Rexnord Corp (RXN) Q1 2021 Earnings Call Transcript

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Rexnord Corp (ZWS 1.05%)
Q1 2021 Earnings Call
Apr 28, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Rexnord First Quarter 2021 Earnings Results Conference Call 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 week. The phone numbers for the replay can be found in the earnings release the company filed 8-K with the SEC yesterday, April 27th.

At this time, for opening remarks and introduction, I will turn the call over to Mark Peterson.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Good morning and welcome, everyone. Before we begin today's call, with great sadness we want to pay tribute to Rob McCarthy, Vice President of Investor Relations, who passed away unexpectedly less than two weeks ago. Rob joined Rexnord in January 2014, surely after the company went public. Rob really established both 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 indelible mark on Rexnord. Our entire Rexnord team mourns his loss and our thoughts and players are with Rob's wife Sharon and his family. In the interim, I have resumed [Phonetic] Rob's responsibilities until his successor is named. And one of those responsibilities is to start the call. Remind you that this call contains certain forward-looking statements that are subject to the safe harbor language contained in the press release that we issued yesterday afternoon, as well as in our filings with the SEC.

In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them, why we believe they're helpful to investors and contain reconciliations to the corresponding GAAP data. Consistent with prior quarters, we'll speak to core growth, adjusted EBITDA, adjusted earnings per share, free cash flow, return on invested capital, as we feel these non-GAAP metrics provide a better understanding of our operating results. However, these measures are not a substitute for GAAP data, and we urge you to review the GAAP information in our earnings release and in our filings with the SEC.

With that, I'll turn the call over to Todd Adams, Chairman, President and CEO of Rexnord.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Thanks, Mark. Obviously, I echo your thoughts and comments on Rob. We've been try to reach out to as many of you as we couldn't let you know, as a courtesy, the 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 3, 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 PMC, both at the OEM level, as well as through the ID [Phonetic] channel. We saw, as we predicted, the aerospace end markets sort of bottoming. Our book-to-bill was just below 1 this quarter, and we anticipate it being meaningfully above 1 in the June quarter. And finally, really strong demand across the board in Zurn and improving early indicators in 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, we 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 improvements and all of our scope for 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. They are hitting all of the key milestones with respect to regulatory filings and carve out financial work and working really well together. And hopefully, we are tracking toward the finish line some time in the fourth quarter. They will have 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 are able to do to bring this to fruition.

And equally, importantly, all the things we're working on for a stand-alone pure-play water business, we've got a plan for eliminating any of the stranded corporate costs. We completed in the quarter or post the quarter, I should say, a small tuck-in acquisition of ATS' environmental 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 stand-alone Zurn business looks like moving forward.

If you turn to Page 4, 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 then 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, we go into, I think, reasonable detail talking about all the work we did through the pandemic to support not just for customer 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 he will take you through the quarterly results.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Thanks, Todd. Please turn to Slide number 5. On a year-over-year basis, our consolidated sales declined 4% to $526 million as a 200 basis point benefit in foreign currency translation and 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 simplification actions, primarily in PMC and a small divestiture in our PMC 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 SCOFR action drove an 18% decremental margin in the quarter.

So please turn to Slide number 6, and we will 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 8 points of growth and the core business generated on our 4 points of growth on top of the 7% core growth quarter one year ago.

More importantly, core orders in the quarter increased 10% year-over-year, driven by solid demand across the platform, including our hygienic 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. Strong operational execution on 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 mix impact of our recent acquisition.

PMC sales declined 4%, as the 200 basis point benefit from foreign currency translation was more than offset by the small 2020 fourth quarter divestiture in China that reduced PM sales growth by about 1 point and a core sales decline of 13%, inclusive of an approximate 100 basis point headwind from our 80/20 simplification actions.

