• Adjusted EBITDA Margin: Increased by 140 basis points for the full year 2024.
• Gross Margin: Expanded by 130 basis points to 40.4% in Q4 2024.
• Free Cash Flow Conversion: 160% for Q4 2024, 74% for the full year.
• Net Leverage Ratio: Declined to 2.2x from 2.3x at year-end 2023.
• Revenue: Q4 2024 total revenue was $829 million, a 2.6% decrease on a core basis.
• Adjusted EBITDA: $181 million in Q4 2024, with a margin of 21.8%.
• Adjusted Earnings Per Share: $0.36 in Q4 2024, down 3% year-over-year.
• Power Transmission Segment Revenue: $520 million in Q4 2024, a 1% decrease on a core basis.
• Fluid Power Segment Revenue: $309 million in Q4 2024, with a 5% core sales decline.
• Return on Invested Capital: 24% at year-end 2024, a 100 basis point increase from 2023.
• 2025 Revenue Guidance: Core revenues expected to range from down 0.5% to up 3.5%.
• 2025 Adjusted EBITDA Guidance: $735 million to $795 million.
• 2025 Adjusted Earnings Per Share Guidance: $1.36 to $1.52.

• Warning! GuruFocus has detected 3 Warning Sign with EXPO.

Release Date: February 06, 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) achieved a 140 basis point increase in adjusted EBITDA margins in 2024, surpassing initial forecasts.
• The company successfully refinanced its debt stack, reducing financing costs and lowering the net leverage ratio to 2.2x.
• Gates Industrial Corp PLC (NYSE:GTES) generated record adjusted earnings per share and adjusted EBITDA in 2024.
• The company reported a 130 basis point increase in gross margin to 40.4% in Q4, marking a record gross margin performance for a fourth quarter.
• Gates Industrial Corp PLC (NYSE:GTES) maintained a strong free cash flow conversion of 160% during the quarter, bringing the full year to 74%.

Negative Points

• Core revenue decreased by 2.6% on a core basis in Q4, with total revenues down nearly 4% due to unfavorable foreign currency effects.
• OEM sales decreased, primarily affected by volume reductions in the Agriculture and Construction end markets.
• The company's adjusted earnings per share decreased by 3% compared to the prior year.
• The Power Transmission segment experienced a 1% decrease in core revenues, with OEM demand under pressure.
• Gates Industrial Corp PLC (NYSE:GTES) faces a significant foreign exchange headwind, estimated at $34 million to profitability in 2025.

Q & A Highlights

Q: Can you explain the margin improvement expectations for 2025, considering the FX headwinds and efficiency savings? A: L. Brooks Mallard, CFO, explained that significant margin upside is expected from enterprise initiatives, primarily material-oriented. FX is a major headwind, modeled based on current rates. No market recovery inflection is embedded in the numbers, and enterprise initiatives will drive year-over-year margin improvement.

Q: How are tariffs affecting your cost of goods sold, particularly imports from Mexico, Canada, and China? A: Ivo Jurek, CEO, stated that exposure to China and Canada is minimal. Mexico has a large footprint, but they can flex production between Mexico and U.S. assets. Tariffs would likely be managed through pricing adjustments.

Q: What are the signs of recovery in the Personal Mobility sector, and how does it impact your 2025 guidance? A: Ivo Jurek noted that Personal Mobility showed strong performance, driven by EMEA and Asia. Inventories have normalized, and quote activities are strong. The sector is expected to deliver significant growth, which is included in the 2025 guidance.

Q: How do you plan to achieve the 2026 adjusted EBITDA margin target without significant organic growth? A: Ivo Jurek confirmed that they can approach the 24.5% adjusted EBITDA margin target without 3-5% organic growth. Material cost reductions and restructuring activities are key contributors to margin improvement.

Q: Can you provide more details on the data center opportunities and your competitive positioning? A: Ivo Jurek highlighted that Gates is engaged with a broad set of customers in the data center space, from server manufacturers to operators. They are in various stages of design and testing, with expectations for significant revenue contributions in 2025.

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