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REGAL REXNORD CORP (RRX)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered modest top-line growth and stable margins: revenue $1.497B (+1.3% y/y), adjusted EBITDA $339.4M (22.7%), and adjusted EPS $2.51; GAAP EPS was $1.20 .
  • Versus S&P Global consensus, revenue was a slight beat while EPS was fractionally below and EBITDA trailed: Q3 revenue $1,497.0M vs $1,487.8M*, EPS $2.51 vs $2.535*, and EBITDA $320.2M* vs $337.0M* .
  • Guidance cut: FY25 adjusted EPS narrowed to $9.50–$9.80 (from $9.70–$10.30) and GAAP EPS to $4.26–$4.56, primarily due to newly increased tariffs and rare earth magnet supply constraints; adjusted EBITDA margin now ~22.0% (from 22.5%) and FCF guidance lowered to ~$625M .
  • Powerful order momentum (daily orders +9.8% y/y; B2B 1.05; backlog +6%) driven by data center wins ($135M in Q3 + $60M in Oct; ~$1B AMC pipeline; ePods push) positions RRX for accelerating growth into 2026 despite near‑term tariff/rare-earth headwinds .
  • Potential stock catalysts: 2025 guidance reset vs strengthening 2026 setup (data center ramps, tariff mitigation timeline), and CEO succession process with “business as usual” operating posture .

What Went Well and What Went Wrong

What Went Well

  • Data center traction accelerated: $135M Q3 orders plus $60M in October; AMC data center business (Thompson Power Systems) tracking $130M in 2025, with bid pipeline approaching $1B and new ePods opportunity ($10B TAM) .
  • Orders and backlog improved: daily orders up 9.8% y/y, book‑to‑bill 1.05, backlog up 6% y/y—supporting mid‑single digit organic growth targeted in Q4 and improving trajectory into 2026 .
  • Segment execution: IPS grew organically (+1.6%) with 26.4% adj EBITDA margin; PES delivered above‑plan margins (19.0%, +120 bps y/y) on mix and cost control; enterprise adj EBITDA margin held ~flat y/y at 22.7% despite headwinds .

What Went Wrong

  • Tariffs worsened late in the quarter: gross annual unmitigated impact rose to ~$175M (from $125M) after India tariff hike to 50% and expanded Section 232 scope; FY25 net dollar cost impact now ~-$17M, pushing margin headwinds and guiding FY25 adj EBITDA margin to ~22% (from 22.5%) .
  • Rare earth magnet constraints intensified: China export license approvals slowed, impacting shipments to medical/defense; headwinds now expected through early 2026 (vs prior expectation of year‑end 2025 relief) .
  • Residential HVAC mix headwinds: PES air conditioning units down >20% (offset by furnace strength) with management guiding Residential HVAC down low double‑digits in Q4, driving sequential pressure .

Financial Results

Consolidated Results (YoY/Sequential trend and margins)

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$1,477.4 $1,418.1 $1,496.1 $1,497.0
Adjusted EBITDA ($M)$337.0 $309.5 $329.7 $339.4
Adjusted EBITDA Margin (%)22.8% 21.8% 22.0% 22.7%
GAAP Diluted EPS ($)$1.09 $0.86 $1.19 $1.20
Adjusted Diluted EPS ($)$2.49 $2.15 $2.48 $2.51
Adjusted Gross Margin (%)38.4% 37.9% 38.2% 37.6%
Free Cash Flow ($M)$125.5 $85.5 $493.0 $174.0

Key deltas and drivers:

  • Q3 revenue +1.3% y/y; organic +0.7% y/y (mix of stronger energy, discrete automation, aerospace; medical and data center timing headwinds) .
  • Adj EBITDA margin held flat y/y as synergy benefits ($11M) offset mix, tariffs, and rare earth pressure .
  • FCF $174M in Q3; FY25 FCF guide reduced to ~$625M due to tariff timing, data-center working capital, and higher interest costs .

Segment Breakdown

Net Sales ($M)

SegmentQ2 2025Q3 2025
Automation & Motion Control (AMC)$411.1 $402.0
Industrial Powertrain Solutions (IPS)$649.8 $662.3
Power Efficiency Solutions (PES)$435.2 $432.7

Adjusted EBITDA Margin (% of segment sales)

SegmentQ2 2025Q3 2025
AMC19.5% 20.5%
IPS26.9% 26.4%
PES17.1% 19.0%

Highlights: AMC orders up 31.7% daily basis (book‑to‑bill 1.23) on large data center wins; IPS fifth straight quarter of positive orders; PES margin expansion on mix/cost .

