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Gates Industrial Corp plc (GTES)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 revenue of $855.7M grew 3.0% YoY (core +1.7%), with adjusted EBITDA of $195.8M (22.9% margin, +90 bps YoY) and adjusted EPS of $0.39; auto replacement and personal mobility drove growth, while ag and North American commercial truck softened .
  • Versus S&P Global consensus, revenue was slightly below ($861.5M* est. vs $855.7M actual), EPS beat ($0.37* est. vs $0.39 actual), and EBITDA was essentially in line on an adjusted basis (company Adj. EBITDA $195.8M vs S&P EBITDA consensus $195.4M*, noting definitional differences) .
  • 2025 guidance: raised adjusted EPS to $1.48–$1.52 (from $1.44–$1.52), narrowed adjusted EBITDA to $770–$790M (midpoint unchanged), trimmed core growth to +0.5%–+1.5%, lowered FCF conversion to 80–90% (from >90%) .
  • Board authorized a new $300M share repurchase through Dec 2026; company paid down $100M of gross debt in Q3; net leverage at ~2.0x, on pace to <2.0x by year-end .
  • Call color: management highlighted tariff headwinds (~30–40 bps EBITDA margin dilution), footprint optimization/ERP transition (temporary 1H26 margin headwinds, then structural savings), and secular growth vectors in personal mobility and data-center liquid cooling; an analyst noted shares were down ~6% intraday, framing a potential buyback/M&A capital allocation discussion .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability expanded: adjusted EBITDA margin reached 22.9% (+90 bps YoY) and adjusted EPS rose to $0.39; CEO: “We delivered double-digit EPS growth year-over-year and our adjusted EBITDA margin increased 90 basis points.” .
  • Growth engines outperformed: auto replacement grew solidly, personal mobility >20% YoY; EMEA returned to growth (+2.6% core), East Asia & India ~5% core, China +6% core .
  • Balance sheet progress and capital returns: net leverage ~2.0x with $100M gross debt reduction and a new $300M buyback authorization through 2026 .

What Went Wrong

  • End-market softness persisted: North American/European agriculture weakened further; commercial on-highway declined mid-single digits; diversified industrial and energy slightly down .
  • Tariffs pressured margins: CFO cited ~30–40 bps EBITDA margin dilution in 2H25 with minimal net dollar impact, requiring offsets from pricing/ops/materials .
  • Lowered top-line outlook/FCF conversion: midpoint core growth trimmed to +1% and FCF conversion outlook reduced to 80–90% on higher restructuring cash outlays .

Financial Results

Quarterly results vs prior quarters

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($M)$847.6 $883.7 $855.7
Adjusted EBITDA ($M)$187.3 $199.2 $195.8
Adjusted EBITDA Margin (%)22.1% 22.5% 22.9%
GAAP Diluted EPS$0.24 $0.22 $0.31
Adjusted EPS$0.36 $0.39 $0.39
Net Income from Cont. Ops Margin (%)8.1% 7.2% 10.4%

Q3 2025 year-over-year

MetricQ3 2024Q3 2025YoY
Net Sales ($M)$830.7 $855.7 +3.0%
Adjusted EBITDA ($M)$182.5 $195.8 +7.3%
Adjusted EBITDA Margin (%)22.0% 22.9% +90 bps
GAAP Diluted EPS$0.18 $0.31 +$0.13
Adjusted EPS$0.33 $0.39 +$0.06
Net Income from Cont. Ops Margin (%)6.6% 10.4% +370 bps

Q3 2025 vs S&P Global consensus

MetricConsensusActual
Revenue ($M)861.5*855.7
Primary EPS$0.37*$0.39
EBITDA ($M)195.4*195.8 (Adj.)
  • Values with asterisk (*) retrieved from S&P Global. Note: S&P Global’s EBITDA definition may differ from company Adjusted EBITDA; company-reported Adjusted EBITDA is shown for comparability to guidance .

