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    RRX
    Earnings call· Mar 2026(Q1 FY26)

    REGAL REXNORD Q1 FY26 earnings call RRX

    May 7, 2026 Source

    Executive summary

    Regal Rexnord Q1 FY26 — Strong Orders and Data Center Momentum Amidst CEO Transition

    Regal Rexnord delivered solid Q1 FY26 results, exceeding enterprise guidance, marked by strong order growth across segments, particularly in Automation & Motion Control. The company is undergoing a CEO transition, with Aamir Paul set to succeed Louis Pinkham. Despite positive demand trends and strategic investments paying off, margin pressure from mix shifts (OEM vs. aftermarket) and geopolitical uncertainties led to a measured full-year outlook, though management sees potential for upside.

    Highlights

    5

    • Enterprise orders on a daily basis were up 8.5% versus prior year, leading to a 6.7% rise in backlog compared to Q4.

    • AMC segment sales grew 12.1% organically, driven by data center, discrete automation, and food & beverage.

    • AMC orders were up 34% in Q1, with book-to-bill at 1.24, and continued strength into April (up 14%).

    • IPS sales grew 2.8% organically, ahead of expectations, with short-cycle OEM orders up almost 9%.

    • PES adjusted EBITDA margin was 15.8%, above guidance range and up 160 bps YoY, despite challenging end markets.

    Concerns

    5

    • Adjusted EBITDA margin was 20.6%, down 120 basis points versus prior year, reflecting mix headwinds and higher growth investments.

    • AMC adjusted EBITDA margin was 18.2%, roughly 2 points below expectation due to mix pressure (OEM vs. aftermarket) and project timing.

    • PES sales were down 10.3% organically, with residential HVAC down over 20% as expected.

    • Full-year adjusted EBITDA margin forecast lowered modestly to 22.2% (from prior guidance) due to weaker assumed short-cycle mix.

    • Tariff impact estimate lowered to $127 million from $155 million, but still a headwind, with no IEEPA refunds received yet.

    Guidance & targets

    18
    CategoryTargetConfidence
    Full-year 2026 Adjusted EPS
    $10.20 to $11.00
    high materiality
    Medium
    Full-year 2026 Adjusted Free Cash Flow
    $650 million
    high materiality
    Medium
    Full-year 2026 Sales Growth
    roughly 4.5%
    high materiality
    Medium
    Full-year 2026 Adjusted EBITDA Margin
    22.2%
    high materiality
    Medium
    Full-year 2026 AMC Sales Growth
    high single digits
    medium materiality
    Medium
    Full-year 2026 AMC Adjusted EBITDA Margin
    approximately 20.5% (midpoint)
    medium materiality
    Medium
    Full-year 2026 IPS Sales Growth
    mid-single digits
    medium materiality
    Medium
    Full-year 2026 IPS Adjusted EBITDA Margin
    midpoint down 50 basis points
    medium materiality
    Medium
    Full-year 2026 PES Sales Growth
    flat to low single-digit growth
    medium materiality
    Medium
    Full-year 2026 Residential HVAC Volumes
    down mid-single digits
    medium materiality
    Medium
    Full-year 2026 PES Adjusted EBITDA Margin
    slightly lowered midpoint
    medium materiality
    Medium
    Tariff Impact (unmitigated annual)
    $127 million
    medium materiality
    High
    Tariff Cost Neutrality
    dollar cost neutral
    medium materiality
    High
    Tariff Margin Neutrality
    margin neutral
    medium materiality
    High
    Cross-sell target
    $250 million plus
    low materiality
    High
    Data Center Sales (ePOD)
    $700 million
    high materiality
    Medium
    Data Center Sales (Switchgear)
    $240 million
    high materiality
    Medium
    Data Center Sales (Total)
    $900 million plus
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Automation & Motion Control (AMC)
    Sales above expectations, reflecting broad-based strength in data center, discrete automation, and food & beverage. Adjusted EBITDA margin below expectation due to mix pressure (OEM vs. aftermarket) and project timing in industrial automation software. Strong order momentum continued into April.
    Orders growth: 34%Orders growth (excluding data center): 28%Aerospace and defense orders: up 76%Medical orders: up 53%Discrete automation orders: up 18%Book-to-bill: 1.24April orders daily basis: up 14%
    		—12.1%—18.2%
    Industrial Powertrain Solutions (IPS)
    Sales ahead of expectations, with broad-based growth and particular strength in general industrial markets. Adjusted EBITDA margin within guidance range, but down YoY due to tariff price cost, higher growth investments, and unfavorable mix. Order decline driven by large project timing in mining, offset by short-cycle OEM and distribution strength.
    Orders daily basis: down 1.4%Short-cycle OEM orders: up almost 9%Distribution orders: up low single digitsProject orders: down low teensBook-to-bill: 1.09April orders daily basis: up about 2%
    		—2.8%—25%
    Power Efficiency Solutions (PES)
    Sales in line with expectations, with residential HVAC down significantly. Adjusted EBITDA margin above guidance range and up 160 bps YoY, largely due to positive mix benefits despite challenging end markets. Orders exceeded expectations on stronger performance in residential distribution and commercial HVAC.
    Residential HVAC sales: down over 20%Orders daily basis: down 60 basis pointsBook-to-bill: 1.13April orders daily basis: up slightly
    		—-10.3%—15.8%

