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    RRX
    Earnings call· Jun 2026(Q2 FY26)

    REGAL REXNORD Q2 FY26 earnings call RRX

    Aug 5, 2026 Source

    Executive summary

    Regal Rexnord Q2 FY26 — Strong Orders and Deleveraging Amidst Price/Cost Headwinds

    New CEO Aamir Paul outlined initial impressions and priorities, while Q2 FY26 saw strong order momentum, particularly in Automation and Motion Control (AMC), and continued progress on deleveraging. However, the company adjusted its full-year margin and cash flow guidance due to a lag in price realization against inflation, slower productivity gains prioritizing service levels, and mix impacts, especially in Power Efficiency Solutions (PES).

    Highlights

    5

    • Enterprise orders on a daily basis were up 8.8% versus the prior year, or 8.1% excluding data center.

    • Automation and Motion Control (AMC) orders were a standout positive, up 17.1% versus the prior year period, and up 15% excluding data center.

    • Adjusted free cash flow was $154 million in the quarter, a nice sequential improvement.

    • Net debt leverage is expected to be below 3x in the second half of FY26, an important deleveraging milestone.

    • AMC organic sales were up over 15% versus the prior year, driven by strong execution and secular markets.

    Concerns

    5

    • Adjusted EPS for the quarter was $2.60 excluding the benefit from IEEPA tariff refunds, representing 5% adjusted earnings growth.

    • Adjusted EBITDA margin forecast for FY26 (excluding refunds) was lowered to 21.3% from prior guidance.

    • Full-year 2026 cash flow guidance was lowered by $50 million to $600 million, primarily due to incremental working capital investments for improved order strength.

    • Power Efficiency Solutions (PES) organic sales were down 6.6% versus the prior year, primarily driven by weakness in residential HVAC and pool.

    • Industrial Powertrain Solutions (IPS) annual sales growth guidance was lowered to low single digits from mid-single digits, reflecting a weaker outlook for large projects.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year 2026 Sales Growth
    4.5%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    22.1%
    high materiality
    Medium
    Full-year 2026 Adjusted EPS
    $10.35 to $10.85
    high materiality
    High
    Full-year 2026 Cash Flow
    $600 million
    high materiality
    Medium
    Net Debt Leverage
    below 3x
    high materiality
    High
    AMC Annual Sales Growth
    low double digits
    medium materiality
    High
    IPS Annual Sales Growth
    low single digits
    medium materiality
    Medium
    PES Annual Sales Growth
    flat to low single-digit decline
    medium materiality
    Medium
    IPS Shippable Backlog for 2027
    up over 20%
    medium materiality
    High
    Data Center Switchgear Sales
    $180 million
    medium materiality
    High
    Data Center Switchgear Sales
    $240 million to $250 million
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Automation and Motion Control (AMC)
    Performance reflects broad-based strength, especially in data center, discrete automation, and aerospace and defense. Margin improvement mainly reflects higher volumes, partially offset by growth investments. Strong order performance is supporting healthy top line growth, with nearly half of order growth reflecting longer-cycle projects for 2027/2028.
    Adjusted EBITDA margin excluding refunds: 19.9%Adjusted EBITDA margin change YoY: up 40 bpsOrders daily YoY: up 17.1%Orders daily YoY (excluding data center): up 15%Book-to-bill: 1.02July orders daily YoY: up 7.4%H1 daily orders YoY: up over 25%
    		—15.6% organic—21.1% adjusted EBITDA
    Industrial Powertrain Solutions (IPS)
    Growth led by the energy market (including power gen) benefiting from data center demand. Weakness in machinery off-highway (ag market). Margins were down due to product mix, growth investments, and higher inflation. Recent large project momentum has improved, with benefits likely in 2027.
    Adjusted EBITDA margin excluding refunds: 25.9%Orders daily YoY: up 6.7%Distributor channel orders: up 8%Short-cycle OEM orders: up 4% (6% H1)Large project orders: up 8%Book-to-bill: 1.06July orders daily YoY: up 7.7%
    		—2% organic—27.1% adjusted EBITDA
    Power Efficiency Solutions (PES)
    Decline driven by weakness in residential HVAC and pool markets, with lingering excess channel inventories. Commercial HVAC remains strong, aided by data center construction and regional outgrowth initiatives. Margins reflect weaker performance in residential HVAC aftermarket and underperformance in pool distribution.
    Adjusted EBITDA margin excluding refunds: 16.2%Orders daily YoY: up 3.5%Book-to-bill: 1.0July orders daily YoY: up 5.4%
    		—down 6.6% organic—20.5% adjusted EBITDA

    Operational metrics

    18
    Enterprise Orders Growth
    8.8%YoY
    Q2 FY26

    Overall enterprise order growth for the quarter.