Breaking that down further, the year-over-year sales in our aerospace operations decreased 46% as anticipated in the quarter, represents the bottom of the sales decline for the end market. Demand, while still down year-over-year, improved significantly from what we experienced 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 in the balance of the PMC platform in the March quarter were down 7% year-over-year, inclusive of a 100 basis point headwind from our 80/20 actions and were 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 turned positive in the quarter across nearly all end markets and geographies, resulting in a nice improvement in our backlog as we head in 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 the 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 solid in the quarter as we benefited from our SCOFR structural cost reduction initiatives, coupled with our cost control and RBS productivity actions. As a result, our adjusted EBITDA margin was flat year-over-year at 23.8% despite the decline in sales from the prior year March quarter.

Please turn to Slide number 7. With a strong start to free cash flow generation and adjusted EBITDA in the quarter, our net debt leverage was reduced to 2 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 2 times to 3 times.

Please turn to Slide number 8. Given that the RMT transaction is anticipated to close sometime in the fourth quarter of calendar 2021, we will continue to limit our external outlook for 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 aerospace growth. 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, a few comments 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-cash stock comp expense should be about $13 million. Our depreciation and amortization will come in around $24 million.

Please turn to Slide 9. And I'll turn the call back to Todd.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Thanks, Mark. I'll just spend a minute or two doing a little bit of a preview of what stand-alone Zurn pure-play water will look like. A couple of points. We anticipate changing the ticker upon the close. We plan on doing some sort of modified road show as we begin to trade in the stand-alone 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 to educate investors. So they don't miss it as we begin to trade on a stand-alone basis. 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 Rexnord Business System, easily transitions to the Zurn Business System. And obviously, we're saving water, protecting the environment, reducing cost of building an 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 climate spaces, water and safety. 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 syncs and our hand dryers, which has been an instrumental part of our growth strategy in the last several years. And finally, flow systems, that specification grade drainage, storm water management, dream rooms, things like that, that moved water in and around a public or private space. And our key end markets are education and healthcare.

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, 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, 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 amid the pandemic. So the 39 out of the last 41 quarters, so 10-plus years of really strong growth. And obviously, 35% of the business is retrofit replace, which is up considerably over the last 10 years.

If you move to Page 13, in the last six months to nine months, we've talked a lot about touchless, and what's been happening due to the pandemic around hand washing and upgrading. If you think about what we've been doing here, it's really happened over the course of the last four years 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 will be branded Bright Shield as we launched the marketing campaign in the coming months, that is valve [Phonetic], hand dryer, sinks, partitions. We see opportunities for safety and eye washing as well as bottle fillers. And there's is a huge addressable market that's 50% retrofit, where we have stitched together a unique value proposition for building owners and also being able to connect all this information to building management systems over the cloud or your phone that sends, respond and anticipate what's happening in these critical parts of buildings advanced hygiene and reduce transfers. So, we're excited to talk about our hygienic ecosystem and really under the brand Bright Shield by Zurn.

If you move to Page 14, the obvious comparisons of Zurn to others 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 in the last several years, building on to that with omnichannel present, Bright Shield, IoT.

And that is where we feel incredibly well-positioned to stand it up and carve it out and run it on a stand-alone basis. I also think it's important to talk about the flexible business model that we have around very few facilities, third-party rep agencies and also that supply chain that's just so powerful, delivering that high-return on invested capital.

If you turn to Page 15, so that manifests itself, and what we believe is truly a differentiated financial performance relative to other businesses that participate in the water economy. I won't read all of the attributes, but we feel really good about what we've delivered since we bought Zurn 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 stand-alone 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 look for Zurn sometime in the fourth quarter on a stand-alone basis.

So with that, I will turn it back over to the operator to take any questions you may have.

Questions and Answers:

Operator

[Operator Instructions] Bryan, your line is open.

Bryan Blair -- Oppenheimer & Co. -- Analyst

Thanks. Good morning, guys.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Good morning.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Good morning, Brian.

