Understand the strategic fit, capabilities added, and financial size/profitability of the Timken purchase.

The acquisition was opportunistic and highly complementary, described as 'front and center' to Gates' business. It's expected to add approximately $5 million per month in annualized revenue and be accretive, accelerating growth with significant margin improvement opportunities post-integration. “We think that, that business can kind of add maybe $5 million a month in annualized revenue. And so it's highly complementary, and I believe that it will be very accretive to us as we embed it into our operations, and it has the opportunity to continue to accelerate our growth rate.”

Inquire about margin trends excluding ERP impact, and the company's approach to price/cost management amidst input and tariff changes.

Management detailed a 200 bps Q1 EBITDA margin headwind (half from ERP, half from footprint/days), reducing to 100 bps in Q2. No material impact from Section 232 tariffs. They expressed confidence in pricing for inflation, having learned from past cycles, and are focused on ensuring supply surety. “As I look at Q1 conservatively, I would say we had at least 200 basis points of EBITDA margin headwinds. At least half of that was associated with the ERP transition in Europe.”

Clarify how ERP-impacted sales are recovered given short-cycle products, and if current strength is driven by heavy industry recovery.

Ivo Jurek explained that Europe recovered Q1 lost revenue in April, with April revenue up almost double-digit, indicating full recovery. He linked heavy industry strength to large projects (data centers, power gen, infrastructure) requiring construction equipment, supported by a PMI above 50%. “Europe revenue in March was on par with prior year pre-ERP implementation, so they were fully recovered. And frankly, in the month of April, at the beginning of April, they've recovered the revenue from Q1. So actually, our year of business was up almost double digit in the month of April.”

GTES

Gates Industrial (GTES) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Industrials· May 1, 2026

Source: earnings call transcript

Executive summary

Gates Industrial Q1 FY26 — ERP Transition Navigated, Guidance Reaffirmed

Gates Industrial successfully navigated a significant ERP transition in Europe during Q1 FY26, which, alongside fewer working days, created temporary headwinds to sales and margins. Despite these challenges, the company reaffirmed its full-year guidance, citing improving demand trends, particularly in industrial OEM orders and data centers. Management expressed confidence in achieving core revenue growth targets and expects operational efficiencies to stabilize in Q2, with margins approaching 23.5% in the second half.

Highlights

Core sales growth approximated mid-single digits year-over-year in March, with book-to-bill solidly above 1.
Adjusted EBITDA of $177 million was in line with expectations, resulting in a 20.8% margin.
Data center business revenue grew approximately 700% year-over-year from a low base.
Net leverage improved to 1.9x, down 0.4 turns compared to Q1 FY25.
Acquired Timken's Industrial Belt business, expected to close in Q3, augmenting Power Transmission in North America.

Concerns

Q1 core sales decreased 2.9%, impacted by ERP transition and 2 fewer working days, representing a 600 basis point headwind.
Adjusted EBITDA margin decreased 130 basis points year-over-year to 20.8% due to ERP inefficiencies and fewer working days.
Adjusted EPS of $0.35 was impacted by a $0.07 headwind from ERP transition and fewer working days.
EMEA core sales declined 8.5% year-over-year, with distribution inefficiencies leading to a build of past due backlog.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 financial guidance	Reiterated high materiality	FY26	High
Core growth	Improve over the course of the year high materiality	FY26	High
Q2 revenue	$905 million to $945 million high materiality	Q2 · FY26	High
Q2 core growth	Approximately 3.5% high materiality	Q2 · FY26	High
Q2 adjusted EBITDA margin	Decline 30 basis points medium materiality	Q2 · FY26	High
Adjusted EBITDA margin	Approaching 23.5% high materiality	H2 FY26	High
Personal Mobility growth rate	Mid-20s growth rate medium materiality	FY26	High
Data Center revenue	$100 million to $200 million high materiality	FY28	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Power Transmission Core sales decrease primarily driven by fewer working days and ERP transition in Europe. Realized accelerating order trends during March. Personal Mobility growth was affected by project timing and ERP transition. Construction end market continued to improve, and the ag market is recovering. Personal Mobility expanded 6%	$533 million	-2.5%	—	—
Fluid Power Decrease in core sales contributed by fewer working days and ERP implementation. Commercial on-highway was relatively weak, but North American orders inflected positively. Data center business performed in line with expectations, with revenue growing approximately 700% from a low base. Strong double-digit growth in APAC	$318 million	-3.5%	—	—

Orderbook & backlog

Book-to-bill ratio solidly above 1 Q1 FY26 end

Past due backlog build Q1 FY26 end

Due to distribution inefficiencies associated with ERP transition; expected to recover sales in Q2.