    Enterprise Orders Growth
    7%YoY
    July

    Order growth for the month of July.

    Enterprise Sales Growth
    4.2%YoY
    Q2 FY26

    Overall enterprise sales growth for the quarter.

    Adjusted Gross Margin
    39.8%
    Q2 FY26

    Reported adjusted gross margin for the quarter.

    Adjusted EBITDA Margin
    23.5%
    Q2 FY26

    Reported adjusted EBITDA margin for the quarter.

    Adjusted EPS
    $2.99
    Q2 FY26

    Adjusted earnings per share for the quarter.

    IEEPA Tariff Refunds
    $32 million
    Q2 FY26

    Amount of refunds recorded in the second quarter.

    IEEPA Tariff Refunds
    $48 million
    FY26

    Total expected refund benefits to EBITDA for the full year.

    Adjusted Effective Tax Rate
    lower
    FY26

    Primarily resulting from the regional mix of earnings in Q2 and benefits from tax planning strategies.

    Net Debt Leverage
    below 3x
    H2 FY26

    Expected achievement in the second half of the year, marking an important milestone in the deleveraging journey.

    Rare Earth Magnet Availability
    —
    Q3 FY26

    Primary risk is not being able to service additional demand for defense applications, less an implication on current backlog.

    IPS Short-Cycle OEM Sales Growth
    mid-single digits
    Q2 FY26

    Consistent with favorable ISM data.

    IPS Distribution Channel Sales Growth
    low single digits
    Q2 FY26

    Sales growth in the distribution channel.

    PES Commercial HVAC Business
    strong and gaining momentum
    Q2 FY26

    Aided significantly by data center construction and continued demand in Asia, along with regional outgrowth initiatives.

    PES Residential HVAC and Pool Markets
    weak
    Q2 FY26

    Due to a soft housing market, low consumer confidence, and lingering pockets of excess channel inventories.

    Section 232 Tariffs Impact
    —
    Q2 FY26

    Experienced incremental friction related to changes, as some OEMs appeared to delay orders and production decisions.

    Section 301 Tariffs Impact
    minimal
    FY26

    Transition from Section 122 to announced Section 301 tariffs is minimal and factored into guidance.

    IPS Shippable Backlog Growth
    up over 20%vs prior year
    FY27

    An early positive sign for 2027, driven by recent large project strength.

    Industry KPIs

    3
    MetricValueDetails
    Book to bill ratio1.02
    Orders bookings growth8.8%%
    Data center exposure pipeline—

    Capital programs

    1
    ePod Facility Rampunderway

    The new facility is on schedule, infrastructure is nearly complete, leadership team has been hired, and direct labor is ramping up. It is on track to be operational to support customer production schedules.

    Risks & headwinds

    7
    Higher-than-anticipated inflationH2 FY26

    higher material, freight and energy costs

    Mitigation: Implementing price increases and surcharges; continued execution of price/cost discipline.

    Lag in price realization relative to inflationH2 FY26

    modest headwinds

    Mitigation: Scheduled price increases and working with channel partners to ensure flow-through, but acknowledging a timing lag.

    Longer timeline to realize planned productivity gainsnear-term

    slowing productivity actions

    Mitigation: Prioritizing service levels and growth, particularly in AMC, to ensure customer satisfaction and support growth trajectory.

    Weakness in residential HVAC and pool marketsQ2 FY26, ongoing

    PES organic sales down 6.6%

    Mitigation: Offset by stronger commercial HVAC market and regional outgrowth initiatives.

    Incremental friction from Section 232 tariffsQ2 FY26

    OEMs delaying orders and production decisions

    Mitigation: Monitoring the rapidly evolving situation; Section 301 tariffs impact is minimal and factored into guidance.

