Gates Industrial has raised its 2026 sales and earnings outlook after second-quarter revenue increased by 6.6% to $941.6m, supported by improving global order momentum across its power transmission and fluid power operations.
Core sales, which remove the effect of currency movements and other specified items, increased by 4.9% during the quarter ended 27 June. Adjusted EBITDA reached $211.4m, producing a margin of 22.5%, while net income attributable to shareholders increased to $170.9m.
Power Transmission delivered the stronger operating result. Quarterly sales rose by 7% to $588.5m, with core growth of 5.3%. Adjusted EBITDA increased by 9.8% to $134.8m and the margin improved by 60 basis points to 22.9%, indicating that the additional volume converted into profit more effectively than in the corresponding period.
Fluid Power sales increased by 5.8% to $353.1m, including core growth of 4.2%. Adjusted EBITDA was broadly unchanged at $76.6m, however, and the divisional margin fell by 120 basis points to 21.7%. Demand improved across both segments, but the profit effect was uneven.
Gates supplies application-specific power transmission and fluid power products used across industrial equipment, transport, energy, construction, agriculture, and other machinery markets. Its results provide a broad, if imperfect, reading of activity across original equipment manufacturers, replacement channels, distributors, and maintenance demand.
The quarterly figures also show an acceleration from the first-half totals. Group sales for the six months rose by 3.5% to $1.793bn, while core growth was 1.1%. Power Transmission’s first-half core growth was 1.5%, compared with 5.3% in the second quarter alone, while Fluid Power moved from 0.4% core growth across the half to 4.2% during the quarter.
One quarter does not establish a uniform industrial recovery. Fluid Power’s lower margin points to continuing pressure in product mix, cost absorption, pricing, or operating performance, while Power Transmission entered the second half with stronger revenue and profit conversion. The divisions serve overlapping customers, yet their demand cycles and channel exposure do not move in perfect alignment.
Gates increased its expected full-year core sales growth range from 1%–4% to 2.5%–4.5%. The midpoint of adjusted EBITDA guidance rose by $10m, with the revised range set at $800m–$830m instead of $775m–$835m. Adjusted earnings per share guidance increased from $1.52–$1.68 to $1.62–$1.70.
The company left expected capital expenditure at about $120m and retained its target for free cash flow conversion of at least 90%. Holding investment steady while raising sales and earnings expectations suggests that the near-term improvement is expected to come primarily through utilisation, mix, pricing, productivity, and existing capacity rather than a rapid increase in factory spending.
The guidance increase also leaves little room for careless inventory growth. A supplier can report stronger sales while consuming cash if raw materials, work in progress, and finished stock rise faster than customer demand. Gates’ unchanged cash-conversion target will therefore test whether the order improvement is being translated into disciplined production rather than simply fuller warehouses.
Improved orders can create a difficult transition after a softer period. Plants must raise schedules, rebuild inventory where necessary, and secure materials without allowing working capital or overtime to consume the benefit. Distributors face the same judgement over restocking, particularly when customer demand remains uneven between sectors and regions.
Power transmission products sit close to the mechanical core of industrial production. Belts, drives, and related components are required in new machinery, but they also generate replacement demand from installed equipment. That aftermarket exposure can provide resilience when capital equipment orders slow, while improving original equipment demand adds volume across production and distribution channels.
Fluid power systems have similarly broad applications, although profitability can be more sensitive to product mix, material costs, and the balance between original equipment and replacement activity. The second-quarter margin decline means the division will need more than revenue growth to match the progress recorded in Power Transmission.
The revised outlook assumes stronger sales growth during the second half than Gates expected at the start of the year. The persistence of orders, and the sectors producing them, will determine whether the improvement becomes a wider industrial signal. Channel restocking, delayed purchasing, and currency effects can flatter a single quarter, which leaves core growth and divisional margins as the more useful tests.
Gates enters the second half with higher guidance, stronger quarterly growth, and a profitable Power Transmission operation. The next results will show whether Fluid Power can recover margin and whether order momentum continues after customers have worked through near-term replenishment and production requirements.
