Gates Industrial (NYSE:GTES) executives said the company delivered a “record year” in 2025, posting record adjusted EBITDA dollars and record adjusted earnings per share despite what management described as a soft and uneven demand environment across several end markets. On the company’s fourth-quarter and full-year 2025 earnings call, CEO Ivo Jurek and CFO Brooks Mallard also outlined initial 2026 guidance and discussed early signs of industrial stabilization, while emphasizing a pragmatic outlook after what they called prior “head fakes” in macro indicators.
2025 results: record adjusted metrics and lower leverage
Jurek said Gates generated nearly 1% core growth in 2025 and “outperformed” end markets that “remain in contraction.” He highlighted accelerating secular growth drivers, including personal mobility, which exceeded 25% core growth in 2025, and data center, which grew “4x compared to 2024.”
Mallard added that Gates ended the year with “over $800 million of cash” and said S&P upgraded the company’s credit rating in December to BB from BB- with a stable outlook. He also cited return on invested capital of 23.4% at year-end.
Fourth-quarter performance: modest core growth and stable margins
For the fourth quarter, Gates reported sales of $856 million, representing nearly 1% core growth. Total revenue increased slightly above 3%, aided by favorable foreign currency translation, according to Jurek. Adjusted EBITDA was about $188 million, with an adjusted EBITDA margin of 21.9%, up roughly 10 basis points year-over-year. Adjusted EPS was $0.38, up about 7% versus the prior-year quarter.
Jurek said end-market performance was mixed, with growth in industrial markets led by off-highway and personal mobility, partially offset by a decline in automotive OEM. At the channel level, OEM sales rose about 4% while aftermarket sales declined about 1%. He attributed the weaker aftermarket to distributors managing inventory into year-end and a difficult comparison.
In response to a question about sequential margin performance, management said Gates trimmed production output as it exited the year to better position working capital, contributing to better-than-forecast cash flow and a full-year free cash flow conversion “a little bit over 92%,” while also supporting fourth-quarter buybacks.
Segment and regional trends: EMEA strength and mixed industrial aftermarket
In Power Transmission, fourth-quarter revenue was $537 million with flat core growth. Jurek said personal mobility grew 28% year-over-year and off-highway expanded in the low single digits, while automotive OEM decreased. Industrial OEM sales in the segment grew “solid double digits” year-over-year.
Fluid Power revenue was $320 million with approximately 1% core growth. Off-highway markets grew low double digits, partially offset by declines in on-highway, diversified industrial, and energy. Industrial aftermarket sales fell mid-single digits, while industrial OEM rose mid-single digits. Automotive aftermarket increased high single digits, management said.
By region, Mallard said North America core sales decreased about 2.5% in the quarter, with lower aftermarket volumes influenced by distributor inventory management and a tough automotive aftermarket comparison tied to prior-year product loading for a new distribution partner secured in 2024. EMEA core sales rose 5.8%, which Mallard said reflected early signs of industrial recovery, including double-digit growth in construction, agriculture, and personal mobility. China core sales grew about 3.5%, while East Asia and India saw a slight decline. South America core sales grew slightly, led by commercial on-highway and agriculture.
2026 outlook: growth expected, but first-half headwinds from ERP and footprint actions
Gates initiated 2026 guidance calling for core sales growth of 1% to 4% and adjusted EBITDA of $775 million to $835 million. At the midpoint, Mallard said adjusted EBITDA margin is expected to be slightly higher year-over-year, even as the company incurs costs tied to an ERP transition in Europe and footprint optimization initiatives.
Mallard said these items are expected to create roughly a 100-basis-point year-over-year drag on adjusted EBITDA margin in the first half of 2026, with costs anticipated to “run off by the middle of the year.” He also said footprint optimization benefits are expected to contribute approximately $10 million of adjusted EBITDA in the second half of 2026.
Adjusted EPS guidance for 2026 was set at $1.52 to $1.68, representing 5% growth at the midpoint. Mallard noted the EPS guidance assumes no incremental share repurchases, and said the company had about $194 million remaining under its current authorization at year-end. Gates budgeted $120 million of capital expenditures for 2026 and projected 90%+ free cash flow conversion, assuming above-average spending on capex and cash restructuring.
For the first quarter of 2026, Gates guided revenue of $845 million to $875 million, incorporating a core sales decline of 2% to 2.5% at the midpoint. Mallard said the first-quarter core growth outlook includes a 500-basis-point headwind from two fewer business days versus the prior-year quarter and estimated inefficiencies tied to the ERP transition. The company expects to recover “most” of the sales impact over the balance of the year. First-quarter adjusted EBITDA margin is expected to decline 140 basis points at the midpoint due to those headwinds.
Demand signals, pricing expectations, and growth initiatives
Jurek said the company is entering 2026 with “cautious optimism” about industrial demand recovery, citing a book-to-bill “nicely above 1x” exiting 2025 and January orders that sustained a positive trend. In Q&A, he said Gates had seen “the most positive order trend” in “two or three years,” led by industrial OEM, which he said typically leads other parts of the cycle. He added that industrial aftermarket trends were choppy in fourth quarter due to inventory management, and he anticipated improvement through the first half, particularly into the second quarter.
On end markets, Jurek said the company expects most markets to be flat to up in 2026, with markets representing nearly 80% of sales expected to grow, including improved demand dynamics in industrial off-highway and diversified industrial. He said automotive OEM and industrial on-highway are expected to be stable, while auto aftermarket and personal mobility demand are expected to remain constructive.
On pricing, Mallard said the company is planning for relatively low price contribution of roughly 100 to 150 basis points for the year, while noting the company considers factors including tariffs, utilities, materials, and labor inflation. Management also said foreign exchange translation is expected to be a benefit in 2026, contributing about $0.04 per share to adjusted EPS, and about 125 basis points to sales growth for the year, weighted more to the first half.
Executives emphasized strategic growth areas. Jurek reiterated expectations that personal mobility can grow at a high-20% to around 30% compound annual rate through 2028, driven by electrified and two-wheel mobility and adoption of belt technology. On data centers, he said the business is expected to grow “multiples” of 2025 in 2026, citing adoption of liquid cooling and Gates’ product offering of hoses, couplings, fittings, and water pumps. He referenced a previously discussed $100 million to $200 million target for data center revenue by 2028 and said order growth in the business accelerated sharply in the fourth quarter from a small base.
On capital allocation and M&A, Jurek said Gates does not anticipate transformational deals, but has a “significantly increased appetite” for “logical and non-transformational” acquisitions, including bolt-ons or potentially larger but still non-transformational assets. He also said the company views its stock as “quite inexpensive” and will weigh capital deployment to maximize shareholder value.
About Gates Industrial (NYSE:GTES)
Gates Industrial Corporation PLC (NYSE: GTES) is a leading global manufacturer of engineered power transmission belts and fluid power products. The company’s portfolio includes synchronous belts, V-belts, hose assemblies, fittings and hydraulic components designed to support a wide range of industrial and automotive applications. Gates Industrial serves sectors such as agriculture, mining, construction, manufacturing, transportation and consumer markets, offering solutions that improve performance, reliability and efficiency in demanding operating environments.
In its power transmission segment, Gates Industrial produces high-strength belts engineered for precise motion control and minimal maintenance.
