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REGAL REXNORD CORP (RRX)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered organic sales growth (+0.7%), adjusted gross margin expansion to 37.9%, adjusted EBITDA margin of 21.8%, and adjusted EPS of $2.15; GAAP EPS was $0.86 .
  • Results were above Wall Street consensus: revenue $1.418B vs $1.378B estimate*, and adjusted EPS $2.15 vs $1.83 estimate*; management reaffirmed FY25 adjusted EPS guidance of $9.60–$10.40 while raising GAAP EPS to $4.49–$5.29 on a gain on asset sale .
  • Segments: PES +8% organic with 14.2% adj. EBITDA margin; IPS −3.4% organic with 26.9% adj. EBITDA margin; AMC +0.4% organic with 21.8% adj. EBITDA margin; daily orders +3.3% and book-to-bill 1.07 supported backlog into H2 .
  • Tariff backdrop escalated (gross unmitigated annualized impact now ~$130M vs $60M on Mar 19), but management expects full 2025 neutrality to adjusted EBITDA and EPS, with margin neutrality by mid‑2026 under current tariffs .
  • Capital allocation: $164M gross debt repaid; free cash flow $85.5M; net debt/adjusted EBITDA including synergies ~3.6x; continued focus on deleveraging and synergy capture ($18M in Q1; ~$90M remaining) .

Note: Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Adjusted EPS and revenue beat Street; reaffirmed FY25 adjusted EPS guidance and raised GAAP EPS (gain on asset sale). “We delivered positive organic growth… grew free cash flow by 32%, and paid down $164 million of gross debt” .
  • PES returned to growth (8% organic), driven by NA residential HVAC; segment margin expanded to 14.2% on volume/mix and cost discipline .
  • IPS margins strengthened (26.9% adj. EBITDA, +110 bps YoY) with book‑to‑bill 1.13 and longer‑cycle project wins building H2 visibility .
  • Humanoid robotics momentum: secured >$20M annualized wins ramping over 12–18 months; ~$100M opportunity funnel; “Notable wins in humanoids” .

What Went Wrong

  • Reported net sales −8.4% YoY (divestiture and FX headwinds; organic +0.7%); IPS saw declines in metals/mining and machinery/off‑highway; AMC orders impacted by data center lumpiness .
  • Tariff uncertainty increased; gross unmitigated impact updated to ~$130M (largely China), necessitating supply chain realignment, relocations, productivity, and pricing actions .
  • PES benefitted from resi HVAC pre‑buy and strong furnace season, but management remains cautious on H2 given potential destocking, non‑U.S. commercial weakness, and macro signals (consumer confidence, housing) .

Financial Results

Headline metrics vs prior quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$1,477.4 $1,461.1 $1,418.1
GAAP Diluted EPS ($)$1.09 $0.62 $0.86
Adjusted Diluted EPS ($)$2.49 $2.34 $2.15
Adjusted Gross Margin %38.4% 37.1% 37.9%
Adjusted EBITDA Margin %22.8% 21.7% 21.8%
Free Cash Flow ($USD Millions)$125.5 $185.3 $85.5

Results vs Wall Street consensus

MetricQ4 2024 Estimate*Q4 2024 ActualQ1 2025 Estimate*Q1 2025 Actual
Revenue ($USD Millions)$1,490.5*$1,461.1 $1,377.8*$1,418.1
Primary EPS ($)$2.47*$2.34 $1.83*$2.15
EBITDA ($USD Millions)$340.2*$317.6 $283.3*$309.5 (Adj. EBITDA)

Note: Values marked with * are retrieved from S&P Global. EBITDA definitions may differ (company reports adjusted EBITDA).

Segment performance (Q1 2025 vs prior year)

SegmentNet Sales ($USD Millions)YoY ReportedYoY OrganicAdjusted EBITDA Margin %
Automation & Motion Control (AMC)$396.3 −1.0% +0.4% 21.8%
Industrial Powertrain Solutions (IPS)$612.7 −4.8% −3.4% 26.9%
Power Efficiency Solutions (PES)$409.1 +6.2% +8.0% 14.2%

