Executive Summary

Q2 results modestly exceeded Street on revenue and adjusted EPS; revenue was $883.7M vs $875.4M consensus and adjusted EPS was $0.39 vs $0.3798 consensus, while adjusted EBITDA margin held at 22.5% as management raised FY25 adjusted EBITDA/EPS guidance midpoints (+$15M EBITDA; +$0.04 EPS). Revenue was roughly flat YoY (-0.2%) and up versus Q1; adjusted EPS increased sequentially from $0.36 to $0.39 . EPS and revenue estimates from S&P Global: $0.3798 and $875.4M respectively; values with asterisks are from S&P Global data.*
Management raised FY25 guidance to: core sales +0.5% to +2.5%, adjusted EBITDA $765–$795M (midpoint $780M), adjusted EPS $1.44–$1.52, capex ~$120M, FCF conversion >90%. Q3 outlook: revenue $845–$885M and adjusted EBITDA margin +50–90 bps YoY .
Key positives: replacement channels returned to growth; personal mobility +18% YoY; ag turned positive for first time since Q4’22; gross margin remained >40% for the 5th straight quarter. Net leverage improved to 2.2x with plans to reduce gross debt by another $100M in July .
Watch items: industrial OEM softness (construction/on‑highway), auto OE weakness in Europe, tariffs quantified at ~$50M annualized headwind to be ~neutral via price/ops; company is pacing incremental pricing in 2H to offset impacts .
Catalysts: raised FY guide, visible momentum in liquid-cooled data center pipeline (~$150M) and personal mobility pipeline (> $300M potential revenue by 2028), plus potential Q3 tariff neutrality/pricing execution and 2H industrial replacement stabilization .

What Went Well and What Went Wrong

What Went Well

Replacement channels posted positive core growth, with automotive and industrial replacement up low-single digits; personal mobility grew 18% with continued ramp of design wins .
Agriculture inflected positive for the first time since Q4’22; gross margin expanded 40 bps YoY and has remained above 40% for five consecutive quarters .
FY25 adjusted EBITDA and EPS guidance raised; balance sheet strengthened with net leverage at 2.2x and intent to pay down an additional $100M of gross debt in July .

What Went Wrong

Industrial OEM remained under pressure, most notably construction and on‑highway; auto OEM weakness in Europe weighed on results .
Fluid Power sales declined 2.5% core YoY; sequentially mixed because of on‑highway softness in North America and lingering construction softness .
Tariffs now expected to have an annualized ~$50M impact, with 35–40% incurred in 2H25; management plans 85–90% offset via price and ops actions, aiming for ~neutral dollar impact for FY25 .

Financial Results

Consolidated P&L and Margins (oldest → newest)

Metric	Q2 2024	Q4 2024	Q1 2025	Q2 2025
Revenue ($M)	$885.5	$829.4	$847.6	$883.7
GAAP Diluted EPS	$0.26	$0.14	$0.24	$0.22
Adjusted EPS	$0.36	$0.36	$0.36	$0.39
Net Income Margin % (cont. ops)	8.8%	5.0%	8.1%	7.2%
Adjusted EBITDA ($M)	$202.2	$180.8	$187.3	$199.2
Adjusted EBITDA Margin %	22.8%	21.8%	22.1%	22.5%

Notes: Q2 2025 YoY revenue -0.2% and core sales -0.6% per company disclosures .

Versus S&P Global Consensus (estimates marked with asterisk)

Metric	Q3 2024	Q1 2025	Q2 2025
Revenue ($M)	$831.7 est* / $830.7 act	$823.6 est* / $847.6 act	$875.4 est* / $883.7 act
Primary EPS ($)	$0.3053 est* / $0.33 act	$0.3297 est* / $0.36 act	$0.3788 est* / $0.39 act
EBITDA ($M)	$176.9 est* / $175.0 act*	$181.8 est* / $181.8 act*	$197.7 est* / $186.1 act*

Estimate source and methodology: Values with asterisk are retrieved from S&P Global; “Primary EPS” aligns with company-adjusted EPS in recent quarters; S&P’s “actual” for EBITDA may differ from company Adjusted EBITDA definition resulting in a different “actual” than company-reported $199.2M in Q2 2025 . Values retrieved from S&P Global.*

