Regal Rexnord (NYSE: RRX) reported Q2 2026 revenue of $1.5584 billion, up 4.2% from $1.4961 billion a year earlier, while diluted EPS increased 46.2% to $1.74 from $1.19. Organic sales rose 3.3% as Automation & Motion Control led growth, but a $32.0 million IEEPA tariff refund materially boosted adjusted EBITDA and margins; free cash flow declined to $154.1 million.
Core earnings data
For the quarter ended June 30, organic growth contributed 3.3 percentage points to the reported sales increase, while foreign exchange added 1.0 point and divestitures reduced growth by 0.1 point. GAAP net income increased faster than revenue, supported by higher operating income, lower interest expense and a lower effective tax rate.
Reported and adjusted margins expanded, although the tariff refund was a significant contributor. Adjusted diluted EPS included a $0.39 benefit from the refund, while adjusted EBITDA included $32.0 million.
| Metric | Q2 2026 | Q2 2025 | Year-over-year change |
|---|---|---|---|
| Net sales | $1,558.4 million | $1,496.1 million | Up 4.2% |
| Gross profit / margin | $611.6 million / 39.2% | $564.7 million / 37.7% | Up about 8.3%; margin +1.5 points |
| Operating income / margin | $215.2 million / 13.8% | $182.3 million / 12.2% | Up about 18.0%; margin +1.6 points |
| Net income | $116.8 million | $79.6 million | Up 46.7% |
| Diluted EPS | $1.74 | $1.19 | Up 46.2% |
| Adjusted diluted EPS | $2.99 | $2.48 | Up 20.6% |
| Adjusted EBITDA / margin | $366.6 million / 23.5% | $329.7 million / 22.0% | Up 11.2%; margin +1.5 points |
| Free cash flow | $154.1 million | $493.0 million | Down $338.9 million |
Adjusted EPS, adjusted EBITDA and free cash flow are non-GAAP measures. The Q2 2026 adjusted EPS and EBITDA figures include the disclosed tariff refund benefits.
Business and segment performance
Daily orders increased 8.8% across the company and 17.1% in Automation & Motion Control, indicating stronger order growth than the quarter’s reported sales increase. Segment results remained divided, with AMC growth offsetting a contraction in Power Efficiency Solutions.
Reported segment margins also benefited from tariff refunds. The company therefore provided margins both including and excluding those benefits.
| Segment | Q2 sales | Reported growth | Organic growth | Adjusted EBITDA margin: reported / ex-refund | Q2 2025 margin |
|---|---|---|---|---|---|
| Automation & Motion Control | $477.7 million | 16.2% | 15.6% | 21.1% / 19.9% | 19.5% |
| Industrial Powertrain Solutions | $669.4 million | 3.0% | 2.0% | 27.1% / 25.9% | 26.9% |
| Power Efficiency Solutions | $411.3 million | (5.5%) | (6.6%) | 20.5% / 16.2% | 17.1% |
AMC benefited from broad-based growth, led by data centers, discrete automation, and aerospace and defense. IPS growth was strongest in the energy market.
PES remained the main sales drag because of weakness in residential HVAC and pool markets, partially offset by commercial HVAC strength. Management also cited greater-than-expected headwinds in mining and agriculture.
Tariff refunds accounted for most of adjusted EBITDA growth
Adjusted EBITDA increased by $36.9 million, while the disclosed IEEPA tariff refund benefit was $32.0 million. On a simple basis excluding that benefit, Q2 adjusted EBITDA would have been approximately $334.6 million, only about 1.5% above the prior-year level, with a margin of roughly 21.5% compared with 22.0% a year earlier.
The same effect appears in adjusted gross margin. The reported measure rose to 39.8% from 38.2%, but subtracting the refund from adjusted gross profit produces an approximate margin of 37.8%. Management said pricing was taking longer to catch up with inflation, productivity gains would be realized later than planned, and segment mix was modestly unfavorable. Incremental synergies helped offset some of those pressures.
Cash flow and balance sheet
Cash flow moved in the opposite direction from earnings. Operating cash flow fell to $176.6 million from $523.2 million, while free cash flow declined to $154.1 million after $22.5 million of capital expenditures.
The comparison was heavily affected by working capital. Receivables generated $319.2 million of cash in Q2 2025 but used $2.1 million in Q2 2026. Other assets and liabilities used $77.1 million this quarter after generating $34.8 million a year earlier. These changes outweighed the increase in net income.
At June 30, Regal Rexnord held $441.6 million in cash, down from $521.7 million at the end of 2025. Long-term debt declined to $4.5876 billion from $4.7646 billion, while net debt stood at $4.1702 billion. Net debt to adjusted EBITDA, including expected synergies, ended the quarter at 3.06 times, and the company expects the ratio to fall below 3.0 times during the second half of 2026.
Receivables and inventories both increased from year-end, reaching $580.0 million and $1.3779 billion, respectively. Their conversion into cash will remain relevant to the company’s deleveraging objective.
Earnings guidance
Regal Rexnord narrowed its 2026 GAAP and adjusted EPS ranges without changing the adjusted EPS midpoint. The adjusted range now incorporates expected IEEPA tariff refund benefits of $0.57 per share, while management said its top-line outlook was unchanged.
| Metric | Updated 2026 guidance | Change disclosed |
|---|---|---|
| GAAP diluted EPS | $5.42–$5.92 | Range narrowed |
| Adjusted diluted EPS | $10.35–$10.85 | Range narrowed; $10.60 midpoint maintained |
The company did not disclose the former endpoints in the supplied release, so the degree of narrowing cannot be quantified from the available information.
Risks investors need to watch
- Pricing and productivity execution: Price realization is lagging inflation, while some productivity gains are taking longer than planned. Continued delays could pressure underlying margins.
- Dependence on refund benefits: Q2 adjusted EPS included a $0.39 tariff refund benefit, and full-year adjusted EPS guidance includes $0.57 per share. These benefits should be separated from recurring operating performance.
- PES end-market weakness: Residential HVAC and pool demand drove a 6.6% organic sales decline in PES, with additional companywide headwinds in mining and agriculture.
- Cash conversion: Free cash flow declined despite higher earnings, while receivables and inventories increased from year-end. Working-capital performance will affect debt reduction.
- Leverage: Net debt remained above $4.1 billion, and reaching the company’s below-3.0-times leverage target depends on EBITDA delivery and cash generation.
Summary
Regal Rexnord’s second quarter combined 3.3% organic growth with sharply higher GAAP earnings, led by AMC and supported by lower interest expense. However, tariff refunds accounted for most of the adjusted EBITDA increase, while inflation, delayed productivity gains and weak PES markets pressured underlying performance. The next points to monitor are order conversion, price realization, cash flow recovery and progress toward leverage below 3.0 times.
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