10-Q · May 1, 2026
Gates Industrial's Q1 2026 results show revenues of $851.1 million, reflecting a slight increase of 0.4% from the previous year, although EPS matched estimates at $0.23. Management remains optimistic about full-year…
Earnings analysis · 10-Q
GTES earnings analysis
Filed October 30, 2026 · Our reading of the company's report
The latest report
Gates delivered solid third-quarter operating performance, with revenue up 5.6% year over year, gross margin expanding to approximately 42.4%, operating margin improving to approximately 14.5%, and diluted EPS rising to…
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Gates delivered solid third-quarter operating performance, with revenue up 5.6% year over year, gross margin expanding to approximately 42.4%, operating margin improving to approximately 14.5%, and diluted EPS rising to $0.34. Power Transmission drove the strongest profitability improvement, while Fluid Power grew sales but experienced margin pressure over the first nine months. The principal concern is weaker cash conversion, as operating cash flow fell to $170.0 million amid $144.5 million of receivables use and $118.0 million of inventory investment. The 10-Q provided no new quantitative revenue or EPS guidance and stated that there were no material changes to previously disclosed risk factors.
From revenue to operating profit
Where each $100 of revenue went in this report.
Cost of sales, operating expenses, and what remained. Figures are rounded to whole dollars.
Where revenue came from
The business segments reported by the company.
Shares of the segments disclosed in this filing, largest first.
Reported figures
- Earnings per share
- $0.34
What stood out
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Sales growth and gross-margin expansion
Net sales increased 5.6% year over year to $903.6 million from $855.7 million. Gross profit rose to $383.3 million from $341.6 million, lifting gross margin to approximately 42.4% from 39.9%.
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Operating profitability improved
Operating income increased to $131.3 million from $115.4 million, and operating margin improved to approximately 14.5% from 13.5%. Adjusted EBITDA rose 10.0% to $215.4 million from $195.8 million.
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GAAP EPS and earnings increased
Reported diluted EPS increased to $0.34 from $0.31 year over year. Net income attributable to shareholders increased to $86.5 million from $81.6 million.
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Power Transmission led margin gains
Power Transmission sales increased 5.0% to $560.1 million, led by $12.0 million of volume growth and $15.6 million of pricing benefits. Its Adjusted EBITDA margin expanded 160 basis points to 24.5%.
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Fluid Power delivered strong sales growth
Fluid Power sales increased 6.5% to $343.5 million, with core sales growth of 6.1%. Industrial OEM core sales increased 16.4%, while on-highway sales increased 20.7% in the quarter.
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Liquidity remained substantial
Cash and cash equivalents increased to $830.8 million from $812.1 million at year-end, while total debt declined to $2,220.9 million from $2,232.5 million. The company also had $472.4 million of committed revolving-credit headroom.
What to watch
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Working capital pressured cash flow
Operating cash flow declined to $170.0 million from $208.3 million year over year. Cash usage included $144.5 million from accounts receivable and $118.0 million from inventories.
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Receivables and inventory buildup
Trade receivables increased to $885.8 million from $744.2 million at December 31, 2025, while inventories rose to $812.9 million from $700.0 million. Finished goods inventory alone increased to $510.2 million from $452.4 million.
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Inflation and Fluid Power pressure
Management disclosed current-period purchase inflation of $10.5 million in the quarter and $26.3 million year to date. Fluid Power's nine-month Adjusted EBITDA declined 0.2% to $220.3 million, and its margin fell 90 basis points to 21.7%.
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Higher operating expenses
SG&A increased $28.2 million year over year to $247.4 million, including $8.0 million of higher labor and benefits expense, $3.6 million of higher outbound freight, and $4.5 million of higher restructuring expense.
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Material leverage and interest exposure
The company had $2,220.9 million of debt outstanding, including $1,730.7 million of secured term loans and $500.0 million of senior notes. The 2024 and 2022 dollar term loans carried a 5.44% interest rate at September 26, 2026.
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Acquisition and integration execution
The company completed the Timken belts-business acquisition after quarter-end for cash consideration of $29.1 million, while recording $4.0 million of transaction-related expenses during the quarter. Integration costs and execution risk could weigh on future results.
Management's outlook
The 10-Q does not provide new quantitative revenue or EPS guidance. Management expects approximately $12.6 million of 2026 defined-benefit pension contributions and $2.6 million of other retirement-plan contributions, and believes it has adequate liquidity and capital resources for the next twelve months.
Earlier filings 1
This is our reading of a public filing, not the filing itself. Analysis can contain errors; check the source document for full context.