What Regal Rexnord (RRX) Said on Its Q3 Earnings Call

Key Points

• Q3 results met or exceeded targets: Organic sales grew 6.1%, and adjusted EPS was $2.72 excluding tariff refunds, up 8.4% year over year and $0.15 above the guidance midpoint. Free cash flow was $194 million, and net leverage improved to 2.9x.
• Demand is strong, but execution is limiting shipments: Data center and commercial HVAC growth lifted sales, while IPS organic sales fell 1.8% despite rising orders because plant and supply-chain problems constrained output. Management expects improvement to take several quarters.
• Regal Rexnord raised its 2026 EPS outlook to $10.60–$10.90 and sales outlook to about $6.22 billion. It also launched a portfolio review, including exploring a sale of Autonomous Mobile Solutions, which management said would not have a material earnings effect.

Regal Rexnord NYSE: RRX reported third-quarter results that met or exceeded its targets for sales, adjusted EBITDA and adjusted earnings per share, while management outlined a broad operational improvement plan and began a portfolio review that includes exploring a sale of its Autonomous Mobile Solutions business.

Chief Executive Officer Aamir Paul, who has been in the role for four months, said the company has the potential to deliver faster and more profitable growth but needs to improve execution. His priorities are completing the operational integration of the company’s portfolio, focusing resources on higher-potential businesses and strengthening its growth culture.

“Our opportunity is to translate those strengths into faster organic growth, higher margins, stronger cash generation, and improved returns on capital,” Paul said.

Third-quarter sales and earnings

Daily orders increased 5.7% from a year earlier, or 13.3% excluding data center activity, where project phasing affected comparisons. Organic sales growth accelerated to 6.1% in the quarter, supported by data center, commercial HVAC and discrete automation demand.

Adjusted earnings per share totaled $2.90, including a $0.18-per-share benefit from net IEEPA tariff refunds. Excluding the refunds, adjusted EPS was $2.72, up 8.4% from a year earlier and $0.15 above the company’s guidance midpoint.

Adjusted EBITDA was $337 million excluding tariff refunds, $2.5 million above the guidance midpoint. The adjusted EBITDA margin was 22.1%, or 21.2% excluding refunds. Free cash flow was $194 million during the quarter.

The company continued using post-dividend cash flow to reduce debt, ending the quarter with net debt to adjusted EBITDA of 2.9 times, an improvement that Paul described as an important deleveraging milestone.

Operations remain a focus, particularly in IPS

Management said stronger demand has exposed shortcomings in plant execution, materials planning and manufacturing productivity. The company has paused plant consolidations broadly in order to prioritize output, while bringing in targeted third-party support to accelerate improvement efforts.

Paul said the challenges affect facilities in both Automation & Motion Control, or AMC, and Industrial Powertrain Solutions, or IPS. In AMC, some aerospace-related facilities are dealing primarily with supplier ramp-up and materials-planning issues. In IPS, the company is addressing both supply-chain management and internal manufacturing inefficiencies.

“Our immediate priority is stabilizing output and reducing past due backlog,” Chief Financial Officer Rob Rehard said. He added that the company expects shipment performance to improve progressively, with productivity benefits building over several quarters.

IPS daily orders rose 9.6% in the third quarter, with energy-market orders increasing more than 30% and discrete automation orders up nearly 30%. However, organic sales in the segment declined 1.8% as output at several plants failed to keep pace with demand. The segment’s adjusted EBITDA margin was 26%, or 25.2% excluding refunds, as lower shipments and plant execution problems affected results.

Paul said late backlog in IPS represented about 3.5 percentage points of growth opportunity. Management expects it will take a couple of quarters to return operations to what Paul described as peak performance, with more details planned alongside fourth-quarter results and 2027 guidance.

