Welcome to the FY 2016 Q2 Earnings Release Call. My name is John, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note the conference is being recorded. And now I'm going to turn the call over to Rob McCarthy.

Thank you, John. 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 our 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 and why we use them. Consistent with prior quarters, we will speak primarily to adjusted operating profit and EBITDA, adjusted net income, and adjusted earnings per share as we feel these non-GAAP metrics provide a better understanding of our operating results. Today's call we'll provide an update on our overall performance for the second quarter and our outlook for the fiscal year. We'll cover some specifics on our two platforms followed by selected highlights from our financial statements, our liquidity, and our cash flow. Afterwards, we'll open up the call for your questions. With that, I'll turn the call over to Todd Adams, President and CEO of Rexnord. Todd Alan Adams - President, Chief Executive Officer & Director: Thanks, Rob, and good morning, everyone. I'll start on slide four. Our second quarter results were in line with our expectations for core growth, profitability and free cash flow. Our core sales declined 6% year-over-year, which is a function of a 1% core growth in our Water Management platform, and a 11% core decline in our Process & Motion Control platform, which I'll cover in more detail in just a few minutes. Acquisitions added 3% to sales, and average currency translation was a headwind that reduced our reported top line growth by approximately 500 basis points. Adjusted earnings per share was $0.34 in the second quarter, as our adjusted…

Thanks, Todd. I'm on slide six of the presentation, which takes our reported results and reconciles the adjusted results. Recall at the beginning in our quarter, and as reflected in this reconciliation, we revised our definitions of adjusted net income and adjusted earnings per share to exclude non-cash amortization of intangibles and to include stock option and LIFO expenses. Turning to slide seven, I'll just comment on a few key metrics from our consolidated results in the quarter. First, and as Todd has covered, our revenue was in line with our expectations for the quarter and adjusted EPS was slightly better. With respect to profitability, your increase drag from our U.S. distribution channel pushed our overall decremental margin to 45%, which is actually a bit better than forecast. Given our reduced outlook for U.S. distribution, our decremental margin will remain above normalized levels in our third quarter, but we continue to see the full-year coming in around the 30% level, we historically expect. Furthermore, we continue to expect that destocking will be essentially complete in the current quarter and our cost reduction initiatives are on track to deliver our targeted savings for this year. Turning to cash flow, our free cash flow declined year-over-year, but was in line with the expectations. The year-over-year change reflected a decline in our net income, partially offset by improved working capital management, as well the expected increase from cash tax payments in this fiscal year. Next, as we look at the operating performance in our Process & Motion Control platform on slide eight, you can see the strong year-over-year impact on our margins from the combination of the 12% revenue decline and the adverse mix affect created by weaker distributor sell-through and the constant de-stocking in the quarter. While we experienced last quarter, food…

Thank you. We'll now begin the question-and-answer session. And our first question is from Charley Brady from SunTrust Robinson.

Thanks. Good morning guys. Todd Alan Adams - President, Chief Executive Officer & Director: Good morning, Charley.

Good morning, Charley.

I just want to see on the destocking, just so I understand the outlook. The tender as you went through the second quarter, did it – you were seeing it decelerating or was it steady? And then as you come into October, have you seen a change that gives the confidence that we go through the third quarter and we're kind of done with it? Todd Alan Adams - President, Chief Executive Officer & Director: That's absolutely correct. When you look at the year, I think it sort of unfolded, a significant destocking really over the first half. And what we're seeing in September is majority of that destock frankly abate. What we've got in our outlook is maybe absorbing a little bit more, if in fact we do see a weakening in sell through rates within distribution. So I think we feel good, Charley, about the balance of the destocking really being behind us. Obviously, there is a risk that if demand takes a big step down, that could create further destocking. But at this point we don't see it happening in October and we don't think we see it going forward.

Okay. And just one more, a clarification on the restructuring commentary. Does the pull forward into 2016 from 2017, is that largely in the water platform or is any of it going to PMC? Todd Alan Adams - President, Chief Executive Officer & Director: The two actions are primarily in the water platform. So these are two things that we had been planning for. But as we started the year, we looked ahead and said where can we pull activity forward to gain and benefit to sort of get into the run rate by 2017. These were two areas where we had made substantial progress, we had the chance to do so and so, we did it. And so, you'll see those unfold really over the back half of the year and we'll begin to get that run rate as we start 2017. So, I think what underpins our conviction around the margins is not only the current quarter performance, but what we have behind that and so, yes, those are both water related.

