Core Viewpoint - Regal Rexnord (RRX) has received an upgrade to a Zacks Rank 2 (Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system emphasizes the importance of changing earnings estimates, which are closely correlated with near-term stock price movements [4][6]. - Regal Rexnord's rising earnings estimates indicate an improvement in the company's underlying business, likely leading to increased stock prices as investors respond positively [5][10]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [7][9]. - Regal Rexnord's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting a strong potential for market-beating returns in the near term [10]. Earnings Estimate Revisions for Regal Rexnord - For the fiscal year ending December 2025, Regal Rexnord is expected to earn $9.94 per share, with a 0.7% increase in the Zacks Consensus Estimate over the past three months [8].

Company Overview - Regal Rexnord has 70 years of experience in designing, manufacturing, and marketing specialized tools and products for motion control, serving various industries including aerospace, automotive, and agriculture [2][7] - The company has a market capitalization of $9.55 billion and employs approximately 30,000 people globally [7] Financial Performance - In Q2 2025, Regal Rexnord reported quarterly sales of $1.5 billion, a decrease of 3.3% year-over-year, but slightly above the forecast by $1.8 million [8] - Non-GAAP earnings per share were $2.48, exceeding expectations by 4 cents and reflecting an 8.3% increase from the previous year [8] - The adjusted free cash flow for the quarter was $493 million, with expectations for full-year 2025 adjusted free cash flow to reach up to $700 million [8] Analyst Insights - JPMorgan analyst Tomohiko Sano expresses optimism about Regal Rexnord, highlighting its transition from a legacy parts vendor to an industrial solutions provider, supported by margin expansion and strategic M&A [9] - The analyst projects a price target of $200 for Regal Rexnord, indicating a potential upside of 38.5% by the end of next year [9] - The stock has received a Strong Buy rating from analysts, with a consensus of 8 Buys and a current trading price of $144.37, suggesting a potential gain of 23.5% based on an average target price of $178.25 [10]

Core Thesis - Regal Rexnord Corporation (RRX) has transitioned from a traditional electric motor and power transmission manufacturer to a global leader in sustainable motion and power solutions, with a market cap of $8.9 billion and revenues of $6 billion [2] Financial Performance - RRX's trailing and forward P/E ratios are 39.17 and 13.09, respectively, indicating potential valuation upside [1] - The company has achieved EBITDA margins around 22% and has improved operational efficiency, resulting in gross margin expansion of 1,100 basis points and EBITDA margin improvement of 700 basis points since 2019 [2][3] Business Segments - RRX operates three segments: - Automation & Motion Control (AMC) with 5% growth and 22% EBITDA margins - Industrial Powertrain Solutions (IPS) with 4% growth and 26% EBITDA margins - Power Efficiency Solutions (PES) with growth below company average and 16% EBITDA margins [3] Strategic Acquisitions - Over the past decade, RRX has made strategic acquisitions, including Emerson Electric's Power Transmission Solutions in 2015, Rexnord's industrial power transmission business in 2021, and Altra Industrial Motion in 2023, enhancing its AMC and IPS segments while divesting lower-growth businesses [2] Future Outlook - RRX's targets for 2027 include revenues of $6.4–7.0 billion, 40% gross margins, and 25% EBITDA margins, all exceeding current street expectations, indicating potential upside [3] - Positive backlog trends in AMC and IPS, along with delivered synergies, support confidence in achieving these targets [4] Valuation and Catalysts - RRX's shares trade at reasonable multiples, with an EBITDA multiple of 10.2x and P/E of 13x, suggesting upside potential if execution aligns with targets [4] - Key catalysts include upcoming quarterly earnings, which could validate growth, margin expansion, and free cash flow improvements, enhancing investor confidence [4]

