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spk02: with Todd Adams, Chairman, President, and Chief Executive Officer, and Mark Peterson, Senior Vice President and Chief Financial Officer. 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 company field AK with the SEC yesterday, April 27th. At this time, for opening remarks and introduction, I'll turn the call over to Mark Peterson.
spk06: Good morning. Welcome, everyone. Before we begin today's call, some great sadness that we want to pay tribute to Rob McCarthy, Vice President of Investor Relations, who passed away unexpectedly less than two weeks ago. Rob joined Rexford in January of 2014, shortly after the company went public, and Rob really established and built our investor relations function over the years. Rob brought tremendous passion, expertise, and discipline to his job. He was instrumental in the formulation and articulation of our environmental, social, and governance initiatives. But most importantly, Rob was a trusted advisor to Todd, me, and the board of directors, and has left an invaluable mark on Rexnord. Our entire Rexnord team mourns his loss, and our thoughts and prayers are with Rob's wife, Sharon, and his family. In the interim, I have assumed Rob's responsibilities until his successor is named. And one of those responsibilities is to start the call, reminding 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 it contains reconciliations to the core signing GAAP data. Consistent with prior quarters, we will speak to core growth, adjusted EBITDA, adjusted earnings per share, free cash flow, and current invested capital. 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 our balance with the SEC. With that, I'll turn the call to Todd Adams, Chairman, President, and CEO of Rex Norton. Thanks, Mark. I obviously echo your thoughts and comments on Rob. We tried to reach out to as many of you as we could to let you know as a courtesy and as a colleague. And obviously, as we make the transition, hopefully we'll be able to do that in person over the coming months. I'm starting on page three. And the basic takeaway is that Q1 is very much on track and a little bit above what we thought just 90 days ago. Clearly a much better start in PT, both at the OEM level as well as through the ID channel. We saw, as we predicted, the aerospace end market sort of bottoming. Our book-to-bill was just below one this quarter, and we anticipated being meaningfully above one in the June quarter. And finally, really strong demand across the board in CERN and improving early indicators there. And the ABI and renovations are up as well. And so we're really set up to have a great Q2 and full year 21. The highlight of the quarter is our strong profitability and cash flow. And recall, this is against the record March quarter for us last year. We really, in the early onset of the pandemic, were able to battle through and really have not much impact to our March results at all. So this is, I would say, a very credible comparison And one of the hallmarks of Rexnord is really managing that price-cost equation extraordinarily well, and we continue to do that. I also want to remind you, it's not just managing price-cost, but the compounding benefits of 80-20, continuous improvement, and all of our scoper work showing up as well. And as you've seen in our outlook for Q2, we expect that to continue as we move forward. As it relates to the RMT with Regal Beloit, we're making great progress. We're hitting all the key milestones with respect to regulatory filings and carve out financial work and working really well together. And hopefully, you know, we're tracking towards the finish line sometime in the fourth quarter. They've got their earnings call next week, and so we're not going to say a bunch more than that, but really pleased with the transaction and the traction around the work that – you know, we're able to do to bring this to fruition. And equally importantly, all the things we're working on for a standalone pure play water business. We've got a plan for eliminating any of the stranded corporate costs. We completed in a quarter, or post a quarter, I should say, a small tuck-in acquisition of ATS Environmental, a service and monitoring business that serves restaurants and kitchens. And then the acquisitions of Just and Hadrian are going really, really well. And I'll, after Mark's comments, provide a little bit of a deeper dive on what that standalone CERN business looks like moving forward. If you turn to page four, last quarter we published our sustainability report. It was really our second one, but it really lifted the prominence of the work we had done over the course of the last 10 years. The steps that we took this year, I think, are to align around some of the best practices of reporting with SASB and GRI. I think everyone knows that we added a committee last year to our board. And so we're in year two of that work plan and goal setting to continue to make, I would say, pretty meaningful progress on things like greenhouse gas emissions and water consumption. And then finally, you know, we go into, I think, reasonable detail talking about all the work we did through the pandemic to support not just, you know, our customers, but our associates. So we're really proud of that. Hopefully you can get a chance to look at it. We've gotten great feedback so far, and we'll continue to build on that as we move forward. So with that, I'll turn it over to Mark, and we'll take you through the quarterly results. Thanks, Bob. Please turn to slide number five. On a year-over-year basis, our consolidated