Gates Industrial NYSE: GTES executives said the company’s first-quarter results tracked management’s expectations as the company worked through a major Europe ERP implementation and the impact of two fewer working days, while describing improving order trends into March and April and reiterating full-year 2026 guidance.
First-quarter results reflected ERP transition and fewer working days
CEO Ivo Jurek said the company “executed well on our business priorities during the first quarter, navigating successfully through a fair level of business transition,” pointing to the Europe team’s rollout of a new ERP system. Jurek said Europe stabilized as the quarter progressed, with revenues in March “on par with prior year pre-ERP implementation” but with “still somewhat above normal operating costs.”
For the quarter, Gates reported sales of $851 million, which Jurek said represented a 2.9% core sales decrease year over year. He said the European ERP transition and fewer working days combined were an approximately 600 basis points headwind to core sales. Adjusted EBITDA was $177 million, producing an Adjusted EBITDA margin of 20.8%, down 130 basis points year over year. Adjusted gross margin was 40.5%, down about 20 basis points, and adjusted EPS was $0.35.
Jurek said the fewer working days and the ERP transition combined to represent a $0.07 headwind to adjusted EPS. CFO Brooks Mallard added that, conservatively, the company saw “at least 200 basis points of EBITDA margin headwinds” in the quarter, with at least half tied to the ERP transition (lower sales and temporary higher SG&A during the “hypercare” period) and the remainder driven by footprint optimization costs and operating leverage from fewer days.
Regional and segment performance
Mallard said first-quarter core sales by region were mixed:
- Americas: core sales declined about 2.6%, with North America down “a little less than 2%.” Excluding the working-day impact, Mallard said North America core sales would have increased year over year.
- EMEA: core sales declined about 8.5%, with most of the decline in February as shipping lagged production following the ERP go-live. Mallard said this resulted in about $4 million of revenue below expectations and higher-than-normal pass-through backlog exiting Q1. He said EMEA delivered positive core growth in March and that trend continued into early Q2.
- APAC: core sales grew almost 4%, supported by Industrial OEM and auto aftermarket growth.
By segment, Jurek said Power Transmission revenue was $533 million, down about 2.5% on a core basis, primarily from fewer working days and the Europe ERP transition. He said order trends accelerated during March. Jurek noted Personal Mobility expanded 6%, but said growth was affected by project timing and the Europe ERP transition; he expects a return to “normalized levels” beginning in Q2.
In Fluid Power, sales were $318 million, with a 3.5% core sales decline, again tied to fewer working days and the ERP implementation. Jurek said APAC posted “strong double-digit growth” in the segment, while commercial on-highway was “relatively weak” during the quarter, though North American orders “have inflected positively to start 2026.”
Orders improved into March and April; backlog built during quarter
Management emphasized improved demand trends later in the quarter. Jurek said core sales growth in March was approximately mid-single digits year over year, excluding the ERP and working-day impacts, and that Gates finished the quarter with a book-to-bill “solidly above 1.”
Responding to questions on underlying momentum, Jurek told Baird’s Michael Halloran that, net of the two fewer selling days and the ERP impact, core sales would have been up about 300 basis points, “right in line with what we have expected for the year.” He said April order flow remained “very solid,” and highlighted continued momentum in industrial OEM orders.
However, management also clarified the magnitude of ERP-related “catch-up.” Morgan Stanley’s Chris Snyder asked about the implied ERP impact, and Jurek said the company came about $5 million light to the midpoint of its Q1 guidance and that this $5 million shortfall had been recovered in April. Mallard added that larger ERP-related impacts were already built into the company’s full-year expectations.
Guidance reiterated; Q2 outlook and margin bridge
Mallard said Gates reiterated its full-year 2026 financial guidance and expects core growth to improve over the year. For the second quarter, the company guided revenue to a range of $905 million to $945 million, with core growth at the midpoint estimated at approximately 3.5% year over year.
On profitability, Mallard said the company expects Q2 adjusted EBITDA margin to decline about 30 basis points versus the prior-year period, reflecting temporary ERP-related costs and footprint optimization projects. He said the ERP “hypercare” SG&A costs are expected to come out as the company exits Q2, and that the footprint actions should be complete by the end of Q2, with benefits expected in the second half. Jurek said the company anticipates an adjusted EBITDA margin “approaching 23.5% in the second half of the year.”
Regarding calendar impacts, Mallard noted the company will have an extra day in Q4, which he said would provide a tailwind relative to the first-quarter headwind from fewer working days.
Acquisition announced; capital allocation and balance sheet update
Jurek said Gates announced “a small acquisition” to buy Timken’s industrial belt business, which the company expects to close in the third quarter. He called the deal a tuck-in that augments Gates’ Power Transmission position in North America and “should supplement growth moving forward.”
In Q&A, Jurek said the deal was “very opportunistic” and described it as highly complementary, including the acquisition of “assets in a facility in Mexico.” He estimated the business could add “maybe $5 million a month in annualized revenue” and said it should be “very accretive” once integrated. When asked about margins, Jurek said the acquired business is coming in below Gates’ North America Power Transmission average, in part due to OEM mix, and that Gates sees an opportunity to drive margins toward company averages through its operating system.
Mallard highlighted balance sheet progress, saying Gates delivered free cash flow conversion of approximately 101% over the past 12 months and exited the quarter with net leverage of 1.9x, an improvement of about 0.4 turns from the first quarter of 2025. He also noted Gates repurchased shares in the quarter and received a Moody’s credit rating upgrade in late February to Baa2 from Baa3.
On capital deployment, Jurek said the company’s M&A pipeline is “very robust” and suggested “a very good likelihood of more announcements coming certainly within this calendar year,” while emphasizing the company is focused on assets that are “front and center” to its portfolio. Regarding leverage impact from the Timken belt acquisition, Jurek said it would be “immaterial.”
On pricing and costs, executives said they were monitoring inflationary inputs tied to oil and broader commodity impacts, while expressing confidence in the company’s ability to price for inflation. Mallard said Gates does not expect a material impact from recent revisions in Section 232 tariffs, and described potential tariff-related dilution of “maybe 20 basis points” as the company prices actions through, though he said it was not included in guidance.
About Gates Industrial NYSE: GTES
Gates Industrial Corporation PLC NYSE: GTES is a leading global manufacturer of engineered power transmission belts and fluid power products. The company's portfolio includes synchronous belts, V-belts, hose assemblies, fittings and hydraulic components designed to support a wide range of industrial and automotive applications. Gates Industrial serves sectors such as agriculture, mining, construction, manufacturing, transportation and consumer markets, offering solutions that improve performance, reliability and efficiency in demanding operating environments.
In its power transmission segment, Gates Industrial produces high-strength belts engineered for precise motion control and minimal maintenance.
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