Segment Detail

Segment	Metric	Q2 2024	Q1 2025	Q2 2025
Power Transmission	Net Sales ($M)	$541.9	$527.2	$550.1
	Adjusted EBITDA ($M)	$123.8	$116.7	$122.8
	Adjusted EBITDA Margin %	22.8%	22.1%	22.3%
Fluid Power	Net Sales ($M)	$343.6	$320.4	$333.6
	Adjusted EBITDA ($M)	$78.4	$70.6	$76.4
	Adjusted EBITDA Margin %	22.8%	22.0%	22.9%

KPIs and Balance Sheet

KPI	Q2 2025
Gross Margin Commentary	40.8% in Q2; >40% for 5 straight quarters
Free Cash Flow ($M) and Conversion	$74 FCF; 73% conversion in Q2; LTM conversion 80%
Net Leverage	2.2x; targeting <2x by YE25
Cash & Cash Equivalents	$719.7M (end of Q2)
H1 Operating Cash Flow / Capex	CFO H1 $110.3M; H1 capex $36.9M

Guidance Changes

Metric	Period	Previous Guidance (as of Q1’25)	Current Guidance (Q2’25)	Change
Core Sales Growth	FY 2025	(0.5%) to +3.5%	+0.5% to +2.5%	Narrowed (midpoint unchanged)
Adjusted EBITDA ($M)	FY 2025	$735–$795	$765–$795	Raised midpoint (+$15M)
Adjusted EPS ($)	FY 2025	$1.36–$1.52	$1.44–$1.52	Raised midpoint (+$0.04)
Capital Expenditures ($M)	FY 2025	~ $120	~ $120	Maintained
FCF Conversion	FY 2025	>90%	>90%	Maintained
Total Revenue ($M)	Q3 2025	—	$845–$885	New quarterly outlook
Adj. EBITDA Margin	Q3 2025	—	+50–90 bps vs Q3’24	New quarterly outlook

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24 and Q1’25)	Current Period (Q2’25)	Trend
Personal Mobility	2024 impacted by destock; Q1’25 volumes grew with Auto Replacement and Mobility supporting growth	+18% YoY; design wins ramping; pipeline >$300M; targeting >$300M revenue by 2028 (~30% CAGR)	Accelerating growth/outgrowth
Data Center (Liquid Cooling)	Portfolio expansion highlighted in late-2024/early-2025; innovation focus	Pipeline approaching ~$150M; new QD fittings and electric pumps; 2026 hyperscaler negotiations/design wins; modest revenue in Q4’25, larger 2026 ramp	Early wins; growing momentum
Replacement vs OEM	2024: OEM down; replacement modest growth	Replacement positive core growth (industrial first positive since Q1’23); OEM soft (construction/on‑highway; auto OE Europe)	Mix favoring replacement
Tariffs/Macro	Not a major factor discussed in Q4’24 release	~$50M annualized impact; 35–40% in 2H25; plan to offset 85–90% via price/ops; aim dollar-neutral FY25	Headwind managed to neutral
Gross Margin/EBITDA	2024: +180 bps gross margin; 22.3% adj. EBITDA margin	Gross margin +40 bps YoY; adj. EBITDA margin 22.5%; H2 drop-through high-30s to ~40%	Sustained >40% GM; improving drop-through
Regional Trends	Q4’24 mixed end markets	Asia grew; Americas/EMEA mixed; NA OEM down; EMEA auto weaker; China slight growth	Mixed; Asia bright spot

Management Commentary

CEO on Q2 performance and mix: “Replacement channels generated positive core sales growth and our Mobility business increased double-digits… Our gross margin expanded and our balance sheet continued to improve.”
CEO on guidance: “We have raised our guidance for full year 2025 Adjusted EBITDA and Adjusted EPS… investments in key growth initiatives are yielding results.”
CFO on H2 operating leverage: “High 30s, almost a 40 leverage, both in how we’re thinking about the back half… and going forward” with mix help from replacement and mobility .
CFO on tariffs: ~$50M annualized impact; 35–40% in 2H; plan to cover 85–90% via price and ops; expect dollar-neutral for FY25 .
CEO on data centers: expanding portfolio (Data Master hose, universal quick disconnects, electric pumps); negotiations with major hyperscaler; EMS design win supporting large U.S. server maker; Texas campus hose supply .