sales declined 4% to $526 million, with a 200 basis point benefit from foreign currency translation, a 300 basis point positive contribution from our acquisitions of Just Manufacturing, and Hadrian, our water management platform, was offset by the 8% decline in our core sales, inclusive of a roughly 60 basis point impact from the product line's simplification actions, primarily in P&C, and a small divestiture in our P&C platform that reduced our total sales by approximately 1 point. With respect to profitability, our adjusted EBITDA was $120 million in the quarter, and our adjusted EBITDA margin expanded 10 basis points year-over-year to 22.8%, despite the overall decline in sales, as our cost controls and benefits from our scope of reactions was over an 18% incremental margin in the quarter. So please turn to slide number six, and we'll review our two platforms. At the platform level, Water management sales were up a solid 12% from the prior year March quarter as the Just Manufacturing and Hadrian Acquisitions contributed to eight points of growth, and the core business generated another four points of growth on top of a 7% core growth quarter one year ago. More importantly, core orders in the quarter increased 10% year over year during a solid demand across the platform, including our hygienic and environmental product offering, resulting in an improved backlog heading into the second quarter and an acceleration in our core and total sales growth in the June quarter. Storing operational execution on our water management platform delivered a 14% increase in adjusted EBITDA, and our margin expanded 40 basis points year-over-year to 26%, which is an approximately 30% incremental margin, inclusive of the mixed impact of our recent acquisition. PMC sales declined 12% as a 200 basis point benefit from foreign currency translation was more than offset by the small 2020 four-quarter divestiture in China that reduced PMC sales growth by about a point, And, of course, sales have gone up 13%, inclusive of an approximate 100 basis point headwind from our 820 communication actions. Breaking that down further, the year-over-year sales in our aerospace operations decreased 46%, as anticipated in the corner, represents the bottom of the sales decline for that end market. Demand, while still down year-over-year, improved significantly from what we were experiencing in the last nine months of 2020, and we anticipate a return to sales growth in the second half of 2021. Excluding our aerospace operations, Core sales and the balance of the PNC platform in the March quarter were down 7% year-over-year, inclusive of the 100 basis point headwind from our 80-20 actions. And we're impacted by the lower backlog we had entering the quarter, as well as a change in the customer buying patterns year-over-year given the pandemic. That said, demand trends continue to improve sequentially, and core orders turn positive in the quarter across nearly all our markets and geographies, resulting in a nice improvement in our backlog as we head into the second quarter. North American distribution channel sell-through, again excluding our aerospace end markets, improved each month as the quarter progressed, and as a result of demand trends, we anticipate that growth in our non-aerospace end markets will turn positive starting in the second quarter of 2021. Operating execution was again following the quarter, as we benefited from our scope for structural cost reduction initiatives, coupled with our cost controls and RBS-driven productivity actions. As a result, our adjusted EBITDA margin was flat year-over-year at 23.8% despite the declining sales from the prior year March quarter. Please turn to slide number seven. With a strong start to pre-cash flow generation and adjusted EBITDA in the quarter, our net debt leverage was reduced to two times at the end of the March quarter from 2.1 times at December 31, 2020, and remains at the low end of our targeted leverage range of two to three times. Please turn to slide number eight. Given that the R&D transaction is anticipated to close sometime in the fourth quarter of January 2021, we will continue to limit our external outlook to the upcoming quarter. With that said, and taking into consideration demand trends through April, our backlog position, and the continued uncertainty given the persistence of the global pandemic, we're projecting core revenue in our water management platform to increase by a high teens percentage year-over-year and our total revenue in the platform to increase by a high 20s percentage. For our PMC platform, we're projecting core revenue to increase by mid- to high-teens percentage year-over-year, inclusive of one last quarter of declines in year-over-year airspace flows. Based on our platform sales expectations, we expect our adjusted EBITDA margin in our water management platform to be between 26% and 27%, and our adjusted EBITDA margin in our PMC platform to be between 23% and 24%. We expect our corporate expenses to be approximately $10 million in the quarter. Before I turn the call back to Todd, you comment on our tax rate, interest expense, stock comp expense, and depreciation and amortization. We anticipate our tax rate on adjusted pre-tax earnings in the June quarter to be approximately 28%. Our interest expense for the June quarter is expected to be approximately $12 million. Our non-cast stock comp expense should be about $13 million. Our depreciation and amortization will come in around $24 million. Please turn to slide nine, and I'll turn the call back to Todd. Thanks, Mark. I'll just spend a minute or