Zurn Elkay Water Solutions Corp (ZWS) 2015 Q2 法說會逐字稿

Welcome to the FY2015 Q2 earnings release call. My name is Angela, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Mr. Todd Adams. You may begin.

Actually, this is Rob McCarthy. Good afternoon, and welcome, everybody.

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 we'll 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 second quarter of our FY15. 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 are considering strategic alternatives for this non-core product line, and as a result have excluded mill products from our FY15 guidance. With that, I'll now turn the call over to Todd Adams, President and CEO of Rexnord.

Thanks, Rob, and good afternoon, everyone. Thank you all for joining us today for an overview of our FY15 second quarter financial results.

On our call a quarter ago we talked about our expectations that our core growth rate would accelerate in the second quarter, and that we expected a relatively higher level of growth to be sustained in the second half of our fiscal year. In both cases, as you review our release and you'll hear on the call, we're largely still tracking to those same expectations, muted somewhat by weaker European industrial demand.

We delivered 3% core growth in the quarter, and expect our core growth in the second half to be between 3% and 4%. The incremental perspective we have that we're incorporating into our outlook is weaker European industrial demand that we saw late in our second quarter and through October, heading into what is traditionally a seasonally stronger period for us from an activity standpoint.

Simply put, a large portion of this is food and beverage and market related that usually picks up in September and into Q3 and Q4 that we're not seeing. This is a good business for us, and it offsets some of the underlying progression in our served markets that has largely played out as we expected.

The expected end market progression, plus the incremental investments we're making in growth both organically and inorganically, give us the optimism about sustaining a higher rate of growth in the fiscal year that begins next April. Later in the call, I'll provide more color related to our outlook.

Before I turn to the second quarter financial performance, I'd like to run through a few highlights that are important from a long-term value creation perspective. Over the last week, we've announced two strategic tuck-in acquisitions that are accretive to our margins and to our core growth. Both Tollok and Euroflex add complementary products in faster growing categories to our Process & Motion Control platform with significant opportunities to leverage our extensive go-to-market capabilities that will expand the growth opportunity, both graphically and in terms of served markets in these categories.

Once Euroflex closes, in these two acquisitions, we will have invested $112 million on two proprietary acquisitions at a sub-8X EBITDA multiple with very solid current and expected returns on invested capital. With Euroflex, we also add well-established engineering and manufacturing capabilities in a lower cost country, which we will leverage.

Consistent with that strategy, we have recently hired an experienced executive to serve as our new regional executive for India and the Middle East that will really help us accelerate our growth strategy in these regions across both platforms. In addition, we recently hired a new leader for our business development team with a proven track record of strategic acquisition funnel development, as well as effective acquisition execution. We remain confident that we'll continue to accelerate the value creation opportunity through further acquisitions.

As we discussed in May and in August, we've made good progress on concluding the review of strategic alternatives for our mill products business and continue to anticipate a resolution before the end of our fiscal year. Turning to core business, we continue to move forward on a broad front of RBS driven initiatives to improve our cost structure, drive growth, and further strengthen our overall competitive positions.

During the quarter, we named new presidents for the power transmission and aerospace groups, and our Process & Motion Control platform. The addition of these group presidents as well as the executives I previously discussed really completes the build-out of our senior leadership team. I'm very happy with the team we have in place and excited about what I believe this team can do to create value for our customers and shareholders over time.

Let's turn to page four and cover some of the financial highlights for the quarter. Our second quarter financial results were generally in line with our expectation for profitability and free cash flow with adjusted EPS of $0.40 despite our top line coming in slightly below our expectations, but still growing 3% on a core basis. Overall sales increased 6% as acquisitions during the past year continue to perform well and contributed 3 points of growth in the quarter.

We also saw sequential improvement in each of the platforms as core sales declined 1% in our Process & Motion Control platform, down from a 4% decline in the first quarter. And we delivered 10% core growth in our Water Management platform. Positively, and as we've been projecting over the past couple of quarters, the headwind to core growth from our bulk material handling end markets did, indeed, moderate significantly in the second quarter, as we anticipated and combines with an otherwise mostly unchanged market outlook, with the exception of European demand which makes up approximately 17% of our overall Process & Motion Control sales.