    Operational metrics

    17
    Adjusted Gross Margin
    37.7%roughly in line with prior year
    Q1 FY26

    Teams overcame headwinds from mix, inflation, tariffs, and rare earth magnets with solid execution on price realization, productivity, and synergies.

    Adjusted EBITDA Margin
    20.6%down 120 basis points versus prior year
    Q1 FY26

    Reflects relative stability in gross margin, volume leverage, and disciplined cost management, net of higher strategic growth investments.

    Adjusted EPS
    $2.17up roughly 1% over the same period last year
    Q1 FY26

    Achieved despite significant year-over-year headwinds including tariffs, rare earth magnet availability, and inflation, with continued benefit from cost synergies.

    Enterprise Orders Growth
    8.5%versus prior year (daily basis)
    Q1 FY26

    Resulted in backlog rising 6.7% compared to the fourth quarter, showing improving end markets and growth investments paying off.

    Enterprise Orders Growth
    4.6%on a daily basis
    April

    Continued strength and positive orders across all segments following a strong first quarter.

    AMC Adjusted EBITDA Margin Expectation (Longer Term)
    mid-20s
    Longer Term

    Target for where AMC should operate, though current investments may initially keep margins slightly below this.

    ePOD Adjusted EBITDA Margins
    20% plus
    Future

    Targeted margins for ePODs, expected to make meaningful contributions to EBITDA and earnings growth in future quarters with high volumes.

    Tariff Impact (Rare Earth)
    30headwind
    Q1 FY26

    Headwind related to rare earth magnet supply issues.

    Mix Impact on EBITDA
    just north of 100impact
    Q1 FY26

    Related to short-cycle weighting towards OEM versus aftermarket sales.

    Automation Software Sales Slip Impact
    50headwind
    Q1 FY26

    Due to high-margin automation software sales slipping from Q1 to Q2.

    Tariff Price Cost Timing Impact
    50headwind
    Q1 FY26

    Timing of tariff price cost, expected to resolve in Q2.

    OEM vs Aftermarket Margin Differential
    10-20
    Ongoing

    Aftermarket margins are 10-20 points higher than OEM margins, but OEM drives the installed base for long-term aftermarket revenue.

    Cross-sell Increase
    34%increase
    Q1 FY26

    Reflects strength of Regal Rexnord's scale and scope, leveraging cross-sell to accelerate growth.

    Cross-sell Funnel Growth
    18%growth
    Q1 FY26

    Indicates continued progress towards cross-sell targets.

    Middle East Revenue Exposure
    less than 1%
    Ongoing

    Low exposure to the Middle East region.

    Oil and Gas Revenue Share
    a couple of percent
    Ongoing

    Oil and gas represents a small portion of total revenue, but is seeing significant strength.

    Tariff Capitalization Impact
    $3 million-$4 million
    Q4 FY26

    Expected tariff impact coming through inventory capitalization in Q4, with no significant impact in Q2.

    Industry KPIs

    4
    MetricValueDetails
    Book to bill ratio1.24
    Orders bookings growth8.5%%
    Backlog by segment end marketup 6.7%%
    Data center exposure pipeline$180 millionUSD

    Orderbook & backlog

    5
    Enterprise Backlogup 6.7%Q1 FY26

    compared to Q4

    AMC Book-to-bill1.24Q1 FY26
    IPS Book-to-bill1.09Q1 FY26
    PES Book-to-bill1.13Q1 FY26
    ePOD Backlogmajority will shipQ1 FY26

    Expected to ship by 2027

    Capital programs

    2
    Canada Facility Expansioncompleted

    Benefit: producing switchgear

    Already using the operation and producing switchgear through the facility.

    Texas Facility Expansionunderway

    Benefit: capacity expansion for data center demand

    Well on path, material coming in, ERP up and running, well suited for capacity expansion.

    Risks & headwinds

    6
    Mix shift towards OEM salesQ1 FY26 and expected to continue through FY26

    100+ bps impact to AMC EBITDA in Q1; 10-20 point margin differential vs. aftermarket

    Mitigation: Long-term strategy to drive installed base for higher-margin aftermarket revenue; backlog profile supports stronger margins in H2.

    Higher-than-anticipated inflationQ1 FY26

    Unquantified, but contributed to gross margin headwinds

    Mitigation: Solid execution on price realization and productivity.

