Gates Industrial Corporation Ltd.

What they do

Gates designs and makes elastomer drive belts and related components (Power Transmission) and hoses, tubing and fittings for high-pressure hydraulic and fluid transfer applications (Fluid Power). It sells to aftermarket channel customers and OEMs across end markets including automotive aftermarket, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility. The company has operated since 1911 and has been listed on the NYSE since its January 2018 IPO.

Revenue drivers

• Power Transmission — Elastomer drive belts and related components used to transfer power; represented approximately 62% of Fiscal 2025 net sales of $3,443.2 million.
• Fluid Power — Hoses, tubing and fittings designed to convey hydraulic fluid at high pressures in mobile and stationary applications, plus other high-pressure and fluid transfer hoses; approximately 38% of Fiscal 2025 net sales.
• Aftermarket channel — The majority of revenue comes from aftermarket channels, where products are replaced on natural or preventative maintenance cycles, producing recurring high-margin revenue.
• Global OEM and diversified end markets — Products are sold globally under the Gates brand and select customer brands as specified components to OEMs across diversified industrial, off-highway, on-highway, energy and personal mobility applications.

Recent performance

Second-quarter 2026 net sales were $941.6 million, up 6.6% year over year with core sales up 4.9%. Net income attributable to shareholders was $170.9 million, or $0.67 per diluted share, and adjusted net income per diluted share was $0.44. Adjusted EBITDA was $211.4 million, a 22.5% margin. Power Transmission second-quarter net sales rose 7.0% to $588.5 million with a 22.9% adjusted EBITDA margin, while Fluid Power net sales rose 5.8% to $353.1 million with a 21.7% adjusted EBITDA margin. For the first half of 2026, total net sales were $1,792.7 million across the two segments.

Strategy

Management said it is focused on capitalizing on strengthening industrial demand and described its balance sheet as strong with significant capital allocation optionality. The company raised its full-year 2026 guidance for core sales growth, adjusted EBITDA and adjusted EPS. Capital expenditures are guided at $120 million with free cash flow conversion of 90% or more. Stated priorities include executing on strategic priorities and delivering on its guidance.

Risks

• U.S. policy and tariff exposure — Approximately 37% of Fiscal 2025 revenues came from the U.S., and U.S. policies, actions or legislation (including tariffs) could materially affect operations and financial results.
• International operations and supply chain — The company faces economic, political and other risks from international operations, including supply-chain impacts from ongoing conflicts in the Middle East such as reduced availability of production materials and increased supply costs.
• Channel partner concentration — Changes in relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners could adversely affect results.
• Manufacturing and IT dependence — Results depend on continued operation of manufacturing facilities, supply chains, distribution systems and information technology systems, and on the ability to forecast demand or meet significant demand increases.

Outlook

Gates raised its full-year 2026 guidance: core sales growth of 2.5% to 4.5% (up 100 basis points at the midpoint), adjusted EBITDA of $800 million to $830 million, and adjusted EPS of $1.62 to $1.70. Capital expenditures are unchanged at $120 million and free cash flow conversion is expected at 90% or more. Management said it anticipates higher sales growth in the second half of 2026 relative to its initial guidance and believes it is positioned to capitalize on strengthening industrial demand.