With respect to earnings per share, our adjusted EPS increased 38% year-over-year, driven by 41% growth in net income, offset by about 4 million more shares outstanding. In a few minutes, Mark will take you through our solid free cash flow performance in the quarter, compared to the prior year, as well as leverage reduction we saw in the quarter and expect over the next six months.

Turning to our PMC end markets, demand trends remain generally stable in markets outside of Europe. Positively, and as we've been projecting over the past couple of quarters, the previously severe impact on our core growth from weaker mining CapEx and declining shipments from our backlog to our mining sector customers moderated significantly in the second quarter.

Given the stable order rates we continue to see across most of our other end markets, particularly in North America, which accounts for about 60% of platform sales, we expect core growth of PMC to recover further in the second half of our FY15, and into 2016, as the 2-point growth headwind from a lower mining backlog abates. Despite some of the uneven market dynamics constraining near-term growth in PMC, ongoing strong execution, again, helped enable expansion in PMC's adjusted EBITDA margin despite the small negative core growth.

We continue to execute against opportunities we see to continue to drive 30% to 35% incremental EBITDA margins over the next several years while investing organically and inorganically to improve the fundamental growth profile of the platform. We expect ongoing execution of our cost and productivity initiatives, driven by the Rexnord Business System, to enable us to continue to make investments that enhance our core growth potential even as our sales mix suffers temporarily from the weaker than expected service of sales levels in Europe.

Turning to our Water Management platform, simply, we had a very strong quarter with 12% overall growth and margin expansion which demonstrates the progress and conviction we have around achieving a 200 basis point improvement in the adjusted EBITDA margin in this fiscal year. Our core business grew 10%, and acquisitions contributed 3%. The ongoing success of RBS directed initiatives on driving better execution, productivity, and permanent cost reductions give us confidence in our ability to drive 20% to 25% incremental EBITDA margins into an improving set of end market over the coming years.

Market fundamentals in our Water Management platform remain strong. The recovery in the US non-residential construction sector continues to gain traction, and our confident in an outlook for sustainable North American market growth over the next few years continues to grow. Our performance continues to solidly outpace measures of overall market growth, and we have a strong pipeline of new products that will have an increasingly positive impact competitively. Global order activity also remained strong for our water and wastewater infrastructure products, where the evident and favorable impact from our RBS directed cost reduction efforts is helping drive improved margins.

Next, with six months of FY15 now behind us, I want to close with a little color on our third quarter and full year guidance. Our current outlook assumes the weaker European markets will constrain our second half core growth to 3% to 4%, compared to the 4% to 6% we contemplated at the beginning of the year. Adjusting the second half core growth to the lower end of our prior expectations would predictably lower the midpoint of our EPS outlook to the bottom end of our previous range, or to $1.60.

We're also refreshing our currency assumptions heading in the second half to reflect the strengthening value of the dollar, and the resulting impact it has on adverse translation from euro which hits us over the next six months by about $0.04, after only $0.01 impact in the second quarter. That gets you to the midpoint of our revised EPS range guidance of $1.56 or 16% year-over-year growth. Our overall EPS guidance range is $1.52 to $1.60 which represent EPS growth in the range of 13% to 19%.

For the third quarter, we expect sales to be in the range of $496 million to $504 million, and adjusted EPS in the range of $0.29 to $0.32. As previously discussed, all of these figures exclude mill products.

Before I hand it over to Mark, just a couple thoughts on how we're thinking about the medium term performance of Rexnord headed into next year. In Water 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 a backdrop of what we see as an improving set of end markets.

In PMC, we're navigating well through a lower growth year constrained by reduced backlog coming into the year, some moderate headwinds in some geographies, and end markets that in aggregate should improve into the next couple years. Our free cash flow is strong, and we expect to continue to make progress executing against our M&A funnel with a more talented, deeper management team committed to leveraging the businesses and to drive long-term value creation in the coming quarters and years.

With that, I'll turn it over to Mark to cover some of the financials.

Thanks, Todd. Consistent with prior quarters, we'll speak primarily to adjusted operating (inaudible) and EBITDA, adjusted net income, and adjusted earnings per share, as we feel these non-GAAP measures provide a better understanding of our operating results. Slide 5 of the presentation reconciles our reported results to the adjusted results.