KPIs and Balance Sheet

KPIQ1 2025Q2 2025Q3 2025
Daily Orders Growth (y/y)+3.3% -2.5% +9.8%
Book-to-Bill——1.05
Backlog (y/y)——+6%
Data Center Orders Booked ($M)—$35 (early July) $135 (Q3) + $60 (Oct)
Net Debt / Adj EBITDA (incl. synergies)~3.62x ~3.34x ~3.25x
Variable Rate Debt——None outstanding at Q3 end

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
GAAP Diluted EPSFY 2025$4.50–$5.10 $4.26–$4.56 Lowered
Adjusted Diluted EPSFY 2025$9.70–$10.30 $9.50–$9.80 Lowered/narrowed
Adjusted EBITDA MarginFY 2025~22.5% (assumption) ~22.0% Lowered ~50 bps
Free Cash FlowFY 2025~$700M ex‑securitization; >$1.0B inclusive ~$625M Lowered
Tariff Neutrality (Dollar Cost)Timeline2025 neutral on “current tariffs” Mid‑2026 Pushed out
Tariff Neutrality (Margin)TimelineMid‑2026 End‑2026 Pushed out
AMC Adj EBITDA MarginFY 2025Prior midpoint-50 bps vs prior midpoint Lowered
IPS Adj EBITDA MarginFY 2025Prior midpoint-50 bps vs prior midpoint Lowered
PES Adj EBITDA MarginFY 2025Prior midpoint-50 bps vs prior midpoint Lowered
DividendQuarterly$0.35 declared (prior cadence)$0.35 declared Oct 22 (payable Jan 14, 2026) Maintained

Drivers: new/expanded tariffs (India 50%; Section 232 expansion) and rare earth magnet constraints are the primary causes; some offset from initial tariff pricing and data center revenue .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Data centerQ2: $35M order; initial revenue by EOY; pipeline building . Q1: project timing headwind in AMC .$135M orders in Q3 + $60M in Oct; AMC pipeline ~ $1B; PES $20M chiller win; ePods pipeline >$400M; new TX facility to support capacity .Accelerating
Tariffs / MacroQ1/Q2: Mitigation expected/on track to neutralize “current tariffs” in 2025 adjusted EPS .Gross unmitigated impact now ~$175M; FY25 net -$17M; dollar cost neutrality mid‑2026; margin neutrality end‑2026 .Worsened near-term
Rare earth magnetsQ2: Temporary challenge, expected to improve by year‑end .Worsened; China export approvals slowed (especially for India); headwinds through early 2026 before recovery .Worsened near-term
Orders & backlogQ1: +3.3% daily orders ; Q2: -2.5% daily orders .Q3: +9.8% daily orders, B2B 1.05, backlog +6%; IPS 5th straight positive orders quarter .Improving
Residential HVAC (PES)Q1: strong R‑HVAC; margin up ~1 pt . Q2: R‑HVAC and C‑HVAC strength .Q3: AC down >20%, furnace strong; resi HVAC flat; Q4 guide down low double digits .Mixed/normalizing
Deleveraging & FCFQ1: Paid down $164M; FCF +32% y/y . Q2: Securitization proceeds used to repay; ND/Adj EBITDA ~3.3x .Q3: FCF $174M; no variable‑rate debt; aiming ~3x by end 2025 and ~2.5x by end 2026 with ~$900M 2026 FCF .Improving over medium-term
Leadership—CEO succession initiated; “business as usual” until successor named (4–6 months process) .Neutral (process underway)

Management Commentary

  • “Our enterprise gained significant momentum… we secured orders worth $135 million in 3Q, plus an additional $60 million to date in 4Q… positioning us as an emerging scale player, with a bid pipeline that is now over $1 billion.” – CEO Louis Pinkham .
  • “Adjusted gross margin was 37.6%… adjusted EBITDA margin was 22.7%, roughly flat versus prior year… [driven by] an $11 million synergy benefit mostly offset by mix, tariffs, and rare earth magnet pressure.” – CEO .
  • “Based on tariffs in place today… value has risen to $175 million… we now expect to have a net tariff impact… of approximately $17 million this year… dollar cost neutral by the middle of next year and… margin neutral by the end of next year.” – CFO Rob Rehard .
  • “We ended the quarter with no variable rate debt.” – CEO .
  • “Free cash flow… we expect to be at almost $900 million next year… leverage to end [2026] at roughly 2.5x.” – CFO .

