MILWAUKEE - Regal Rexnord (NYSE:ZWS) Corporation (NYSE: RRX), a manufacturer of electric motors and power transmission products, has completed a significant transformation of its business portfolio, following the divestiture of its Industrial Motors and Generators businesses, which finalized on Tuesday. This marks the latest in a series of strategic moves, including the 2021 merger with Rexnord's industrial power transmission business and the 2023 acquisition of Altra, which together have reshaped the company's market focus and product lineup.
With these changes, industrial power transmission now accounts for just under 45% of Regal Rexnord's sales, while factory automation solutions and high-efficiency electric motors and air moving subsystems each make up roughly 27.5% of the business. This shift represents a significant move away from the company's previous concentration on electric motors, which five years ago constituted over 70% of sales.
The company has strategically targeted markets with strong secular demand, aiming to capitalize on growth opportunities and widen its competitive advantage. The adjusted gross margins for Regal Rexnord approached 36% in the fourth quarter of 2023, and the company anticipates reaching a 40% adjusted gross margin by the end of 2025.
CEO Louis Pinkham emphasized the company's new direction, stating, "Our new purpose reflects the transformation of our portfolio into one characterized by more differentiated products and technologies, many that help end users reduce their environmental impact, and strong exposure to attractive higher-growth, durable, secular markets."
Regal Rexnord's revised business purpose is encapsulated in its new statement: "We Create a Better Tomorrow with Sustainable Solutions that Power, Transmit & Control Motion." The company aims to leverage its diverse product offerings, including controls, actuators, drives, and precision motors, across various markets such as factory automation, aerospace, medical, and alternative energy.
The company's strategic realignment has been accompanied by a focus on self-help opportunities and a commitment to increase growth investments in key markets, with financial goals that include achieving 25% adjusted EBITDA margins and $1 billion of free cash flow annually by the end of 2025.
Regal Rexnord, headquartered in Milwaukee, Wisconsin, employs approximately 30,000 associates worldwide and operates in various end markets that benefit from secular demand tailwinds. The information provided in this article is based on a press release statement from the company.
InvestingPro Insights
As Regal Rexnord Corporation (NYSE: RRX) continues to evolve its business portfolio, recent financial metrics and analyst projections provide valuable insights into the company's performance and future prospects. According to InvestingPro data, Regal Rexnord boasts a market capitalization of $10.68 billion USD, reflecting its substantial presence in the industry. Despite a negative P/E ratio of -183.98 indicating past challenges in profitability, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at a more optimistic 55.57. This suggests a potential turnaround in earnings as the company's strategic realignments take effect.
The company has also demonstrated a robust revenue growth of 19.79% for the same period, with a notable quarterly increase of 29.2% in Q4 2023. This growth trajectory underscores Regal Rexnord's success in tapping into markets with strong secular demand, aligning with its strategic focus on diversified and sustainable solutions.
InvestingPro Tips highlight that analysts expect net income to grow this year, which could validate the company's financial targets and strategic direction. Furthermore, Regal Rexnord has a commendable track record of maintaining dividend payments for 52 consecutive years, showcasing its commitment to shareholder returns amidst its transformative journey.
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