Gates Raises Outlook as Sales Growth Accelerates
Second-quarter sales reached $941.6 million as both operating segments returned to core growth.
Gates Industrial Corp. (GTES), the maker of power-transmission and fluid-power products, accelerated its second-quarter core sales growth to 4.9% and raised its full-year outlook.
The quarter marked a turn from the start of the year, when core sales fell 2.9%. Reported growth strengthened to 6.6% from 0.4% in the first quarter, the fastest pace in the five-quarter comparison, while sales increased 10.6% sequentially.
Adjusted diluted earnings rose to $0.44 a share from $0.39 a year earlier and $0.35 in the preceding quarter. GAAP earnings increased to $0.67 a share from $0.22, aided by a $78.0 million income-tax benefit. Net income attributable to shareholders more than tripled to $170.9 million.
Power Transmission led the improvement, with sales rising 7.0% and core growth reaching 5.3% after a first-quarter core decline. Its adjusted EBITDA increased 9.8% to $134.8 million, and its margin expanded to 22.9% from 22.3% a year earlier.
Fluid Power sales rose 5.8%, including 4.2% core growth, reversing the preceding quarter's declines. Adjusted EBITDA was nearly flat at $76.6 million, however, and the segment's 21.7% margin remained 1.2 percentage points below the year-earlier level.
Companywide adjusted EBITDA increased to $211.4 million from $199.2 million a year earlier, while its 22.5% margin was unchanged. Gates raised its 2026 core-sales-growth forecast to 2.5% to 4.5% and lifted the adjusted EBITDA midpoint by $10 million to $815 million. Its adjusted EPS outlook is now $1.62 to $1.70 a share, up from $1.52 to $1.68.
The stronger earnings had yet to translate into higher cash generation. Six-month operating cash flow slipped to $108.8 million as receivables and inventory absorbed more cash, while share repurchases increased to $38.7 million from $13.0 million. Gates continues to expect free-cash-flow conversion above 90% for the year.