Great. Thanks.

We have a question from Julian Mitchell from Credit Suisse. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Hi, thank you. Todd Alan Adams - President, Chief Executive Officer & Director: Hi, Julian.

Good morning Julian. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Hi. Just wanted to follow up on the restructuring comments, as you said there's a bunch of different initiatives going on, supply chain and severance and so forth. I just wondered if you could roll it all up together, and maybe help us understand what kind of incremental savings you expect this year versus last year and then in – and then what's incremental in fiscal 2017 taking all the measures sort of combined? Todd Alan Adams - President, Chief Executive Officer & Director: I think – maybe I'll start at the end – and what we are trying to accomplish from an outcome standpoint, and then Mark can sort of feather in what's in 2016, what's in 2017. And what we have on the table and announced – and this is only the stuff we've announced to date – there's more that is sort of in the pipeline for finalization and development really over the course of the next six months. But we see $30 million to $35 million of savings, as we exit our fiscal 2017. Let's say, okay, so that's, that's sort of the ultimate sort of goal. And as we look at all the projects, I think at this point everyone of those is underway. So it's not something that needs to be developed; it's not something that needs to be started. Each of these are absolutely underway and we are currently absolutely on track to that $30 million to $35 million of savings as we exit our fiscal 2017. So, you would see the run rate sort of beginning, call it April 1, 2017. Mark can take you through some of the details of what we'll see in 2016, what we'll see in 2017, but that's sort of where we end up, Julian.

Yeah, so, Julian from a cost standpoint, we kind of laid out the pieces of the puzzle and what's going to hit this year. As you look into next year, we'll see approximately another, call it, $10 million to $13 million or so of operating expense that we'll be incurring, just looking at costs as we're ramping down, ramping up these initiatives. But the thing that's different next year, it'll start getting savings, as Todd mentioned. We'll have savings that'll not entirely offset, but offset a meaningful portion of those costs. So, on a year-over-year basis, you'll see an improvement sequentially year-over-year in our overall EBITDA. So, think about costs in the P&L, similar to this year but savings next year offsetting the majority of those costs, whereas this year you really aren't getting any savings, we're just incurring the duplicative costs this year. Todd Alan Adams - President, Chief Executive Officer & Director: Yeah. So, when you roll it forward, I mean, order of magnitude, it's in excess of 150 basis points of margin at the Rexnord level. And we've talked about where we are in water and obviously, some of the actions that we've talked about this morning get us rolling over that 20% EBITDA margin mark. And what's even more exciting, we think, is that a lot of the savings come in our PMC platform, specifically on the industrial sort of end market side of things, where we're currently seeing relatively close to trough, if not trough conditions. So, we're at near the bottom, we've got a whole bunch of self-help on the way and even a lack of any headwind, I think you're going to see us produce really nice margins as you head into the end of 2017 and into 2018. So, that's sort of…

Our next question is from Jeff Hammond from KeyBanc Capital Markets.

Hi, good morning guys. Todd Alan Adams - President, Chief Executive Officer & Director: Hi, Jeff.

Good morning, Jeff.

Hey. So, just back on the decremental margins in PMC and I think you mentioned they'll be above normal in this upcoming quarter and then should be better. Can you just talk about what changes other than maybe the destocking to shift those decrementals to more normal or better than normal into the fourth quarter?

Yeah, Jeff. This is Mark. As we talked about on our last call, a couple of things work to our favor. As you mentioned, clearly as the destocking decelerates half-over-half, what's been punishing our margin in the first half benefits our margin in the back half obviously that's a big piece. And then, we've done a lot of things on the restructuring side and cost side in productivity that's driving – that's going to drive a big improvement in the back, so you saw us take restructuring actions in the first half of this year. We've been working really hard at getting Rexnord material costs, you're going to see material costs benefit in the back half. So, we had to put it really into three buckets, the destocking piece that you talked about. It's the restructuring actions that we've taken in our first half of the year benefiting the back half of the year and we've gotten pretty aggressive material costs. You're going to see a much improved – from our benefit an improved run rate on our material costs second half versus first half. Those are the three big buckets that I've put in that that drove the margin improvement. As you know, in our fourth quarter, it's always been traditionally higher volume quarter for us, there is definitely better leverage in the fourth quarter that you see every year.