Core Insights - Regal Rexnord Corporation published its annual Sustainability Report, highlighting the integration of sustainability into its growth strategy and commitment to creating sustainable solutions [1][3] Sustainability Goals - The company aims to achieve carbon emission neutrality for Scope 1 and 2 GHG emissions by 2032, having reduced absolute emissions by 13% year-over-year in 2024 and decreased GHG emission intensity by 9.8% [2] Recognition and Strategy - Regal Rexnord was ranked 36th on Barron's 2025 list of the 100 most sustainable U.S. companies, marking the second consecutive year of high ranking [3] - The company's strategy includes advancing innovation and sustainability initiatives that align with its values and support emission reduction targets while helping customers meet their sustainability goals [3] Reporting Standards - The sustainability report aligns with the Task Force on Climate-Related Financial Disclosure (TCFD), Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB), covering the fiscal year ending December 31, 2024 [3] Company Overview - Regal Rexnord employs 30,000 associates globally, providing sustainable solutions that power, transmit, and control motion through electric motors and engineered power transmission components [4][5] - The company operates in various end markets, including discrete automation, food & beverage, aerospace, medical, and energy, among others [5]

Company Leadership Transition - Regal Rexnord Corporation has appointed Kevin Long as Executive Vice President & President of the Automation & Motion Control segment, effective August 14, 2025, succeeding Kevin Zaba who will retire after 11 years with the company [1][2] - Kevin Zaba will remain with Regal Rexnord as EVP until December 31, 2025, to ensure a smooth transition [1] Kevin Long's Background - Kevin Long brings over 30 years of experience in leading global industrial businesses, with a strong track record in driving above-market growth and operational excellence [2] - Prior to joining Regal Rexnord, Long served as Group President at Dover Corporation, where he significantly grew the OPW business through organic execution and acquisitions [2] - Long has held senior leadership roles at Danaher Corporation, contributing to growth and operational synergies across multiple business units [3] Company Vision and Market Position - CEO Louis Pinkham expressed excitement about Long's appointment, highlighting his proven leadership and deep industrial experience as key factors for leading AMC's growth and innovation [4] - Long emphasized Regal Rexnord's strong portfolio and significant growth opportunities, indicating a customer-focused approach [4] - Regal Rexnord operates in various end markets, including discrete automation, food & beverage, aerospace, medical, data center, energy, residential and commercial buildings, general industrial, and metals and mining, benefiting from meaningful secular demand tailwinds [6][7] Company Overview - Regal Rexnord is comprised of three operating segments: Automation & Motion Control, Industrial Powertrain Solutions, and Power Efficiency Solutions [7] - The company is headquartered in Milwaukee, Wisconsin, and has manufacturing, sales, and service facilities worldwide [7]

Core Viewpoint - Regal Rexnord (NYSE: RRX) is considered to be significantly undervalued due to a combination of internal improvements and exposure to long-term growth trends in the industrial motion sector [1]. Company Analysis - The company has successfully repositioned itself into a broad-based industrial motion sector over the past few years, indicating strategic adaptability and growth potential [1]. Industry Trends - Regal Rexnord is benefiting from secular growth trends, which suggests that the industry is experiencing long-term positive changes that could enhance the company's market position [1].

Core Insights - Regal Rexnord (NYSE: RRX) has experienced a leverage overhang as organic growth has slowed down, despite undergoing significant transformation in recent years [1] Group 1: Company Overview - Regal Rexnord is facing challenges related to organic growth, which has prompted concerns about its leverage situation [1] Group 2: Investment Opportunities - The investment group "Value In Corporate Events" focuses on identifying actionable ideas related to major corporate events such as IPOs, mergers & acquisitions, and earnings reports [1]

