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GI

Gates Industrial Corp plc (GTES)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales were $829.4M with core sales down 2.6%; adjusted EBITDA margin expanded 30bps to 21.8% on enterprise initiatives and favorable mix despite volume pressure .
  • GAAP diluted EPS was $0.14 and adjusted EPS was $0.36; year-over-year EPS decline was driven largely by discrete tax expense and lower operating income .
  • 2025 guidance introduced: core sales growth -0.5% to +3.5%, adjusted EBITDA $735–$795M, adjusted EPS $1.36–$1.52; Q1 2025 revenues guided to $805–$835M with FX headwinds heavier in H1 and margin down 40–80bps vs Q1 2024 .
  • Management highlighted record gross margin for a fourth quarter (40.4%), strong free cash flow conversion in Q4 (about 160%), and secular growth priorities in personal mobility and data center liquid cooling as potential catalysts .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA margin expanded 30bps to 21.8% in Q4, supported by manufacturing performance, pricing, and mix from enterprise initiatives despite lower volumes .
  • Record gross margin in Q4 (40.4%) and full-year gross margin near ~40%, advancing toward 2026 targets; footprint optimization and operating excellence expected to add >100bps at maturity .
  • Personal Mobility inflected to growth (~20% core in Q4) with inventories normalizing; management expects “very nice growth” in 2025 (“green shoots”) .

What Went Wrong

  • OEM channel sales declined double digits; Agriculture and Construction remained primary headwinds, with management expecting these to be “less bad” but still down mid-single digits in 2025 H1 .
  • Discrete tax items materially reduced Q4 GAAP EPS and net income margin (5.0% in Q4 vs 8.0% prior year); effective tax rate impacted by Luxembourg and Türkiye changes .
  • FX is a significant 2025 headwind (~$100M revenue and ~$34M EBITDA at guidance midpoint), heavier in H1; Q1 margin down 40–80bps vs Q1 2024 .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$885.5 $830.7 $829.4
GAAP Diluted EPS ($)$0.26 $0.18 $0.14
Adjusted EPS ($)$0.36 $0.33 $0.36
Adjusted EBITDA ($USD Millions)$202.2 $182.5 $180.8
Adjusted EBITDA Margin (%)22.8% 22.0% 21.8%
Net Income from Continuing Ops Margin (%)8.8% 6.6% 5.0%

Segment breakdown (Q4 2024 vs prior-year quarter):

SegmentQ4 2023 Net Sales ($MM)Q4 2024 Net Sales ($MM)Q4 2023 Adj. EBITDA ($MM)Q4 2024 Adj. EBITDA ($MM)Margin (%) Q4 2023Margin (%) Q4 2024
Power Transmission$532.8 $520.0 $117.4 $112.9 22.0% 21.7%
Fluid Power$330.5 $309.4 $68.4 $67.9 20.7% 21.9%

KPIs (Q4 2024):

KPIQ4 2024
Cash from Operations ($MM)$190.9
Capital Expenditures ($MM)$33.4
Cash and Equivalents ($MM)$682.0
Total Debt ($B)$2.4
Free Cash Flow Conversion (%)~160%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core Sales Growth (YoY)FY 2025N/A(-0.5%) to +3.5% New
Adjusted EBITDA ($MM)FY 2025N/A$735–$795 New
Adjusted EPS ($)FY 2025N/A$1.36–$1.52 New
Capital Expenditures ($MM)FY 2025N/A~$120 New
FCF Conversion (%)FY 2025N/A>90% New
Total Revenues ($MM)Q1 2025N/A$805–$835 New
Core Sales Growth (YoY)Q1 2025N/A~-1% at midpoint New
Adj. EBITDA Margin vs Q1 2024Q1 2025N/A-40 to -80bps New

Reference FY 2024 guidance updates (for trend context):

  • FY 2024 adjusted EBITDA narrowed to $745–$765M (midpoint unchanged); adjusted EPS raised to $1.33–$1.37 in Q3 2024 .
  • FY 2024 guidance was trimmed in Q2 2024: adjusted EBITDA to $740–$770M; adjusted EPS to $1.29–$1.35 .