Bryan Blair -- Oppenheimer & Co. -- Analyst

Solid start to the year. And I'm hoping we can touch on Zurn, 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, 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 a new construction offset that at least for part of '21 to the touchless and hygienic growth, continued MRO penetration, etc. Just curious how the recent improvement in market indicators? 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 stand-alone Zurn should have going into 2022.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Yeah. Obviously, some of the early indicators around ABI and renovation activity, I think along with some potential stimulus, I would say they're -- 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. 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, from an end market standpoint, a little positive momentum in new construction. It's clearly better news than maybe what we would have dialed in late last year.

Bryan Blair -- Oppenheimer & Co. -- Analyst

Yeah. Appreciate the color there. And 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 shifts to your expectations of getting margins into the 20s over a reasonably short time period?

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

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 guidance this quarter. And this level -- in the June quarter we will certainly be closer in Q3 we believe. But on an organic basis, we think it's pretty darn close. So what you're seeing is that the transition of Hadrian in and working over the course of this year and next. So I would say some time at the end of 2020 if the margins aren't 20%, they should be in their high teens for Hadrian. 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.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

We're working Todd mentioned, the commodity inflation, how our management [Indecipherable] year-over-year basis, inclusive of Hadrian our goal to keep margins generally flat year-over-year for the full year, which means the core business obviously improves every year. We're working to keep those margins flat for the full year.

Bryan Blair -- Oppenheimer & Co. -- Analyst

Okay. Great to hear. And then how about PMC incrementals as topline accelerates in the right direction in the next couple of quarters? Second quarter guide implies kind of low, mid 30s incrementals solid there. Is that a reasonable anchor going forward or will price cost go for timing the --what I assume will be an inflection in aerospace growth on the back half imply higher or lower range moving into Q3, Q4?

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Yeah, I think as a starting point mid 30s in Q2 is good and I think it's very likely that it's better in the second half function in aerospace. For the year I think there'll be -- if we actually round the 35% range for the full year.

Bryan Blair -- Oppenheimer & Co. -- Analyst

Okay. Thanks again.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

You bet.

Operator

[Operator Instructions] The next question comes from the line of Jeff Hammond with KeyBanc Capital Market.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Hey, Jeff.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

So I think just on a lot of questions this quarter on other companies on price cost and supply chain, which were kind of ebbs. And I think in the prepared remarks, can you just, and 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 hygienic piece, which has got great momentum where you see any emerging supply chain issues?

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

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. And I guess we're not particularly -- we don't think it's too unusual. Obviously, the supply chain shortages, they crop up for us as well from time to time, but we've been able to manage through our plan and being able to 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. So I don't want to say sort of business as usual Jeff, because there is a level of inflation out there, but our ability to manage it is unchanged, right? The ability to smartly run our [Indecipherable] better in price where appropriate, none of that is different. And I think the benefit that we have in 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 really guiding to any margin pressure rations over the balance of the year.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay, great. And then you mentioned as you're talking about Zurn education and healthcare and 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 do 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 in that platform?

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Yeah. It is a positive for us. And obviously the schools are getting a significant amount of money to do upgrades around safety and technology. So HVAC is important, [Indecipherable] is important also, hygiene is also important. So we've got a seamless tracking where all these sellers are going, we're winning now we're presenting what the opportunity is for overall safety the school, and that will be a catalyst for [Indecipherable].

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay and then just last one on free cash, clearly the comp was tough in 1Q, but just how are you thinking about -- I think you made some comments last quarter how are you thinking about free cash flow versus what you had talked about a couple of months ago? Thanks.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah, Q1 is I think considerably above what we had thought and so, more and more it's looking like it will start with the three at the end of the year. There's a lot of road to travel between now and then and obviously we don't even see the full event with the guaranteed transaction. But if you have that can be found right now, I would tell you it starts with a three.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay, thanks guys.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

300.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Helpful. Thanks.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

You bet.

Operator

The next question comes from the line of Mig Dobre with Baird.

