Gates Industrial Reports Third-Quarter 2024 Results
DENVER, Oct. 30, 2024 /PRNewswire/ --
Third-Quarter 2024 Financial Summary
Third-quarter net sales of $830.7 million, down 4.8% compared to the prior-year period and representing a core sales decline of 3.8% year-over-year.
Net income attributable to shareholders of $47.6 million, or $0.18 per diluted share.
Adjusted Net Income per diluted share of $0.33.
Net income from continuing operations of $55.2 million, or a margin of 6.6%.
Adjusted EBITDA of $182.5 million, or a margin of 22.0%.
Generated $188.7 million of operating cash flow year to date, compared to $291.7 million in the prior year.
Increasing full year 2024 Adjusted EPS guidance.
Gates Industrial Corporation plc (NYSE:GTES), a leading global provider of application-specific power transmission and fluid power solutions, today reported results for the third quarter ended September 28, 2024.
Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "In the third quarter, our teams executed well and generated over 100 basis points of gross margin improvement in an uneven end market environment. We continue to progress our enterprise initiatives and improve our balance sheet while opportunistically returning capital to our shareholders."
Jurek continued, "We have increased our full year 2024 Adjusted EPS guidance and expect to achieve a solid increase in adjusted EBITDA margin for the full year. We believe we are well positioned to deliver attractive organic revenue growth over the mid-term and anticipate that our expected ongoing balance sheet improvements will increase our capital deployment optionality."
Third-Quarter Financial Results
Third-quarter net sales were $830.7 million, a decrease of 4.8% over the prior-year quarter net sales of $872.9 million, reflecting a 3.8% core sales decline and unfavorable foreign currency impact of 1.0%. Original Equipment Manufacturer ("OEM") sales decreased year-over-year and more than offset slight growth in the replacement channel. Automotive replacement sales grew modestly and industrial replacement sales experienced a slight decrease on a core basis.
Third-quarter net income attributable to shareholders was $47.6 million, or $0.18 per diluted share, compared to net income attributable to shareholders of $78.7 million, or $0.29 per diluted share, in the prior-year quarter, with the decrease fueled by lower operating income, a higher tax rate, and increased other expense. Adjusted Net Income was $86.9 million, or $0.33 per diluted share, compared to $95.9 million, or $0.36 per diluted share in the prior-year period. Lower operating income resulting from the year-over-year decline in sales was the primary contributor to the decrease. The diluted weighted-average number of shares outstanding in the third quarter of 2024 was 263,441,572 compared to 267,835,011 in the third quarter of 2023.
Third-quarter net income from continuing operations was $55.2 million, or 6.6% of net sales, compared to $85.6 million, or 9.8% of net sales in the prior-year quarter representing a decrease of 320 basis points year-over-year and impacted by lower operating income, higher other expense, and a higher tax rate offset partially by lower interest expense.
Third-quarter Adjusted EBITDA was $182.5 million compared to $189.4 million in the prior-year quarter. Third-quarter Adjusted EBITDA margin of 22.0% represented an expansion of 30 basis points compared to the prior-year quarter. The increase in Adjusted EBITDA margin was led by benefits from enterprise initiatives that favorably impacted manufacturing performance and pricing, as well as favorable channel mix, partially offset by lower volumes.
Power Transmission Segment Results
For the three months ended
(USD in millions)
September 28,2024
September 30,2023
% Change
% Core Change
Net sales
$513.4
$536.4
(4.3 %)
(3.3 %)
Adjusted EBITDA
$113.0
$116.5
(3.0 %)
Adjusted EBITDA margin
22.0 %
21.7 %
30 bps
For the nine months ended
(USD in millions)
September 28, 2024
September 30,2023
% Change
% Core Change
Net sales
$1,588.1
$1,658.4
(4.2 %)
(2.8 %)
Adjusted EBITDA
$355.8
$343.2
3.7 %
Adjusted EBITDA margin
22.4 %
20.7 %
170 bps
Third-quarter Power Transmission net sales decreased 4.3% to $513.4 million compared to the prior-year quarter, reflecting a core sales decline of 3.3% and unfavorable currency effects of 1.0%. End markets in the segment declined broadly. Sales performance was most affected by core declines in Agriculture, Construction and Personal Mobility. At the channel level, OEM sales declined double-digits impacted roughly equally by automotive and industrial. Core sales in our replacement channel increased slightly led by modest growth in Automotive Replacement.
Third-quarter Power Transmission Adjusted EBITDA was $113.0 million compared to $116.5 million in the prior-year quarter. The decrease in Adjusted EBITDA was influenced by the lower core sales year-over-year. Adjusted EBITDA margin of 22.0% represented an improvement of 30 basis points compared to the prior-year quarter. The expansion in Adjusted EBITDA margin was driven by enterprise initiatives that benefited manufacturing performance and pricing, as well as favorable channel mix, partially offset by lower volume.