[PART I — FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1 — Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20%E2%80%94%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The unaudited statements present core financials and 16 detailed notes for Q2 and H1 2025 and 2024 [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q2 2025 net sales decreased to $1,496.1 million, while net income increased to $79.2 million, driving higher diluted EPS Q2 & H1 2025 vs 2024 Income Statement Highlights (in Millions, Except Per Share Data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $1,496.1 | $1,547.6 | $2,914.2 | $3,095.3 | | **Gross Profit** | $564.7 | $571.0 | $1,092.3 | $1,124.1 | | **Income from Operations** | $182.3 | $193.9 | $342.0 | $327.8 | | **Net Income Attributable to Regal Rexnord** | $79.2 | $62.5 | $136.5 | $82.3 | | **Diluted EPS** | $1.19 | $0.94 | $2.05 | $1.23 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Q2 2025 comprehensive income surged to $290.8 million, driven by a significant positive foreign currency translation adjustment - A substantial positive foreign currency translation adjustment of **$209.6 million** in Q2 2025 was the main driver for the increase in comprehensive income[15](index=15&type=chunk) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased to $13.90 billion, while debt reduction drove total equity up to $6.71 billion Balance Sheet Comparison (in Millions) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | $13,902.7 | $14,033.7 | | **Long-Term Debt** | $4,849.6 | $5,452.7 | | **Total Liabilities** | $7,194.8 | $7,766.5 | | **Total Equity** | $6,707.9 | $6,267.2 | [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity grew to $6.71 billion in H1 2025, driven by net income and other comprehensive income - The increase in total equity from **$6,267.2 million** at the end of 2024 to **$6,707.9 million** at June 30, 2025 was mainly due to net income and positive other comprehensive income, partially offset by dividends[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) H1 2025 operating cash flow increased significantly to $625.5 million, supporting debt repayments Cash Flow Summary for Six Months Ended June 30 (in Millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | **Operating Activities** | $625.5 | $241.4 | | **Investing Activities** | $(29.2) | $325.2 | | **Financing Activities** | $(686.2) | $(672.5) | | **Net Decrease in Cash** | $(73.4) | $(124.9) | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed disclosures cover accounting policies, segment data, divestitures, and a new securitization facility - On April 30, 2024, the company completed the sale of its industrial motors and generators businesses for a purchase price of **$444.0 million**, recognizing a gain of **$17.2 million** in Q2 2024[40](index=40&type=chunk) - On June 30, 2025, the company entered into a new **$400 million** accounts receivable securitization facility and received initial proceeds of **$368.5 million**[63](index=63&type=chunk)[65](index=65&type=chunk) - The company prepaid **$420.0 million** of principal on its Term Facility on June 30, 2025, using proceeds from the new securitization facility[72](index=72&type=chunk) [Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes a 3.3% Q2 sales decline, segment performance, cash flow, and updated 2025 EPS guidance [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q2 2025 net sales fell 3.3% due to divestitures and organic declines in the IPS and AMC segments Q2 2025 vs Q2 2024 Net Sales by Segment (in Millions) | Segment | Q2 2025 Sales | Q2 2024 Sales | % Change | | :--- | :--- | :--- | :--- | | Automation & Motion Control | $411.1 | $422.2 | (2.6)% | | Industrial Powertrain Solutions | $649.8 | $675.5 | (3.8)% | | Power Efficiency Solutions | $435.2 | $410.9 | 5.9% | | **Consolidated** | **$1,496.1** | **$1,547.6** | **(3.3)%** | - The decrease in consolidated net sales was driven by a negative impact from divestitures (**2.7%**) and an organic sales decline (**1.2%**), partially offset by positive foreign currency translation (**0.6%**)[133](index=133&type=chunk) [2025 Outlook](index=35&type=section&id=2025%20Outlook) The company updated its full-year 2025 GAAP diluted EPS guidance to a range of $4.50 to $5.10 - Updated 2025 GAAP diluted EPS guidance is now **$4.50 to $5.10**[130](index=130&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Strong H1 2025 operating cash flow of $625.5 million supported significant debt repayments - Operating cash flow for H1 2025 was **$625.5 million**, a **$384.1 million increase** from H1 2024, primarily driven by cash from the new Securitization Facility[148](index=148&type=chunk) - The company made net debt repayments of **$633.9 million** during the first six months of 2025[152](index=152&type=chunk) - Anticipated capital spending for property, plant and equipment in 2025 is approximately **$120 million**[151](index=151&type=chunk) [Item 3 — Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company uses derivative instruments to hedge interest rate, foreign currency, and commodity price risks - The company manages market risk from interest rates, foreign currency, and commodity prices using derivative instruments for non-speculative hedging[165](index=165&type=chunk) - As of June 30, 2025, the company had **$73.0 million** of variable rate debt; a hypothetical 10% change in the borrowing rate would change after-tax annualized earnings by **$0.3 million**[167](index=167&type=chunk)[168](index=168&type=chunk) - The company holds foreign currency forward contracts with notional values including **$776.0 million** for the Euro and **$296.8 million** for the Mexican Peso to hedge currency risk[172](index=172&type=chunk) [Item 4 — Controls and Procedures](index=46&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management, including the CEO and CFO, concluded that disclosure controls and procedures were **effective** as of the end of the period[178](index=178&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the quarter[179](index=179&type=chunk) [PART II — OTHER INFORMATION](index=46&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1 — Legal Proceedings](index=46&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) There were no material changes in legal proceedings since the 2024 Annual Report on Form 10-K - There have been **no material changes** in legal proceedings since the company's 2024 Annual Report on Form 10-K[181](index=181&type=chunk) [Item 1A — Risk Factors](index=46&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) Key risks include adverse changes in US trade policy, tariffs, and geopolitical instability in manufacturing regions - Changes to US trade policy, tariffs, and import/export regulations, especially concerning China, Canada, and Mexico, pose a **significant risk** to the company's business and operating results[183](index=183&type=chunk) - The company's significant manufacturing presence outside the US (**96 principal facilities**) exposes it to risks from political, societal, or economic instability and geopolitical conflicts[187](index=187&type=chunk)[189](index=189&type=chunk) [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any shares in Q2 2025, with $145.0 million remaining under its buyback program - **No shares** of common stock were repurchased during the quarter ended June 30, 2025[191](index=191&type=chunk) - The maximum value of shares remaining available for purchase under the company's share repurchase program is **$145.0 million** as of June 30, 2025[191](index=191&type=chunk) [Item 5 — Other Information](index=49&type=section&id=Item%205%20%E2%80%94%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - **No director or officer** adopted or terminated a Rule 10b5-1 trading plan during the quarter[192](index=192&type=chunk) [Item 6 — Exhibits](index=50&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications - The filing includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act[194](index=194&type=chunk)