two doing a little bit of a preview of what standalone Zern pure play water will look like. A couple points. We anticipate changing the ticker upon the close. We plan on doing some sort of modified roadshow as we begin to trade as a standalone water business. And we're going to use the next couple of quarters I think to ramp up everyone's understanding of what the business will look like from a profile standpoint, educate investors so they don't miss it as we begin to trade on a standalone basis. You know, Zurn Water Solutions will continue to be headquartered in Milwaukee. We've got about 1,400 employees and I would say five primary facilities and a truly extensive global sourcing footprint. If you turn to the next page and take a giant step back, I think it's really important to understand the role we play in the overall water sector. And that's providing water solutions that improve health and human safety and the environment with the broadest array of products with a single brand designed to work together that come together to create this really unique solution set for public and private spaces. And obviously, we've got a track record of performance really driven by what was the Rexnor business system, which easily transitions to the CERN business system. And obviously, we're saving water, protecting the environment, reducing cost of building and ownership, and creating value along the way. If you move to page 11, What we do falls into really three sectors of the water economy, again, all for public and private spaces. Water safety and control are things like backflow prevention, pressure management, fire protection. In hygienic and environmental, obviously, that's our touchless products, our faucets and our flush valves, our privacy partitions, our sinks, and our hand dryers. which has been an instrumental part of our growth strategy the last several years. And finally, flow systems, that's specification-grade drainage, stormwater management, green rooms, things like that that move water in and around a public or private space. And our key end markets are education and health care. If you turn to page 12, obviously, the track record that we have is, we think, pretty solid relative to, not just water companies, but really any industrial business. This year's sales will exceed $850 million. Our returns on invested capital, inclusive of all the acquisitions and all the purchase accounting from prior LBO transactions, is north of 20%. You heard from Mark on the 26% adjusted EBITDA margin and very strong cash flow. I think it's also important to note that out of the last 41 quarters, 39 of those have driven core growth positive. We obviously had one in 2016 with the weather event and the June quarter of 2020 amidst the pandemic. So about 39 out of the last 41 quarters, so 10 plus years of really strong growth. And obviously, 35% of the business is retroplaced, which is up considerably over the last 10 years. If you move to page 13, in the last six to nine months, we've talked a lot about touchless and what's been happening through the pandemic around handwashing and upgrading. If you think about what we've been doing here, it's really happened over the course of the last three or four years. We've developed this portfolio organically and inorganically to provide really the ultimate hygienic ecosystem for a public or private space. And that we branded BrightShield as we launched the marketing campaign in the coming months. That is labs, hand dryers, sinks, partitions. We see opportunities for safety and eye washing as well as bottle fillers. And this is a huge addressable market. That's 50% retrofit where we have stitched it together you know, a unique value proposition for building owners, and also being able to connect all this information to building management systems or the cloud or your phone that sense, respond, and anticipate what's happening in these critical parts of buildings to advance hygiene and reduce term transfer. So we're excited to talk about our hygienic ecosystem and really under the brand BrightShield by CERN. If you move to page 14... You know, the obvious comparisons of CERN to others, you know, really aren't that pure because we think we've got a competitive advantage that is so strong, starting at the bottom with product breadth, spec share, our supply chain capability, and then, you know, in the last several years, building on to that with omni-channel presence, BrightShield, IoT, and that is where we – You know, we feel incredibly well positioned to stand it up and carve it out and run it on a standalone basis. I also, you know, think it's important to talk about the flexible business model that we have around, you know, very few facilities, third-party rep agencies, and also, you know, that supply chain that's just so powerful, delivering that high return on invested capital. If you turn to page 15... That manifests itself in what we believe is truly a differentiated financial performance relative to other businesses that participate in the water economy. I won't read all the attributes, but we feel really good about what we've delivered since we bought CERN in 2007. It's accelerated pretty dramatically in the last four years, and we don't think that there's any seasoning required as a standalone public company as we've been delivering these kind of results for really a long period of time. And we'll continue to educate people throughout the next couple of quarters, but we'll discern sometime in the fourth quarter on a standalone basis. So with that, I will turn it back over to the operator to take any questions you have.