Okay. And then on water, it seems like you're very happy with order, orders in backlog in water and the trend is still favorable, but some timing issues. What's the risk that as we get into the second half ramp, you continue to see lumpiness or choppiness or some of these issues that maybe holding things back near-term? Todd Alan Adams - President, Chief Executive Officer & Director: Just to be clear, we don't see anything being held back. I think, if you look at our non-res piece of Water Management, it's growing in the mid-high-single-digit area, right, over the first half. If you look at our water infrastructure side, you saw a double-digit growth in the first quarter and you saw single-digit declines in the second quarter, has nothing to do with the level of activity. It has everything to do with the timing. And so we don't see good to be perfectly honest here. We don't see anything sort of holding up being abnormal. It's just really a function of year-over-year comps in particular in that water infrastructure piece. And then in this case in particular, large shipments in Q2 last year. Oddly enough no one asked us about the up double-digits in Q1, but you hit the point. I mean, the book-to-bill is 1.18 through the first half. It gives you a sense that we feel pretty good about the second half as it relates to the growth in water infrastructure side. And I think, you put our comments on non-res and where we think that – where that trend line looks and in both cases they're positive. So, we don't see any, I would say significant hurdles to delivering what Mark talked about as a pretty, pretty solid growth in the second half for water in total.

Great. Thanks, guys.

Our next question is from Mig Dobre from Baird. Mig Dobre - Robert W. Baird & Co., Inc. (Broker): Just a clarification maybe on the restructuring to make sure that I understand this. Mark, you mentioned $10 million to $13 million in expenses potentially for next year. As I understand that, those would be excluded from adjusted EBITDA, but there is an associated benefit with the actions that you have undertaken this year, that will be flowing through and most of that would be in PMC. Am I thinking about this correctly?

Yeah, it's a good question to clarify. No, what I was talking about – this year – so in our operating results, in our EBITDA, we had about $13 million of expenses that are rolling through them. We said we're going to have severance and retention cost, there'll will be restructuring of $14 million to $16 million. If you look at next year, we'll have in that $10 million to $13 million range of costs running through EBITDA again, as we're accelerating – as we're moving through other pieces and phases of the project, but we're going to start generating savings next year. That will offset a meaningful portion of those costs. So, year-on-year we'll get an EBITDA benefit, okay just from where we are in the phase of this project. In addition to that, we will be incurring additional restructuring next year and we'll probably be in a similar range, $13 million to $15 million or $16 million range of restructuring cost that will not be in the EPS number. Todd Alan Adams - President, Chief Executive Officer & Director: Yep. Just for clarity, the $1.43 to $1.48 has $13 million of expense in it.

Correct. Todd Alan Adams - President, Chief Executive Officer & Director: And this is short of transitory cost related to duplicate production facilities, outsourcing and things like that. So the $1.43 to $1.48 has $13 million of expense in it this year, and no benefit, next year we begin to get the benefit into the run rate and probably has some approximate number like $13 million in it next year as well. Mig Dobre - Robert W. Baird & Co., Inc. (Broker): Got it. Okay, that's helpful. And then, can we get a little bit of color on pricing. I mean, there are a lot of moving parts here and price cost, that's really what I'm getting at. Obviously, material costs are probably coming down across the board, how much of that can you keep, how much of that do you have to give back to the customer and maybe some color on both segments if you would? Todd Alan Adams - President, Chief Executive Officer & Director: Yeah, I'll start with – I'll start with water. We see pricing – in holding, we think price cost is favorable in the second half relative to where it ran in the first half in PMC. Remember, a good piece of this goes to industrial distribution, where we see the ability to increase prices, albeit modestly, every year. So, we don't see that abating on the OEM and user side. It's very difficult to ascertain, how much is price. But, again we're not seeing significant price pressures at this point anywhere and that's not really something that, we've historically ever bumped into, to be perfectly honest not even in the great recession. So, what we see now is sort of a balanced view that we're going to be smart on price, not leaving it on the table, but not get too aggressive. And we're going to be super aggressive on the commodity side of things and you'll see that roll through our second half and that's – I think, that's how we see the end markets shaping up from that perspective. Mig Dobre - Robert W. Baird & Co., Inc. (Broker): Do you feel comfortable providing some sort of a price cost gap that we should keep in mind? Todd Alan Adams - President, Chief Executive Officer & Director: I don't think, it's – at the Rexnord level, I don't think it's something that's significant enough to worry about. Because I think, when you look at the diversity underneath and the variety of end markets and the brands, and how much is after market versus new, it really becomes a blended number. I think, it's fair to say that it's positive, but I don't think, we're going to start to get guidance on that piece of the equation. Mig Dobre - Robert W. Baird & Co., Inc. (Broker): All right, appreciated. Thanks.