Mig Dobre -- Robert W. Baird -- Analyst

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, you guys have a lot of tailwinds in this water management business, increased funding for some of your key customers, just the core level of activity and the market picking up. So I guess I'm wondering here as we're contemplating this Zurn businesses as a stand-alone 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 tailwinds that we're all talking about here. What's the right framework as we think about the next two, three, four years for growth?

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah, I mean obviously we don't want to get ahead of ourselves upon separation. But 39 out of 41 quarters had positive growth over a 10-year period, 5% to 6% compounding core growth and the backdrop. If it comes to fruition, I think as we believe it's certainly going to be better than that. And so that was sort of a relatively mixed period of end market activity for us. So, I mean I think we'll be super comfortable with 5 to 6, and if the regulatory and funding and end markets sort of turn positive it will definitely be better than that because the 5 to 6 sort of demonstrate performance over the last 10 years. Not exactly what you're looking for but better than what we've been doing.

Mig Dobre -- Robert W. Baird -- Analyst

Look, fair enough. I understand that you don't want to sort of get ahead of yourselves here, but that's a question that I get from investors quite often and I wondered if you could maybe comment publicly on this. When we're kind of looking at the slides that you provided here on Zurn you talk about $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, it 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 as you think about the other portions of your business kind of how do you frame that opportunity outside of this hygienic ecosystem?

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah, so we think the sensor market stand-alone is about $5 billion and the incremental $3 billion is all the renovation and natural connect. It's just around the hygienic environmental category we're now in. So I think when we -- couple of quarters we sized that sensor market based on installed base and expected lifecycle of product. It would be just primarily North American number as we really don't have much exposure outside of North America some pockets of really, and I think what's exciting for us is a lot of that comes through adjacent channel that are people who are doing that each and every day maintaining facilities and as things need to be addressed for either wear or for health and safety. Those are the guys that are performing that work. We had essentially no exposure to that end market. And in the last several months we've partnered with two companies to address that channel.

We now have upwards of 150 sellers -- a third-party that will be packaging our solutions and providing them to their existing customers. And so this momentum in that, that's brand new for us -- branded channel that we really haven't addressed and obviously we've added the omni-channel. We've got an organic plug to install model where define what gives you want change in building health and safety of the building and although schedule be upgrade and install with a network of performance guys that we lined up around the country. And so this is a bright-shield opportunity, which works for a while. It is identifying products that continue to be some organic development. We did some inorganic activity now, I'd say bringing the marketing a pretty robust way is sort of what we were planning on doing all along. The pandemic spurred, I would say initial surge that we really had not penciled in. But now we're sort of back to the consistent demonstrated growth of this channel opportunity that we've been able to get.

Mig Dobre -- Robert W. Baird -- Analyst

Right, OK. 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 Zurn here. Is there some thought here that this is going to become a more global business? Can you, are you contemplating M&A or any other means through which you could be looking more broadly at opportunities beyond North America? Thank you.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

There is no question that we see opportunities to grow the business inorganically both in North America as well as selectively outside of North America. I don't think we're going to change some regions just because of the market structure and things like that. But I think it's a really good chance that we'll be more global than it is today in the next five years for sure.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. Thank you so much.

Operator

The next question comes from the line of Brett Linzey with Vertical Research.

Brett Linzey -- Vertical Research Partners -- Analyst

Hi, good morning all. Was hoping you could just provide a little more color on the complexion of the 10% order increase at Water? 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, what those trends look like on an order and sales basis within water?

