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Gates reported third-quarter revenue of $903.6 million, below the consensus of $903.9 million, while adjusted earnings per share of $0.47 exceeded the $0.45 consensus. Revenue rose from $855.7 million a year earlier.
The filing shows Power Transmission sales increased 5.0%, primarily on higher volume and pricing, while Fluid Power sales rose 6.5%, primarily on pricing and currency benefits. Gates said industrial OEM demand contributed to growth in both segments.
Gates reported gross margin of 42.4%, compared with 39.9% a year earlier, and operating margin of 14.5%, up from 13.5%. CEO Ivo Jurek attributed adjusted EBITDA margin expansion primarily to volume growth, manufacturing performance and enterprise initiatives, partly offset by investment in growth areas.
Free cash flow fell to $38.5 million from $73.3 million a year earlier. The filing attributed lower operating cash flow over the first nine months primarily to deferred income taxes and an unfavorable movement in operating assets and liabilities, partly offset by higher net income.
| Q3 FY2026 | Q3 FY2025 | Change | |
|---|---|---|---|
| Revenue | $903.6 million | $855.7 million | 5.60% |
| Diluted EPS | $0.36 | $0.31 | 15.4% |
| Gross margin | 42.4% | 39.9% | 2.5 percentage points |
| Operating margin | 14.5% | 13.5% | 1.0 percentage point |
| Free cash flow | $38.5 million | $73.3 million | −47.5% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $0.47 | $0.45 | Beat by 4.44% |
| Revenue | $903.6 million | $903.9 million | In line |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
What management said on the call
CEO Ivo Jurek said industrial demand accelerated in the third quarter, led by original equipment manufacturers, with aftermarket growth also picking up from the prior quarter. He said Gates’ global book-to-bill remained above 1x, indicating that orders exceeded billings. CFO Brooks Mallard said North American industrial OEM sales grew more than 20%, while the industrial aftermarket increased at a high-single-digit rate.
Jurek said global personal mobility sales increased approximately 35%, and data center revenue grew about 2.5x from the year-earlier quarter. He said Gates was expanding its products and customer base in data centers as liquid cooling adoption increased.
Asked about Fluid Power margins, Jurek said the company was investing in its product portfolio, commercial and engineering teams, and manufacturing capacity for strategic growth initiatives. He said the segment’s investment, rather than greater inflationary pressure than in Power Transmission, was a distinction. Mallard added that higher-cost inventory moving through the system would create some gross-margin dilution as price and cost normalized.
On the quarter ahead, Mallard said fewer manufacturing days and shutdowns would contribute to a sequential gross-margin decline. He also said variable compensation would be a roughly 100 bps year-over-year headwind to fourth-quarter adjusted EBITDA margin. Discussing inventory, he said Gates had added raw-material safety stock to support supply and expected to collect pricing related to material inflation in the fourth quarter.
Asked about agriculture, Jurek said construction drove off-highway growth while agricultural demand remained softer; he suggested Gates was probably gaining share. On the acquired Timken belts business, he said customers had bought inventory ahead of the transaction, limiting expected fourth-quarter revenue, and that he expected the business to reach company-average profitability over the next 12 months.
Guidance
Mallard said Gates narrowed its full-year core sales growth range to 3.2% to 3.8%, retaining the 3.5% midpoint. He said the company raised its adjusted EBITDA guidance to $809 million to $823 million and adjusted earnings per share guidance to $1.66 per share to $1.72 per share. Mallard said the adjusted EPS midpoint rose $0.03 per share from the prior guidance.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Free cash flow growth, Non Gaap; conversion | FY2026 | 90.0% | — | New |
| Capex | FY2026 | $120.0 million | — | New |
| EPS, non-GAAP | FY2026 | $1.66–$1.72 | — | New |
| EBITDA, non-GAAP | FY2026 | $809.0 million–$823.0 million | — | New |
| Revenue growth, Non Gaap; core Sales Growth | FY2026 | 3.20%–3.80% | — | New |
| EBITDA, Non Gaap Margin | FY2027 | Gates expects its adjusted EBITDA margin to continue increasing through 2027. | — | — |
| Revenue growth, Timken Acquisition Share of Revenue | FY2027 | 1.00%, plus or minus | — | New |
| Revenue, Timken Acquisition | Q4 FY2026 | Gates expects a diminutive revenue contribution from the acquired Timken belts business in the fourth quarter. | — | — |
| Free cash flow, Trailing Twelve Month Conversion | Q4 FY2026 | Gates expects its trailing twelve-month free cash flow conversion to increase in the fourth quarter. | — | — |
| Gross margin | Q4 FY2026 | Gates expects its gross margin to decline sequentially in the fourth quarter. | — | — |
| EBITDA growth, Non Gaap Margin Change | Q4 FY2026 | 1.20% | — | New |
| Revenue growth, Core Growth | Q4 FY2026 | 6.50% | — | New |
| Revenue | Q4 FY2026 | $905.0 million–$925.0 million | — | New |
| Revenue growth, Total Growth | FY2026 | 5.00% | — | New |
| Revenue growth, Core Growth | FY2026 | 3.20%–3.80% | — | New |