Turning to page 6, I'll discuss our operating performance highlights for the second quarter. Please note that our analysis excludes results of our mill products business in both years.

Second quarter sales increased 6% from the prior-year period to $531 million. Adjusted operating income increased to $82 million, and adjusted EBITDA increased $110 million with margins improving by 50 basis points in a year-over-year basis.

Second quarter adjusted net income was $42 million resulting in adjusted earnings per share of $0.40, an increase of 38% from the prior-year comparable figure, due to the increase in operating income and the benefit of the debt refinancing we completed last year. Cash flow was significantly stronger than during last year's second quarter as adjusted free cash more than double to $63 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 second quarter increased 2% year-over-year to $305 million, as the core sales decline of 1% was more than offset by the 3% contribution from acquisitions. The core sales decline in the quarter was driven by weaker than expected sales in Europe, as well as the diminishing but expected headwinds from our bulk material and handling end markets.

Turning to profitability, adjusted operating income and EBITDA were roughly flat year-over-year and margins were little changed. We remain focused on leveraging the RBS 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 increased 12% from the prior year to $226 million. Core sales growth contributed 10%, and acquisitions accounted for 3%, while currency had a negative 1% impact.

On a year-over-year basis, second quarter adjusted operating income increased 210 basis points, and EBITDA margin increased 160 basis points to 17.4%. Margins benefited from the ongoing success of RBS directed initiatives on driving execution proficiency and cost reduction as well as higher shipment levels in our water infrastructure markets. As Todd mentioned earlier in the call, we continue to expect margins in Water Management to expand by at least 200 basis points in our FY15.

Moving to slide 9, I'll touch on our capital structure and liquidity. We finished the second quarter with $361 million of cash and $699 million of total liquidity. Total debt was $1.937 billion, and net debt was $1.576 billion, resulting in a net debt leverage ratio of 3.7 times at the end of the quarter. As we look out over the back half of the year, taking into consideration the recent acquisitions, we would project our net debt leverage to continue to decline to the 3.4 to 3.5 times range.

Subsequent to the end of quarter, we took action to further reduce the amount of variable rate debt on our balance sheet. In October, we put in place a 3% interest rate cap on $750 million of our outstanding debt through October of 2018.

The cap allows us to continue to benefit from the current low interest rate environment as the cap premium won't really begin to impact our interest expense until FY18, while protecting against any sudden and significant change in the level of interest rates by capping interest expense at 6%, and 6.33% if LIBOR was to go above 3%. With this cap and a swap we put in place one year ago, we now have 73% of our debt protected from any sudden and significant change in the level of interest rates, and we'll continue to manage this exposure going forward.

Before turn the call back to the operator to take any question you may have, I'll make a few final comments on our outlook. In addition to the elements of guidance that Todd a highlighted earlier in the call, page 10 of the presentation also outlines our assumptions for incremental margin, interest expense, depreciation and amortization, stock option, and LIFO expense, our effective tax rate, free cash flow, capital expenditures, and fully diluted shares outstanding for FY15.

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

One last guidance item I want to highlight is related to our expected cadence for our effective tax rate in the third and fourth quarters. For the third quarter, we expect our effective tax rate to be approximately 35%. In the fourth quarter, we anticipate an effective tax rate of approximately 21%. Our full year tax rate guidance remains unchanged at approximately 30% for the year.

With that, I'll turn the call back to Rob.

Thank you, Mark and Todd, and thanks to everyone for joining us on the call today. We appreciate your interest in Rexnord, and look forward to providing further updates when we announce our FY15 third quarter results in early February. With that, I'll turn the call back over to the operator, and we'll open it up for your questions.

(Operator Instructions)

Mig Dobre, Robert W. Baird.

Good afternoon.

Hello, Mig.

My first question, clarification on guidance. As I understand it, you ended up cutting your core growth guidance by 150 basis points for the second half to 3.5%. It's all PMC-driven, with Europe being a drag.

But running through some math, PMC is 60% of revenue. Europe is less than 20% of that business. That would imply that growth in Europe is 12% lower than you originally anticipated. That seems like a high number. Are things that bad in Europe? Or is there something else we should be thinking about here?