Financial Data and Key Metrics Changes - Sales in the second quarter were down 1.2% on an organic basis compared to the prior year, which was in line with expectations [7] - Adjusted earnings per share for the quarter was $2.48, an increase of 8.3% year-over-year [12] - Adjusted EBITDA margin was 22%, down 20 basis points from the prior year [12] - Free cash flow generated in the second quarter was $493 million, with $368.5 million related to an accounts receivable securitization program [12][26] Business Line Data and Key Metrics Changes - **Automation and Motion Control (AMC)**: Sales down 3.4% year-over-year, primarily due to weakness in the medical end market and project timing [17] - **Industrial Powertrain Solutions (IPS)**: Sales down 4.4% year-over-year, reflecting project timing impacts in Metals and Mining [20] - **Power Efficiency Solutions (PES)**: Sales up 6.5% year-over-year, driven by strong growth in residential and commercial HVAC [23] Market Data and Key Metrics Changes - Orders in AMC were down 7.5% year-over-year, impacted by destocking in the medical market and timing of a large data center order [19] - IPS orders on a daily basis were up 3% in the second quarter, with a backlog increase of 15% year-to-date [22] - Daily organic orders for Regal Rexnord in July were up 4.4%, primarily driven by strength in data centers [11] Company Strategy and Development Direction - The company is on track to deliver at least $250 million of cross-sell synergies from the Rexnord and Ultra transactions [13] - Focus on selling a richer mix of subsystem solutions and new product launches to drive growth [34] - The company aims to neutralize tariff impacts on adjusted EBITDA and earnings by mid-2026 [30] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about sales growth in the low single digits for 2025, supported by a growing backlog [9] - The company expects to see a recovery in the medical market and improved conditions in the industrial sector by 2026 [38][111] - Management noted that while there are macro uncertainties, they have not seen significant demand deterioration due to tariffs [31] Other Important Information - The accounts receivable securitization program completed in the second quarter allows for accelerated debt repayment and is expected to provide $4 million in annualized interest savings [26][27] - The gross annual unmitigated cost impact from tariffs has decreased from $130 million to approximately $125 million [30] Q&A Session Summary Question: Expectations for end market recovery in the back half of the year - Management expects orders to be up mid-single digits in the second half, driven by strong markets like energy, aerospace, and data centers [39] Question: Exposure to rare earth magnets and data center wins - Rare earth magnets represent about 1% of sales, with challenges in procurement expected to be resolved in the second half [41] - Data center wins are expected to continue, with a strong funnel of opportunities [42] Question: AMC division margin ramp and rare earth recovery - AMC's margin guidance has been widened, reflecting backlog visibility and expected recovery in rare earth supply [98] Question: Competitive position in data centers - The company is well-positioned in the data center market, focusing on customized solutions rather than standard offerings [89] Question: Impact of rare earth issues on revenue and profit - The rare earth impact in Q2 was approximately $10 million in sales and $6 million in profit, with expectations to recover in the second half [62][64]

