GTES Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Sales: $942 million, a record for Gates, reflecting a 6.6% increase, with core sales growth of 4.9%.

Adjusted EBITDA: Approximately $211 million, resulting in an adjusted EBITDA margin of 22.5%, slightly above expectations.

Adjusted Earnings Per Share (EPS): Increased 13% to a record $0.44.

Free Cash Flow: Approximately $60 million, with a trailing 12-month free cash flow to adjusted net income ratio of 94%.

Net Leverage Ratio: Improved to 1.8x, down 0.4x year-over-year.

Book-to-Bill Ratio: Remained above 1, indicating strong order flow.

2Strategic Updates and Business Highlights

Growth Initiatives: Strong performance attributed to strategic growth initiatives, particularly in industrial OEM and personal mobility segments, which saw growth rates of approximately 25% and 20%, respectively.

Segment Performance:

Power Transmission: Sales of $589 million with over 5% core growth, driven by industrial OEM and aftermarket.

Fluid Power: Sales of $353 million, a 4.2% core growth, with strong performance in commercial on-highway and construction markets.

Geographic Performance:

Americas: 1.5% core growth, with North America showing mid-single-digit growth momentum.

EMEA: Core sales grew 6.4%, driven by strong industrial channel performance.

APAC: Growth accelerated to 11.5%, with notable strength in China and East Asia.

3Forward Guidance and Outlook

2026 Full-Year Guidance: Raised for core sales growth, adjusted EBITDA, and adjusted EPS. Core sales growth now expected between 2.5% to 4.5%, adjusted EBITDA between $800 million to $830 million, and adjusted EPS between $1.62 to $1.70.

Q3 2026 Estimates: Total revenues projected between $880 million to $920 million, with core revenues expected to rise approximately 5.5%.

Adjusted EBITDA Margin: Anticipated to increase by 50 to 90 basis points compared to Q3 2025.

4Bad News, Challenges, or Points of Concern

Regional Weakness: South America faced a decline primarily due to soft agricultural demand.

Margin Pressures: Fluid Power segment experienced a 120 basis point decrease in adjusted EBITDA margin due to footprint realignment costs and investments.

Cost Inflation: Continued volatility in oil prices is expected to maintain cost pressures, although pricing strategies are in place to offset these increases.

ERP Implementation: While improvements are expected post-implementation, some operational challenges and headwinds related to SG&A costs were noted.

5Notable Q&A Insights

Margin Improvement: Management expects margins to improve as restructuring and optimization efforts yield results, with Q3 incrementals projected at 35% to 40%, increasing to over 45% in Q4.

Demand Visibility: Strong order bookings and a book-to-bill ratio above 1 provide confidence in the second half of 2026, with expectations for continued demand improvement.

Personal Mobility Growth: The segment is on track for sustained growth due to new design wins and market penetration strategies.

Redomicile Benefits: The move to Bermuda is expected to simplify operations and enhance capital allocation flexibility, reducing bureaucratic costs associated with dual reporting in the UK and US. Overall, GTES demonstrated strong financial performance in Q2 2026, with positive growth across most segments and regions, while also raising guidance for the remainder of the year despite some regional and cost challenges.