Segment breakdown (Q3 2025)

SegmentNet Sales ($M)YoYCore YoYAdjusted EBITDA ($M)Margin
Power Transmission$533.3+3.9%+2.3%$122.122.9%
Fluid Power$322.4+1.6%+0.7%$73.722.9%

Segment quarterly trajectory

SegmentQ1 2025 Net Sales ($M)Q2 2025 Net Sales ($M)Q3 2025 Net Sales ($M)Q1 Adj. EBITDA MarginQ2 Adj. EBITDA MarginQ3 Adj. EBITDA Margin
Power Transmission527.2 550.1 533.3 22.1% 22.3% 22.9%
Fluid Power320.4 333.6 322.4 22.0% 22.9% 22.9%

Selected KPIs

KPIQ1 2025Q2 2025Q3 2025
Core Sales Growth (Total)+1.4% -0.6% +1.7%
Free Cash Flow ($M)——$73; 73% conversion
Net Leverage——2.0x; target <2.0x YE25
Debt Reduction——$100M gross debt repaid

Guidance Changes

MetricPeriodPrevious Guidance (Q2’25)Current Guidance (Q3’25)Change
Core Sales GrowthFY 2025+0.5% to +2.5% +0.5% to +1.5% Lowered
Adjusted EBITDA ($M)FY 2025$765–$795 $770–$790 Narrowed; midpoint unchanged
Adjusted EPSFY 2025$1.44–$1.52 $1.48–$1.52 Raised midpoint
Capital ExpendituresFY 2025~$120M ~$120M Maintained
Free Cash Flow ConversionFY 2025>90% 80–90% Lowered
Share RepurchaseThrough 2026Prior authorization expiring Dec 2025 New $300M authorization through Dec 2026 New program

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q1 2025)Current Period (Q3 2025)Trend
Personal mobilityDouble-digit growth; key driver alongside replacement channels >20% YoY growth; accelerating vs Q2, robust pipeline Improving
AgricultureFirst growth since Q4’22 in Q2 ; mixed in Q1Incrementally weaker in NA/Europe; seen as troughing into 2026 Soft, troughing
Commercial on-highwayNot highlighted previouslyMid-single-digit decline; inventories elevated Weaker
EMEA/China/EA&IndiaNoted stable/increasing activity EMEA +2.6% core; China +6% core; EA&India ~+5% core Stabilizing to improving
Data center liquid coolingStrategic initiative; early stage Pipeline >$150M; early adoption; more cooling per project; revenue still small (“millions”) Building pipeline
TariffsPricing/“in-region, for-region” benefits ~30–40 bps EBITDA margin dilution; neutral EBITDA dollars Headwind
Restructuring/ERP/80–20Ongoing footprint optimization and 80/20 Multiple factory closures, ERP go-live in Europe by mid-2026; 1H26 margin headwinds then savings; targeting ~23.5% adj. EBITDA run-rate 2H26 in volume-neutral scenario Transition costs then benefit
Capital allocationGuidance reiterated in Q1; raised in Q2 New $300M buyback; leaning more to bolt-on M&A as leverage falls; debt reduction continued More optionality

Management Commentary

  • “Our team helped deliver improved sales and core growth... solid growth in Automotive Replacement and strong growth in Personal Mobility... adjusted EBITDA margin increased 90 basis points... we paid down $100 million of gross debt during the quarter.” – CEO Ivo Jurek .
  • “We have raised our adjusted EPS guidance towards the high-end of the prior range… executing our footprint optimization… reduce our structural cost position over the first half of next year.” – CEO .
  • “Our net leverage ratio declined to 2.0 turns… on pace to reduce our net leverage to under two times by year-end… updated 2025 guidance, raising adjusted EPS midpoint to $1.50.” – CEO .
  • “Tariff dilution ~30–40 bps on gross/EBITDA margin; $0 impact to EBITDA dollars.” – CFO Brooks Mallard .
  • “Expect 1H26 unfavorable YOY impact to Adjusted EBITDA margin of 100–200 bps in Q1 and 25–75 bps in Q2 from restructuring/ERP; targeting ~23.5% Adjusted EBITDA run-rate in 2H26 (volume-neutral).” – CFO .

