How does the current demand trajectory compare to historical market recoveries, and what does it mean for the organization if this momentum continues?

Ivo Jurek stated that market recoveries typically see solid acceleration for 4-6 quarters. He noted a broad-based recovery, with some end markets (like agriculture) still bottoming, and highlighted internal self-help efforts and exposure to secular end markets positioning the company for continued strong performance. “Now obviously, when we look backwards and we see some of the market recoveries from a historical perspective, you should anticipate a reasonably solid acceleration for kind of the first 4 to 6 quarters. So the recovery.”

What are the specific dynamics driving the strong growth in Personal Mobility and Commercial On-Highway, including new products, catch-up, or inventory effects?

Ivo Jurek explained that Commercial On-Highway growth is due to significant improvement in Class A truck orders (up couple hundred percent YoY) and Class 5/7 trucks. Personal Mobility growth is driven by design wins, product portfolio broadening, and market penetration, with a commitment to 25-30% core growth for the next couple of years. “As you start seeing some reports coming through very significant improvement in Class A truck orders for the industry in North America, in particular, they were up kind of a couple of hundred percent year-on-year, so very significant recovery there.”

What are the implications of the redomicile to Bermuda, particularly regarding capital allocation flexibility for buybacks and dividends?

Brooks Mallard highlighted reduced bureaucracy and cost savings from no longer needing dual annual reports and audits. Ivo Jurek emphasized aligning shareholder rights with US-domiciled companies and improved operational simplicity, noting that while capital allocation flexibility was already reasonable, it is now better for shareholders. “Well, the biggest change is we don't have to do 2 annual reports and IFRS reporting and things of that nature anymore. So it's a pretty good thing for us folks on the accounting side, it's going to make life easier.”

GTES

Gates Industrial (GTES) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Jul 31, 2026

Source: earnings call transcript

Executive summary

Gates Industrial Q2 FY26 — Record Sales and EPS, Raised Full-Year Guidance

Gates Industrial delivered record Q2 FY26 sales and adjusted EPS, driven by strong core growth and improving industrial end markets. The company raised its full-year guidance for core sales, adjusted EBITDA, and adjusted EPS, anticipating stronger performance in the second half with a focus on strategic initiatives and operational efficiency. Management expressed confidence in achieving its midterm adjusted EBITDA margin target and capitalizing on the industrial recovery.

Highlights

Achieved record quarterly sales of $942 million, representing 6.6% total growth and 4.9% core growth.
Delivered record adjusted earnings per share of $0.44, an increase of 13% year-over-year.
Adjusted EBITDA margin was 22.5%, modestly better than expectations.
Book-to-bill ratio remained above 1, indicating strong demand.
Net leverage ratio declined to 1.8x, a 0.4x improvement compared to the prior year period.

Concerns

South America sales decreased, primarily driven by soft agricultural demand.
Fluid Power segment adjusted EBITDA margin decreased 120 basis points, mainly due to footprint realignment costs and targeted investments.
Oil-related cost increases necessitated pricing actions, causing a slight dilution to Q3 incremental margins (35-40% vs. 45%+ expected in Q4).

Guidance & targets

Category	Target	Timeline	Confidence
Full-year core sales growth	2.5% to 4.5% high materiality	FY26	High
Full-year adjusted EBITDA	$800 million to $830 million high materiality	FY26	High
Full-year adjusted EPS	$1.62 to $1.70 high materiality	FY26	High
Full-year capital expenditures	unchanged medium materiality	FY26	High
Full-year free cash flow conversion	unchanged medium materiality	FY26	High
Q3 total revenues	$880 million to $920 million medium materiality	Q3 · FY26	High
Q3 core revenues growth	approximately 5.5% medium materiality	Q3 · FY26	High
Q3 adjusted EBITDA margin increase	50 basis points to 90 basis points medium materiality	Q3 · FY26	High
Second half 2026 adjusted EBITDA margin	23.5% or higher high materiality	H2 FY26	High
Second half 2026 core sales growth	6% year-over-year high materiality	H2 FY26	High
Personal Mobility core growth	25% to 30% medium materiality	next couple of years	High
Data center revenue	$100 million to $200 million medium materiality	by 2028 · FY28	High
Q3 incremental margins	35% to 40% medium materiality	Q3 · FY26	Medium
Q4 incremental margins	45% plus medium materiality	Q4 · FY26	High
Price/cost spread	at least neutral medium materiality	H2 FY26	High
Automotive aftermarket growth rate	mid low to mid-single-digit low materiality	next 2 to 3 years	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Power Transmission Led by high single-digit growth in industrial end markets, driven by mid-teens growth in industrial OEM globally. Automotive aftermarket showed solid growth across all geographies. Industrial end markets growth: high single-digitIndustrial OEM channel growth: mid-teens globallyIndustrial aftermarket growth: mid-single-digitIndustrial aftermarket growth (EMEA & Asia Pacific): double-digitAutomotive aftermarket growth: high single-digitPersonal Mobility growth: mid-20sCommercial On-Highway growth: mid-20s	$589 million	>5% core growth	—	increased 60 basis points
Fluid Power Similar to Power Transmission, industrial OEM sales were strong. Margin decrease primarily due to footprint realignment costs and targeted investments into enterprise initiatives. Industrial OEM sales growth: double-digitIndustrial aftermarket growth: low single-digitCommercial On-Highway growth: high teensConstruction growth: mid-single-digitDiversified Industrial growth: mid-single-digitData center business growth: more than 2x vs prior year quarter	$353 million	4.2% core growth	—	decreased 120 basis points
Americas Low single-digit growth in North America more than offset a decrease in South America, primarily driven by soft agricultural demand. North America momentum grew as the quarter progressed. North America growth: low single-digitSouth America growth: decreaseNorth America Industrial OEM sales growth: mid-single digitsNorth America Commercial On-Highway growth: solidNorth America Automotive aftermarket growth: high single digitsNorth America exit rate: mid-single-digit range	—	1.5% core growth	—	—
EMEA Led by double-digit growth in industrial channels and many industrial end markets. Broad strength across end market exposure. Industrial channels growth: double-digitIndustrial OEM sales growth: mid-teens levelIndustrial aftermarket growth: double digitsEnd markets driving growth: Commercial On-Highway, Diversified Industrial, Personal Mobility	—	6.4% core growth	—	—
APAC Growth accelerated, with China, East Asia, and India delivering comparable growth led by strong double-digit growth across several industrial end markets. Teams are executing extremely well. China growth: comparableEast Asia growth: comparableIndia growth: comparableGrowth driver: strong double-digit growth across several industrial end markets	—	11.5% core growth	—	—

