Gates Industrial Corporation plc Q4 FY2025 earnings call

2025 was a solid year for Gates. The company achieved nearly 1% core growth and outperformed its end markets, with many of which still in contraction. The personal mobility business exceeded 25% core growth and the data center business grew 4x compared to 2024. Gates delivered record adjusted earnings metrics in 2025, with record adjusted EBITDA dollars and record adjusted EPS. The net leverage ratio was brought down to 1.85x at year - end 2025. In the fourth quarter, sales were $856 million, representing nearly 1% core growth, and total revenues grew slightly above 3% due to favorable foreign currency translation. Adjusted EBITDA approximated $188 million with a margin of 21.9%. The enterprise resource planning system transition kicked off successfully, and operations in Europe were ahead of expectations, with other footprint optimization initiatives on track.

In the Power Transmission segment, the fourth - quarter revenues were $537 million with flat core growth compared to the prior year period. The personal mobility business grew 28% year - over - year, and the off - highway business expanded in low single digits. At the channel level, the industrial OEM sales grew solid double digits year - over - year while the automotive OEM business decreased. In the Fluid Power segment, the fourth - quarter sales were $320 million with approximately 1% core growth. The off - highway markets grew in low double digits, partially offset by declines in on - highway, diversified industrial, and energy. The Automotive aftermarket increased in high single digits compared to the prior year period. Regionally, in North America, core sales decreased about 2.5% in the fourth quarter; in EMEA, core sales grew 5.8%; China core sales grew about 3.5% year - over - year; East Asia and India had a slight decrease in core sales; in South America, core sales grew slightly compared to the prior year period.

For 2026, the company estimates core sales to grow in the range of 1% to 4% compared to the prior year period. Adjusted EBITDA is forecasted to be in the range of $775 million to $835 million, with the midpoint of the adjusted EBITDA margin expected to be slightly up year - over - year. The first half of 2026 is impacted by costs related to the ERP transition in Europe and footprint optimization initiatives, but recovery is anticipated by the middle of the year. The adjusted EPS range is $1.52 per share to $1.68 per share. For the first quarter, revenue is guided to be in the range of $845 million to $875 million, with a core sales decline of 2% to 2.5% at the midpoint, which is due to two fewer business days in the quarter compared to the prior year and inefficiencies related to the ERP transition.

Matters described in the most recent annual report on Form 10 - K and other SEC filings, including uncertain trade policy, market demand uncertainty, and potential impacts from the ERP implementation and footprint optimization initiatives.

Q: Can we delve into your commentary a little more regarding that book - to - bill over one in Q4, and January orders confirming that trend?

A: We have seen the most positive order trend exiting 2025 in maybe two or three years. The industrial OE segment is recovering, which is a very positive sign. There was some choppiness in industrial distribution in Q4 as folks were managing inventories, but we anticipate better recovery in industrial aftermarkets from Q1 to Q2. January has seen continuation of the positive order trend, and we are cautiously optimistic, expecting validation of PMI activity in the coming months.

Q: Your adjusted EBITDA margin was down a little bit sequentially on flattish sales. Any other factors?

A: We managed our output as we exited the year to trim production, which helped in better cash flow. We also bought back over $100 million of our shares in the fourth quarter at an attractive valuation, and we focused on setting up a good start for 2026 by managing internal output.

Q: Maybe just wanted to try and understand the phasing of the year a little bit more clearly.

A: In the first half of 2026, there is about a 100 basis points net headwind from the ERP implementation and footprint optimization. We expect organic core growth each quarter as we move through the year, and after getting through Q1, the growth should be more normalized with a balanced seasonalization.