spk02: As a reminder, if you would like to ask a question, please press star 1, followed by star 1. We'll pause for just a moment to compile the Q&A roster. Brian, your line is open.
spk06: Thanks. Good morning, guys.
spk04: Solid start to the year, and I'm hoping we can touch on Zurn momentum a bit more and specifically what your team is seeing and expecting on the new construction side of the market. The overall business momentum is obviously very, very strong. We know that in the recent prints you've had, the second quarter guide is robust. There has been the expectation of, you know, a new construction offset, at least for part of 21, you know, to the touchless and hygienic growth, continued MRO penetration, et cetera. Just curious how the recent improvement in market indicators, you know, Todd, you mentioned that in your script, impacts your team's thinking on second-half growth, and I guess more importantly, the cycle tailwinds that standalone Zern should have going into 2022. Yeah.
spk06: Yeah, obviously some of the early indicators around ABI and renovation activity, I think along with some potential stimulus, I would say it's early days, but they're in the ground and they're starting to grow. So obviously we're going to continue to drive areas of growth through our hygienic and environmental platform that we can take share in our other segments. But we do think that the setup over the back half and into 22 has clearly improved maybe from what we thought six months ago. You know, and obviously a lot of that has to do with our own luck and some of the things we've been working on. But clearly, you know, from an end market standpoint, you know, a little positive momentum in new construction is clearly better news than maybe what we would have dialed in mid last year.
spk04: Appreciate the color there. How should we think about Zurn's margin progression over the near term? Obviously, we have the second quarter guide trying to parse out the core trend versus Hadrian impact. Obviously, the Zurn margin last year was very, very strong. How close to last year's margin level should Zurn be over the next couple of quarters? And then for Hadrian, any shift to your expectations of getting margins into the 20s over a reasonably short time period.
spk06: Yeah, I think Mark laid it out a little bit, but we won't match the margins of last year. I think that's in our guide. In this quarter. In the June quarter. We'll certainly get closer in Q3, we believe. But on an organic basis, we think it's pretty darn close. So what we're seeing is that the transition of Hadrian in and working the margins up over the course of this year and next. So I would say sometime at the end of 22, if the margins aren't 20%, they should be in the very high teens for hatred. But obviously, very strong profitability over the next several quarters, as we typically have. And I think it's important to understand that the build cycle for construction impacts Q2 and Q3 in a positive sense in North America. We're working, as Todd mentioned, on the commodity inflation and how we're managing that. We're going to do a good job of that in the past. And it's fair to say on a year-over-year basis, inclusive of Adrian, our goal is to keep margins generally flat year-over-year for the full year, which means the core business obviously improves year-over-year, inclusive of Adrian. We're working to keep those margins flat for the full year.
spk04: Okay. Great to hear. And then how about PMC incrementals as top line, you know, accelerates in the right direction the next couple of quarters? Second quarter guide implies kind of low mid-30s incrementals, so solid there. Is that a reasonable anchor going forward, or will price costs go for timing the what I assume will be an inflection in aerospace growth in the back half you know, imply higher or lower range, you know, moving into Q3, Q4?
spk06: Yeah, I think as a starting point, you know, mid-30s in Q2 is good, and I think it's very likely that it's better in the second half at least in function and aerospace. And for the year, I think they'll be substantially above the 35.
spk04: Okay. Thanks again.