    Tariffs (unmitigated impact)FY26

    $127 million annual impact (revised from $155 million); 50 bps headwind in AMC in Q1 due to timing

    Mitigation: Expect to be dollar cost neutral by mid-2026 and margin neutral by end of 2026; revisions to 232 tariffs creating new share gain opportunities for PES.

    Rare earth magnet supply constraintsQ1 FY26, ongoing for 4 quarters

    30 bps headwind in AMC in Q1

    Mitigation: Expected to be past the issue by H2 FY26.

    Project timing in industrial automation softwareQ1 FY26

    50 bps headwind in AMC in Q1

    Mitigation: Majority of deferred shipments expected in Q2.

    Geopolitical and macro uncertaintiesFY26

    Unquantified, but cited as reason for measured outlook

    Mitigation: Maintaining a measured outlook, but confident in guide due to un-embedded synergies and potential for ePOD/IEEPA refunds.

    What to watch in Q2 FY26

    5

    AMC Adjusted EBITDA Margin

    Q2 FY26
    Current18.2%
    TargetSequential improvement

    Why it matters

    Verifying the expected sequential improvement in AMC margins will indicate if mix headwinds are alleviating and if tariff/rare earth issues are resolving as planned.

    In AMC, we expect sales to be modestly higher sequentially, consistent with AMC's strong orders and its shippable backlog. AMC margins should also improve sequentially on slightly better mix and less tariff price cost pressure.

    Q&A highlights

    5

    Can you elaborate on the conservatism in the guidance, particularly regarding daily order rates, mix, tariffs, and synergies, and confirm if there's upside potential?

    Management confirmed conservatism is primarily due to mix (OEM vs. aftermarket) and geopolitical uncertainties. They expect potential upside from a more historical mix, current backlog profile, un-embedded cost synergies, potential ePOD shipments in Q4, and IEEPA refunds.

    “The reason is because we don't have the cost synergies embedded for the rest of the year. We have potential for ePOD shipments coming into 2026 that have not been embedded in our guidance today. But if it does come in, it's a fourth quarter event, and the potential for IEEPA refunds, which, as I said, we don't have embedded because we haven't received any yet, but that could also be something that helps us either achieve or exceed the guidance that we've put out there today.”

    asked by Michael Halloran · answered by Robert Rehard

    2 min read6 chapters

    Detailed Narrative

    01

    CEO Succession and Leadership Transition

    Regal Rexnord announced Aamir Paul as the successor to Louis Pinkham, effective no later than July 1. Paul joins from Schneider Electric, bringing experience in data center and discrete automation. The board highlighted his commercial acumen and focus on innovation as key strengths. Louis Pinkham expressed pride in the company's transformation during his 7-year tenure, positioning it for future growth.

    02

    Strong Order Momentum and Backlog Growth

    The company reported an 8.5% increase in daily orders year-over-year in Q1, leading to a 6.7% rise in backlog compared to the prior quarter. This strength continued into April, with daily orders up 4.6%. The positive order trends are attributed to improving end markets and successful growth investments, particularly in AMC, which saw orders up 34% with a book-to-bill of 1.24.

    03

    Data Center Strategy and Capacity Expansion

    Regal Rexnord remains bullish on the data center market, with significant orders growth and an expectation of $180 million in data center sales (excluding ePOD) for FY26. The company is expanding capacity with a new Texas facility expected to be producing by midyear, complementing the already operational Canada facility for switchgear. For FY27, data center sales are projected to exceed $900 million, including approximately $700 million from ePODs and $240 million from switchgear.

    04

    Margin Headwinds and Outlook

    Adjusted EBITDA margin for Q1 was 20.6%, down 120 basis points year-over-year, primarily due to mix shifts towards lower-margin OEM sales, higher growth investments, and tariff/rare earth magnet impacts. The full-year adjusted EBITDA margin forecast was modestly lowered to 22.2% due to the anticipated continuation of this mix. However, management expects sequential margin improvement in the remaining quarters, driven by backlog profile and resolution of rare earth magnet and tariff issues.

    05

    Tariff Impact and Mitigation

    The estimated unmitigated annual tariff impact🌐 for 2026 was lowered to $127 million from $155 million, reflecting changes in Section 122 and 232 tariffs. The company anticipates achieving dollar cost neutrality by mid-2026 and margin neutrality by year-end. Revisions to Section 232 tariffs are creating new share gain opportunities for the PES business, as OEM customers seek U.S.-sourced metal content for lower tariff rates on imported finished goods.

    06

    Cross-Sell Initiatives and Synergies

    Cross-sell initiatives continue to be a strategic focus, with a 34% increase in cross-sell in Q1 FY26 and an 18% growth in the cross-sell funnel. The company expects to exceed its $250 million cross-sell target a year early. Cost synergies are not embedded in the current guidance, providing a potential derisking factor and upside opportunity for the forecast.

    AI-generated summary of the company’s earnings call. Not investment advice.