Regal Rexnord (RRX) Barclays 43rd Annual Industrial Select Conference summary

Market and demand outlook

• Industrial demand indicators remain mixed, with ISM above 50 but general industrial activity still sluggish.

• IPS orders were down 0.5% in January but up 3% in Q4; backlog entering the year is up 6%.

• Automation orders rose 6% over the last 12 months, with defense, especially in Europe, as the main growth driver.

• Data center orders surged, with nearly $1 billion in 2025, expected to drive revenue to low teens percentage by 2027.

• Residential HVAC market expected to be down high single digits for the year, with a slight rebound in the second half.

Strategic initiatives and growth plans

• Cross-sell initiatives in IPS are on track, with $90 million incremental expected in 2025 and a $250 million goal by 2027.

• Significant investment in automation and new products, leveraging the Altra acquisition, with a path to $50 million in Kollmorgen Essentials by 2028.

• Data center business expanding, with $735 million ePOD orders for 2027 and capacity ramping up in Canada and Texas.

• Addressable market for data centers estimated at $25 billion, with current funnel at $600 million and plans to grow.

• No major divestitures planned; focus remains on organic growth and potential bolt-on acquisitions in automation.

Financial performance and guidance

• Guidance for 2025 is low single-digit growth, with data centers and pricing as key contributors.

• EBITDA margin expected at 21% in Q1, improving by 200-250 bps through the year as rare earth and tariff headwinds ease.

• Operating leverage assumed at 30%-35%, with gross margin guidance at 39% for 2026.

• Free cash flow conversion to normalize by 2027 after $150 million in capital investment for data center growth.

• Net leverage targeted below 2.5x by early next year, with debt paydown prioritized before potential share buybacks or dividend increases.