Regal Rexnord: New CEO, Strong Orders, but Margin Pressures Persist

A leadership change and a revised margin outlook signal a strategic shift, even as order momentum and data center investments build.

RRX · Earnings Call · 2026-08-05

Leadership Transition and a Strategic Pivot

Regal Rexnord's second-quarter call was dominated by a single theme: change. Aamir Paul, the newly appointed CEO who took over on July 1, opened with a personal narrative that immediately reframed the company's trajectory. “I came to Regal Rexnord because I see tremendous opportunities across the company's portfolio, strong channel positions, manufacturing scale and healthy balance sheet.” — Aamir Paul, Chief Executive Officer · 2026-08-05 His background at Dell and Schneider Electric, particularly his recent leadership of North American operations, signals a deliberate push into the data center and energy management space—areas where Regal Rexnord is already building momentum. The market's reaction, however, has been less enthusiastic. The stock is down over 20% in the past 90 days, with a peak-to-trough drawdown of 30%—a stark contrast to the company's operational narrative. This divergence suggests investors are focusing on near-term margin compression rather than long-term order strength.

Orders Strength vs. Margin Pressures

Orders were a bright spot. “Orders in the quarter on a daily basis were up 8.8% versus the prior year or 8.1% excluding data center.” — Robert Rehard, Chief Financial Officer · 2026-08-05 AMC, the automation and motion control segment, led with orders up 17.1%, while IPS and PES posted gains. July orders remained robust at 7% growth. Yet the company trimmed its full-year EBITDA margin outlook by 80 basis points, to 22.1% (or 21.3% excluding refunds), citing higher inflation, price/cost lag, and a slower path to productivity gains.

The decline in our margin outlook, excluding these refunds, is being driven by three factors: one, a longer timeline to realize planned productivity gains; two, a lag in price realization relative to a faster pace of inflation; three, modest mix impacts.
Robert Rehard, Chief Financial Officer · 2026-08-05

This is a recurring theme for Regal Rexnord—price cost has appeared in nearly every recent call. What's new is the magnitude of the impact. The company recorded $32 million of IEEPA tariff refunds in Q2, and expects an additional $16 million in the back half, but even with these refunds, margin expansion is elusive. Operating margin remains below its 2022 peak, reflecting persistent cost headwinds.

Data Center Ambitions

The data center opportunity continues to be the growth engine. “We're on track to be operational in time to support customer production schedules.” — Robert Rehard, Chief Financial Officer · 2026-08-05 The ePOD (electrical pod) facility is ramping, and the company expects $15 million of ePOD revenue in 2026, with larger contributions in 2027. AMC's data center sales are expected to nearly double this year, driven by switchgear and ePOD. This aligns with a broader industrial theme—data center construction is a top global keyword, and competitors like Vertiv and Eaton are also citing AI-driven demand. But the margin profile of these new products remains a question. In the prior call, Louis Pinkham stated: “We would expect adjusted EBITDA margins to be in the 20%-plus range.” — Louis Pinkham, Chief Executive Officer · 2026-02-05 That's above the current corporate average, but mix dilution from faster growth in lower-margin OEM business is a near-term drag. e Pods are a strategic bet, but the payoff is still years away.

Conclusion

Regal Rexnord is undergoing a leadership transformation with the arrival of a CEO who knows the data center market. Orders are strong, but inflation and tariff costs are squeezing margins, forcing a downward revision. The stock is reflecting these near-term realities, while the company is investing for a longer-term data center-driven growth cycle. The question is whether the market will reward patience. With IEEPA refunds providing temporary relief and a deleveraging path on track to below 3x net debt, the company has room to execute, but the margin recovery will be critical.