Asked what his expectations are for an economic recovery coming out of the coronavirus outbreak, Rexnord Corp. chief executive officer Todd Adams said it is “very difficult” to think it will be V-shaped. “We certainly hope for that, but we know what an L looks like, we’ll plan for a U and it will probably be a W,” Adams said during an investor call held by Baird last week. Adams said Rexnord’s board is briefed daily on the response to the coronavirus and the company also has an internal taskforce that meets twice daily, seven day per week. “This is obviously a situation we’re not going to sail through, this is something we’re going to have to row through,” he said. Rexnord, an industrial company that makes process and motion control and water management products, got a preview in how to deal with the coronavirus when a plant in China was impacted by the outbreak in January. Adams said the facility and orders are now back to around 90% of where things were at in late 2019. Adams credited the company’s business system with allowing it to continue operating as efficiently as possible. “If there was ever a time where we really benefit from having a common language and really having the entire organization understand the way we do work, it’s now,” Adams said. “It’s allowed us to be nimble and creative in the way we’ve addressed the variety of challenges that have popped up.” Issues the company has had to deal with range from making sure proper documentation is in place to prevent problems with transportation to moving tooling and manufacturing equipment to different geographies to eliminate single points of failure. The company moved a few weeks ago to require everyone who could work from home to do so and has used an internal social media platform to help employees stay engaged with news updates and answers to questions. “Just recognizing that when everyone is remote they feel less connected and so trying to do our part to bring them together, keep them engaged and it’s really helping us navigate and see around some corners that inevitably will come,” Adams said. He added Rexnord has also had to get creative with how it runs manufacturing cells and how plants are staffed over a 24-hour period. Those actions go all the way down to keeping people out of lunchrooms and allowing social distancing to place while work gets done. Adams said the company has also strived to have extensive communication with employees in an effort to eliminate uncertainty. That includes telling employees how they will be paid in the event of a plant shutdown, placing a priority on “a level of financial health for them” and engaging them in finding solutions. Still, Adams acknowledged that depending on the depth of the downturn the company will need to adjust its staffing. “We’re going to have to make a call,” he said, pledging to make decisions on a business by business and plant by plant basis. “Looking ahead, we are going to need to flex our levels of employment,” Adams said. “However, with the breakthroughs and growth investments we’ve made, we’re going to make sure we keep as much of the outstanding team we have in place, because there will be another side to all of this and we want to stay on the trajectory we were on.” Rexnord has already been through a number of changes in recent years. The first two phases of the company’s supply chain optimization and footprint rationalization programs have eliminated 20% of Rexnord’s manufacturing square footage, cut fixed costs and reduced capital expenditure requirements. Adams said the company is in the midst of its third phase, which includes the closure of several plants in the U.S. and expansion of a facility in Mexico. On Friday, the company sent a letter to state officials providing notice for the closure of Rexnord’s plant in Grafton. The Milwaukee Journal Sentinel first reported on the plan to close the plant in February. According to the notice, the closure will cut 140 jobs with reductions starting on June 5 and completed by Dec. 31. “In the last three to four years, we’ve been racing to navigate our business to a point where we can withstand a significant shock and perform well,” Adams said. “And obviously this was never the scenario we dreamt or hoped for, but nevertheless, I think we’ve done a lot of things along the way that help us feel very confident about our ability to perform through this.” Adams said it is somewhat ironic that the company will likely have a record quarter in March but then be down significantly for the next two. “The tentacles of how this ripples through is not going to reveal itself in the next week or two weeks, so we’re not going to speculate,” he said. The disruption will likely be uneven across end markets, Adams added. While the aerospace market will be challenged, food and beverage and health care would likely perform better. “I think at this time the prudent thing to do is to manage for a lot of disruption and protect and insulate your business as best you can with cash,” Adams said. “One thing we’re not going to do is be the company that underestimates the magnitude and falls behind on how we respond,” he added.
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