spk02: Again, if you would like to ask a question, press star one. The next question comes from the line of Jeff Emmett with KeyBank Capital Market.
spk00: Hey, good morning, guys. So I think... Just on a lot of questions this quarter on other companies, on price-cost and supply chain, which were kind of absent, I think, in the prepare remarks. I know you guys manage those pretty well. Can you just talk about what you're seeing on inflation, what you're doing on price, and particularly with the hygienics piece, which has got great momentum, where you see any emerging supply chain issues?
spk06: Yeah, I mean, I don't want to say it's sort of business as usual for us, but it's sort of as business as usual. I think the way we've developed our supply chains and also the ability to pass on price in our business in different ways in both platforms, I guess we're not particularly... We don't think it's too unusual, obviously. You know, the supply chain shortages, you know, they crop up for us as well from time to time, but we've been able to manage through our SIOP plan and being able to, you know, be proactive in what that might look like. And obviously the hygienic piece, we've got a plan that was very robust from a demand standpoint, and so the supply chain is not an issue at all at this juncture. I don't want to say it's sort of business as usual, Jeff, because there is a level of inflation out there, but our ability to manage it is unchanged. The ability to smartly run our PSYOP and feather in price where appropriate, none of that is different. And I think the benefit that we have is the compounding offsets of 80-20, of a robust continuous improvement program, and obviously the scope for initiatives that Mark talked about. So that's why we're not... we're not really guiding to any margin pressure or issues over the balance of the aircraft.
spk00: Okay, great. And then you mentioned, as you were talking about, Zurn, education and healthcare. We're hearing a lot from the HVAC companies about the stimulus and IAQ, but I just wanted to get a sense from you what you're seeing in the education market, how you think you might benefit as that spend goes through. Obviously, safety is a big item for schools, and just seeing what you're seeing in that platform.
spk06: Yeah, it'll definitely be a positive for us. I mean, obviously these schools are getting a significant amount of money to do upgrades around safety and technology. So HVAC's important, fatigue is important, but also hygiene is also important. So we've got a team that's tracking where all these fellows are going, how we're winning, and how we're presenting, you know, what the opportunity is to improve the overall safety of our of a school, and that'll be a catalyst for positive growth in the back half of the year for sure.
spk00: Okay, and then just last one on free cash. You know, clearly, you know, the comp was tough in one queue, but just how are you thinking about, you know, I think you made some comments last quarter, how are you thinking about free cash flow, you know, versus what you talked about, you know, a couple months ago? Thanks.
spk06: You know, Q1 is, I think, considerably above what we had thought. And so more and more, it's looking like it'll start with a three at the end of the year. There's a lot of road to travel between now and then. And obviously, you may not even see the full year with the RMT transaction. But if you have to pin me down right now, I would tell you it probably starts with a three.
spk01: OK. Thanks, guys. 300 million.
spk06: Helpful, thanks. You bet.
spk02: The next question comes from the line of news keyboard with Baird.
spk05: Yeah, good morning. I think that's me. I guess, good morning. So maybe trying my hand at Jeff's question, but in a slightly different way. Obviously, there's You guys have a lot of tailwinds in this water management business, increased funding for some of your key customers, and just the core level of activity in your market picking up. So I guess I'm wondering here, as we're all contemplating this Zurn business as a standalone company, how should we think about the growth algorithm maybe longer term here? I mean, this business was able to grow mid single digit quite comfortably when you didn't have the kind of tailwind that we're all talking about here. what's the right framework as we think about the next two, three, four years for growth?
spk06: Yeah, I mean, Nick, obviously, we don't want to get ahead of ourselves upon, you know, that separation. But, you know, 39 out of 41 quarters of positive core growth over a 10-year period, 5% to 6% compounded core growth. And the backdrop, and if it If it comes to fruition, I think, as we believe, it's certainly going to be better than that. And so that would be sort of a relatively mixed period of end market activity for us. So, yeah, I mean, I think we'd be super comfortable with five to six, and then if the regulatory and funding and end markets sort of turn positive, it'll definitely be better than that because – you know, the five to six sort of demonstrated performance over the last 10 years. Not exactly what we're looking for, but better than what we've been doing.