Financial Data and Key Metrics Changes - Sales in Q2 2025 were down 1.2% on an organic basis compared to the prior year, aligning with expectations [6][11] - Adjusted earnings per share increased by 8.3% to $2.48 [11] - Adjusted EBITDA margin was 22%, down 20 basis points year-over-year [11] - Free cash flow generated in Q2 was $493 million, with $368.5 million related to an accounts receivable securitization program [11][25] Business Line Data and Key Metrics Changes - **Automation and Motion Control (AMC)**: Sales decreased by 3.4% year-over-year, primarily due to weakness in the medical end market and project timing [16][18] - **Industrial Powertrain Solutions (IPS)**: Sales were down 4.4% year-over-year, attributed to project timing impacts in Metals and Mining [20][21] - **Power Efficiency Solutions (PES)**: Sales increased by 6.5% year-over-year, driven by strong growth in residential and commercial HVAC [23] Market Data and Key Metrics Changes - Orders in AMC declined by 7.5% year-over-year, impacted by a large data center order that slipped into July [19] - IPS orders increased by 3% on a daily basis, with a book-to-bill ratio of 1.01 [22] - PES orders were down 5.4% on a daily basis, consistent with expectations due to anticipated headwinds in residential HVAC [24] Company Strategy and Development Direction - The company is on track to deliver at least $250 million in cross-sell synergies from recent acquisitions, with a growing funnel of opportunities [12][14] - Focus on longer cycle projects and engineered solutions is expected to drive growth in IPS and AMC segments [20][22] - The company aims to neutralize tariff impacts on adjusted EBITDA and maintain margin neutrality by mid-2026 [27][30] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about low single-digit sales growth in 2025, supported by a growing backlog and positive order trends [8][33] - The company anticipates a recovery in the medical market and improved conditions in the data center sector [36][71] - Management acknowledges ongoing macroeconomic uncertainties but believes underlying business momentum is positive [33][36] Other Important Information - The accounts receivable securitization program completed in Q2 is expected to provide $4 million in annualized interest savings [25][26] - The gross annual unmitigated cost impact from tariffs is estimated to have decreased from $130 million to approximately $125 million [29][30] Q&A Session Summary Question: Expectations for end market recovery in the second half of the year - Management expects orders to be up mid-single digits in the second half, driven by strong performance in data centers and other solid markets [36][37] Question: Exposure to rare earth magnets and data center wins - Rare earth magnets represent about 1% of sales, but challenges in procurement impacted Q2 performance; however, recovery is expected in Q3 and Q4 [39][40] Question: AMC division margin ramp and backlog visibility - AMC's margin guidance has been widened due to rare earth exposure, with expectations for improved conditions in the medical market and higher shippable backlog [92][93] Question: Competitive position in the data center market - The company is well-positioned in the data center market, focusing on customized solutions, and has a strong order funnel [85][86]