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Regal Rexnord (RRX) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Industrials· May 7, 2026

Source: earnings call transcript

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

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

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%

RRX operating KPIs by quarter

RRX operating KPIs stated on its earnings calls, by fiscal quarter
KPIThis call Mar 2026 Q1 FY26 Jun 2026 Q2 FY26Change vs prior quarter
Employees
30K So before continuing, I want to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, in particular, around achieving market share gains and executing strategic investments to support future growth. Source: earnings call transcript
30K Our team delivered solid second quarter performance, and I want to begin by thanking our 30,000 Regal Rexnord associates for their hard work and disciplined execution. Source: earnings call transcript
0%
Book-to-bill ratio AMC
1.24 ratio Book-to-bill in the first quarter for AMC was 1.24. Source: earnings call transcript
1.02 ratio Book-to-bill in the second quarter for AMC was 1.02. Source: earnings call transcript
-17.7%
Book-to-bill ratio IPS
1.09 ratio Book-to-bill in the first quarter for IPS was 1.09. Source: earnings call transcript
1.06 ratio Book-to-bill in the second quarter for IPS was $1.06. Source: earnings call transcript
-2.8%
Book-to-bill ratio PES
1.13 ratio Book-to-bill in the quarter for PES was 1.13. Source: earnings call transcript
1 ratio Book-to-bill in the quarter for PES was 1.0. Source: earnings call transcript
-11.5%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Enterprise Backlog up 6.7% Q1 FY26

compared to Q4

AMC Book-to-bill 1.24 Q1 FY26
IPS Book-to-bill 1.09 Q1 FY26
PES Book-to-bill 1.13 Q1 FY26
ePOD Backlog majority will ship Q1 FY26

Expected to ship by 2027

Capital programs

Canada Facility Expansion completed

Benefit:producing switchgear

Already using the operation and producing switchgear through the facility.

Texas Facility Expansion underway

Benefit:capacity expansion for data center demand

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

Risks & headwinds

Mix shift towards OEM sales Q1 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 inflation Q1 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 constraints Q1 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 software Q1 FY26

50 bps headwind in AMC in Q1

Mitigation:Majority of deferred shipments expected in Q2.

Geopolitical and macro uncertainties FY26

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

AMC Adjusted EBITDA Margin

Q2 FY26
Current 18.2%
Target Sequential 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.

Find out whether RRX delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.