Mig, I think your math is probably close. I think what we are saying is that we saw September weaker than we thought. We saw October weaker than we thought. We should be growing mid-single digits, in terms of what we expected heading into our second half. And we're down single digits.

So the gap is probably close to what it is you're highlighting, as it relates to what's new relative to the last time we provided an outlook.

Sorry to press you on this, but it seems to me like it would have to be something else other than just Europe. Unless we're talking about Europe really being down double digits here.

I think maybe just to clarify, we're highlighting Europe. But it's probably Europe and a little bit of Asia, given the fact that a lot of the equipment that's manufactured in Europe gets exported to Asia. The end demand is probably more Asia-driven. We see it manifest itself in Europe. So either way, you're right in that we were expecting low mid-single digit growth, and we're seeing low mid-single digit contraction.

A couple of these businesses are, frankly, quite good. So we felt compelled to take a hard look at it. We hope maybe we're being a little more conservative. But at this point, we're doing what we think is right given we still have six months left in our fiscal year.

All right. I appreciate the color there.

My follow-up, I know you hired a new VP of Corporate Development. So maybe a little more color on the gentleman's background, what he brings to the team, and maybe how confident you feel about reaching or maybe even exceeding your target for $25 million of acquired EBITDA?

Sure. Rodney Jackson, we hired to lead our corporate and business development activities. He comes to us from Danaher. He was one of a small group of folks in the corporate development office there.

Prior to that, he was with Pentair. So he's got extensive experience with a very high-quality acquisitive industrials. And we're very excited to have him as part of the team, working with Mark and I, as well as our group executives and the current team to execute what we think is going to be a great M&A story over time.

As it relates to the progress, we feel very good about it. If we look this year, we will have, over the first six months of the year, done three acquisitions. We're greater than 80% of the way there in terms of what we said we were targeting, with six months to go. Again, I'm not going to project what happens. But I think the demonstrated capability of three proprietary deals, at sub-8 times, within a six-month period, I think gives you the conviction that we feel pretty good about it.

I appreciate it. Thank you.

Julian Mitchell, Credit Suisse.

Hello, thank you.

Just a couple of questions on Water Management. Firstly, I think you'd called out the book-to-bill in water infrastructure was just over 1.2 in Q1. I just wondered what that is now, and also how you see the turnaround or project management improvement in VAG specifically.

For the second quarter, it was 1. For the first half, it was just under 1.1. As we've coached people, look at the book-to-bill in halves. The first half being 1.1 or 1.09, I think is a very good sign.

The project management capabilities that we're implementing are really a strong positive inside the group. We've done some movement of folks from some of our existing businesses with strong RBS backgrounds into the group that are paying dividends right away. We're optimistic about our ability to continue to grow the backlog and execute the backlog profitably going forward.

Thanks.

Then on the restructuring, on the last call you talked about a $5 million to $10 million range for the year of spend. I think you've spent about $5 million in the first half. Have you pushed up the restructuring range given the slower growth in Europe?

Julian, this is Mark.

I think we talked last call, $5 million to $10 million in the back nine months of our year. If you look at where we sit today, you said for the first half about $5 million. Expect in that $9 million to $10 million type range in the back half of our year. So call it $14-ish million for the year.

As we've talked about, and Todd talked about earlier in the call, we continue to look at our cost structure and opportunities. And you may see some more activity late in the year or early in the next fiscal year.

Great. Thank you.

Rob Wertheimer, Vertical Research Partners.

Good evening, everybody.

Hello, Rob.

Just a quick question. The ex bulk material, did you say it was 2% for the quarter organic?

Yes, the adverse impact of bulk material handling in the quarter was probably a little bit more than 2%, about 3 points of headwind in the quarter. We're saying for the year, it'll end up being about 2 points to the PMC core growth.

Okay. You're basically fading them. The comp is normalizing. Does that underlying business get worse than you thought -- not recovering as you thought? Or are you finally going to be through it next quarter?

Actually, what we said coming into the year was we expected order rates to be flat year on year, and we're seeing that. The book-to-bill in our bulk material handling business through the first half is very positive. It's about 1.1, maybe a little bit better.