spk05: Look, fair enough. I understand that you don't want to sort of get ahead of yourself here, but, you know, that's a question that I get from investors quite often, and I wanted you to maybe comment publicly on this. When we're kind of looking at the slides that you provided here on CERN, you talk about the $8 billion addressable market. I just want to make sure that I properly understand this. First, this is simply talking about the hygienic ecosystem, right, Bright Shield being an $8 billion market. Can you maybe give us a little more sense as to kind of how you came up with this number? Is this just a North American number? Is this a global number? And, you know, as you think about the other portions of your business, kind of how do you frame that opportunity outside of this hygienic ecosystem?
spk06: Yeah. So we think the sensor market standalone is about $5 billion, and that the incremental $3 billion involves a renovation and retrofit activity just around the hygienic and environmental categories that we're now in. So I think a couple of quarters ago we sized that sensor market based on, you know, an installed base and an expected life cycle of a product. And so, you know, this would be just primarily a North American number as we really don't have much exposure outside of North America, some pockets in Australia and the Middle East. And, you know, I think what's exciting for us, you know, is a lot of that comes through an adjacent channel in Gansan You know, people are doing that each and every day, maintaining facilities, and as things need to be addressed for either wear or for, you know, health and safety, you know, those are the guys that are performing that work. We've had essentially no exposure to the head market. And in the last several months, we've partnered with – of companies to address that channel. We now have upwards of 150 sellers that are third-party that will be packaging our solutions and providing them to their existing customers. And so there's momentum in that that's brand new for us. Brand new channel. Brand new channel that we really haven't addressed. And obviously, we've We've added the Omni channel, and we've got an organic click-to-install model where you can define what it is you want to change in your building to improve the health and safety of the building. And we'll schedule the upgraded install with a network of performance guys that we wind up around the country. And so this is a bright-shield opportunity which in the works for a while. Identify the products that were needed. We had to do some organic development. We did some organic inorganic activity. Now I'd say bringing in the market in a pretty robust way is sort of what we were planning on doing all along. The pandemic spurred, I would say an initial surge that we really had not penciled in, but now we're sort of back to the, the, uh, consistent demonstrated growth of this channel and opportunity that we've been able to pull together.
spk05: Right. Okay. Then last question for me and another longer-term question, if you would. As you're thinking maybe five years out, your business currently is a North American business, like you said, predominantly, and I'm talking about CERN here. Is there – some thought here that this is going to become a more global business? Are you contemplating M&A or any other means through which you could be looking more broadly at opportunities beyond North America? Thank you.
spk06: Yeah, and there's no question that we see opportunities to grow the business organically, both in North America as well as selectively. outside of North America. I don't think that we're going to chase some regions just because of the market structure and things like that. But I think there's a really good chance that we'll be more global than it is today in the next five years, for sure.
spk05: Okay. Thank you so much. You bet.
spk02: The next question comes from the line of Britt Lindsay with Vertical.
spk03: Good morning, all. I was hoping you could just provide a little more color on the complexion of the 10% order increase at water. You know, was it primarily the hygienic applications, or are you continuing to see positive development in the rest of the business portfolio? And then any color you can provide on the various verticals between commercial, institutional, you know, what those trends look like on an order and sales basis within water.
spk06: Yeah, I'll let Mark give you a little more detail, but it was broad-based. The order growth was broad-based. I think we saw terrific growth in our water safety and control categories. Our hygienic and environmental was up considerably in the quarter, and we're starting to see the new construction flow systems work, pick up. I would say both in education and to a surprising degree, some of the commercial applications as well. I don't know that we need to give you much more knowledge than that, Mark. Yeah, I mean, I think, you know, just as people know, when you start seeing New York opening up and Boston opening up and California opening up, these are projects that started at some point in time last year, and once those projects started, it's going to get finished. Going to Todd's point, we're kind of seeing it a little bit broad-based right now because a lot of things that were stalled are opening back up. And the momentum to Todd's point, I would say, was really generally broad-based in some of the categories, like in our flow products that are going in kind of earlier on in the building application. We saw that picking up in the quarter of 12, as well as into April. So, you know, Todd's comment earlier in the call, you know, we feel much better about our end markets today than we did, you know, 90 or 180 days ago. And it's generally broad-based at this point.
