Regal Rexnord Q2 2026 Earnings Call: Complete Transcript

Regal Rexnord (NYSE: RRX ) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

2% year-over-year, driven by notable strength in Data Center, commercial HVAC, and discrete automation markets. 5%. 60, despite challenges in the residential HVAC and pool markets. Strategic focus is on maintaining high service levels amid growth, completing integration efforts, and capitalizing on opportunities in emerging markets like data centers and robotics.

CEO Aamir Paul highlighted the company's strong channel positions and manufacturing scale, with plans to focus on listening, learning, and building relationships with customers and investors. Full Transcript OPERATOR Good morning and welcome to the Regal Rexnord second quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to turn the conference over to Robert Berry, Vice President of Investor Relations. Please go ahead. Robert Berry, Vice President of Investor Relations Thank you, operator. Good morning and welcome to Regal Rexnord's second quarter 2026 earnings conference call.

Joining me today are Aamir Paul, our Chief Executive Officer, and Rob Rehard, our Chief Financial Officer. I'd like to remind you that during today's call you may hear forward-looking statements related to our future financial results, plans, and business operations. com website. Also on this slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials.

Turning to Slide 3, let me briefly review the agenda for today's call. Please note that given Aamir's tenure with the company began on July 1, after the conclusion of our second quarter, we are going to modify our typical approach to the call. Aamir will lead off with some introductory comments. Rob will then provide an overview of our second quarter performance at the enterprise level, review our second quarter financial results in more detail by segment, and conclude by discussing our updated 2026 guidance.

We will then move to Q&A, after which the call will conclude, and with that I'll turn it over to Aamir. Aamir Paul, CEO Thanks, Rob, and good morning, everyone. Thank you for joining us to discuss our second quarter results. We appreciate your interest in Regal Rexnord.

I'm honored and excited to be Regal Rexnord's sixth CEO in our 71-year history, and I want to thank the Board for entrusting me with the responsibility of leading this exceptional company. I'd also like to thank my predecessor, Louis Pinkham. Given this is my first call, I thought I'd begin by sharing a bit about my background, why I decided to join, and how I've spent my time over the past five weeks. I'll conclude with a few initial observations, so starting with my background, I'm a chemical engineer by training.

Professionally, I began my career at Dell Technologies where I spent 13 years split equally between Austin and London. My time at Dell was mostly in sales and marketing roles, including the transition to an omnichannel go-to-market. S. business, leading sales and operations, and with the last four leading North American operations as a member of the Global Executive Committee.

These experiences included global and local roles. They span sales, strategy, operations, and business leadership. I have worked with customers and partners in markets that include data centers, energy technology, discrete and process automation, as well as lifecycle services. I came to Regal Rexnord because I see tremendous opportunities across the company's portfolio, strong channel positions, manufacturing scale, and healthy balance sheet.

This gives us the ability to address customer needs in a range of very attractive end markets. Regal Rexnord today is a highly capable provider of foundational components that are critical in a wide variety of applications. Some of these are tried and true such as factory automation, aerospace and defense, and air moving, and some are emergent and exciting like robotics and eVTOL. It's also great to see our participation in the data center space, and I'm spending time with our teams there to explore our solution roadmap and understand our customer pipeline.

Overall, our broad exposure across attractive end markets is exciting as we continue to build for the future. Now, since joining the company on July 1, my primary focus has been listening and learning, and this will continue to be my focus in the coming months as I interact with our teams, our customers, channel and supply chain partners, and our investors. Specifically to our investors and analysts, I look forward to spending time with you and understanding your perspectives. I want to thank you in advance for your patience as I balance relationship building with better understanding of our business and customers' needs.

While I've only been on the job for five weeks, I want to share some early impressions. First is the strength of the team. I've been repeatedly impressed with their knowledge of our products, their commitment to serving our customers, and their pride in being part of Regal Rexnord. While we have work to finish on integration, we are increasingly engaging as one team to better serve our customers.

Second is around our channel and customer relationships. In the first few conversations, it's clear that we have strong partnerships and trust that has been built over time. We will continue to raise the bar on how we execute to keep earning that trust every day. And finally, the strength of the franchise.

We have great technology, trusted brands, a large installed base of products that support attractive aftermarket sales. Couple this with high-quality manufacturing and a culture of continuous improvement, and you have a foundation for building a platform for sustainable and profitable growth. And with that I'll turn the call over to Rob. Rob Rehard, Executive Vice President and Chief Financial Officer Thanks, Aamir, and good morning everyone.

I'll begin by covering our enterprise performance and then move to the segment discussions followed by a guidance update. 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. 1% excluding Data Center. Encouragingly, orders excluding our consumer-leaning businesses, Residential HVAC and Pool, were up low double digits in the quarter.

We are seeing evidence of both improving end markets and further returns on our growth investments. 1% versus the prior-year period and up 15% excluding Data Center. 7% versus the prior year on strength in the energy and general industrial markets. 5% on strength in commercial HVAC, which was largely offset by weakness in the consumer-weighted residential HVAC and pool markets.

Enterprise orders in July were up 7% on a daily basis. Shifting to sales. 1% excluding residential HVAC and pool. We saw broad-based growth with notable strength in Data Center, commercial HVAC, discrete automation, and energy markets.

AMC led the way on growth, up over 15% organically versus the prior year and up 8% excluding Data Center. The AMC team continues to execute its backlog and drive share gains in its largely secular markets. 8% excluding IEEPA tariff refunds. We recorded $32 million of refunds in the quarter.

I will discuss these refunds in greater detail in the guidance section of the presentation. Our second quarter gross margin performance versus prior year, excluding refunds, largely reflects our team's ability to overcome headwinds from higher-than-anticipated inflation, mix, tariffs, and rare earth magnets with leverage from higher volumes and benefits from synergies. 5% excluding refunds, versus the prior year. The second quarter margin performance reflects the gross margin drivers I mentioned as well as growth investments.

