Executive Summary

Q1 2025 delivered modest top-line and strong profitability: net sales $847.6M (-1.7% YoY; +2.2% QoQ), adjusted EBITDA $187.3M (22.1% margin), adjusted EPS $0.36; GAAP EPS $0.24 .
Results were above Wall Street consensus: revenue beat by ~$24M and EPS beat by ~$0.03; gross margin reached 40.7% and adjusted EPS rose ~6% YoY, aided by lower interest expense and share count (management) . Consensus values from S&P Global: Revenue $823.6M*, EPS $0.330*; actual revenue $847.6M and EPS $0.36 *.
Guidance maintained for FY 2025 (core sales -0.5% to +3.5%; adjusted EBITDA $735–$795M; adjusted EPS $1.36–$1.52; CapEx ~$120M; FCF conversion >90%), with detailed tariff mitigation plans (price increases + operational actions) .
Call tone: confident yet pragmatic amid tariff-led uncertainty; catalysts include tariff offset execution, strong Auto Replacement and Personal Mobility, and emerging data center liquid cooling opportunities .

What Went Well and What Went Wrong

What Went Well

Auto Replacement and Personal Mobility strength drove volume growth; “our replacement channel sales grew mid-single digits… automotive replacement high single digits… personal mobility >30% growth” (CEO) .
Margin quality: gross margin hit 40.7% for the fourth straight quarter; adjusted EPS up ~6% YoY; lower interest expense and share count contributed ~$0.03 to EPS (CEO) .
Tariff strategy: management expects to fully offset ~$50M 2025 tariff costs, with 75–80% via price and the remainder via operations/supply chain; minimal dollar impact quarterly; ~25 bps EBITDA margin dilution for the year (CFO/CEO) .

What Went Wrong

Industrial end markets remained soft (agriculture, construction, energy); Fluid Power margins compressed (-120 bps YoY) on demand softness (company release) .
FX headwinds and lapping prior-year nonrecurring items (insurance proceeds ~100 bps benefit last year) weighed on YoY margin comparison (CEO) .
Q1 operating cash flow was seasonally weak (FCF outflow of $19M) and SG&A ran incrementally higher due to systems investments (CFO) .

Financial Results

Metric	Q1 2024	Q4 2024	Q1 2025
Net Sales ($USD Millions)	$862.6	$829.4	$847.6
GAAP Diluted EPS ($)	$0.15	$0.14	$0.24
Adjusted Diluted EPS ($)	$0.34	$0.36	$0.36
Adjusted EBITDA ($USD Millions)	$195.6	$180.8	$187.3
Adjusted EBITDA Margin (%)	22.7%	21.8%	22.1%
Net Income Margin (%) (from continuing ops)	5.4%	5.0%	8.1%

Segment breakdown

Segment	Q1 2024	Q4 2024	Q1 2025
Power Transmission Net Sales ($M)	$532.8	$520.0	$527.2
Power Transmission Adj. EBITDA ($M)	$119.0	$112.9	$116.7
Power Transmission Adj. EBITDA Margin (%)	22.3%	21.7%	22.1%
Fluid Power Net Sales ($M)	$329.8	$309.4	$320.4
Fluid Power Adj. EBITDA ($M)	$76.6	$67.9	$70.6
Fluid Power Adj. EBITDA Margin (%)	23.2%	21.9%	22.0%

KPIs (Q1 2025)

KPI	Q1 2025
Gross Margin (%)	40.7%
Book-to-Bill	Just above 1.0
Net Leverage	2.3x
Share Repurchases	$13M
Free Cash Flow	-$19M (outflow)

Guidance Changes

Metric	Period	Previous Guidance (Q4 2024)	Current Guidance (Q1 2025)	Change
Core Sales Growth YoY	FY 2025	(-0.5%) to +3.5%	(-0.5%) to +3.5%	Maintained
Adjusted EBITDA ($M)	FY 2025	$735–$795	$735–$795	Maintained
Adjusted EPS ($)	FY 2025	$1.36–$1.52	$1.36–$1.52	Maintained
CapEx ($M)	FY 2025	~$120	~$120	Maintained
FCF Conversion	FY 2025	>90%	>90%	Maintained
Revenue ($M)	Q2 2025	—	$845–$885 (core ~flat at midpoint)	New quarterly guide
Adj. EBITDA Margin (bps vs Q2’24)	Q2 2025	—	-10 to -60 bps (Q2’24 had ~+80 bps real estate gain)	New quarterly guide

Note: Company subsequently raised full-year guidance in Q2 2025 (core +0.5% to +2.5%, adj. EBITDA $765–$795M, adj. EPS $1.44–$1.52) .