We're seeing the reduction in backlog abate. We're seeing the order rates pick back up. So that's why we feel confident that next year that 2-point headwind this year from the backlog reduction, at a minimum, goes away -- from what we see from here. We do see that it's getting better, consistent with what we said as we started the year.

Okay, perfect.

This one is a small one, but the $0.04 of currency is a little higher than what we had. Maybe I'm not understanding. Do you have a net production exposure here in the US that is causing a headwind to margin? Maybe you can expand on it, if there's anything interesting there.

We don't. It's much simpler than that. It's really, when we walked into the year, the euro was $1.32, $1.35. The euro is $1.25 today. The businesses that we're translating from euros to US dollars are relatively profitable. So it's that change in the euro translation rate against, let's say, a relatively profitable European business for us.

Perfect. That's what I wasn't doing. Thank you much.

Charley Brady, BMO Capital Markets.

Thanks. Good evening.

Hello, Charley.

On the water platform for a minute, can you maybe give a little more granularity on the Zurn and VAG and how they did in the quarter? What you're seeing, a little more specifically, as you look out in the back half of the year, particularly on VAG and some of the larger project stuff. I guess I'll just stop there.

Sure. Overall growth in the quarter was I think 12%. Obviously, that currency was a little bit of a drag. But as it relates to Zurn, Zurn was north of the 10% core growth number. VAG was a little bit below. We saw a 1.0 book-to-bill for VAG, and a 1.09 I think for the first half.

As it relates to water, Zurn continues to perform really well on a core basis, as well as the acquisition that we made in April of Green Turtle. It's growing at or above our expectations, and we see the project activity in VAG relatively robust over our second half.

It's great to see the margins where they are, at 17.4% for the quarter. We've think that's a pretty big down payment on the expansion that we projected, not only this year but into that high teens over the next several years. Our confidence, as it relates to the water platform performing as we had been anticipating, is very high.

Was there any discernible movement, as the cadence of the months as you went through the quarter, anything unusual -- whether it was you started spiking towards the end or beginning, or you came out of the quarter different than you went into it?

In water, Charley?

Yes.

No. In Zurn, it's been steady growth throughout the quarter. And VAG, we walked into the quarter with a good portion of that in backlog and really didn't see much of any unusual activity as we exited the quarter or even into, frankly, October.

Great. Thanks.

Karen Lau, Deutsche Bank.

Thanks. Good afternoon.

Hello, Karen.

The European macro data, it's been bad in August/September timeframe. But I think overall it has improved slightly. I think a lot of industrial companies called out things being a little bit better, more stable. But it looks like you're not seeing that into October.

Would you attribute to the weakness to maybe some of the food and beverage projects getting pushed out, or large projects getting pushed out? And if that is the case, would you expect to recoup some of that later this year?

I guess the way we've projected it, Karen, it's maybe a little bit unclear. The weakness that we saw -- and if you just go through the quarter, July was generally in line with our expectations. August in Europe is a very difficult month to get a read on just because of the holiday season and really lack of a lot of industrial activity. It didn't start to come back in September, as we had expected; and it didn't come back in October as we had expected.

I think the thing to take away is that the second half of our fiscal year, as it relates to this European food and beverage business, is substantially greater than the first half. So it's not as if we're projecting a business that's ratable throughout the year. We're heading into a seasonally higher part of our year. And we didn't really see it in the first set of couple of months that we should have seen it.

So what we've done is maybe take a conservative view and assume that we don't see some of that traditional seasonality that we normally would. And that's the way we've positioned the guidance. We're obviously going for more. But at this point, it just felt prudent for us to take the best information we had, obviously work to improve that, but give you a view on what we're seeing.

I don't think we are losing any massive projects. I don't think that -- these things don't shift that quickly. I think it's a fundamental weakness that we're seeing. And there's no reason to think it doesn't come back at some point.

Okay. That makes sense.

Then some of the companies -- your distributors and some of your peer industrial companies -- have seen very good, very strong North American distribution results. I was just wondering how your North American distribution business did in the quarter?

It was good. I think it was low mid-single digit growth in the quarter. We saw some of the same news that you saw around growth and industrial distribution. We feel like we saw it in line with what we expected.

