On July 31, 2024, Gates Industrial Corp PLC (GTES, Financial) released its 8-K filing for the second quarter of 2024. Gates Industrial Corp PLC is a manufacturer of engineered power transmission and fluid power solutions. The company operates through two segments: Power Transmission and Fluid Power. The Power Transmission segment generates the majority of the company's revenue.
Performance Overview
Gates Industrial Corp PLC reported second-quarter net sales of $885.5 million, a 5.4% decrease compared to the prior-year period. This decline represents a core sales drop of 4.0% year-over-year, missing the analyst revenue estimate of $895.59 million. Net income attributable to shareholders was $70.7 million, or $0.26 per diluted share, aligning with the analyst estimate of $0.26 per share. Adjusted Net Income per diluted share was $0.36.
Segment Performance
Second-quarter net sales in the Power Transmission segment decreased by 5.6% to $541.9 million, reflecting a core sales decline of 3.5%. The Fluid Power segment saw a 5.2% decrease in net sales to $343.6 million, with a core sales decline of 4.9%. Both segments were impacted by weaker industrial demand and unfavorable foreign currency effects.
| Segment | Net Sales (Q2 2024) | Net Sales (Q2 2023) | % Change | % Core Change |
|---|---|---|---|---|
| Power Transmission | $541.9 million | $573.9 million | (5.6%) | (3.5%) |
| Fluid Power | $343.6 million | $362.4 million | (5.2%) | (4.9%) |
Financial Achievements
Despite the revenue decline, Gates Industrial Corp PLC achieved a 270 basis point year-over-year increase in gross margin. Adjusted EBITDA for the second quarter was $202.2 million, representing a margin of 22.8%, an improvement of 170 basis points compared to the prior-year quarter. The company generated $72.8 million of operating cash flow year-to-date, compared to $183.9 million in the prior year.
"During the second quarter, we delivered a 270 basis point year-over-year increase in gross margin in an uneven demand environment. I am pleased with the progress made on our enterprise initiatives to date. Our balance sheet continues to improve underscored by a meaningful reduction in our net leverage ratio relative to the prior year period," said Ivo Jurek, Gates Industrial’s Chief Executive Officer.
Challenges and Updated Guidance
The company faced challenges due to softer-than-expected demand in its First Fit markets and normal business seasonality. As a result, Gates Industrial Corp PLC has adjusted its full-year 2024 guidance. The updated guidance reflects a core sales growth range of (4%) to (2%), adjusted EBITDA between $740 million and $770 million, and adjusted EPS between $1.29 and $1.35.
| Metric | Prior 2024 Guidance | Updated 2024 Guidance | Change (At Midpoint) |
|---|---|---|---|
| Core Sales Growth | (3%) to +1% | (4%) to (2%) | (2%) |
| Adjusted EBITDA | $745 to $805 Million | $740 to $770 Million | ($20) Million |
| Adjusted EPS | $1.28 to $1.43 | $1.29 to $1.35 | $(0.04) |
Liquidity and Capital Resources
As of June 29, 2024, Gates Industrial Corp PLC had total cash and cash equivalents of $579.7 million and total outstanding debt of $2.4 billion. The company also announced a new $250 million share repurchase authorization, valid through December 2025.
"We have trimmed our full year 2024 guidance for core sales, adjusted EBITDA and adjusted earnings per share to reflect softer than expected demand in our First Fit markets during the second half of the year and our normal business seasonality. At the updated midpoint, we still expect to increase our adjusted EBITDA margin by over 100 basis points year-over-year," added Jurek.
For more detailed financial information, please refer to the full 8-K filing.
Explore the complete 8-K earnings release (here) from Gates Industrial Corp PLC for further details.