    IPS large projects business rolling offFY26

    lowering annual sales growth guidance to low single digits

    Mitigation: Recent large project momentum has improved, with benefits likely to accrue in 2027, supported by increased shippable backlog.

    Rare earth magnet availability for defense applicationsongoing

    progress for approvals remains slow

    Mitigation: Sourcing and mitigation actions are progressing for commercial uses; primary risk is not being able to service additional demand for defense, rather than impacting current backlog.

    What to watch in Q3 FY26

    5

    AMC Margin Expansion

    next year
    Current21.1% adjusted EBITDA margin in Q2 FY26
    Targetfurther margin expansion

    Why it matters

    Indicates segment profitability improvement and overall company margin trajectory.

    Notably, AMC's adjusted EBITDA margin improved this quarter and has room for further improvement, especially in the fourth quarter, which I will discuss in more detail later in the presentation. We expect further margin expansion in AMC as we move through next year, but we are not providing any further guidance in that regard at this time.

    Q&A highlights

    5

    When do you expect order and revenue numbers to start converging, given strong order trends but lagging revenue, especially with longer-cycle projects for 2027?

    Orders are very strong, with July showing continued strength. Lagging revenue is due to timing issues in IPS large projects (mining) and market-driven noise in PES, both expected to improve in 2027. AMC's strong orders are supporting top-line growth, with some longer-cycle projects benefiting 2027/2028. No visible obstacles beyond macro trends.

    “As I said on the call, we have about 20% higher shippable backlog in '27 at this time versus what we would have had at the same time last year. So that gives us quite a bit of confidence as we move into the back half of this year and move into '27.”

    asked by Michael Halloran · answered by Robert Rehard

    2 min read6 chapters

    Detailed Narrative

    01

    CEO's Initial Impressions and Priorities

    New CEO Aamir Paul, who joined on July 1, shared his initial impressions after 5 weeks, highlighting the strength of the team, robust channel and customer relationships, and the company's strong franchise with trusted brands and a large installed base. His immediate priorities involve extensive listening and learning from teams, customers, channel partners, and investors to better understand the business and customer needs. He emphasized the importance of building relationships and understanding operations as the company continues its integration efforts.

    02

    Data Center Opportunity and Strategy

    Regal Rexnord sees significant opportunities in the data center market, driven by the critical need for accelerated time-to-power and modular delivery solutions. The company is leveraging its long-standing customer relationships in Thompson Power, which invited Regal to enter the ePod business due to dissatisfaction with existing quality and delivery. The strategy is to scale with current customers, assess profitability after initial deliveries, and then potentially expand to other market opportunities, while also exploring air moving elements from PES for modular solutions.

    03

    Price/Cost Dynamics and Inflation

    The company is experiencing higher material, freight, and energy costs across all segments, leading to expected modest price/cost headwinds in the second half of the year. Management acknowledges a lag in price realization, where inflation impacts are immediate, but price increases take time to flow through to sell-out numbers. Regal Rexnord is implementing scheduled price increases and surcharges to mitigate these pressures, aiming to restore reasonable margins, but expects to remain somewhat behind on price/cost in the near term.

    04

    Productivity vs. Service Levels

    Regal Rexnord has made a strategic decision to slow down some planned productivity actions, particularly within the AMC segment, to prioritize maintaining high service levels. This choice was made to ensure customer satisfaction and support the strong order growth the company is experiencing, even if it means delaying some cost savings. Management clarified that this is not due to declining service levels but rather a proactive measure to protect them amidst increased demand and growth initiatives.

    05

    ePod Production and Outlook

    The new ePod facility is progressing on schedule, with infrastructure nearing completion and direct labor being ramped up, positioning it to be operational in time to support customer production schedules. The company expects to record $15 million in ePod sales in Q4 FY26. Management reiterated its prior projection of approximately 20% margin for the ePod business and anticipates providing further updates on the cadence of ePod revenues as more clarity emerges.

    06

    IPS Project Timing and Recovery

    The Industrial Powertrain Solutions (IPS) segment is facing a temporary 'air pocket' in its large projects business for FY26, primarily due to prior-year metals and mining projects rolling off. However, recent large project momentum has improved, with benefits expected to accrue in FY27. This is supported by IPS's shippable backlog for 2027 being up over 20% compared to the 2026 shippable backlog at the same time last year, signaling a strong recovery for the segment in the coming year.

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