Q&A Highlights

Growth inflection confidence: Order rates/troughing in several end markets; personal mobility “accelerated meaningfully” post destock; Q3 core growth ~3% at midpoint, aided by some price and easier comps .
Data center opportunity: CEO sees potentially larger TAM than earlier; liquid cooling adoption accelerating; $150M target “totally doable” over time; modest Q4’25 revenue, more meaningful in 2026 .
Auto OE strategy: Continued selective participation; auto OE <10% of mix vs ~17–18% at IPO; Europe production/tariffs weighing on OE .
Chain-to-belt conversions: Cost premiums narrowing; new sprocket tech could approach cost parity in 12–24 months, enabling faster OEM adoption .
Capital allocation/FCF: Balanced between debt paydown and buybacks; plan to reduce gross debt in Q3; conviction in 90%+ cash conversion as working capital intensity eases .
Pricing cadence: Rolled pricing later due to tariffs; expect a bit more sequential pricing benefit in 2H than normal; positioning to be tariff-neutral .

Estimates Context

Q2 2025 beat Street on adjusted EPS and revenue: $0.39 vs $0.3798 est* and $883.7M vs $875.4M est*. For EBITDA, S&P consensus was $197.7M*, company-reported Adjusted EBITDA was $199.2M (implying a small beat on an adjusted basis), though S&P’s “actual” EBITDA prints at $186.1M* due to definitional differences . Values retrieved from S&P Global.*
Recent trend: Q1 2025 and Q3 2024 also modest beats on adjusted EPS and revenue vs S&P Global consensus.*

Key Takeaways for Investors

Raised FY25 guidance with maintained core growth midpoint and higher adjusted EBITDA/EPS underscores execution resilience amid macro/tariff noise; near-term setup aided by 2H pricing and mix .
Mix is tilting toward replacement and mobility, supporting margins and drop-through; watch construction/on‑highway and European auto OE as persistent drags .
Data center liquid cooling is moving from pipeline to bookings/design wins; credible multi‑year growth vector alongside mobility; modest Q4’25 revenue with 2026 step-up potential .
Balance sheet optionality rising (2.2x net leverage; cash >$700M; planned $100M debt paydown), enabling continued buybacks while pursuing growth investments .
Gross margin durability (>40%) and H2 incremental margins in the high‑30s to ~40% support the path to sustained 22%+ EBITDA margins despite mixed end markets .
Near-term trading: Positive bias on raised guide and estimate revisions; upside if tariff offsets and Q3 guide are met/raised; monitor OEM softness and tariff implementation cadence .
Medium-term: Mobility and data center seculars can drive above-market growth and mix benefits, with enterprise initiatives and footprint/productivity actions underpinning margin expansion into 2026 .

Other Relevant Press Releases for Q2 2025

Earnings release timing and call logistics (July 30, 2025) .
Corporate Sustainability Report (Aug 6, 2025) highlighting technology, environment, and governance initiatives (post‑Q2 but relevant to strategy/ESG positioning) .

Appendix: Detailed Non-GAAP Notes (from company disclosures)

Adjusted EBITDA excludes items such as restructuring, share-based comp, select inventory adjustments (incl. LIFO), and other one‑offs; Q2 2025 adjusted EBITDA was $199.2M (22.5% margin) .
Adjusted EPS excludes amortization of intangibles from the 2014 acquisition, restructuring, FX/financing items, and discrete tax items; Q2 2025 adjusted EPS was $0.39; discrete tax benefits were ~$7.2M in Q2 .
Core sales growth excludes FX and first‑year M&A/disposals; Q2 2025 total core sales declined 0.6% YoY .

Footnote on estimates: Values marked with an asterisk () are retrieved from S&P Global (Capital IQ) consensus/actuals and may reflect differing metric definitions (e.g., EBITDA) versus company-reported non‑GAAP figures. Values retrieved from S&P Global.

Gates Industrial Corp plc (GTES)·Q2 2025 Earnings Summary