Gates Industrial (NYSE:GTES) reported record quarterly sales and adjusted earnings per share for the second quarter of 2026, citing improving industrial demand, growth in strategic initiatives and stronger performance across most end markets.
Chief Executive Officer Ivo Jurek said sales of $942 million rose 6.6% from the prior-year period, including foreign-exchange benefits, while core sales increased 4.9%. Adjusted EBITDA totaled approximately $211 million, representing a 22.5% margin, and adjusted earnings per share increased 13% to a quarterly record of $0.44.
Industrial channels and regional markets gain momentum
Industrial OEM channels led the quarter, with companywide industrial OEM sales growing at a double-digit rate. Industrial aftermarket demand also improved, producing mid-single-digit growth. Gates said most of its end markets grew year over year during the quarter.
- Power Transmission: Sales were $589 million, with core growth exceeding 5%. Industrial end markets increased at a high-single-digit rate, supported by mid-teens global industrial OEM growth. Automotive aftermarket sales rose at a high-single-digit rate, while personal mobility grew in the mid-20% range and commercial on-highway increased by a similar rate. Segment adjusted EBITDA margin rose 60 basis points.
- Fluid Power: Sales were $353 million and core sales increased 4.2%. Industrial OEM sales increased by double digits, commercial on-highway rose by the high teens, and construction grew in the mid-single digits. Segment adjusted EBITDA margin declined 120 basis points, primarily due to footprint realignment costs and investments in enterprise initiatives.
Gates’ data-center business more than doubled from the prior-year quarter. Jurek said revenue contribution is expected to increase in the second half as certain high-value projects launch. He also said the company is ramping an industrial water-pump program with a major U.S.-based server manufacturer.
By region, core sales in the Americas increased 1.5%, as low-double-digit North American growth more than offset weaker South American demand tied primarily to agriculture. North America exited the quarter at a mid-single-digit growth rate, according to Chief Financial Officer Brooks Mallard.
EMEA core sales rose 6.4%, led by double-digit industrial-channel growth. APAC growth accelerated to 11.5%, with China, East Asia and India posting comparable growth rates amid strong industrial demand.
Guidance raised as management expects stronger second half
The company raised its full-year 2026 outlook for core sales growth, adjusted EBITDA and adjusted earnings per share. Gates now expects:
- Core sales growth of 2.5% to 4.5% for the full year.
- Adjusted EBITDA of $800 million to $830 million.
- Adjusted earnings per share of $1.62 to $1.70.
For the third quarter, Gates forecast revenue of $880 million to $920 million and core revenue growth of approximately 5.5% at the midpoint. The company expects adjusted EBITDA margin to increase by 50 to 90 basis points from the third quarter of 2025.
Jurek said the revised outlook implies roughly 6% year-over-year core sales growth in the second half, compared with approximately 1% growth in the first half. Gates also expects adjusted EBITDA margin of at least 23.5% in the second half.
Mallard said the margin outlook reflects benefits from footprint optimization, restructuring and cost initiatives, along with improving core growth. He expects incremental margins of 35% to 40% in the third quarter, partly affected by pricing actions to offset higher oil-related input costs, followed by incremental margins of more than 45% in the fourth quarter.
Pricing, investment and capital allocation
Management said it has implemented price increases to offset higher costs for oil- and petroleum-related materials. Mallard said the company expects to be at least price-cost neutral in the second half, though it does not expect relief from those input costs near term.
Free cash flow was approximately $60 million in the second quarter. Trailing 12-month free cash flow conversion relative to adjusted net income was 94%, while net leverage declined to 1.8 times, down 0.4 times from the prior-year period. Gates repurchased approximately $22 million of stock during the quarter and reported trailing 12-month return on invested capital of 21.6%.
During the call, management also discussed the company’s redomicile to Bermuda. Mallard said the move eliminates the need for dual annual reports, IFRS reporting and audits in both the United Kingdom and the United States. Jurek said Gates sought to align shareholder rights more closely with those of U.S.-based companies and simplify its operating environment, while also improving capital-allocation flexibility.
Looking ahead, Jurek said Gates expects distributor restocking to remain limited in the near term, with channel inventories described as lean. He said a more meaningful distributor contribution could emerge toward the end of 2026 or early 2027 if the industrial recovery continues.
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.