We're continuing to make progress, really growing the install base so that the aftermarket is even a disproportionately higher amount of the opportunity we see. So pretty good growth in the quarter, and I think that's tracking as we'd expect it.

Okay. Then the last one. Could you give a sense of whether you've baked in any contributions on the two acquisitions that you've closed into the guide? What would be the annual run rate in terms of sales and EBITDA from those businesses?

Perhaps we have; perhaps we haven't. It's probably close to $0.02 for the year from here. As you translate that into next year, it's probably $0.07 to $0.08 on a full year basis. That's the contribution from the acquisitions on a full-year basis.

And I forget the first part of your question.

If you can break it down, how much were the sales and the EBITDA contribution?

We'll get to that. We're not going to give you the discrete numbers. But I think you can back into it using $112 million of proceeds, at sub-8 times on an aggregate multiple. It'll get you to about $14 million of EBITDA. If you take the $35 million of sales that we've reported, it's about a 35% EBITDA margin aggregate acquisition.

Okay. On an annualized basis, you said it's about $0.07 to $0.08 that we can bake into next year.

Yes, it will be $0.05 to $0.06 incremental.

Okay. Got it. Thank you.

(Operator Instructions)

David Rose, Wedbush Securities.

Hello. A couple follow-up questions. First, thank you for taking my call.

If I can go through the acquisition, first of all Euroflex, if I go through a press release and the Q, it implies that your EBITDA margins are like 60% net business, if I'm not mistaken. And $77 million you paid for $16 million in revenue. What is it about the business that gets you there? Maybe you can help us through some of the growth expectations you have.

Your math is close. They manufacture high-performance disk couplings that go into turbomachinery. So anything from 4,000 RPM and above, these are essentially the couplings that protect the rotating equipment. So very, very high-end applications; very sticky; and frankly, a growth area globally, as it relates to energy.

These guys do an amazing job and have over the past 20 years in establishing the business, the technology, the engineering capability, to serve the market leaders at a price below competitors. They're still making the type of margins that you're talking about, so it's a wonderful deal. It's been in our funnel for three plus years; and we'll get it closed here, hopefully, by the end of November. It's a great deal, and that's why.

Okay. That's helpful. Thank you.

If I can return to the F&B question -- not to beat it to death. But how much of F&B is out of Europe for you, and how much of these are large products?

I'll let Mark get you the rough cut number, but it's well over half.

It is. Shipment originating out of Europe, yes, over half.

Well over half. It's probably between 60% and 70%. The large project nature of it is, yes. For the most part, the project activity happens over the winter months. So bottlers run the equipment full out in the summer months and then do any maintenance repair, upgrading of machines, new capital over the winter months. That's where you get that seasonal, I'll say, lift that at this point, we're really not seeing the benefit of that.

We're not seeing projects that we're missing. We're just not seeing the number and maybe quantity of projects that we would've hoped for. A lot of it has to do with maybe a weaker read-through in Asia or other things. But it's one of those things where, based on everything we're looking at, we just don't see the big lift coming that we would expect to see. (multiple speakers)

As an offset, we're leveraging the technology there to grow into automotive. It's not just one of these take it down and wait scenarios. We've been trying to grow in the automotive space over the last couple of years, making great strides. And we're continuing to see automotive conveyance be a growth area for us.

Yes, we've been maybe more cautious in Europe than others. But it's an important business for us heading into a seasonally high part of the year. And we haven't seen it in September, and we didn't see it in October. We've got six months of our year left, so we felt it was the right thing to do.

I appreciate that.

Maybe we can move on to the Water Management business. Are there any mix issues or anything you want to call out that drove margins the way they went?

No. I think nothing unusual from a project standpoint or mix. I think the only thing I would highlight is that Zurn is seasonally strong in our first and second quarter, and gets seasonally weaker as the non-res construction season in North America winds down over the December and March quarters, and then picks back up. Aside from that, on a year-to-year comparative basis and sequentially, nothing that's not repeatable.

Perfect. Thank you very much.

You bet.

We have no further questions at this time.

Thanks, everybody, for joining us. We appreciate your interest in Rexnord. And we'll look forward to discussing our third-quarter results with you about three months from now. Good night.

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