Q&A Highlights

  • Sequentials: Q4 resi HVAC expected down low double‑digits (AC ~-30%, furnace high‑teens up); AMC data center shipments to inflect (down ~40% in Q3, up >50% in Q4); IPS executing project backlog .
  • Data center ramp: AMC data center ~$130M in 2025; potential to “double over the next two years”; contribution margins around segment averages; Texas facility targets mid‑2026 shipments; ePods are CapEx‑light assembly/test .
  • Tariff/rare earth phasing: Tariff price‑cost neutrality by mid‑2026 and margin neutrality by end‑2026; rare earth headwinds expected to subside by early 2026; expect ~35% volume leverage overall, higher in AMC/IPS .
  • Pricing: Outside of PES, company expects to be tariff‑neutral with timing lag; PES more pressured by India tariffs; considering production moves if 50% India tariff persists .

Estimates Context

Results vs S&P Global consensus

MetricQ1 2025 ActualQ1 2025 Consensus*SurpriseQ2 2025 ActualQ2 2025 Consensus*SurpriseQ3 2025 ActualQ3 2025 Consensus*Surprise
Revenue ($M)1,418.1 1,377.8*+$40.31,496.1 1,494.3*+$1.81,497.0 1,487.8*+$9.2
Adjusted/Primary EPS ($)2.15 1.8266*+$0.322.48 2.4441*+$0.042.51 2.5350*-$0.03
EBITDA ($M)288.8*283.3*+$5.5299.4*331.1*-$31.7320.2*337.0*-$16.8

*Values retrieved from S&P Global.

Observations:

  • Q3 revenue modestly beat, EPS fractionally missed, and EBITDA missed versus consensus—driven by tariff increases and rare earth supply disruption that pressured margins, partially offset by synergy and mix management .
  • Q1 and Q2 showed cleaner beats on EPS and revenue; Q2 EBITDA lagged, with similar margin mix dynamics and early tariff effects .

Key Takeaways for Investors

  • Near‑term headwinds priced into FY25: Guidance reset (EPS, margin, FCF) reflects late‑quarter tariff escalation and rare earth constraints; management outlined a credible mitigation timeline (cost neutral mid‑2026, margin neutral end‑2026) .
  • Orders and backlog signal an inflection: Book‑to‑bill >1 and backlog growth (+6%) support accelerating organic growth into Q4 and 2026; watch order conversion in AMC data center and IPS project shipments .
  • Data center optionality is building: $195M of recent orders and a ~$1B AMC pipeline, plus ePods expansion and a new Texas facility, suggest RRX can add 1–1.5 pts to enterprise growth at accretive margins in 2026–2027 .
  • Margin durability: Enterprise adj EBITDA margin ~22.7% amid headwinds underscores synergy capture and cost control; PES mix/cost actions and IPS resilience give ballast while AMC ramps data center in Q4 .
  • Deleveraging path intact: No variable‑rate debt, ND/Adj EBITDA including synergies ~3.25x, and 2026 FCF target of ~$900M point to ~2.5x leverage by end‑2026—expanding strategic flexibility as tariffs normalize .
  • Watch items: India tariff policy, rare earth export license cadence, AMC medical/defense shipment normalization, and Q4 resi HVAC seasonality/mix .
  • Leadership transition: CEO succession process underway with Board oversight; management emphasized “business as usual,” limiting operational disruption risk .

Additional Relevant Press Releases (Q3 period)

  • CEO succession process announced (Oct 29, 2025) .
  • Quarterly dividend of $0.35 declared (payable Jan 14, 2026) .
  • 2024 Sustainability Report published; noted 13% Scope 1 & 2 emissions reduction y/y and TRIR 0.55 .

Notes: All figures are company-reported unless marked with an asterisk, which indicates S&P Global consensus/actual values. Where applicable, non‑GAAP measures and reconciliations are provided in the company’s press releases .