KPIs and balance sheet

KPIQ1 2025
Daily Orders Growth YoY (ex‑FX)+3.3%
Book‑to‑Bill1.07 (enterprise); AMC 1.02; IPS 1.13; PES 1.02
Cash from Operations ($USD Millions)$102.3
Free Cash Flow ($USD Millions)$85.5
Gross Debt Reduction ($USD Millions)$164
Net Debt ($USD Millions)$4,991.6
Net Debt / Adjusted EBITDA (incl. synergies)3.62x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Diluted EPSFY 2025$4.42–$5.22 (Feb 5, 2025) $4.49–$5.29 (May 5, 2025) Raised (gain on asset sale)
Adjusted Diluted EPSFY 2025$9.60–$10.40 (Feb 5, 2025) $9.60–$10.40 (May 5, 2025) Maintained
Segment Sales – PESFY 2025Down low‑single digits (implied prior) Approximately flat Raised
Tariff Impact (P&L neutral)FY 2025Neutral to EPS/EBITDA in 2025 (Mar 19) Neutral to adjusted EPS/EBITDA in 2025 Maintained
Tariff Margin NeutralityTimelineEnd of 2025 (current regime) / 1H26 (no USMCA) Mid‑2026 (current tariffs) Pushed to mid‑2026
Free Cash FlowFY 2025~$700M target ~$700M target Maintained
Dividend per shareQ1$0.35 declared $0.35 declared Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
AI/Robotics – HumanoidsLimited disclosure; focus on automation portfolio strength >$20M annualized wins; ~$100M funnel; integrated solutions (motors, bearings, actuators) Accelerating focus and wins
Supply chain & tariffsTariffs scenario ~$60M unmitigated; mitigation expected neutral 2025 Unmitigated impact updated to ~$130M; neutrality to adjusted EPS/EBITDA in 2025; margin neutrality mid‑2026 Higher headline impact; mitigation intact
Discrete automationQ3: weakness pressured AMC; Q4: AMC met sales, orders +~9% Inflected to growth (+12% YoY) and mix‑positive for margins Positive inflection
Resi HVACQ3: lag in ramp vs demand acceleration Q4: low‑20s growth; Q1: ~30% growth; some pre‑buy; cautious on H2 Strong near‑term; watch destocking
Regional trends (IPS)Q3: outgrowth in IPS; H2 visibility building NA up low‑single digits; weakness in China/Europe; backlog up H2 Mixed; H2 supported by backlog
SynergiesQ3: $27M; on track $90M/year Q4: $101M FY; Q1: $18M; ~$90M remaining Continuing execution
AerospaceStrength in AMC; AS9100 site certification; EMA subsystem launch Continued strength; April order timing lumpiness but >12‑month backlog Structural tailwind

Management Commentary

  • CEO: “First quarter marked a strong start to the year… delivered positive organic growth, further gains in adjusted gross margin and adjusted EBITDA margin, grew free cash flow by 32%, and paid down $164 million of gross debt” .
  • CEO on tariffs: “We expect to achieve tariff cost neutrality in 2025, and margin neutrality by the middle of 2026, under current tariffs” .
  • CFO: Updated tariff impact and mitigation pillars (supply base realignments, production relocations, productivity, pricing); “We still expect our mitigation actions to result in tariffs having a neutral P&L impact within this year and a neutral EBITDA margin impact by mid‑2026” .
  • CEO on humanoids: selected for integrated solutions critical to dexterity; multi‑component sales spanning 30–50 axes of motion; wins >$20M annually; ~$100M funnel .

Q&A Highlights

  • Long vs short cycle: IPS orders up ~9% in Q1; short cycle stable; H2 backlog up high‑single digits in IPS and low‑double digits in AMC, supporting H2 margin step‑up (mix, volume, price/synergies) .
  • Tariff mitigation mix: prioritized supply base realignment, production relocations, productivity; pricing/surcharges as needed; neutrality targets reiterated .
  • PES outlook: strong Q1, but H2 guide conservative on macro; segment sales raised to approximately flat for FY25 .
  • Free cash flow: ~$700M FY25 target, ~$900M exit rate affirmed .
  • Competitive position: in‑region/for‑region footprint and dual‑country sourcing create share gain opportunities under tariffs .

Estimates Context

ItemPeriodConsensus*Actual
Primary EPS ($)Q1 20251.83*2.15
Revenue ($USD Billions)Q1 20251.378*1.418
Primary EPS ($)Q4 20242.47*2.34
Revenue ($USD Billions)Q4 20241.490*1.461
FY Adjusted EPS ($)FY 20259.63*Guidance 9.60–10.40

Note: Values marked with * are retrieved from S&P Global.

Implications: Q1 was a clear beat on both EPS and revenue vs consensus*, supporting a narrative of improving orders/backlog and execution despite tariff noise; Street models for FY25 EPS are slightly below the midpoint of guidance*, suggesting potential estimate upward revisions if momentum persists .

Key Takeaways for Investors

  • Q1 printed a clean beat vs consensus on EPS/revenue with margins expanding; reaffirmed adjusted EPS guidance and raised GAAP EPS, a constructive setup for H2 .
  • IPS and AMC backlogs underpin H2 volume/mix leverage; discrete automation inflection is margin‑accretive (~500 bps above fleet) .
  • Tariff headwinds escalated, but mitigation actions are underway; expect adjusted EPS/EBITDA neutrality in 2025 and margin neutrality by mid‑2026—limiting earnings risk .
  • Humanoid robotics offers medium‑term growth optionality with >$20M wins and ~$100M funnel; aerospace EMA subsystem launch and AS9100 footprint deepen moat .
  • Strong FCF trajectory (~$700M FY target) and continued debt paydown (Q1 $164M) support deleveraging and equity value creation; net debt/adj. EBITDA including synergies ~3.6x .
  • Watch near‑term PES demand normalization (destocking/non‑U.S. commercial); management remains measured on H2 .
  • Catalyst path: sustained order momentum, H2 margin step‑up in AMC, synergy delivery (~$90M remaining), tariff mitigation updates, and humanoid/aerospace wins could drive estimate revisions and re‑rating .