Engineered Components and Systems Stocks Q3 Teardown: Regal Rexnord (NYSE:RRX) Vs The Rest

December 09, 2024 at 01:48 AM EST

RRX Cover Image

As the craze of earnings season draws to a close, here’s a look back at some of the most exciting (and some less so) results from Q3. Today, we are looking at engineered components and systems stocks, starting with Regal Rexnord (NYSE: RRX).

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 slower Q3. As a group, revenues missed analysts’ consensus estimates by 2% while next quarter’s revenue guidance was 1.9% below.

Thankfully, share prices of the companies have been resilient as they are up 5.6% on average 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 $1.48 billion, down 10.4% year on year. This print fell short of analysts’ expectations by 2.9%. Overall, it was a disappointing quarter for the company with a miss of analysts’ organic revenue and adjusted operating income estimates.

CEO Louis Pinkham commented, "Our team's controllable execution was strong in the third quarter, most evident in healthy adjusted gross and EBITDA margin gains, and clear signs of market outgrowth in our largest and highest-margin segment, Industrial Powertrain Solutions. As a Company, we delivered record adjusted gross margins of 38.4%, providing clear line of sight to our goal of 40% exiting 2025. A record high adjusted EBITDA margin of 22.8% was up 110 basis points versus prior year and aligned with our goal of 25% exiting 2025. And finally, adjusted EPS was up 18.6% versus prior year, a clear inflection point for Regal Rexnord."

The market was likely pricing in the results, and the stock is flat since reporting. It currently trades at $169.70.

Read our full report on Regal Rexnord here, it’s free.

Best Q3: Graham Corporation (NYSE: GHM)

Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.

Graham Corporation reported revenues of $53.56 million, up 18.8% year on year, outperforming analysts’ expectations by 7.8%. The business had an exceptional quarter with a solid beat of analysts’ EPS estimates and an impressive beat of analysts’ EBITDA estimates.

Graham Corporation scored the biggest analyst estimates beat, fastest revenue growth, and highest full-year guidance raise among its peers. The market seems happy with the results as the stock is up 30.1% since reporting. It currently trades at $43.27.

Is now the time to buy Graham Corporation? Access our full analysis of the earnings results here, it’s free.

Weakest Q3: 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 $257.3 million, down 17.5% year on year, falling short of analysts’ expectations by 13.1%. It was a disappointing quarter as it posted a miss of analysts’ Building Products revenue estimates and a significant miss of analysts’ adjusted operating income estimates.

Worthington delivered the slowest revenue growth in the group. As expected, the stock is down 9.8% since the results and currently trades at $40.83.

Read our full analysis of Worthington’s results here.

Timken (NYSE: TKR)

Established after the founder noticed the difficulty freight wagons had making sharp turns, Timken (NYSE: TKR) is a provider of industrial parts used across various sectors.

Timken reported revenues of $1.13 billion, down 1.4% year on year. This number beat analysts’ expectations by 0.8%. Taking a step back, it was a softer quarter as it recorded full-year EPS guidance missing analysts’ expectations.

The stock is down 8.5% since reporting and currently trades at $76.34.

Read our full, actionable report on Timken here, it’s free.

RBC Bearings (NYSE: RBC)

With a Guinness World Record for engineering the largest spherical plain bearing, RBC Bearings (NYSE: RBC) is a manufacturer of bearings and related components for the aerospace & defense, industrial, and transportation industries.

RBC Bearings reported revenues of $397.9 million, up 3.2% year on year. This result lagged analysts' expectations by 1.6%. Overall, it was a disappointing quarter as it also produced a significant miss of analysts’ adjusted operating income.

The stock is up 19.2% since reporting and currently trades at $334.39.

Read our full, actionable report on RBC Bearings here, it’s free.

Market Update

Thanks to the Fed’s rate hikes in 2022 and 2023, inflation has been on a steady path downward, easing back toward that 2% sweet spot. Fortunately (miraculously to some), all this tightening didn’t send the economy tumbling into a recession, so here we are, cautiously celebrating a soft landing. The cherry on top? Recent rate cuts (half a point in September, a quarter in November) have kept 2024 stock markets frothy, especially after Trump’s November win lit a fire under major indices and sent them to all-time highs. However, there's still plenty to ponder — tariffs, corporate tax cuts, and what 2025 might hold for the economy.

Want to invest in winners with rock-solid fundamentals? Check out our Strong Momentum Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.

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