Regal Rexnord (RRX)

Industrials products and automation company Regal Rexnord (NYSE:RRX). met Wall Streets revenue expectations in Q3 CY2025, with sales up 1.3% year on year to $1.50 billion. Its non-GAAP profit of $2.51 per share was 1% below analysts’ consensus estimates.

Company Overview

Headquartered in Milwaukee, Regal Rexnord (NYSE:RRX) provides power transmission and industrial automation products.

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors of Regal Rexnord include Siemens (ETR:SIE), ABB (NYSE:ABB), and Schneider Electric (EPA:SU).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Regal Rexnord grew its sales at an incredible 15.4% compounded annual growth rate. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Regal Rexnord’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Regal Rexnord’s organic revenue averaged 3.6% year-on-year declines. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Regal Rexnord grew its revenue by 1.3% year on year, and its $1.50 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Regal Rexnord’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 34.1% gross margin over the last five years. Said differently, Regal Rexnord paid its suppliers $65.91 for every $100 in revenue.

Regal Rexnord produced a 37% gross profit margin in Q3, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Regal Rexnord has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Regal Rexnord’s operating margin decreased by 1.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Regal Rexnord generated an operating margin profit margin of 11.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Regal Rexnord’s EPS grew at a remarkable 12.6% compounded annual growth rate over the last five years. However, this performance was lower than its 15.4% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Regal Rexnord’s earnings to better understand the drivers of its performance. As we mentioned earlier, Regal Rexnord’s operating margin was flat this quarter but declined by 1.2 percentage points over the last five years. Its share count also grew by 63.2%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Regal Rexnord, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, Regal Rexnord reported adjusted EPS of $2.51, up from $2.49 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Regal Rexnord’s full-year EPS of $9.48 to grow 15.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Regal Rexnord has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 9.9% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Regal Rexnord’s margin expanded by 6.2 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Regal Rexnord’s free cash flow clocked in at $174 million in Q3, equivalent to a 11.6% margin. This result was good as its margin was 3.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Regal Rexnord historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Regal Rexnord’s ROIC decreased by 3.1 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Regal Rexnord reported $400 million of cash and $4.93 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.30 billion of EBITDA over the last 12 months, we view Regal Rexnord’s 3.5× net-debt-to-EBITDA ratio as safe. We also see its $173.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Regal Rexnord meet analysts’ organic revenue expectations this quarter. We were also happy its revenue was in line with Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its EPS fell a bit short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $150.63 immediately after reporting.

Updated: December 4, 2025 at 10:09 PM EST

When considering an investment in Regal Rexnord, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Regal Rexnord isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its organic revenue declined. And while the company’s rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Regal Rexnord’s P/E ratio based on the next 12 months is 12.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $180.82 on the company (compared to the current share price of $141.43).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.