 million of free cash flow to be there by the end..

Thank you.

And then my second question, amidst to what is clearly a very good top line environment, you still have a couple of sort of yellow or amber lights in the traffic light scheme you have on end market outlook, maybe just touch on those two, because everything else is so good, so just what are you seeing in sort of European industrial distribution, and then has your view changed on the non-res North America construction market?.

Yeah. I think, overall, our views are unchanged over the course of the quarter. And so I think we're just taking a cautious outlook on Europe with industrial distribution. It's not a big piece of our business, to be honest, but it's something we're watching, and we still see plenty of support for solid growth. Backlogs are in good shape.

Our spec rates and our win rates are very high. And we feel good about where non-res sits. Obviously, we've had a view that commercial and industrial non-res building was going to slow. I think that continues, it's not negative, but it's a slower growth end market as institutional, education, healthcare, all those things really are quite strong.

So, unchanged for the quarter and the year, and just something that we're going to keep an eye on those two areas..

Great. Thank you..

Our next question comes from Charley Brady from SunTrust Robinson Humphrey. Please go ahead..

Hey, thanks. Good morning. I was just going to kind of tail-in on the end market question, in the Water business, on those end markets.

Can you give us a little bit more sense of kind of what kind of growth you're seeing in those particular end markets, particularly the ones that are growing a little bit better, the institutional or the rotation that you've seen there?.

Sure. Obviously, institutional is growing at a higher rate than commercial. Commercial is still positive in the lower-single digit range, but institutional above that. And then, we're seeing pricing above that.

So it'll be tough to really give you a sense of what we think the overall market is, but think about commercial as low-single digits, think about institutional as mid-single digits, plus some price, and that's where you get to the 7% for the quarter and last. And we think that as you go over the course of the year, it'll fluctuate a little bit.

But we're optimistic that the second quarter for Zurn will also be very strong. So, we're watching everything. We think that the markets are frankly quite strong if you look at where backlogs sit, and that's probably as good as we're going to get Charley..

No, I appreciate that.

And just on PMC, the commentary on the aerospace orders, the timing there, can you give us a little more color on exactly what's that, what that entails, what's going on with that?.

Yeah. I mean, it was a combination of some slight push-arounds, not outs, but push-arounds within the customer base that resulted in the supply chain sort of not being able to deliver in the quarter. And so, the order of magnitude is between $4 million and $5 million.

And we think that most of that, if not all of that, sort of falls into the second quarter which puts a sort of hole for the first half. Order rates have been very good. And so, we'd expect, after this sort of shift between Q1 and Q2, the balance of the year to be pretty steady..

Great.

And then kind of a comment on the supply chain leads me to the next question, are you seeing a pent in the supply chain? Is your supply chain able to – given some of the strong growth you're seeing in these end markets – kind of keep pace with what you're seeing on your end?.

I think the answer is generally yes. Obviously, as we've gone through the Supply Chain Optimization over the last couple of years, we've done more with outside suppliers. The aerospace has nothing to do with that change. But so far, we've been pleased with the way the supply chain has been performing.

It's really incumbent upon us to keep them up to date with the latest sales, inventory and operations planning because they need to take their cues and plan capacity around the cues that we give them. So, giving them an accurate projection of what we're seeing on a go-forward basis makes them equally as effective in delivering to that.

So, it's not just a supply chain problem, it's really stuff that we can control by sending our suppliers the right cues and right capacity going forward..

Great. Thank you..

Sure..

And our next question comes from Joe O'Dea from Vertical Research. Please go ahead..

Hi. Good morning..

Good morning..

Maybe just to confirm, it sounds like within the guide, the EBITDA expectations are for kind of neutral price-cost experience for the remainder of the year with respect to margin.

And then related to that, when you take stock of the various inflationary pressures out there, have you announced the pricing for what you see and anticipate, or do you expect that there will be incremental price actions in the remainder of the year in order to hit the guidance that you have?.

Joe, this is Mark. Yeah, your first comment was correct. As we look at over the course of the year, for us the price, material cost equation doesn't adversely impact our margins.

So, that's one of the assumptions that we have that I talked about in the call and we had kind of baked into the course of the year and then saw that obviously in our first quarter. When you think about the pricing actions, the majority of our pricing actions are in place.

We do not – or at this point in time have a lot of things that need to be done from here. Now, clearly, the situation is a little fluid as we all know. And one of the things about our business model that's powerful is our ability to react quickly.

So, if things do change from here, we don't have any concerns of our ability to take additional pricing actions, but right now the majority of what we need to accomplish from here we've put in place at this point in time..

Got it. And then, commentary around an acceleration in some of the sell-through in distribution, I think we went through kind of early stages of recovery and what looked like would have been kind of lighter inventory levels in distribution.

As you see things accelerate, what does that mean in terms of a scenario where distributors are just under-stocked at this point and that in this year, you could see – as we see accelerating demand, a better degree of confidence and a period of some restock in distribution?.

Hey, Joe, it's Todd. To-date, we haven't seen any level of restocking, so all of the end demand is being serviced by our ability to accelerate lead times. And while I think we'd be pleased with the level of restocking, we haven't seen it.

And part of it is perhaps our own fault that we can continue to meet the end market demand with improved lead times and delivery performance. So, I think what that leads to is a very healthy level of inventory when you think about an overstock situation. There is no risk of an overstock situation given where inventory levels reside.

So, we're, like everybody else, complaining a little bit that the channel is a little thin. But at the same time, as long as we're able to meet the end demand and serve customers well, I think it bodes well for the way people think about us and really the future.

So, no restocking is embedded in the way we're thinking about the rest of the year per se. And it certainly hasn't happened in the first quarter..

Okay. Thanks very much..

We're showing no further questions. I will now turn the call back to Rob McCarthy for closing remarks..

(00:41:45) for joining us on the call today. We appreciate your interest in Rexnord and we hope to see you at our Investor Day on Thursday of this week. Please contact me if you'd like to attend. If you cannot attend, we will be webcasting the formal presentation portion of the day, and we hope you'll be able to view that or to see it later.

We also look forward to providing our next update when we announce our fiscal year 2019 second quarter results in early November. Have a great day..

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