Q&A Highlights

  • Margin bridge and 2026 transition: Management emphasized they are achieving midterm targets despite weak PMIs; 1H26 transition costs precede structural savings with ERP/footprint steps; volume recovery would be additive .
  • Tariffs and pricing: ~30–40 bps margin headwind; pricing covers inflation/tariffs where possible, with 80/20 value-pricing to optimize SKU-level economics .
  • Outlook cadence: Q4 revenue assumes normal seasonality and similar exit rate to Q3; EBITDA aided by material cost initiatives offset by tariff dilution .
  • Capital allocation: New $300M buyback; management open to bolt-on M&A as leverage falls; an analyst noted shares down ~6% intraday, prompting discussion of buybacks vs M&A .
  • Growth vectors visibility: Personal mobility compounding (~30% CAGR aspiration through 2028) and data center pipeline growing (> $150M) with rising cooling requirements; ag seen troughing into 2026 .

Estimates Context

  • Q3 2025 S&P Global consensus: Revenue $861.5M*, EPS $0.37*, EBITDA $195.4M*; Actuals: Revenue $855.7M, Adjusted EPS $0.39, Adjusted EBITDA $195.8M (company definition). Revenue was modestly below, EPS beat, and adjusted EBITDA essentially matched consensus when aligned on definition .
  • Estimate counts: 8 for revenue, 11 for EPS in Q3 2025*; 12-month target price consensus $28.01* [functions.GetEstimates].
  • Note: S&P Global “EBITDA” may differ from company-adjusted figures; use company Adjusted EBITDA for guidance comparison and margin analysis .
  • Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Core execution remains strong with margin expansion and EPS growth in a muted macro; secular growth verticals (personal mobility, data centers) are increasingly material drivers into 2026+ .
  • Slight top-line miss vs consensus was driven by end-market softness (agriculture, NA commercial on-highway), but mix and cost actions preserved profitability; tariff headwinds are manageable (~30–40 bps) .
  • Guidance quality improved (EPS raised, EBITDA narrowed, capex maintained); watch FCF conversion lower to 80–90% due to restructuring cash timing .
  • 1H26 is a transition (ERP/footprint) with temporary margin headwinds, but management targets ~23.5% adjusted EBITDA run-rate by 2H26 (volume-neutral), and longer-term margin ambition nearing ~24%+ exiting 2026 .
  • Balance sheet and capital returns: $100M debt reduction in Q3, ~2.0x leverage, and a new $300M buyback provide downside support; management also signaling greater appetite for bolt-on M&A as leverage falls .
  • Trading setup: On results day, one analyst cited a ~6% share decline, potentially reflecting macro caution and 1H26 transition costs; buyback authorization and estimate revisions (EPS beat, tightened FY ranges) are near-term support catalysts .
  • Focus for next quarter: End-market stabilization (agriculture, commercial truck), tariff pass-through, data center design wins converting to revenue, and early indications on 2026 margin bridge and ERP milestones .
Sources: 
- Q3 2025 8-K and press release: **[1718512_0001628280-25-046922_gtes-exhibit991xq32025.htm:3]** **[1718512_0001628280-25-046922_gtes-exhibit991xq32025.htm:7]** **[1718512_0001628280-25-046922_gtes-exhibit991xq32025.htm:8]** **[1718512_0001628280-25-046922_gtes-exhibit991xq32025.htm:9]** **[1718512_0001628280-25-046922_gtes-exhibit991xq32025.htm:1]** **[1718512_20251029LA09775:0]** **[1718512_20251029LA09775:1]**
- Q3 2025 earnings call: **[0001718512_2214647_1]** **[0001718512_2214647_2]** **[0001718512_2214647_3]** **[0001718512_2214647_4]** **[0001718512_2214647_5]** **[0001718512_2214647_12]** **[0001718512_2214647_13]** **[0001718512_2214647_15]**
- Prior quarters: Q2 2025 press release **[1718512_20250730LA40416:0]** **[1718512_20250730LA40416:6]** **[1718512_20250730LA40416:7]** **[1718512_20250730LA40416:8]**; Q1 2025 press release **[1718512_20250430LA76378:0]** **[1718512_20250430LA76378:6]** **[1718512_20250430LA76378:7]**
- S&P Global consensus (S&P Global): functions.GetEstimates (values marked with *)