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. Shifting to earnings. 60 excluding the benefit from refunds, which equates to 5% adjusted earnings growth versus the prior year excluding the refunds. Lastly, adjusted free cash flow was $154 million in the quarter, a nice sequential improvement aided by higher EBITDA, lower interest costs, and normal seasonality.

When comparing our second quarter cash flows to the prior-year quarter, keep in mind that our cash flows in the second quarter of 2025 benefited from $369 million of proceeds from our Accounts Receivable Securitization program. On the whole, a solid quarter. I'll now review our operating performance by segment, starting with Automation and Motion Control, or AMC. 6% versus the prior-year period on an organic basis.

This performance reflects broad-based strength, but with especially strong growth in Data Center, discrete automation, and aerospace and defense. We attribute the strength to improving underlying end market momentum in AMC's largely secular markets and traction in our growth investments. 9% excluding refunds, versus the prior year. AMC margins were up 40 basis points, mainly reflecting higher volumes partially offset by growth investments.

1% versus the prior year, which reflects broad-based growth but with particular strength in aerospace and defense, discrete automation, and Data Center. As stated earlier, excluding Data Center, AMC's orders were up 15%. 02. 4% on a daily basis versus the prior-year period.

Before I leave AMC, I'd like to highlight that in the first half AMC's daily orders were up over 25% versus the prior-year period. This performance is supporting the healthy top-line growth AMC has been delivering and which we expect to continue. Keep in mind, however, that nearly half of this order growth reflects longer-cycle projects and blanket orders that are expected to benefit the P&L in 2027 and, in some cases, 2028. Turning to Industrial Powertrain Solutions, or IPS, sales in the second quarter were up 2% versus the prior year on an organic basis, which was in line with our expectations.

Growth in the quarter was led by the energy market, which includes power gen, where we are benefiting from strong growth in the Data Center market. A notable area of weakness was machinery off-highway, which includes pressure we are seeing in the ag market. I will also share some detail by channel. Our short-cycle OEM sales were up mid single digits, which we believe is consistent with favorable ISM data, and our distribution channel sales were up low single digits.

9% excluding refunds, compared to the prior year. Margins were down as expected due to the impact of product mix, growth investments, and higher inflation. 7% in the second quarter. The growth was broad-based but with the largest contributions coming from the general industrial and energy markets.

Notably, orders into the distributor channel accelerated, tracking up 8% in the quarter and consistent with a stronger short-cycle outlook. Orders for short-cycle OEM were up 4%, but that follows 9% growth last quarter, equating to just over 6% growth for the first half. So we continue to feel good about what we are seeing in short-cycle OEM. Finally, large project orders also accelerated, up 8% aided by wins in metals and mining.

This project strength has helped put our IPS shippable backlog for 2027 up over 20% versus where our 2026 shippable backlog stood at this time last year—an early positive sign for 2027. 06. 7% on a daily basis versus the prior-year period. 6% versus the prior year on an organic basis.

The year-over-year decline was primarily driven by weakness in residential HVAC and pool. We believe that demand in residential HVAC remains weak due to a soft housing market, low consumer confidence, and lingering pockets of excess channel inventories. At the same time, commercial HVAC remains a clear positive offset, aided by Data Center construction and continued traction in regional outgrowth initiatives.

In the quarter, we also experienced incremental friction related to changes in Section 232 tariffs as some OEMs appeared to delay orders and production decisions ahead of the anticipated changes and then again as they re-evaluated production plans following the tariff proclamations. In contrast, our commercial HVAC business remains strong and is gaining momentum, aided significantly by Data Center construction and, in Asia, continued demand from Data Center along with traction on the team's regional outgrowth initiatives. 2% excluding refunds.

This reflects weaker performance in the residential HVAC aftermarket due to greater caution in the channel and pockets of elevated distributor inventory, as well as underperformance in pool distribution. 5% on a daily basis, with strength in commercial HVAC largely offset by weakness in residential HVAC and pool. 0. 4% on a daily basis versus the prior-year period.

Turning to the outlook, we are making some updates to reflect a dynamic environment. Before reviewing the specifics, I'll make a few high-level comments. We're very encouraged by the positive order momentum we're seeing, which is broad-based with growth in all three segments. We also continue to make progress paying down our debt and expect to be below three times net debt leverage in the second half, an important milestone in our delevering journey.

On slide 10, the table on the left presents our principal guidance assumptions for 2026 as of today's update compared to our prior guidance when we reported first quarter results. The first column is our guidance provided on our first quarter call. The middle column is for reference and provides our current view on operating performance excluding the impact of refunds, which is comparable to our guidance at first quarter. The third column incorporates the benefit of refunds, which are now incorporated into our guidance.

57 per share. This includes $32 million recorded in the second quarter and $8 million to be recorded in each of the second half quarters. 5% growth. It now factors stronger growth in AMC offset by weaker assumed growth in PES and IPS.

3% excluding the impact of refunds. The decline in our margin outlook excluding these refunds is being driven by three factors: (1) a longer timeline to realize planned productivity gains, in some cases to prioritize service levels; (2) a lag in price realization relative to a faster pace of inflation; (3) modest mix impacts related to our revised segment growth outlooks. Regarding longer lead times to realize planned productivity savings, in some cases we are slowing productivity actions to prioritize growth, particularly in AMC. In other cases we are adding incremental conservatism on the time it takes to realize savings from our productivity actions.

The last two factors—inflation and segment sales mix—tend to be shorter cycle and now reflect the latest market conditions. Regarding inflation in particular, all of our segments are seeing higher material, freight, and energy costs in excess of our prior forecast.