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

I'll let Mark give you a little more detail, but it was broad based. The order growth was broad-based. I think you saw terrific growth in our Water Safety and Control categories. Our hygienic and environmental was considerably [Indecipherable] quarter and we're starting to see the new construction flow systems work. I would say both and education into a surprising degree some of the commercial applications as well. I don't know if we need to give you much more positive that more, Mark.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah. And I think I'll just add people know when you start seeing New York opening up, Boston opening up and California opening up, these are projects that started at some point in time last year, what was started is going to finished. 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 the touch point, I would say is really generally broad based and in some of the category -- looking at our flow products that are going in, kind of earlier on the building application we saw that picking up in the quarter as well as well as in April. Todd's comments earlier in the call, we feel much better of our end markets today than we did in truly [Indecipherable] days ago and it's generally broad based at this point.

Brett Linzey -- Vertical Research Partners -- Analyst

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 get the dilution from some of the integration on the deals, but just surprised that we wouldn't see a better margin profile, given the uplift in sales and orders? Is it in the restoration of COVID cost saves from last year? Price costs? Any other finer point you could offer?

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

The margins last June were 29.1%. And I would say that it is very bare bones spending in travel and the like. And so, obviously the mix impact we won't do that. There is some of that spending coming back and then we also are investing. I think we're investing in [Indecipherable] channel, we're investing in connected products that fits together the bright-shield product offering and solution. So I think you guided the 26% to 27% and on an organic basis a stone's throw away from where we were last year with all that in. So I think that the decrementals are what they should be given dividends, given that we're doing inside the business and the mix change.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

If you look at sequentially from our first quarter, it's going to be the incremental sequentially is high 30% range, which is -- we give that platform.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay, great. I appreciate the insight. I'll pass it along.

Operator

Thank you. [Operator Instructions] The next question comes from the line of Andrew Obin, Bank of America.

Emily Shu -- Bank of America Merrill Lynch -- Analyst

Hi, good morning. This is Emily Shu on for Andrew Obin. Just a question on PMC. So PMC excluding aerospace declined 7% organically this quarter. So I'm curious, 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.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah, I think the important thing to note I think what there is what the orders did versus the sales. It is more tied to timing, backlog and some of you may recall, last year, we look at our results last year and PMC compared to that industrial concept we outperformed everything last year, our core growth was like down 1% in PMC. From an order standpoint that's truly what's happening in the end markets. But we've thought the management positive in PMC. We saw orders expand first time in several quarters but the demand did turn positive in the quarter. I would say it was across really the majority of our sectors, our process sector, our consumer sector, our 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 in the guide to really accelerate. And in the back half of the year as well we should see some very nice core order demand growth as well as sales growth in the back half as well.

Emily Shu -- Bank of America Merrill Lynch -- Analyst

Okay, great. And then my follow-up question, just switching gears a little bit another question on stimulus. So I know the core stimulus was slightly positive for Zurn. But in recent refill, I think there was about $350 billion of state and local aid March 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 Zurn? Thanks.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Yeah, I think as Todd mentioned earlier, this is not just not just after funding schools result as you highlighted general stimulus funding and can benefit off our site works and markets. We're looking at of storm water around the building. We don't have a lot of infrastructure exposure but drain water categories that are managing water, managing separation of water around a building [Indecipherable] both of those funding programs provide nothing but tailwinds for the platform.

Emily Shu -- Bank of America Merrill Lynch -- Analyst

Yeah, I'll pass it on. Thanks for answering my question. Thank you.

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

The next question comes from the line of Mitchell Shapiro with Gates Capital.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

It looks like he hung up.

Operator

[Operator Instructions] We have a question from the line of Mitchell Shapiro with Gates Capital.

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

No other questions, so thank you everyone that could join us on the call today. We appreciate your interest in Rexnord and look forward to providing our next update when we announce our June quarter results in late July. Thank you everyone. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Mark W. Peterson -- Senior Vice President and Chief Financial Officer

Todd A. Adams -- Chair of the Board, President and Chief Executive Officer

Bryan Blair -- Oppenheimer & Co. -- Analyst

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Mig Dobre -- Robert W. Baird -- Analyst

Brett Linzey -- Vertical Research Partners -- Analyst

Emily Shu -- Bank of America Merrill Lynch -- Analyst

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