REGAL REXNORD CORP Q1 FY2025 earnings call

• Began 2025 cautiously optimistic with improving growth prospects, saw further orders growth and segments outperformed targets. Reaffirmed earnings guidance. Discussed tariffs, with mitigation plans to neutralize 2025 EBITDA and earnings impact, aiming for EBITDA margin neutrality in first half of 2026. Highlighted humanoid robot market opportunities, with deep domain expertise, core competencies in product engineering, quality, reliability, and integrated solutions. Secured recent wins in humanoid space with over $20 million in sales annually ramping over 12-18 months, and a $100 million funnel of opportunities. Mentioned sales growth in various segments, margin expansion, and strong free cash flow generation with $86 million generated in first quarter, paying down $164 million of debt.

Automation & Motion Control (AMC)

• Net sales up 40 basis points on an organic basis vs prior year period, above expectations. Strength in Aerospace & Defense and return to growth in discrete automation (up 12% vs prior year). Adjusted EBITDA margin 21.8%, almost 2 points above expectations. Orders down 3% daily excluding FX, but up 2% excluding data center. Book-to-bill 1.02.

Industrial Powertrain Solutions (IPS)

• Net sales down 3.4% organic vs prior year, decline in machinery/off-highway but strength in energy. Adjusted EBITDA margin 26.9%, 90 basis points above expectations. Orders up nearly 9% daily excluding FX. Book-to-bill 1.13.

Power Efficiency Solutions (PES)

• Net sales up 8% organic vs prior year, strength in Residential HVAC. Adjusted EBITDA margin 14.2%, above expectations. Orders up just over 1% daily excluding FX. Book-to-bill 1.02

• Reaffirmed 2025 guidance including sales, organic growth, adjusted EBITDA margin, and adjusted earnings per share range of $9.60 to $10.40. PES sales guide moved from down low single digits to approximately flat. Expect second half margin step-up, primarily in AMC due to mix and volume. Confident in hitting full year synergy target of $54 million, with $18 million realized in first quarter. Tariffs expected to be neutral on 2025 adjusted EBITDA and earnings per share, with margin neutrality by mid-2026.

• Tariff-related uncertainty impacting macro outlook and demand. Potential for weaker demand due to softer macro environment and elasticity in response to higher prices. Volatility in tariff dynamics making it early to see clear signs of spending impact.

Q: Talk through long cycle vs short cycle dynamics and second half long-cycle project expectations A: Louis mentioned good momentum on longer-cycle projects, especially in IPS, with orders up roughly 9% in quarter and strong in April. Short-cycle business stable. Expect second half to be up only about 1%, with backlog for second half in IPS up high single digits and AMC up low double digits.

Q: Competitive position and sourcing A: Louis stated confident in net advantaged position due to global manufacturing footprint and dual country sourcing, seeing share opportunity due to footprint in AMC.

Q: EBITDA margin outlook, drivers, and tariff impact on margins A: Rob mentioned margin step-up in back half primarily in AMC due to mix and volume. Tariffs will be capitalized, with some slight impact but likely benefit as pricing is embedded and tariff is capitalized over time.

Q: PES revenue outlook and conservatism A: Louis said pleased with first quarter performance but cautious on assuming strength passes through year due to macro factors, expecting second half slightly down.

Q: Tariff mitigation breakdown and margin questions A: Louis said supply base realignments are major driver, followed by production relocations and productivity actions, then price. IPS margin step down largely mix, PES margin lift due to Q1 performance flow-through and cost savings.

Q: Orders in segments, prebuy, and synergies A: Louis said IPS orders mostly longer cycle, not prebuy driven. Rob stated $18 million synergies in quarter in line with expectations, still on track for $54 million full year synergy target with no tariff impact.

Q: IPS margins, mix, and share opportunity related to tariffs A: Rob said IPS Q1 to Q2 margin change largely mix. Louis said negotiating with customers ongoing, positioned in-region for-region, giving preferred position in businesses.

Q: Humanoid opportunity funnel and sourcing A: Louis said $100 million funnel is global, with recent wins not mostly Chinese-based, North American centric.