Earnings Call Themes & Trends

Topic	Q3 2024 (Prev-2)	Q4 2024 (Prev-1)	Q1 2025 (Current)	Trend
Tariffs/Macro	No specific tariff framework; macro uneven; margin expansion via enterprise initiatives	Initial FY25 guidance; margin expansion YoY despite volume declines; macro caution	Detailed tariff plan (~$50M), 75–80% price offset, rest ops; minimal dollar impact; ~25 bps EBITDA dilution	Increasing focus; mitigation actions in place
Supply chain/in-region	Noted operational initiatives driving margins	Emphasis on enterprise initiatives and footprint optimization	“In-region, for-region” footprint a competitive edge; sourcing/logistics optimization since 2022	Reinforced as strategic advantage
Product performance	Personal Mobility weak in 2024	Personal Mobility mixed; AR modest growth	Personal Mobility rebounded >30%; Auto Replacement high single digits	Improving
Regional trends	Mixed across regions	EMEA softness; varied markets	North America returned to growth; China and East Asia positive; EMEA, South America down	Stabilizing/improving ex-EMEA
R&D/enterprise initiatives (80/20)	Initiatives driving margin gains	Continued margin lift; CapEx to support optimization	80/20 progress; measured rollout; productivity gains; SG&A/compressible costs management	Continued execution
AI/technology (data centers)	—	—	Growing engagement in liquid-cooling e-water pumps with hyperscalers; Taiwan/China interest	Emerging growth vector
Channel dynamics	OEM down; Replacement modestly up	OEM down double-digits; Replacement up low single digits	No prebuy; sell-in aligned with sell-out; new channel partner ramping	Healthy Replacement; OEM soft

Management Commentary

“Our replacement channel sales grew mid-single digits… automotive replacement high single digits… personal mobility >30% growth.” (CEO)
“Gross margin measured 40.7%, and we exceeded the 40% threshold for gross margin for the fourth consecutive quarter.” (CEO)
“Based on all enacted tariffs… our exposure is approximately $50 million for 2025… we intend to fully offset… and anticipate no meaningful impact to our adjusted EBITDA for the full year.” (CFO)
“We are tightening our focus on our compressible cost structure… action plans prepared should demand soften.” (CEO)
“We repurchased $13 million of our shares in Q1 and have over $100 million remaining under our existing authorization.” (CFO/CEO)

Q&A Highlights

Tariff cadence and offsets: Management expects minimal dollar impact in Q2 and matched offsets in H2; full-year ~25 bps EBITDA dilution despite dollar-for-dollar offset . Price offsets ~75–80%; remaining via operations/supply chain .
Pricing timing: Price increases implemented in Q2, realized in Q3; tariff cost and price timing matched; de minimis Q2 impact .
Competitive position: In-region manufacturing limits exposure; few peers with comparable footprint; Parker cited in Fluid Power as closest analog (CEO) .
Demand/end-market outlook: Auto builds likely down high-single digits to ~10%; Auto Replacement robust; diversified industrial flattish; ag/construction negative but less severe than 2H’24 (CEO) .
Channel inventories: No evidence of prebuy; sell-in balanced with sell-out; new channel partner inventory load-in contributing incrementally (CEO/CFO) .

Estimates Context

How results compared to Wall Street consensus (S&P Global):

Metric	Q1 2025 Consensus*	Q1 2025 Actual	Q2 2025 Consensus*	Q2 2025 Actual
Revenue ($USD Millions)	823.6*	847.6	875.4*	883.7
Primary EPS ($)	0.330*	0.36	0.379*	0.39
EBITDA ($USD Millions)	181.8*	181.8*	197.7*	186.1*

Q1: Revenue and EPS were beats; EBITDA slightly above consensus on S&P’s basis but note definitional differences versus company “Adjusted EBITDA” ($187.3M) . Q2: Revenue and EPS modest beats; EBITDA below consensus on S&P’s definition*.
Values retrieved from S&P Global.*

Where estimates may need to adjust:

Upward bias to EPS and revenue trajectories given price realization in H2, Mobility strength, and North America recovery; margin headwinds limited to ~25 bps from tariffs (management) .

Key Takeaways for Investors

Q1 print showed resilient profitability and top-line outperformance versus consensus; strength in Replacement and Mobility offset OEM softness and FX headwinds *.
The detailed tariff plan (price + operations) reduces earnings risk; watch Q3 pricing realization and H2 margin cadence as a potential upside catalyst if demand holds .
Gross margin at 40.7% for the fourth straight quarter underscores structural improvements from enterprise initiatives; continued focus on 80/20 and compressible costs supports margin durability .
Replacement channels and China/East Asia growth provide near-term support while OEM cycles and EMEA remain mixed; monitor auto builds trajectory (likely down ~10%) and industrial end-market stabilization .
Emerging data center liquid cooling opportunity could become a mid-term growth vector; track validation milestones and early commercialization in H2/H1’26 (hyperscalers, Taiwan/China activity) .
Capital deployment optionality intact: net leverage 2.3x, authorization >$100M; buybacks likely the near-term preference given macro and valuation (management) .
Near-term trading: potential positive reaction to beats and tariff clarity; medium-term thesis hinges on price realization, enterprise initiative-driven margins, and Mobility/Replacement momentum *.

Additional Notes

Non-GAAP adjustments: Adjusted EPS ($0.36) vs GAAP ($0.24) reflect amortization, restructuring, share-based comp, FX/financing items, and discrete taxes; adjusted net income $93.9M .
Prior two quarters context: Q3 2024 and Q4 2024 showed volume pressure but margin expansion via initiatives; FY25 guidance introduced in Q4 and maintained in Q1; subsequently raised in Q2 .

All company figures are sourced from Gates Industrial Q1 2025 press release (8‑K and PR) and earnings call transcript with citations. Consensus values marked with * are retrieved from S&P Global.

Gates Industrial Corp plc (GTES)·Q1 2025 Earnings Summary