• Total Sales: $848 million, core growth of 1.4%.
• Adjusted EBITDA: $187 million, margin rate of 22.1%.
• Gross Margin: 40.7%.
• Net Leverage: 2.3 times.
• Share Repurchase: $13 million repurchased, over $100 million remaining under authorization.
• Adjusted Earnings Per Share: $0.36, an increase of approximately 6%.
• Power Transmission Segment Revenue: $527 million, approximately 2% increase on a core basis.
• Fluid Power Segment Sales: $320 million, approximately flat on a core basis.
• Free Cash Flow: Outflow of $19 million, in line with normal seasonal performance.
• Return on Invested Capital: 22.5%.
• 2025 Guidance: Core revenues down 0.5% to up 3.5%; Adjusted EBITDA $735 million to $795 million; Adjusted EPS $1.36 to $1.52.

• Warning! GuruFocus has detected 4 Warning Signs with NOG.

Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Gates Industrial Corp PLC (NYSE:GTES) reported first quarter sales that outpaced initial guidance, with core sales growth of 1.4%.
• The company's adjusted EBITDA margin exceeded 22%, and gross margin expanded to 40.7%.
• Gates Industrial Corp PLC (NYSE:GTES) maintained a solid balance sheet with a net leverage ratio of 2.3 times, slightly improved year over year.
• The company repurchased $13 million of shares during the quarter, with over $100 million remaining under the existing authorization.
• Gates Industrial Corp PLC (NYSE:GTES) is well-positioned to mitigate tariff impacts through price increases and operational initiatives, with a strong in-region manufacturing footprint.

Negative Points

• The company experienced ongoing softness in the agriculture and construction markets, as well as weakness in energy.
• Total revenues were down just under 2% due to unfavorable foreign currency effects.
• Adjusted EBITDA margin decreased by 60 basis points year over year, impacted by non-recurring profit benefits from the prior year.
• Industrial OEM sales declined low double digits on a core basis, with demand softness in agriculture and construction markets.
• The company faces increased uncertainty in the market due to tariff impacts and is managing costs closely to prepare for potential demand fluctuations.

Q & A Highlights

Q: On the tariff side, how does the cadence of offsetting the tariff impact play out through the year? A: (L. Brooks Mallard, CFO) We expect minimal impact in Q2, with the third and fourth quarters closely matched, resulting in no material dollar impact. We anticipate about a 25 basis point EBITDA margin dilution for the year due to tariffs. (Ivo Jurek, CEO) We plan to offset 75-80% of the $50 million tariff impact with price increases and the rest through operational initiatives.

Q: Can you provide an update on the internal initiatives and their interaction with tariff remediation actions? A: (Ivo Jurek, CEO) We are ahead of schedule on our 80/20 initiatives, contributing to gross margin performance. We continue to focus on material cost reductions and productivity improvements. The footprint optimization will progress as planned, with compressible costs being managed to protect operating margins.

Q: How have end market expectations changed, particularly for personal mobility and auto sectors? A: (Ivo Jurek, CEO) Personal mobility showed stronger growth than expected, with no pre-buy activity observed. Auto builds are down more than anticipated, but the auto replacement market remains robust due to aging car fleets and stable employment. Energy and off-highway markets are slightly weaker, while construction and agriculture are as expected.

Q: What is the impact of price increases and FX on core growth guidance? A: (L. Brooks Mallard, CFO) We plan to offset $50 million of tariff impact with $40 million from pricing and $10 million from operational improvements. FX headwinds are about 100 basis points less than initially thought, impacting EBITDA in a normal fashion.

Q: How is the company positioned competitively regarding tariffs and manufacturing footprint? A: (Ivo Jurek, CEO) Gates is well-positioned with an in-region manufacturing strategy, minimizing tariff impacts. Most competitors have less favorable footprints. We have full manufacturing capabilities in Mexico and the US, with minimal USMCA non-compliance.

Q: Can you discuss the channel partners' inventory and any pre-buy activity? A: (Ivo Jurek, CEO) We have not observed any meaningful pre-buy activity. Sales in and out of the channel are balanced, with no significant inventory build-up. We remain a short-cycle company, and demand aligns with expectations.

Q: What is the status of the 80/20 initiative and its role in offsetting tariff impacts? A: (Ivo Jurek, CEO) The 80/20 initiative is central to our operations, with good progress in North America and plans to expand in Europe. It will help offset macroeconomic challenges and improve productivity and margins.

Q: What are the plans for capital deployment, considering the current leverage and M&A environment? A: (Ivo Jurek, CEO) We plan to be opportunistic with our $100 million share repurchase authorization. M&A opportunities are available, but any transaction must deliver double-digit ROIC by year three. We remain disciplined in our approach.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.