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Gates Gains From Business Strength Amid Persisting Headwinds
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Key Takeaways
GTES saw improving demand across both segments, supporting core sales growth.
Data center sales more than doubled, while the Timken belt deal should boost Power Transmission.
Margin gains continued, but weak South American agriculture and higher costs remain headwinds.
Gates Industrial Corporation plc (GTES - Free Report) is benefiting from improving demand across both of its segments. Also, the Europe ERP-related shipping and distribution disruptions eased during the second quarter of 2026, supporting normalized operations. In the second quarter, the Power Transmission segment benefited from low-teens revenue growth in industrial OEM, mid-single-digit growth in industrial aftermarket and more than 25% growth in personal mobility and commercial on-highway end markets. The segment’s core sales increased 5.3% year over year in the quarter.
The Fluid Power segment's results were driven by double-digit revenue growth in industrial OEM, high-teens expansion in commercial on-highway and a mid-single-digit increase in construction and diversified industrial markets in the same quarter. Continued expansion in data center applications also bodes well for the segment.
GTES continues to capitalize on attractive growth opportunities while strengthening its market presence through strategic investments. In the second quarter, the company's data center business more than doubled year over year, with further sales growth expected in the second half as high-value projects ramp up. In May 2026, Gates announced the acquisition of Timken's industrial belt business, which is expected to close in the third quarter of 2026. The acquired company is expected to strengthen its Power Transmission segment in North America and broaden its customer offerings.
The company is gaining from its cost-control and restructuring efforts. In the second quarter, its adjusted gross margin expanded 50 basis points year over year to 41.8%. The Power Transmission segment’s adjusted EBITDA margin increased 60 basis points to 22.9%, driven by higher volumes and improved manufacturing efficiency. GTES expects margins to improve further in the second half of 2026, driven by restructuring and footprint optimization initiatives. Gates also expects pricing actions to offset raw material cost inflation, with stronger sales volumes supporting profitability and incremental margins toward year-end.
However, GTES continues to face challenges in several end markets despite signs of a broader recovery. A weak agricultural market due to a decrease in demand for products in South America is concerning for the company. In the second quarter of 2026, core sales in South America declined 10.6% on a year-over-year basis.
The company has been experiencing cost pressures from higher input costs and temporary operating expenses. In the second quarter, the company's cost of sales increased 6.1% year over year due to higher sales volumes and oil-based material cost inflation. During the same period, selling, general and administrative (SG&A) expenses increased 8.4% year over year, primarily reflecting an increase in labor and benefits expense, higher depreciation and restructuring expense, and unfavorable currency translation effects.
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Gates Gains From Business Strength Amid Persisting Headwinds
Key Takeaways
Gates Industrial Corporation plc (GTES - Free Report) is benefiting from improving demand across both of its segments. Also, the Europe ERP-related shipping and distribution disruptions eased during the second quarter of 2026, supporting normalized operations. In the second quarter, the Power Transmission segment benefited from low-teens revenue growth in industrial OEM, mid-single-digit growth in industrial aftermarket and more than 25% growth in personal mobility and commercial on-highway end markets. The segment’s core sales increased 5.3% year over year in the quarter.
The Fluid Power segment's results were driven by double-digit revenue growth in industrial OEM, high-teens expansion in commercial on-highway and a mid-single-digit increase in construction and diversified industrial markets in the same quarter. Continued expansion in data center applications also bodes well for the segment.
GTES continues to capitalize on attractive growth opportunities while strengthening its market presence through strategic investments. In the second quarter, the company's data center business more than doubled year over year, with further sales growth expected in the second half as high-value projects ramp up. In May 2026, Gates announced the acquisition of Timken's industrial belt business, which is expected to close in the third quarter of 2026. The acquired company is expected to strengthen its Power Transmission segment in North America and broaden its customer offerings.
The company is gaining from its cost-control and restructuring efforts. In the second quarter, its adjusted gross margin expanded 50 basis points year over year to 41.8%. The Power Transmission segment’s adjusted EBITDA margin increased 60 basis points to 22.9%, driven by higher volumes and improved manufacturing efficiency. GTES expects margins to improve further in the second half of 2026, driven by restructuring and footprint optimization initiatives. Gates also expects pricing actions to offset raw material cost inflation, with stronger sales volumes supporting profitability and incremental margins toward year-end.
However, GTES continues to face challenges in several end markets despite signs of a broader recovery. A weak agricultural market due to a decrease in demand for products in South America is concerning for the company. In the second quarter of 2026, core sales in South America declined 10.6% on a year-over-year basis.
The company has been experiencing cost pressures from higher input costs and temporary operating expenses. In the second quarter, the company's cost of sales increased 6.1% year over year due to higher sales volumes and oil-based material cost inflation. During the same period, selling, general and administrative (SG&A) expenses increased 8.4% year over year, primarily reflecting an increase in labor and benefits expense, higher depreciation and restructuring expense, and unfavorable currency translation effects.
Gates, which belongs to the Manufacturing - General Industrial industry, faces stiff competition from peers like Ingersoll Rand Inc. (IR - Free Report) , Helios Technologies, Inc. (HLIO - Free Report) and Crane Company (CR - Free Report) .