Orderbook & backlog

Book-to-bill ratio above 1 Q2 FY26

Bookings growth high single digits Q2 FY26

YoY

Continued through July

Risks & headwinds

Soft agricultural demand Q2 FY26

South America sales decreased

Fluid Power segment margin compression Q2 FY26

Adjusted EBITDA margin decreased 120 basis points

Mitigation:Footprint realignment costs and targeted investments (expected to normalize in H2)

Oil-related cost increases Q3 FY26

Slight dilution to Q3 incremental margins (35-40% vs. 45%+ expected in Q4)

Mitigation:Implemented pricing to offset costs; expect to be at least price/cost neutral in H2

ERP implementation SG&A headwinds Q2 FY26

Some hyper tier headwinds in Q2

Mitigation:Expected to go away in the second half; operating normally now

Difficult comps in automotive aftermarket Q2 FY26

Still delivered mid-single-digit core growth despite prior market share gains

Mitigation:Business performing well globally; anticipated normalized growth of mid low to mid-single-digits for next 2-3 years

What to watch in Q3 FY26

H2 2026 Adjusted EBITDA Margin

H2 FY26

Current 22.5% (Q2 FY26)

Target 23.5% or higher

Why it matters

Verifies the company's ability to achieve its midterm margin target and leverage operational efficiencies.

More importantly, we are on track to achieve an adjusted EBITDA margin of at least 23.5% in the second half of this year, putting us on a good path to achieve a midterm margin target outlined in 2024.

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

Q&A highlights

What are the drivers for second-half margin improvement, and how should we think about incremental margins in the medium term, considering temporary headwinds are subsiding?

Management attributes H2 margin improvement to footprint optimization, restructuring, and cost optimization. Q3 incrementals are expected to be 35-40% due to pricing to offset oil costs, then returning to 45%+ in Q4 and H1 next year, with benefits rolling through to the end of 2027.

“So we expect them to be in the 35% to 40% range. We expect those to then move back to 45% plus as we move into Q4. And then for the first half of next year, we expect that trend to continue as the footprint optimization and the cost optimization work that we've done rolls through.”

asked by Stephen Volkmann · answered by L. Mallard

2 min read 5 chapters

Detailed narrative

Industrial Market Recovery and Growth Acceleration

Gates Industrial is experiencing the early stages of an industrial recovery, with incrementally constructive end markets and improving industrial OEM schedules. This positive shift is expected to drive a significant acceleration in core sales growth, from approximately 1% in the first half of 2026 to a projected 6% year-over-year in the second half.

The company is well-positioned to capitalize on this momentum, with broad-based recovery observed across most end markets, though agriculture remains weak.

Strategic Initiatives Driving Outperformance

The company's strategic initiatives are yielding strong results, particularly in Personal Mobility, which grew in the mid-20s and is projected to maintain 25-30% core growth for the next couple of years. The data center business also expanded more than 2x year-over-year, with anticipated sales contributions stepping up in the second half due to high-value project launches.

These efforts, alongside industrial chain-to-belt conversions, are expected to deliver above-market growth rates.

Operational Efficiency and Margin Expansion

Gates achieved record quarterly sales and adjusted EPS, supported by an adjusted EBITDA margin of 22.5%, exceeding expectations. The company's focus on operational performance, including footprint optimization and cost realignment, is contributing to margin improvement. Management is confident in achieving an adjusted EBITDA margin of at least 23.5% in the second half of 2026, aligning with its midterm margin target.

Strong Regional Performance

All three regions demonstrated positive core growth in Q2. EMEA saw robust 6.4% core growth, driven by double-digit expansion in industrial channels and end markets like Commercial On-Highway and Personal Mobility. APAC accelerated to 11.5% core growth, with strong double-digit performance across industrial end markets in China, East Asia, and India, reflecting effective execution of regional strategies.

Capital Allocation and Redomicile Benefits

The company maintains a strong balance sheet, with a net leverage ratio of 1.8x and a trailing 12-month free cash flow conversion of 94%. The recent redomicile to Bermuda is expected to streamline operations by eliminating the need for dual annual reports and audits, reducing bureaucracy, and aligning shareholder rights more closely with U.S.-domiciled companies, enhancing capital allocation flexibility.

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