Our next question is from Kevin Bennett from Sterne Agee.

Hey, good morning everybody. Todd Alan Adams - President, Chief Executive Officer & Director: Good morning, Kevin.

Good morning, Kevin.

Todd, if I think about your end market outlook for the rest of this year. If there was any – I guess kind of upside risk to one of the buckets, I mean what do you think that would be? Todd Alan Adams - President, Chief Executive Officer & Director: I don't think, we're...

Where do you think that would be, I guess is a better question? Todd Alan Adams - President, Chief Executive Officer & Director: I don't think, we're going to get into the habit of calling a bottom or sort of outlining upside at this point. I think what we're trying to do, Kevin, is give you a realistically cautious view, right, which is what we outlined of what we think we can do. I think as you look through it, obviously water is going to be a source of very good growth over the second half. We have good visibility to we're going to get it done. The first half was impacted significantly by a destocking sort of period, that's behind us. Offsetting that is you wake up every day, and you hear different sorts of bad news that doesn't really impact us too dramatically but it impacts behavior and sentiment, and I think how that translates through is tough. I think if there is anything that could be – maybe a modest opportunity is sell-through in Q4, right. We've gotten the inventory out. We're planning for maybe a little bit of a chop in December just because if you're in for people, there could be some window dressing or deferrals but eventually that comes back because everything – everything we make in our Power Transmission business wears out, gets replaced like-for-like. So I think we're in a reasonable spot, but the place that could surprise us, maybe to the upside. And I'm anxious even to say it, but we have to just watch sell-through in Q4 and we're a quarter away from that, so we'll keep you updated. Nothing would make us happier than to be able to take our guidance up. But at this point, we've given you a view that we think is a realistically cautious and we're going to go out and execute that.

Fair enough and I appreciate that. And then I guess a question for either you or Mark, given what is going on in the industrial economy and the uncertainty that's out there, I'm wondering if you guys are kind of rethinking your views on leverage and may shift some of this cash flow to actually paying down some debt or if – I know you guys are comfortable with leverage – but just wondering if your thinking has changed there?

Look, Kevin, I don't think there is any doubt that the stock price has been hit really over the course of the quarter as we screen frankly just very high with respect to leverage. The thing I'll comment on is, in a period of volatility, leverage is always going to be a negative; and if you think through the world in a trough mentality, leverage is going to be a problem. What we see is a good portion of our business – over 60% in water, aero and food and bev – growing nicely into next year. We also see a set of industrial end markets that has a fair bit of aftermarket component to it that we've taken a brunt of the de-stocking. And we've got $30 million to $35 million of self-help not on the table, but in process. And so, when we think about leverage in the moment, leverage feels high. If you talk about cash flow over the second half, we're going to generate over $100 million. That puts your leverage at 3.7 times, 3.8 times exiting next year with the end market backdrop and self-help that I talked about. So, the short answer is we can always pay down debt. We know we screen high for that in the moment, but we're not looking at things in a trough mentality. We're thinking out one to two years and if we can use free cash flow, do smart M&A that ultimately puts core growth into our company and we can generate future earnings and cash flow with the acquisitions, we think that's a win for investors. If something were to change in that equation, we can always pay down debt. But at this point, we think we're pretty well positioned from where we stood.

Okay. Fair enough. Thanks.

Our next question is from Joe O'Dea from Vertical Research.

