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REGAL REXNORD CORP (RRX)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 was operationally resilient but top-line soft: sales were $1.461B (down 9.1% YoY; down 1.4% organic), adjusted EPS $2.34 (+2.6% YoY), and adjusted EBITDA margin 21.7% (mix and volume headwinds offset by synergies) .
  • Order momentum improved: daily orders +4.4% YoY in Q4, with AMC +8.8%, IPS ~+4%, PES +1%, supporting a back-half weighted 2025 setup; management guided 2025 adjusted EPS $9.60–$10.40 and ~23% EBITDA margin, with ~$700M FCF and net leverage ~3x exit 2025 .
  • What went wrong: weaker-than-expected December demand and last‑minute push-outs (notably machinery/off‑highway, general industrial, China/Europe) pressured sales and margins vs targets; FX also weighed, particularly given peso hedges .
  • Strategic positives: IPS adjusted EBITDA margin expanded to 26% (+200 bps YoY); eVTOL partnership with Honeywell validated the value-added systems strategy; synergies beat plan ($23M in Q4; $101M FY) and debt paydown accelerated ($205M in Q4; $938M FY) .
  • Stock reaction catalysts: improving orders, synergy execution, deleveraging path, and a 4Q25 margin exit target near 25% vs near-term macro/tariff/FX risks and discrete automation timing .

What Went Well and What Went Wrong

  • What Went Well

    • IPS margin expansion and outgrowth: IPS adjusted EBITDA margin reached 26.0% in Q4 (+200 bps YoY), with cross-sell contributing to outperformance; CEO: “IPS… achieved solid outgrowth and healthy margin gains” .
    • Orders inflecting: daily orders +4.4% YoY (AMC +8.8%, IPS ~+4%, PES +1%), providing better visibility into 2025; CFO: book-to-bill improved to ~1.0 overall .
    • Execution on self-help: Q4 synergies $23M (FY $101M vs $90M target); adjusted gross margin 37.1% (+60 bps YoY excl. divested Industrial), on track to reach ~40% exiting 2025 .

  • What Went Wrong

    • Top-line/mix shortfalls vs internal targets: weaker general industrial and machinery/off‑highway demand and December push-outs pressured sales ($1.461B, −9.1% YoY) and margin mix relative to plan .
    • FX headwinds and hedging impact: AMC and PES margins were hit by FX, with peso hedges in an “unfavorable position” for 2025 (benefits expected later) .
    • Regional pressures: China and non‑U.S. commercial HVAC were incrementally weak; PES margin (15.3%) was below internal expectations on lower volumes/FX and temporary labor inefficiencies during the A2L ramp .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$1,608.2 $1,477.4 $1,461.1
GAAP Diluted EPS ($)$0.84 $1.09 $0.62
Adjusted Diluted EPS ($)$2.28 $2.49 $2.34
Adjusted EBITDA ($USD Millions)$346.5 $337.0 $317.6
Adjusted EBITDA Margin (%)21.5% 22.8% 21.7%
GAAP Gross Margin (%)35.0% 37.7% 34.9%
Adjusted Gross Margin (%)35.7% (ex-Industrial) 38.4% 37.1%
Consensus Revenue (S&P Global)n/an/an/a
Consensus EPS (S&P Global)n/an/an/a
  • Note: S&P Global Wall Street consensus estimates were unavailable at time of analysis due to data access limits; therefore beat/miss vs estimates cannot be determined.

Segment performance (Q4 2024):

SegmentNet Sales ($MM)Organic Growth YoYAdjusted EBITDA Margin
Industrial Powertrain Solutions (IPS)$635.0 −1.9% 26.0%
Power Efficiency Solutions (PES)$416.3 +0.2% 15.3%
Automation & Motion Control (AMC)$409.8 −2.3% 21.6%

Selected KPIs (Q4 2024):

  • Daily orders: +4.4% YoY (AMC +8.8%; IPS ~+4%; PES +1%) .
  • Adjusted free cash flow: $185.3M; CFO prioritized debt reduction .
  • Debt reduction: $205M in Q4; $938M FY; net debt/Adj. EBITDA incl. synergies ~3.6x .

Non-GAAP adjustments (Q4):