Data center demand supports AMC and commercial HVAC

AMC organic sales increased 25.2% in the third quarter, including 11.2% growth excluding data center activity. The segment benefited from demand in data center and discrete automation markets. Sales tied to ePODs, the company’s modular data center power solutions, contributed $25 million during the quarter, above expectations.

Switchgear sales were up 158% year to date, and Rehard said the business remains on pace to generate roughly $200 million of sales in 2026, exceeding its prior expectation of $180 million.

The company booked a $113 million switchgear order in October that it had expected during the third quarter. AMC daily orders declined 4.9% in the quarter due to two large data center switchgear orders recorded in the prior-year period, but increased 21.4% excluding data center activity.

Regal Rexnord now expects $65 million of ePOD-related revenue in 2026, including $40 million in the fourth quarter. Rehard said the company expects approximately $550 million of ePOD revenue in 2027, split roughly evenly between the first and second halves of the year, with remaining revenue extending into early 2028. Initial shipments are expected to begin in the first quarter of 2027.

Paul said the company’s newly built Arlington, Texas, facility was designed for ePOD production, including its material flow, planning systems and workforce training. The site has capacity that management believes can support demand into 2028, with room for additional scaling and shift capacity.

In Power Efficiency Solutions, or PES, daily orders rose 12%. Commercial HVAC orders increased more than 60%, aided by new axial-fan and plug-fan products for data center ventilation and cooling. Commercial-market sales rose 11%, including commercial HVAC growth of more than 30%, while consumer-linked markets declined by the mid-teens.

Portfolio review includes potential AMS divestiture

Paul said Regal Rexnord has launched a comprehensive review of its portfolio with support from outside advisers and the board. The company is assessing businesses using measures including organic sales growth plus EBITDA margin under its “rule of 30” framework, as well as free cash flow, return on invested capital, capital intensity, customer value and strategic fit.

As part of that effort, the company is exploring a sale of Autonomous Mobile Solutions, or AMS, which provides hardware and software for automated guided vehicles and autonomous mobile robots in factory and warehouse environments. Rehard said AMS represents a low-single-digit percentage of AMC sales and that management does not expect a material earnings effect from the potential sale.

Paul said management could identify additional businesses that are better suited to different owners, though he did not provide a timetable or identify further assets. The company expects to provide updates as it reaches definitive conclusions and said it may hold a broader strategy review toward the end of 2027.

Updated 2026 outlook

Regal Rexnord modestly raised its 2026 sales outlook to approximately $6.22 billion, representing about 4.8% growth, from its prior forecast of approximately $6.2 billion and 4.5% growth. The change reflects stronger AMC growth and higher ePOD revenue, partly offset by slower IPS shipment conversion.

• Full-year adjusted EBITDA margin is expected to be approximately 22%, or 21.2% excluding tariff refunds.
• Adjusted EPS guidance was raised and narrowed to $10.60 to $10.90, with a midpoint of $10.75, compared with a prior midpoint of $10.60.
• Full-year free cash flow guidance remained $600 million.
• AMC full-year growth is now expected in the mid-teens, compared with prior expectations for low-double-digit growth.
• IPS growth is expected to range from flat to low single digits, with its full-year margin outlook lowered by about 40 basis points.
• PES sales growth expectations were unchanged, while its full-year margin outlook increased by about 70 basis points.

Rehard said the higher EPS outlook reflects lower expected depreciation and tax expense, while the enterprise adjusted EBITDA outlook remains unchanged. The company expects no additional IEEPA tariff-refund impact in the fourth quarter.

About Regal Rexnord (NYSE:RRX)

Regal Rexnord Corporation is an industrial manufacturing company that develops and produces electric motors, power transmission components, motion-control systems and other equipment used in industrial and commercial applications. Its products include motors, gearboxes, bearings, couplings, belts, chains, drives, clutches, brakes and related controls, as well as air-moving and power-management solutions.

The company serves customers across industries such as automation, material handling, food and beverage, renewable energy, heating and ventilation, agriculture, and general industrial production.

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