Press release·05/06/2025 18:34:10

Overview of Financial Performance

Regal Rexnord Corporation, a leading manufacturer of industrial products, has released its financial results for the first quarter of 2025. The company reported net sales of $1,418.1 million, a decrease of 8.4% compared to the same period in 2024. This decline was primarily due to the divestiture of the industrial motors and generators business, which accounted for a 7.9% reduction in sales. The company also experienced a 1.2% negative impact from foreign currency translation. However, Regal Rexnord saw an organic sales increase of 0.7% during the quarter.

Gross profit for the first quarter of 2025 was $527.6 million, a decrease of 4.6% compared to the same period in 2024. This was mainly due to the divestiture of the industrial motors and generators business, which accounted for a $29.1 million reduction in gross profit, as well as a $7.3 million decrease in the Industrial Powertrain Solutions (IPS) segment. These declines were partially offset by a $12.7 million increase in the Power Efficiency Solutions (PES) segment.

Total operating expenses for the first quarter of 2025 were $367.9 million, a decrease of 12.2% compared to the same period in 2024. This reduction was primarily driven by the divestiture of the industrial motors and generators business, which accounted for a $46.0 million decrease in operating expenses.

As a result of these factors, Regal Rexnord’s income from operations for the first quarter of 2025 was $159.7 million, an increase of 19.3% compared to the same period in 2024. The company’s effective tax rate for the quarter was 21.2%, down from 34.8% in the first quarter of 2024, primarily due to the non-deductible loss associated with the divestiture of the industrial motors and generators business in the prior year.

Segment Performance

Regal Rexnord operates in three main business segments: Automation & Motion Control (AMC), Industrial Powertrain Solutions (IPS), and Power Efficiency Solutions (PES).

Automation & Motion Control (AMC):

• Net sales for the AMC segment were $396.3 million, a decrease of 1.0% compared to the first quarter of 2024. This decline was primarily due to a 1.4% negative impact from foreign currency translation, partially offset by a 0.4% organic sales increase.
• Gross profit for the AMC segment was relatively consistent with the first quarter of 2024, and total operating expenses were also relatively consistent.

Industrial Powertrain Solutions (IPS):

• Net sales for the IPS segment were $612.7 million, a decrease of 4.8% compared to the first quarter of 2024. This decline consisted of a 3.4% organic sales decrease and a 1.4% negative impact from foreign currency translation.
• Gross profit for the IPS segment decreased by 2.8% compared to the first quarter of 2024, primarily due to higher restructuring expenses of $3.2 million.
• Total operating expenses for the IPS segment decreased by 3.8% compared to the first quarter of 2024, driven by a $6.0 million gain on the sale of fixed assets.

Power Efficiency Solutions (PES):

• Net sales for the PES segment were $409.1 million, an increase of 6.2% compared to the first quarter of 2024. This growth consisted of an 8.0% organic sales increase, partially offset by a 0.9% negative impact from divestitures and a 0.9% negative impact from foreign currency translation.
• Gross profit for the PES segment increased by 12.8% compared to the first quarter of 2024, including lower restructuring expenses of $4.4 million.
• Total operating expenses for the PES segment were relatively consistent with the first quarter of 2024.

Liquidity and Capital Resources

Regal Rexnord’s principal source of liquidity is cash flow provided by operating activities, which was $102.3 million for the first quarter of 2025, an increase of $19.2 million compared to the same period in 2024. This increase was primarily driven by additional income generated in 2025.

The company’s working capital was $1,535.0 million as of March 31, 2025, comparable to the $1,535.6 million as of December 31, 2024.

Cash flow used in investing activities was $3.5 million for the first quarter of 2025, a decrease from $17.5 million in the same period of 2024. This decrease was primarily driven by higher proceeds received from sales of property, plant, and equipment in 2025.

Regal Rexnord anticipates capital spending for property, plant, and equipment to be approximately $120 million in 2025, which it plans to fund with operating cash flows.

Cash flow used in financing activities was $192.5 million for the first quarter of 2025, compared to $168.0 million in the same period of 2024. This increase was primarily due to higher net debt repayments of $164.1 million in the first quarter of 2025, compared to $137.5 million in the first quarter of 2024.

As of March 31, 2025, the company had $305.3 million in cash and cash equivalents, with $295.8 million held by foreign subsidiaries. Regal Rexnord anticipates being able to support its liquidity and operating needs largely through cash generated from operations, and it regularly assesses its cash needs and available sources, including the repatriation of foreign earnings.

The company has $1,100.0 million of 2026 Senior Notes maturing on February 16, 2026, which it may refinance with a long-term financing arrangement or repay using its Multicurrency Revolving Facility and cash generated from operations.

Strengths and Weaknesses

Strengths:

• Diversified product portfolio across three main business segments, which helps mitigate large quarter-to-quarter fluctuations outside of general economic conditions.
• Strong organic sales growth in the PES segment, driven by growth in the North American residential HVAC market.
• Successful divestiture of the industrial motors and generators business, which reduced operating expenses and improved profitability.
• Solid liquidity position, with $305.3 million in cash and cash equivalents and $1,508.2 million of available borrowing capacity under the Multicurrency Revolving Facility.
• Ability to generate significant cash flow from operating activities, which provides flexibility for debt repayment, capital investments, and other corporate initiatives.

Weaknesses:

• Decline in net sales and gross profit in the IPS segment, primarily due to decreases in the metals and mining, and machinery/off-highway markets within the general industrial sector.
• Negative impact from foreign currency translation, which reduced net sales across all segments.
• Upcoming maturity of the $1,100.0 million 2026 Senior Notes, which will require refinancing or repayment in the near future.

Outlook and Future Considerations

Regal Rexnord has updated its annual guidance for GAAP diluted earnings per share to a range of $4.49 to $5.29 for 2025, reflecting the gain on the sale of assets in the first quarter. The company’s mitigation actions are expected to neutralize the impact of current tariffs on 2025 earnings.

Looking ahead, the company will need to focus on addressing the weaknesses in its IPS segment, particularly the declines in the metals and mining, and machinery/off-highway markets. Successful integration of new product developments and continued growth in the PES segment will also be crucial for the company’s future performance.

Additionally, Regal Rexnord will need to carefully manage the upcoming maturity of the 2026 Senior Notes, either through refinancing or repayment using its available liquidity and cash flow from operations. Maintaining a strong balance sheet and financial flexibility will be important for the company’s long-term success.

Overall, Regal Rexnord’s diversified business model, focus on operational efficiency, and solid liquidity position provide a strong foundation for the company to navigate the current market environment and pursue future growth opportunities.