  • Principal items: intangible amortization $0.98/sh, restructuring $0.44/sh, transaction/integration $0.14/sh, SBC $0.11/sh; netted to adjusted EPS $2.34 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPS ($)FY 2025n/a$9.60–$10.40 New
GAAP Diluted EPS ($)FY 2025n/a$4.42–$5.22 New
EBITDA Margin (%)FY 2025n/a~23% target (CFO commentary) New
Free Cash Flow ($)FY 2025n/a~ $700M; run-rate ~$900M exiting 2025 New
Effective Tax Rate (%)FY 2025Midterm 24% prior22.5% in 2025; assume ~23% 2026+ Lowered (’25)
Net leverage (Net Debt/Adj. EBITDA)Exit 2025n/a~3.0x New
4Q Margin ExitQ4 2025n/aApproaching ~25% (EBITDA margin) New
Tariff assumptionsFY 2025n/aMexico/Canada tariffs not embedded; China tariffs immaterial included Disclosure
DividendNext payment$0.35 prior$0.35 declared (payable Apr 14, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Orders/Book-to-billQ2: AMC orders +12%; IPS flat; PES mixed; July orders +~5% . Q3: Enterprise orders +2.5%; AMC and IPS positive; book-to-bill improved .Daily orders +4.4% (AMC +8.8%, IPS ~+4%, PES +1%); Jan orders continued momentum .Improving
Discrete Automation (AMC)Softer H2 ramp vs prior; longer-cycle orders weighted into late ’24/early ’25 . Q3: continued headwinds; Q4 ramp expected; margins to improve with mix .Sales met commitment; orders +8.8%; FX headwinds; 2H25 backlog weight; 2025 mix tailwinds guide to ~25% exit margin .Gradual recovery; back-half weighted
Residential HVAC (PES) / A2LQ2: destock easing; limited prebuy assumed; visibility low . Q3: prebuy surge (small systems), capacity lag; sequential sales +10% .Low-20s growth in Resi HVAC; temporary labor inefficiencies during urgent ramp; Jan resi orders +3% .Improving, normalization post-transition
IPS Outgrowth/Cross-sellQ2: cross-sell funnel up; outgrowth vs ISM-driven markets . Q3: positive organic; record margins .+200 bps YoY margin to 26%; cross-sell continued; orders ~+4% .Sustained outperformance
FX / Peso hedgesQ3: FX pressure at AMC; PES mix/FX headwinds .Peso hedges unfavorable in ’25; benefits expected later .Near-term headwind
Tariffs/MacroQ2/Q3: Cautious on ISM, China/Europe CHVAC weak; measured outlook .China tariffs immaterial included; Mexico/Canada tariffs excluded; contingency plans in place .Risk monitored
Aerospace/eVTOL & Data CenterQ2: Power Systems (data centers) growth vector -. Q3: IPS powertrain systems case study .Honeywell eVTOL partnership announced; validates systems strategy .Strategic momentum

Management Commentary

  • “Our… fourth quarter performance reflected strong controllable execution… However, markets continue to provide challenges… particularly… last minute customer push-outs.” – CEO Louis Pinkham .
  • “Adjusted EBITDA margin was 21.7%, down 80 bps… on lower volumes, weaker mix, FX pressure and some growth investments… IPS… achieved… 26%, up 2 points versus prior year.” – CEO .
  • “We expect… lower interest expense worth just over $50 million… effective tax rate… 22.5%… diluted adjusted EPS midpoint… $10… approximately 10% growth versus the prior year.” – CFO Robert Rehard .
  • “We announced a partnership with Honeywell Aerospace… for the advanced air mobility market… potential to expand… and be a needle-moving growth opportunity.” – CEO -.

Q&A Highlights

  • Synergies cadence: 2024 upside was a pull-forward; 2025 target now ~$54M (from $65M), not incremental overall .
  • Tariffs playbook: ~30% of direct labor in Mexico; flexible footprint, prior tariff experience, pricing actions if needed; China tariffs immaterial, MX/CA not included in guide .
  • IPS push-outs/backlog: ~$15M of enterprise push-outs impacted IPS in Q4; Q1 lighter but backlog supports step-up through 2025; approach remains measured .
  • PES dynamics: Resi HVAC up low-20s; general commercial and non‑U.S. CHVAC weak; January resi orders +3% despite expected A2L pull-forward .
  • Margin/FCF cadence: Exit 2025 EBITDA margin ~25% on volume, mix (AMC), synergies; 2025 FCF ~$700M, exiting run-rate ~$900M; leverage to ~3x ’25, ~2.5x ’26 .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 (revenue, EPS, EBITDA) were unavailable at time of analysis due to data access limits; beat/miss versus consensus cannot be assessed. Management highlighted adjusted EPS +2.6% YoY ($2.34 vs $2.28) and organic sales −1.4% despite market headwinds .

Key Takeaways for Investors

  • Orders inflecting across segments (AMC, IPS, PES) materially improves 2025 visibility, with back-half weighted revenue/margin trajectory and a 4Q25 exit margin target near 25% (mix shift + synergies) .
  • IPS remains the margin/growth engine (26% adjusted EBITDA margin; cross-sell and powertrain systems), offering resilience vs ISM-driven end-market volatility .
  • PES’s A2L transition created temporary inefficiencies in Q4 but supported low-20s resi growth; as the supply chain normalizes, margins should improve through 2025 (watch China/Europe CHVAC) .
  • AMC is improving but remains longer-cycle; discrete automation recovery is slower than hoped; FX a near-term headwind, but 2H weighted backlog supports 2025 mix/margin .
  • Balance sheet progress continues: $938M FY debt paydown; leverage path to 3x exit 2025; lower interest expense ($50M benefit in 2025) boosts EPS/FCF .
  • Strategic pipeline (eVTOL with Honeywell, data center power systems) validates higher value-added systems strategy with potential needle-moving upside over time .
  • Risks: macro softness (general industrial, machinery/off‑highway, China/Europe CHVAC), potential MX/CA tariffs (not in guide) and FX (peso hedges) could temper near-term margins; management has mitigation levers (pricing, footprint, 80/20, synergies) .

Appendix: Additional Context

  • Dividend: $0.35/share declared Jan 27, 2025; payable Apr 14, 2025 (consistent with history) .
  • FY 2024 summary: Adjusted EBITDA margin 22.1% excluding Industrial; adjusted gross margin 37.8% (ex-Industrial), +210 bps YoY; GAAP net income $198.4M vs loss in 2023 .
  • Q4 2024 non-GAAP reconciliations available in 8‑K Exhibit 99.1 .

Sources: Q4 press release/8‑K exhibit [6:] [7:]; Q4 earnings call transcript [4:]; Q3 and Q2 press releases and transcripts [12:] [20:] [10:] [18:*].