Hi, good morning. Over the course of the first half of the year, you had a more conservative outlook for sell-through versus what distributors were looking for. I think that could have exacerbated some of the de-stock effect, but could you talk about into the back-half of the year now, do you find that your view is a little bit more aligned as distributors have come down and so that creates a little bit more stability around inventory changes moving forward? Todd Alan Adams - President, Chief Executive Officer & Director: Hey, Joe. I think it's a great observation. If we – if you look back really over the course of the last three to four quarters – in each case our distributors that are either public or part of public companies have substantially reduced their growth outlooks and at each interval, we tried to get below them. And I'll remind you that when we set our guidance, we set it below what our customers or channel partners were saying. And in each successive quarter, they've come down. The way we've positioned our outlook, it is again below what they've set. So, that's why we sort of think that it's a prudent person's view to just continue to get below what they've said, but the positive is we think that the sell-through, as I said, is sort of stable, right. And so, the comparables look difficult year-to-year, because when you look at sell-through, it's sort of peaked last year, September, October, November. And so you're coming off with a tough comp as it relates to year-over-year growth, but if you just look at what are we selling everyday and what gets sold through every day at our distributors. That number is pretty stable, maybe down just a touch here or there, but pretty stable. And that's what gives us reasonable confidence in what we've provided for out.

Okay, and then just a follow-up, you had commented at the Investor Day about, kind of following some of the footprint and supply chain actions, identifying commercial opportunities. And as you pull forward some of the footprint actions, does that – would it mean that you are pulling forward some of your kind of focus on the commercial opportunities and things that could actually materialize as we move into next year? Todd Alan Adams - President, Chief Executive Officer & Director: Of course. I think when we highlighted it at Investor Day, the footprint and supply chain optimization plan, it was pretty comprehensive in nature. So it wasn't simply to reduce cost one-time. It was to create a more sustainable flexible model going forward. And as part of that, there were some commercial activities that we felt lined up nicely with having a more variable model and a reduced price point and we are pulling those two forward concurrent with the actions we're talking about. So we're on track with that and I think from our standpoint we're going to grind over the next quarter and the quarter after that and when you get to next year, you have a different trajectory in terms of opportunities for growth and cost structure is increasingly closer to $30 million better and so long way of saying, yes.

Great. Thanks very much.

Our next question is from David Rose from Wedbush Securities.

Good morning. Thank you for taking my call. I was hoping maybe just briefly if you can touch upon the margins in Water Management, how much mix related and how much did you see in the benefits from VAG?

So in the quarter, there was – the mix impact was marginal. It wasn't a big piece of it. But there was – to your viewpoint, there was some extent. But the majority of the margin improvement is coming from the work we've been doing at VAG over the past year, year and half and continuing to get the benefits of that. And on the Zurn side, in non-res we grew up and we're getting very good leverage on that cost structure as we're growing. So, if I had to rank in our price statement, VAG biggest driver, leveraging growth in non-res number two, with a modest mix, that being number three. Todd Alan Adams - President, Chief Executive Officer & Director: I think, David, I think the thing we're trying to do really when you think through all of this is to create a more variable cost model, a more asset-light cost model. We're not as levered to the fixed cost and so the operating leverage that we're seeing in water today is good and will get better as we continue to do that. And I think the thing that we probably haven't touched upon is that as we change some of the manufacturing strategy around a more asset-light or more supply chain oriented model, it reduces future CapEx and increases future cash flows. So, I think the combination of everything we're doing, gives us better operating leverage today, when there is a downside and we don't know when that is going to be, it makes us even more variable. And long-term, it improves our free cash flow, because we're not investing in CapEx to the same degree we have to today. So, a real positive and I think water is a demonstration of that going forward.

Okay. And then lastly on the water component, given what you saw in your ability to pull forward some of the cost takeout actions. I'm assuming your sense of the cost takeout funnel is also growing on water, do you have an updated view on what your operating margin, I won't say potential but target is or maybe even you can call on a stretch goal, if you will? Todd Alan Adams - President, Chief Executive Officer & Director: We've been saying for probably two years, that we had very good line of sight to high-teens. I think we're sort of at high-teens today. I think as I've pointed out in my comments, it was clearly on track to maybe even higher teens to the 20% range, but with what've got in the hopper and maybe some of the things we've – we're sort of planning now, it's not unrealistic at all to see water in excess of 20% in the next couple of years. And as I pointed out, it's a substantial part of the company at this company and couple of years ago, it was big but the margins were 13%, 14% at 18% on its way to 20% and growing that's where we sort of see it and that's what we've been working at. So I wouldn't – I'm not going to give you our stretch goal, but it's safe to put it too in front of it.

Okay. Perfect. Thank you.

I have no further questions at this time.

Well then, I'll say thank you 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 fiscal 2016 third quarter results in early February. Everybody have a great day. Thanks.

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