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Regal Rexnord (NYSE:ZWS) Corporation (NYSE:RRX) shares jumped 6.1% in premarket trading after the company released its first quarter 2025 earnings presentation on May 6, highlighting margin expansion, strong free cash flow growth, and continued order momentum despite mixed segment performance.
Executive Summary
Regal Rexnord reported a 0.7% increase in organic sales (2.3% on a daily organic basis) for Q1 2025, marking the fourth consecutive quarter of orders growth with daily orders up 3.3%. The company achieved an adjusted gross margin of 37.9%, up 50 basis points year-over-year, while adjusted EBITDA margin expanded to 21.8%, up 30 basis points, including $18 million in synergies.
As shown in the following performance highlights chart, adjusted earnings per share reached $2.15, representing a 7.5% increase from the prior year (10% when adjusted for the Industrial Systems divestiture):
Free cash flow surged 32% year-over-year to $85.5 million, enabling the company to pay down $164 million of gross debt during the quarter. Despite increasing tariff headwinds, Regal Rexnord reaffirmed its full-year 2025 guidance, expressing confidence in its mitigation strategies.
Segment Performance Analysis
Performance varied across Regal Rexnord’s three business segments, with the Power Efficiency Solutions (PES) segment showing the strongest results.
The Automation & Motion Control (AMC) segment reported a modest 0.4% increase in organic sales, with positive contributions from Aerospace & Defense and Discrete Automation offset by weakness in General Industrial and Medical (TASE:BLWV) markets. While adjusted EBITDA margin declined slightly to 21.8% from 22.5% in the prior year, the company highlighted a mix-positive backlog growth that should benefit second-half performance:
The Industrial Powertrain Solutions (IPS) segment faced more significant challenges with organic sales declining 3.4% year-over-year. Weakness in Machinery/Off-Highway and Metals & Mining markets outweighed positive performance in Energy. Despite the sales decline, the segment improved its adjusted EBITDA margin to 26.9%, up from 25.8% in the prior year. Management noted that orders were up 9%, supporting expectations for stronger second-half performance:
The Power Efficiency Solutions (PES) segment delivered the strongest performance with 8.0% organic sales growth, driven primarily by strength in Residential HVAC, while General Commercial markets remained weak. The segment’s adjusted EBITDA margin improved significantly to 14.2% from 13.2% in the prior year:
Strategic Growth Opportunities
A key highlight of the presentation was Regal Rexnord’s emerging position in the rapidly growing humanoid robotics market. The company detailed its competitive advantages in this space, including deep domain expertise in precision motion control and scalable global manufacturing capabilities.
As illustrated in the following slide, Regal Rexnord has secured wins with leading global humanoid manufacturers worth over $20 million annually, with production ramping up in 2025/2026. The company’s content addresses 30-50 axes of motion per robot, and its opportunity funnel is valued at approximately $100 million:
Tariff Impacts and Mitigation Strategies
Regal Rexnord provided a detailed update on tariff impacts, which have increased significantly since its March update. The gross annual impact has risen from approximately $60 million to $130 million, with the most substantial increase coming from China tariffs, which jumped from $10 million to $60 million.
Despite these challenges, the company remains confident that its mitigation actions will achieve tariff cost and margin neutrality within 2025, as shown in the following analysis:
Mitigation strategies include supply chain realignments, production relocations, productivity measures, and pricing actions. The company highlighted that approximately 95% of its imports from Mexico and Canada are USMCA compliant, and it has dual-country sourcing for most China imports. Additionally, Regal Rexnord’s flexible global manufacturing network is enabling production moves out of China.
2025 Outlook
Regal Rexnord reaffirmed its full-year 2025 guidance, projecting approximately flat organic sales growth with adjusted EBITDA margin of around 23.0%. The company expects adjusted earnings per share of approximately $10.00, with a range of $9.60 to $10.40, representing approximately 10% growth:
The segment-specific outlook indicates relatively flat sales across all segments for the full year, with expectations for stronger second-half performance:
Forward-Looking Statements
Looking ahead, Regal Rexnord expects to benefit from several positive factors in the second half of 2025, including mix-positive shippable backlog in the AMC segment, continued synergy realization, and strength in Residential HVAC markets in North America.
The company’s focus on debt reduction continues, with net debt to adjusted EBITDA standing at 3.62 as of March 31, 2025. Management remains committed to its deleveraging strategy while investing in high-growth opportunities like humanoid robotics.
This Q1 2025 performance aligns with the company’s previous statements from its Q3 2024 earnings, where it projected limited growth for 2025 but anticipated margin improvements through synergies and productivity measures. The current results demonstrate Regal Rexnord’s ability to expand margins and generate strong cash flow even in a challenging growth environment.
Full presentation:
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