Product announcements

Product	Type	Timeline	Details
New products for liquid cooling	launch	—

Deals & partnerships

Timken Acquisition of Timken's Industrial Belt business, highly complementary to Gates' Power Transmission segment in North America.

The acquisition includes assets in a Mexico facility. Management views it as industry consolidation and a good transaction that is right at the core of Gates' business.

Capital programs

Footprint optimization projects underway

Benefit:Benefit adjusted EBITDA margin performance

Expected to benefit adjusted EBITDA margin performance in the second half of this year. Costs are part of the Q1 and Q2 margin headwinds.

Risks & headwinds

ERP transition and fewer working days Q1 FY26, stabilizing in Q2 FY26

600 basis point headwind to Q1 core sales; $0.07 headwind to adjusted EPS; 130 bps YoY decrease in adjusted EBITDA margin.

Mitigation:Operational focus on optimizing customer service fill rates to pre-ERP levels; expect efficiencies to stabilize further in Q2.

Potential escalation of conflict in the Middle East Ongoing

No material financial impact anticipated.

Mitigation:Implied ongoing monitoring, no specific mitigation stated.

Higher input costs (oil derivatives, aluminum, steel) Ongoing

Impacts resins, polymers, compounds, and high energy use materials; maybe 20 bps of dilution from tariff pricing.

Mitigation:Confident in pricing for inflation; focused on surety of supply, supplier development, and alternative materials.

What to watch in Q2 FY26

Europe ERP operational efficiency

Q2 FY26

Current Stabilized, revenues on par with pre-ERP levels, somewhat above normal operating costs.

Target Stabilize further, exit at normalized levels of shipping output and past due backlog.

Why it matters

Critical for overall company performance and achieving full-year guidance, as Europe represents a significant portion of revenue.

We anticipate our operational efficiency in Europe to stabilize further during the second quarter.

Find out whether GTES delivers this. Inve re-checks your case every morning.

Q&A highlights

Assess confidence in core growth sustainability given Q1 headwinds and customer feedback, and how the year is tracking.

Management expressed high confidence in achieving annual guidance, noting that excluding ERP and fewer working days, core growth would have been up 300 bps, aligning with expectations. April order flow was solid, with a strong inflection in industrial OEM orders.

“Net of the 2 less selling days than the ERP, we would have been basically up 300 basis points on core, which is right in line with what we have expected for the year and is basically trending towards the midpoint of our annual guidance.”

asked by Michael Halloran · answered by Ivo Jurek

2 min read 5 chapters

Detailed narrative

ERP Transition and Operational Efficiency

The company successfully implemented a major ERP system in Europe, affecting approximately 24% of its revenues. This transition, alongside two fewer working days, created a 600 basis point headwind to Q1 core sales and a $0.07 headwind to adjusted EPS.

While distribution inefficiencies led to a build of past due backlog and slightly higher operating costs, the European business stabilized by March, with revenues on par with pre-ERP levels. Management expects further stabilization and optimization of customer service fill rates to pre-ERP 'world-class' levels in Q2.

Demand Trends and Market Outlook

Industrial OEM orders showed a positive inflection and continued momentum through Q1 and April, contributing to a book-to-bill ratio solidly above 1. Commercial construction is strong, the ag market is recovering, and energy and resources have stabilized. Management noted that the Purchasing Managers' Index (PMI) being above 50% is a positive sign for overall underlying trends, leading to confidence in achieving annual guidance.

The company sees solid demand across its portfolio, with North American on-highway order flow improving.

Timken Industrial Belt Acquisition

Gates announced the opportunistic acquisition of Timken's Industrial Belt business, expected to close in Q3 FY26. This acquisition is highly complementary, aligning directly with Gates' core business in Power Transmission in North America. It is expected to add approximately $5 million per month in annualized revenue (totaling ~$60 million annually) and is anticipated to be accretive, accelerating growth.

Management sees significant opportunities to improve profitability post-integration, driving margins to company fleet average levels.

Data Center Business Growth

The data center business experienced approximately 700% revenue growth year-over-year in Q1 from a low base, with strong order intake and accelerating penetration. Gates is actively developing specialized knowledge and launching new products tailored for liquid cooling needs, aiming to be a leading-edge supplier for next-generation chips.

The company is on track for its long-term target of $100 million to $200 million in revenue by 2028, viewing this market as transitioning from an emerging application to a mainstream one.

Capital Allocation and Balance Sheet Strength

The company maintains a balanced capital allocation approach, repurchasing additional shares in Q1. Net leverage improved to 1.9x, representing a 0.4-turn improvement compared to Q1 FY25. Moody's upgraded Gates' credit rating to Ba2 from Ba3. Management highlighted a robust M&A pipeline for highly accretive, core-portfolio assets, indicating a strong likelihood of more announcements within the calendar year, leveraging the company's healthy balance sheet and capacity.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.