Power transmission and fluid power solutions provider Gates Corporation (NYSE: GTES) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 3.2% year on year to $856.2 million. Its non-GAAP profit of $0.38 per share was 4% above analysts’ consensus estimates.

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StockStory’s Take

Gates Industrial Corporation closed Q4 with results that met Wall Street’s expectations for both revenue and profitability, prompting a notable positive market reaction. Management credited the quarter’s performance to robust gains in its personal mobility and data center businesses, which offset ongoing softness in core industrial end markets. CEO Ivo Jurek highlighted that “personal mobility business exceeded 25% core growth in 2025, and our data center business grew 4x compared to 2024,” while acknowledging continued inventory management by distributors and a challenging backdrop for automotive original equipment. The company also emphasized disciplined cost control and the benefits of recent operational adjustments.

Looking ahead, Gates’ guidance reflects cautious optimism, with expectations for modest growth in most end markets and a particular focus on further expansion in personal mobility and data center applications. Management anticipates costs related to enterprise resource planning (ERP) transitions and manufacturing footprint optimization will weigh on margins in early 2026, but these are expected to subside by midyear. CFO L. Brooks Mallard explained, “We estimate these costs will represent about a 100 basis points drag year over year on our adjusted EBITDA margin during 2026, all else equal,” adding that the back half of the year should show improvements from recent restructuring. The company aims to leverage structural improvements and a strengthened balance sheet to pursue both organic and targeted inorganic growth.

Key Insights from Management’s Remarks

Management attributed Q4 results to strength in high-growth verticals, operational discipline, and selective investments, while also flagging ongoing challenges in core industrial and automotive markets.

• Personal mobility momentum: Gates’ personal mobility segment, which includes products for electric and two-wheel vehicles, posted 28% growth in Q4 as electrification trends drove increased adoption of belt technologies over traditional chains. Management expects this trend to compound at approximately 30% annually through 2028, underpinning a significant portion of future revenue growth.

• Rapid data center expansion: The company’s data center business, focused on liquid cooling technologies such as hoses, couplings, and fittings, saw orders grow by nearly 700% year over year from a small base. This segment is benefiting from rising demand for high-performance computing infrastructure, and Gates targets $100–200 million in annual data center revenue by 2028.

• Industrial aftermarket softness: Core industrial aftermarket sales declined mid-single digits as distributors managed inventory closely into year-end, a trend management expects to normalize by Q2 2026. The company highlighted that industrial OEM demand is recovering, which typically precedes aftermarket stabilization.

• Operational initiatives: Recent footprint optimization and ERP implementation projects are progressing on schedule. These efforts are expected to deliver $10 million in annualized adjusted EBITDA benefits starting in the second half of 2026, with further gains anticipated in 2027.

• Disciplined capital deployment: Gates reduced its net leverage ratio below 2x for the first time, repurchased over $100 million in shares in Q4, and is exploring bolt-on acquisitions to supplement organic growth. Management emphasized prioritizing strategic, non-transformational M&A while continuing to invest in key growth areas.

Drivers of Future Performance

Gates’ outlook for 2026 centers on gradual recovery in most end markets, continued strength in high-growth verticals, and cost headwinds from transformation initiatives tapering off by midyear.

• ERP and footprint optimization costs: Management projects that ERP transition and manufacturing footprint restructuring will dampen margins in the first half of 2026, representing about a 100 basis points headwind to adjusted EBITDA margin. These costs are expected to subside midyear, after which incremental margin expansion should resume.

• High-growth verticals drive outperformance: Ongoing investments in personal mobility and data center businesses are expected to generate growth above the company’s fleet average, with management targeting compounded annual growth rates of nearly 30% in these segments. These verticals are positioned as key levers for market share gains and overall revenue acceleration.

• Industrial cycle recovery and risks: Management is cautiously optimistic that industrial OEM and aftermarket demand will strengthen through the year, with order rates and book-to-bill ratios improving. However, they remain pragmatic about the pace of recovery, noting risks from potential head fakes in macro data, inventory dynamics, and lingering softness in automotive OEM markets.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace of recovery in industrial OEM and aftermarket demand, especially as inventory destocking subsides; (2) the realization of cost savings and operational improvements from ERP and footprint optimization projects; and (3) continued growth and order momentum in personal mobility and data center verticals. The successful execution of bolt-on acquisitions and further deleveraging will also be important milestones for Gates’ strategy.

Gates Industrial Corporation currently trades at $27.54, up from $26.51 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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