spk03: Good to hear. And then just one last one on the Q2 margins. Maybe you could just put a finer point on some of the moving pieces within the guide within water management. I guess I'm just surprised. I mean, I get the dilution from some of the integration on the deals, but just surprised that we wouldn't see, you know, a better margin profile given the uplift in sales and orders. Is it, you know, restoration of COVID cost saves from last year, price costs, any other finer point you could offer?
spk06: Yeah, well, margins last June were 29.1. And I would say that it was very bare bones with spending and travel and anything of the like. And so, you know, obviously there's the mixed impact that we talked about. There is some of that spending coming back. And then, you know, we also are investing. I think we're investing in this new Jansan channel. We're investing in some new connected products that really stitch together the Brighton Shield product offering and solution. So I think we got into 26 and 27 on an organic basis as phones threw away from where we were last year with all that in there. So I think that the decrementals are what they should be. given what we're doing inside the business and the exchange with Adrian. But if you look at it sequentially from our first quarter, it's going to be, you know, the incremental sequentially is in that high 30% range, which is, you know, pretty good for that platform.
spk03: Okay, great. I appreciate the insight. I'll pass it along.
spk02: Sounds good. Again, if you would like to ask a question, press star 1. The next question comes from the line of Andrew Obin, Bank of America.
spk01: Hi, good morning. This is Emily Hsu on for Andrew Obin. Just a question on PMC. So PMC excluding aerospace declined 7% organically this quarter. So I'm curious, you know, other than aerospace, could you unpack sort of which end markets are still soft and which ones you're starting to see recover within PMC? Thank you.
spk06: Yeah, I think the important thing to note, to think about there, is what the orders did versus the sales. Sales was more tied to timing and backlog. You may recall last year, when you looked at our results last year in PNC compared to that industrial concept, we outperformed our earnings last year. Our core growth was like down 1% in PNC. From an order standpoint, that's truly what's happening in the end market. We saw demand turn positive in PNC. We saw orders expand significantly. first time in several quarters, but the demand did turn positive in the quarter, and I'd say it was across really the majority of our sectors, our process sector, our consumer sector, energy sector, on the region as well. So from a demand standpoint, we did see that positive trend, and we expect that in the second quarter, as you saw from the guide, to really accelerate. I think, you know, you get in the back half of the year as well. We should see some very nice core growth. order demand growth as well as the sales growth in the back end as well.
spk01: Okay, great. And then my follow-up question, just switching gears a little bit, another question on stimulus. So I know the school stimulus will likely be a positive for Zurn, but in the recent relief bill, I think there was about $350 billion of state and local aid marked for water sewer infrastructure that must be spent by 2024. So I'm curious if you have any early thoughts on how the jump in government spending on water infrastructure will impact LEARN. Thanks.
spk06: Yeah, I think, you know, as Todd mentioned earlier, it's not just the extra funding for the schools. It's also, as you highlighted, you know, general stimulus funding. And I think where that can benefit us is when you look at our site works and markets where you're looking at management of water, stormwater around a building. You know, we don't have a lot of infrastructure funding. you know, define exposure. But for any product categories that are managing water, managing, you know, separation of water around a building will clearly be a benefit to us. So both of those funding programs provide nothing but tailwinds for the platform. Hello?
spk01: Yeah, I'll pass it on. That answered my question. Thank you.
spk07: Thank you.
spk02: The next question comes from the line of Mitchell Sapero with Gates Capital.
spk06: It looks like he hung up.
spk02: Again, if you would like to ask a question, press star 1. We have a question from the line of Mitchell Shapiro with Gates Capital.
spk06: No other questions. So thank you to everyone that could join us on the call today. We appreciate your interest in Rexnord, and we look forward to providing our next update when we announce our June quarter results in late July. Make sure you have a great day.
spk02: This concludes today's call. You may now disconnect.
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