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Gross margin and enterprise initiatives270bps GM increase YoY; enterprise initiatives (materials, pricing) driving margin expansion +110bps GM; record Q3 GM; continued enterprise benefits Record Q4 GM (40.4%); enterprise initiatives continue; 2026 margin targets reaffirmed Improving
FX headwindsFX emerging as bigger H2 2024 headwind; guidance cut partly on FX ~1% FY FX revenue headwind commentary 2025 FX headwind $100M revenue/$34M EBITDA; heavier in H1 Worsening near term
Personal MobilityContinued decline but bottoming; design wins and pipeline Stabilizing; inventories trending lower; growth expected in 2025 Inflected to ~20% core growth in Q4; strong EMEA/Asia; constructive Jan trends Improving
Agriculture & ConstructionSofter than anticipated; extended OEM shutdowns Still negative; bottoming later; diversified industrial stabilizing Still headwinds; “less bad” in 2025 but down mid-single digits; inventories elevated H1 Mixed to stabilizing
Replacement vs OEM mixReplacement resilient; OEM down double digits Replacement slight growth; OEM down double digits Replacement modest growth; OEM down double digits Stable divergence
Footprint optimizationProgram pulled forward; $40M annualized savings by end 2026 3 closures announced; run-rate 40% by exit 2025, full by 2026; >100bps margin at maturity Savings phasing in 2025–2026; margin walk shows operations tailwinds Executing
Data center liquid coolingSpecified with multiple customers; hose launch planned TAM ~$1–1.5B; design wins progressing Deep in specification with hyperscalers; product launches; revenue trickling; larger awards expected in 2025 Building
Capital deploymentNew $250M buyback; leverage ~2.3x Buybacks and debt paydown; leverage improving $175M buybacks in 2024; gross debt down ~$100M; authorization remaining $125M; target gross debt < $2B Balanced, capacity expanding

Management Commentary

  • “Our profitability performance was solid as adjusted EBITDA margin expanded 30 basis points to 21.8%. The increase was driven by a 130 basis point increase in gross margin to 40.4%, a record gross margin performance for a fourth quarter.” — CEO, Ivo Jurek .
  • “Our initial 2025 adjusted EBITDA guidance is in the range of $735 million to $795 million... Our adjusted earnings per share guidance is in the range of $1.36 per share to $1.52 per share.” — CFO, L. Brooks Mallard .
  • “FX is definitely going to hit us harder in the first half... the phasing on footprint optimization savings is going to hit in the second half.” — CFO, L. Brooks Mallard .
  • “We believe that we are in a good position to deliver our 2026 adjusted EBITDA margin target... we generated approximately 40% gross margin for the full year 2024.” — CEO, Ivo Jurek .
  • “Personal mobility returned to growth... inventories have normalized... we believe that we will deliver very nice growth... embedded in our guidance for 2025.” — CEO, Ivo Jurek .

Q&A Highlights

  • Margin phasing: Underlying margin up in Q1 excluding FX and non-recurring insurance; FX larger in H1; footprint optimization benefits back-half weighted .
  • FX mechanics: 2025 headwind reflects both translation and transactional effects not modeled to repeat; ~$100M top-line and ~$34M EBITDA impact .
  • End-market trajectory: Personal Mobility inflecting; Automotive replacement strong; Agriculture/Construction still negative but “less bad” by H2 2025; industrial recovery “green shoots” in Asia and PMIs .
  • Capital deployment: Balanced between buybacks and debt reduction; $125M authorization remaining; target gross debt < $2B; maturities pushed to 2029 .
  • Tariffs exposure: Minimal exposure to China/Canada; flexible US/Mexico footprint; pricing used to offset potential tariff impacts .

Estimates Context

  • Wall Street consensus for Q4 2024 Revenue and Primary EPS was unavailable due to S&P Global access limitations during retrieval; we will update comparisons when accessible.
  • Given management’s Q1 2025 margin guidance (-40 to -80bps vs Q1 2024) and pronounced FX headwind in H1, near-term sell-side models may need to reflect lower EBITDA/EBIT margins and FX sensitivity while incorporating personal mobility upside and replacement strength .

Key Takeaways for Investors

  • Margin durability remains the story: 30bps Q4 EBITDA margin expansion despite volume pressure; record Q4 gross margin highlights structural improvements from enterprise initiatives .
  • Watch H1 FX and Q1 margin dip: Management flagged heavier FX headwinds in H1 and Q1 margin down 40–80bps vs Q1 2024; set expectations accordingly .
  • Replacement resilience vs OEM weakness: Replacement channels continue to grow modestly; OEM declines concentrated in Ag/Construction—stock should respond to signs of OEM normalization .
  • Personal Mobility inflection and data center pipeline: Near-term growth driver from mobility recovery; mid-term optionality from liquid cooling specifications and new product launches .
  • Capital deployment optionality: Buybacks ($175M in 2024; $125M authorization remaining) and balance sheet improvements (gross debt down; maturities 2029) support downside protection and rerating potential .
  • Footprint optimization: Executing projects with >100bps margin potential at maturity; benefits back-half weighted into 2025 and 2026 .
  • Trading lens: Near term—model FX and Q1 margin pressure; medium term—position for margin expansion, mobility recovery, and data center wins as catalysts.

Sources

  • Form 8-K and Exhibit 99.1: Q4 and FY 2024 results, segment detail, balance sheet, cash flow, guidance .
  • Press Release: Q4 and FY 2024 results (PRNewswire) .
  • Earnings Call Transcript: Q4 2024 prepared remarks and Q&A .
  • Prior Quarter References: Q3 2024 press release and transcript ; Q2 2024 press release and transcript .
  • Product Update: Data center cooling hose launch (Q1 2025) .