Fluid Power Segment Results
For the three months ended
(USD in millions)
September 28,2024
September 30,2023
% Change
% Core Change
Net sales
$317.3
$336.5
(5.7 %)
(4.7 %)
Adjusted EBITDA
$69.5
$72.9
(4.7 %)
Adjusted EBITDA margin
21.9 %
21.7 %
20 bps
For the nine months ended
(USD in millions)
September 28,2024
September 30,2023
% Change
% Core Change
Net sales
$990.7
$1,048.5
(5.5 %)
(5.4 %)
Adjusted EBITDA
$224.5
$218.0
3.0 %
Adjusted EBITDA margin
22.7 %
20.8 %
190 bps
Third-quarter Fluid Power net sales decreased 5.7% to $317.3 million compared to the prior-year quarter, reflecting a core sales decline of 4.7% and unfavorable foreign currency effects of 1.0%. The segment was most impacted by weaker demand across key industrial end markets, most notably Agriculture and Construction. At the channel level, OEM sales declined double-digits relative to the prior year period while replacement increased slightly year-over-year supported by Automotive Replacement.
Third-quarter Fluid Power Adjusted EBITDA was $69.5 million compared to $72.9 million in the prior-year quarter, resulting in an Adjusted EBITDA margin of 21.9%, an increase of 20 basis points compared to the prior-year quarter. The increase in Adjusted EBITDA margin was supported by enterprise initiatives that favorably impacted manufacturing performance and pricing, as well as favorable channel mix, partially mitigated by lower volumes.
Liquidity and Capital Resources
During the third quarter of 2024, the Company generated $115.9 million of cash from operations. Third-quarter capital expenditures increased to $28.0 million from $17.4 million in the prior-year quarter.
As of September 28, 2024, the Company had total cash and cash equivalents of $574.4 million and total outstanding debt of $2.4 billion, as well as committed borrowing headroom of $441.2 million.
Updated 2024 Guidance
The Company is updating its full year 2024 guidance. The table below reflects our updated full year 2024 financial guidance.
Prior 2024
Updated 2024
Change (At Midpoint)
Core Sales Growth
(4%) to (2%)
(~4%) to (~3%)
(~0.5%)
Adjusted EBITDA
$740 to $770 Million
$745 to $765 Million
No Change
Adjusted EPS
$1.29 to $1.35
$1.33 to $1.37
+$0.03
Capital Expenditures
~$100 Million
~$100 Million
No Change
Free Cash Flow Conversion
90%+
90%+
No Change
Share-based metrics in the Company's guidance do not include the potential effect of incremental share repurchases.
Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-GAAP measures, including expected Core Sales Growth, Adjusted EBITDA, Adjusted Earnings per Share and Free Cash Flow conversion for 2024. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.
Conference Call and Webcast
Gates Industrial Corporation plc will host a conference call today at 11:00 a.m. Eastern Time to discuss the Company's financial results. The live webcast of the conference call and accompanying presentation materials can be accessed through Gates Industrial's website at investors.gates.com. For those unable to access the webcast, the conference call can be accessed by dialing (888) 414-4601 (domestic) or +1 (646) 960-0313 (international) and requesting the Gates Industrial Corporation Third Quarter 2024 Earnings Conference Call or providing the Conference ID of 5772067. An audio replay of the conference call can be accessed by dialing (800) 770-2030 (domestic) or +1 (647) 362-9199 (international), and providing the passcode 5772067, or by accessing Gates Industrial's website at investors.gates.com.
About Gates Industrial Corporation plc
Gates is a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. Gates offers a broad portfolio of products to diverse replacement channel customers, and to OEMs as specified components. Gates participates in many sectors of the industrial and consumer markets. Our products play essential roles in a diverse range of applications across a wide variety of end markets ranging from harsh and hazardous industries to everyday consumer applications including virtually every form of transportation. Our products are sold in more than 130 countries across our four commercial regions: the Americas; Europe, Middle East & Africa; Greater China; and East Asia & India.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "predicts," "intends," "trends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. These statements include, but are not limited to, statements related to expectations regarding the performance of the Company's business and financial results (including enterprise initiatives, balance sheet management, organic revenue growth, margin expansion and capital deployment), market demand, and statements regarding our outlook for 2024. Such forward-looking statements are subject to various risks and uncertainties, including, among others, economic, political and other risks associated with international operations, risks inherent to the manufacturing industry, macroeconomic factors beyond the Company's control (including material and logistics availability, inflation, supply chain and labor challenges and end-market recovery), risks related to catastrophic events, continued operation of our manufacturing facilities, including as a result of cybersecurity attacks, our ability to forecast and meet demand, market acceptance of new products, and the influence of the Company's large shareholders, investment funds affiliated with Blackstone Inc. Additional factors that could cause the Company's results to differ materially from those described in the forward-looking statements can be found under the section entitled "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC, as such factors may be updated from time to time in the Company's periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in the Company's filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Gates Industrial Corporation plc
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended
Nine months ended
(USD in millions, except per share amounts)
September 28,2024
September 30,2023
September 28,2024
September 30,2023
Net sales
$ 830.7
$ 872.9
$ 2,578.8
$ 2,706.9
Cost of sales
494.9
529.5
1,555.6
1,685.7
Gross profit
335.8
343.4
1,023.2
1,021.2
Selling, general and administrative expenses
219.9
213.4
649.9
666.2
Transaction-related expenses
0.5
1.3
2.1
2.1
Asset impairments
—
0.1
—
0.1
Restructuring expenses
2.2
2.6
5.0
10.3
Other operating expenses
—
0.1
0.1
0.2
Operating income from continuing operations
113.2
125.9
366.1
342.3
Interest expense
35.1
39.5
121.7
124.8
Loss on deconsolidation of Russian subsidiary
12.8
—
12.8
—
Other (income) expense
(3.9)
(0.2)
(8.5)
3.8
Income from continuing operations before taxes
69.2
