Gates Industrial (NYSE:GTES) reported third-quarter results marked by mid-single-digit core sales growth, record adjusted EBITDA margin and record adjusted earnings per share, as industrial demand strengthened across regions and end markets.
Chief Executive Officer Ivo Jurek said third-quarter core sales growth of 5.5% was driven by high-single-digit growth in industrial markets globally. The company reported sales of about $904 million, up 5.6% in total, while adjusted EBITDA rose 10% to $215 million. Adjusted EBITDA margin expanded 90 basis points to a company record of 23.8%.
Adjusted earnings per share increased about 21% to a quarterly record of $0.47, compared with $0.39 in the prior-year period. Jurek said the company remains on track to meet financial commitments that it had progressively raised during 2026.
Industrial Demand Strengthens
Jurek said the industrial recovery continued to broaden during the quarter, with industrial core growth accelerating from mid-single digits in the second quarter to high single digits in the third quarter. The company’s global book-to-bill ratio remained above one during the period.
“Growth was broad-based, with the majority of our end markets growing,” Jurek said. He highlighted improving demand in North America, where industrial OEM sales rose more than 20% and industrial aftermarket sales increased by the low teens, according to comments during the question-and-answer session.
At the company level, diversified industrial sales increased by high single digits, representing that market’s strongest growth since the fourth quarter of 2022. Commercial on-highway sales grew more than 20%, while sales into global personal mobility markets climbed approximately 35%.
Regional performance was positive across all three operating regions:
- Americas core sales increased 5.2%, with high-single-digit North American growth more than offsetting a decline in South America.
- EMEA core sales rose 4.6%, led by double-digit automotive aftermarket growth and mid-single-digit industrial OEM growth.
- APAC core sales increased 7.5%, driven by double-digit industrial-channel growth.
Jurek said automotive original-equipment sales in North America declined slightly, while automotive aftermarket sales rose modestly following strong growth in prior quarters. He said the company expects aftermarket demand to reaccelerate as it normalizes following a large customer acquisition about a year earlier.
Segment Results and Growth Investments
Power Transmission sales totaled approximately $560 million and rose 5.2% on a core basis. Industrial OEM growth was in the high teens, while personal mobility revenue rose about 40% and commercial on-highway revenue increased more than 20%. The segment’s adjusted EBITDA margin rose 160 basis points to 24.5%, supported by volume leverage and operating performance.
Fluid Power sales were approximately $343 million, growing more than 6% on a core basis. Industrial OEM demand strengthened, commercial on-highway sales rose more than 20%, and construction increased by high single digits. Agriculture sales grew slightly, including a mid-single-digit sequential increase.
Management said it sees potential for a more steady agricultural recovery in 2027. Jurek characterized third-quarter agricultural performance as roughly flat to slightly down year over year, but said the result compared favorably with broader agricultural market conditions.
Fluid Power adjusted EBITDA margin declined about 10 basis points to 22.8%, although segment gross margin increased 130 basis points. Jurek said the company has been investing in strategic growth initiatives, including product development, commercial resources, manufacturing capability and capacity.
Data center revenue increased about 2.5 times from the prior-year third quarter. Gates said it is expanding its product offerings and customer base for liquid-cooling applications, including fluid conveyance products, couplings and pumps. Jurek said the company has customer exposure spanning server manufacturers, hyperscalers and infrastructure builders.
The company also said it has capacity in place to support personal mobility growth and is adding data-center capacity across its fluid conveyance and pump offerings. Jurek said Gates expects personal mobility growth to follow a long-term trajectory of roughly 20% to 30%, while cautioning that quarterly growth will not be linear.
Guidance Raised for Earnings and EBITDA
Gates reaffirmed the midpoint of its full-year core sales outlook while raising adjusted EBITDA and adjusted EPS guidance. The company narrowed its full-year core sales growth outlook to 3.2% to 3.8%, maintaining a midpoint of 3.5%. Total sales growth is expected to be about 5% at the midpoint.
Full-year adjusted EBITDA is now forecast at $809 million to $823 million. Adjusted EPS guidance was increased to $1.66 to $1.72, representing a $0.03 increase at the midpoint from prior guidance.
For the fourth quarter, Gates expects total sales of $905 million to $925 million and core revenue growth of about 6.5% at the midpoint. The company expects adjusted EBITDA margin to increase approximately 120 basis points year over year in the quarter.
Chief Financial Officer Brooks Mallard said fourth-quarter margins will reflect normal seasonal factors, including fewer manufacturing days and shutdowns, as well as more balanced price-cost dynamics. He also cited a year-over-year variable-compensation headwind of about 100 basis points, reflecting stronger company performance.
Cash Flow, Capital Allocation and M&A
Trailing 12-month free-cash-flow conversion was 82%, and management expects conversion to improve in the fourth quarter, consistent with seasonality. The company reiterated its expectation for free-cash-flow conversion above 90%.
Net leverage ended the quarter at 1.8 times, an improvement of about 0.2 turns. Gates repurchased approximately $57 million of shares during the quarter, while return on invested capital was 21.5% on a trailing 12-month basis.
Mallard said the company increased raw-material safety stock to support customer supply reliability and expects to convert that inventory into finished goods through the third and fourth quarters. He also said working-capital inflation should begin to subside as the company collects pricing related to material inflation.
Jurek said Gates expects to lean more toward strategic inorganic investments over the medium term, though he emphasized that the company would remain disciplined on acquisition valuations and target transactions capable of generating appropriate returns.
The company also discussed its recently completed acquisition of a belts business from Timken. Jurek said the transaction closed early in the fourth quarter and is expected to make only a limited fourth-quarter revenue contribution because customers and Timken had pre-bought inventory ahead of the carve-out. Gates expects a more meaningful contribution in 2027, estimated at roughly 100 basis points of company revenue. Management said the acquired business was initially less profitable than Gates, but the company expects to bring it to company-average profitability over roughly 12 months.
Gates plans to provide its first outline of 2027 expectations at its Capital Markets Day at the New York Stock Exchange on Nov. 19.
About Gates Industrial (NYSE:GTES)
Gates Industrial Corporation plc (NYSE: GTES) is a manufacturer of engineered power transmission and fluid power products. The company develops solutions designed to transfer power, control motion, and manage the flow of fluids in industrial and mobile applications.
Its product portfolio includes synchronous and V-belts, belt drives, hoses, hydraulic assemblies, couplings, tensioners, pulleys, and related components. Gates serves original equipment manufacturers, distributors, and aftermarket customers across industries such as automotive, agriculture, construction, energy, manufacturing, and general industrial equipment.
The company traces its roots to the Gates Rubber Company, founded in 1911 in Denver, Colorado.
