Wrapping up Q2 earnings, we look at the numbers and key takeaways for the engineered components and systems stocks, including Regal Rexnord (NYSE: RRX) and its peers.
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.
The 13 engineered components and systems stocks we track reported a mixed Q2. As a group, revenues along with next quarter’s revenue guidance were in line with analysts’ consensus estimates.
While some engineered components and systems stocks have fared somewhat better than others, they have collectively declined. On average, share prices are down 2.3% since the latest earnings results.
Regal Rexnord (NYSE: RRX)
Headquartered in Milwaukee, Regal Rexnord (NYSE: RRX) provides power transmission and industrial automation products.
Regal Rexnord reported revenues of $1.50 billion, down 3.3% year on year. This print was in line with analysts’ expectations, but overall, it was a mixed quarter for the company with full-year EPS guidance slightly topping analysts’ expectations but a slight miss of analysts’ adjusted operating income estimates.
CEO Louis Pinkham commented, "Our team delivered strong performance in second quarter, which was modestly ahead of our expectations on sales and earnings. Our PES segment achieved 6.5% organic growth and a point of adjusted EBITDA margin expansion, aided by strong R-HVAC and C-HVAC markets. Our IPS segment also delivered over a point of adjusted EBITDA margin expansion, despite persistent end market headwinds. Our AMC segment met its sales goal for the quarter, but experienced temporary, mix-related margin pressure, primarily due to rare earth magnet availability, which is on track to improve in the back half and is expected to have an immaterial impact for the year."
Unsurprisingly, the stock is down 4.1% since reporting and currently trades at $139.26.
Read our full report on Regal Rexnord here, it’s free for active Edge members.
Best Q2: Arrow Electronics (NYSE: ARW)
Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.
Arrow Electronics reported revenues of $7.58 billion, up 10% year on year, outperforming analysts’ expectations by 5.9%. The business had an exceptional quarter with an impressive beat of analysts’ revenue estimates.
Arrow Electronics delivered the biggest analyst estimates beat among its peers. Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 7.8% since reporting. It currently trades at $119.83.
Is now the time to buy Arrow Electronics? Access our full analysis of the earnings results here, it’s free for active Edge members.
Weakest Q2: ESCO (NYSE: ESE)
A developer of the communication systems used in the Batmobile of “The Dark Knight,” ESCO (NYSE: ESE) is a provider of engineered components for the aerospace, defense, and utility sectors.
ESCO reported revenues of $296.3 million, up 13.6% year on year, falling short of analysts’ expectations by 7%. It was a disappointing quarter as it posted full-year revenue guidance missing analysts’ expectations.
ESCO delivered the weakest performance against analyst estimates in the group. Interestingly, the stock is up 11.5% since the results and currently trades at $212.22.
Read our full analysis of ESCO’s results here.
Worthington (NYSE: WOR)
Founded by a steel salesman, Worthington (NYSE: WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.
Worthington reported revenues of $303.7 million, up 18% year on year. This result surpassed analysts’ expectations by 1.4%. Aside from that, it was a satisfactory quarter as it also recorded a solid beat of analysts’ adjusted operating income estimates.
Worthington pulled off the fastest revenue growth among its peers. The stock is down 6.2% since reporting and currently trades at $56.52.
Read our full, actionable report on Worthington here, it’s free for active Edge members.
NN (NASDAQ: NNBR)
Formerly known as Nuturn, NN (NASDAQ: NNBR) provides metal components, bearings, and plastic and rubber components to the automotive, aerospace, medical, and industrial sectors.
NN reported revenues of $107.9 million, down 12.3% year on year. This print missed analysts’ expectations by 2.6%. Taking a step back, it was still a strong quarter as it logged a beat of analysts’ EPS estimates and full-year EBITDA guidance exceeding analysts’ expectations.
NN achieved the highest full-year guidance raise among its peers. The stock is down 15.8% since reporting and currently trades at $1.81.
Read our full, actionable report on NN here, it’s free for active Edge members.
Market Update
The Fed’s interest rate hikes throughout 2022 and 2023 have successfully cooled post-pandemic inflation, bringing it closer to the 2% target. Inflationary pressures have eased without tipping the economy into a recession, suggesting a soft landing. This stability, paired with recent rate cuts (0.5% in September 2024 and 0.25% in November 2024), fueled a strong year for the stock market in 2024. The markets surged further after Donald Trump’s presidential victory in November, with major indices reaching record highs in the days following the election. Still, questions remain about the direction of economic policy, as potential tariffs and corporate tax changes add uncertainty for 2025.
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