Regal Rexnord Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Louis Pinkham discussed succession plans, third quarter performance (+2% sales, +10% orders), and strong data center momentum (e-Pods bid pipeline over $400M).
• Robert Rehard detailed segment performances, tariff impacts, rare earth magnet challenges, and updated guidance. Emphasized data center growth in AMC, project orders in IPS, and growth in new markets for PES.
• Highlighted investment in data center capacity expansion and strong team execution despite external headwinds.

Segment Performance

• Automation & Motion Control (AMC): Sales down 1% organically vs prior year; adjusted EBITDA margin 20.5% (lower end of guidance range); orders up 31.7% daily; backlog up 6% vs prior year; significant data center orders.
• Industrial Powertrain Solutions (IPS): Sales up 1.6% organically vs prior year; adjusted EBITDA margin 26.4% (50 basis points below expectation); orders up 2.3% daily; backlog up 5% year-over-year.
• Power Efficiency Solutions (PES): Sales up ~1% organically vs prior year; adjusted EBITDA margin 19% (above expectation); orders up 1.7% daily; growth in new secular markets like semicon and data center.

Guidance

• Adjusted EPS guidance narrowed to $9.50-$9.80; sales guidance rising due to data center wins and tariff pricing.
• Adjusted EBITDA margin expected 22% (lower than prior 22.5% due to tariffs and rare earths).
• Free cash flow expected $625M in 2025, ~$900M in 2026; margin neutrality on tariffs expected by end of 2026; net debt leverage expected ~2.5x by end of 2026.

Risks

• Tariffs announced in August impacting sales and margins.
• Sourcing challenges for rare earth magnets limiting shipments of certain products.
• Macro and tariff-related uncertainties affecting market expectations.

Q: Michael Halloran asked about sequential performance, data center roll-in, and PES segments.

A: Louis Pinkham responded on PES resi-HVAC breakdown, data center timing, and IPS project backlog.

Q: Julian Mitchell inquired about data center revenue percentage and operating leverage.

A: Louis Pinkham and Robert Rehard discussed data center revenue contribution (~3% of total) and phasing of margin leverage.

Q: Jeffrey Hammond asked about margin dynamics, rare earths, and furnace growth.

A: Robert Rehard and Louis Pinkham addressed rare earth resolution timeline, tariff impact on pricing, and furnace growth due to share gains.

Q: Kyle Menges questioned data center pipeline and win rate.

A: Louis Pinkham discussed data center pipeline composition and investment in commercial teams.

Q: Operator asked about free cash flow and deleveraging.

A: Robert Rehard provided insights on free cash flow expectations and deleveraging plans.

Q: Tomo Sano asked about CEO succession process.

A: Rakesh Sachdev outlined external search process and focus on smooth transition.

Q: Nigel Coe asked about candidate profile and data center facility timelines.

A: Rakesh Sachdev and Louis Pinkham discussed search scope and facility timeline (product flow Q1 2026, shipping Q2).

Q: Christopher Glynn asked about discrete automation orders and eVTOL.

A: Louis Pinkham commented on discrete automation order characteristics and eVTOL order status