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

Market environment and demand trends

• Industrial 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.

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

• Data center orders surged, with nearly $1 billion in 2025, positioning the segment for significant growth by 2027.

Strategic initiatives and growth opportunities

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

• The Altra acquisition enabled expansion into automation, with R&D investment driving new products like eVTOL actuators.

• Kollmorgen Essentials aims to expand market reach in motion control, targeting $50 million in orders by 2028.

• Data center business is expected to grow to low teens percentage of total sales by 2027, with a $25 billion addressable market.

• Capacity expansions in Canada and Texas are underway to support data center growth, with new facilities operational by mid-year.

Financial outlook and profitability

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

• EBITDA margins expected at 21% in Q1, improving by 200-250 bps through the year as supply chain and tariff issues ease.

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

• Profitability on new data center activity is expected to be slightly above 20%, with ongoing productivity improvements.

• Free cash flow is expected to normalize in 2027 after capital investments for data center orders.