Rexnord CEO doesn’t see Trump’s trade policies changing company’s plans

Says global footprint needed to be ‘effective participant in the market place’

The head of Milwaukee-based Rexnord Corp. says his company is “absolutely on track” to realize $30 million in cost savings from a supply chain optimization and footprint reduction plan and doesn’t see President Donald Trump’s trade policies changing the company’s decisions.

Rexnord Corp. headquarters

“At this point, nothing we see would lead us down a path of thinking the benefit or the decision that we made is going to at least be something that we would regret,” said Todd Adams, Rexnord president and chief executive officer.

Trump has threatened to implement tariffs on goods made in Mexico and is seeking to renegotiate the North American Free Trade Agreement. At the same time, a tax plan under consideration by Republicans in the House of Representatives would tax sales on imported goods while exempting exported goods.

Rexnord has been working on the supply chain and footprint plan, which includes a 20 percent reduction in square footage in the company’s facilities, since 2015. The plan involved the closure of five plants, but it was the closure of the Indianapolis bearings plant with work moving to Mexico and Texas, announced in November, that drew the ire of then president-elect Donald Trump.

In December, Trump accused the company on Twitter of “rather viciously firing all of its 300 workers” at the plant.

During the company’s earnings call Thursday, Adams said “our associates on both ends of the transfers have been terrific.” He said the physical moving of some assembly lines would be taking place in mid-February and there has been a focus on maintaining a “robust knowledge transfer.”

Adams said a substantial amount of the supply chain and footprint initiative comes from investing in and leveraging advanced machining capabilities, third-party suppliers and some automation. He also acknowledged part of the rationale for the move to Mexico was to have a lower, more efficient cost basis to maintain margins in mid-tier products.

“We’re very much a U.S. manufacturer, but we have global customers and serve global markets, so we sort of have to manufacture in a lot of different places to be an effective participant in the market place,” Adams said.

He said the company is comfortable maintaining a global manufacturing footprint, but added any potential changes would have to be considered as details emerge.

“We have also put some contingency capacity in McAllen, Texas to enable us to adapt to changes in trade policy should they arise,” he said.

Rexnord’s results for the quarter included a sharp drop in net income, down from $24.4 million to $1.7 million, and earnings, down from 24 cents to 2 cents per diluted share. The company attributed the declines to debt refinancing during the quarter and elevated restructuring expenses.

Revenue was also down 1.8 percent during the quarter to $451.8 million. Acquisitions boosted the topline figure by 5 percent. Core sales were down by 5 percent, excluding a 1 percent impact from the exit of the Rodney Hunt Fontaine business.

The decline was driven by Rexnord’s water management business, which reported a 7 percent drop in net sales to $182 million. There was stable demand in nonresidential construction end markets, but there were lower project shipments to global water and wastewater infrastructure markets.

The process and motion control segment was up 2 percent to $270 million, primarily because of the acquisition of Cambridge which helped the company diversify its end markets.

The head of Milwaukee-based Rexnord Corp. says his company is “absolutely on track” to realize $30 million in cost savings from a supply chain optimization and footprint reduction plan and doesn’t see President Donald Trump’s trade policies changing the company’s decisions.

Rexnord Corp. headquarters

“At this point, nothing we see would lead us down a path of thinking the benefit or the decision that we made is going to at least be something that we would regret,” said Todd Adams, Rexnord president and chief executive officer.

Trump has threatened to implement tariffs on goods made in Mexico and is seeking to renegotiate the North American Free Trade Agreement. At the same time, a tax plan under consideration by Republicans in the House of Representatives would tax sales on imported goods while exempting exported goods.

Rexnord has been working on the supply chain and footprint plan, which includes a 20 percent reduction in square footage in the company’s facilities, since 2015. The plan involved the closure of five plants, but it was the closure of the Indianapolis bearings plant with work moving to Mexico and Texas, announced in November, that drew the ire of then president-elect Donald Trump.

In December, Trump accused the company on Twitter of “rather viciously firing all of its 300 workers” at the plant.

During the company’s earnings call Thursday, Adams said “our associates on both ends of the transfers have been terrific.” He said the physical moving of some assembly lines would be taking place in mid-February and there has been a focus on maintaining a “robust knowledge transfer.”

Adams said a substantial amount of the supply chain and footprint initiative comes from investing in and leveraging advanced machining capabilities, third-party suppliers and some automation. He also acknowledged part of the rationale for the move to Mexico was to have a lower, more efficient cost basis to maintain margins in mid-tier products.

“We’re very much a U.S. manufacturer, but we have global customers and serve global markets, so we sort of have to manufacture in a lot of different places to be an effective participant in the market place,” Adams said.

He said the company is comfortable maintaining a global manufacturing footprint, but added any potential changes would have to be considered as details emerge.

“We have also put some contingency capacity in McAllen, Texas to enable us to adapt to changes in trade policy should they arise,” he said.

Rexnord’s results for the quarter included a sharp drop in net income, down from $24.4 million to $1.7 million, and earnings, down from 24 cents to 2 cents per diluted share. The company attributed the declines to debt refinancing during the quarter and elevated restructuring expenses.

Revenue was also down 1.8 percent during the quarter to $451.8 million. Acquisitions boosted the topline figure by 5 percent. Core sales were down by 5 percent, excluding a 1 percent impact from the exit of the Rodney Hunt Fontaine business.

The decline was driven by Rexnord’s water management business, which reported a 7 percent drop in net sales to $182 million. There was stable demand in nonresidential construction end markets, but there were lower project shipments to global water and wastewater infrastructure markets.

The process and motion control segment was up 2 percent to $270 million, primarily because of the acquisition of Cambridge which helped the company diversify its end markets.

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