Power transmission and fluid power solutions provider Gates Corporation (NYSE:GTES) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 1.7% year on year to $847.6 million. Its non-GAAP profit of $0.36 per share was 9.2% above analysts’ consensus estimates.

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Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "In the first quarter, we grew our volume company-wide supported by strong growth in our Auto Replacement and Personal Mobility end markets. Also, our gross margin increased nicely year-over-year."

Company Overview

Helping create one of the most memorable moments for the iconic “Jurassic Park” film, Gates (NYSE:GTES) offers power transmission and fluid transfer equipment for various industries.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Gates Industrial Corporation grew its sales at a sluggish 2.5% compounded annual growth rate. This fell short of our benchmarks and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Gates Industrial Corporation’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.4% annually.

Gates Industrial Corporation also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Gates Industrial Corporation’s organic revenue averaged 1.7% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Gates Industrial Corporation’s revenue fell by 1.7% year on year to $847.6 million but beat Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

Gates Industrial Corporation has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Gates Industrial Corporation’s operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Gates Industrial Corporation generated an operating profit margin of 14.7%, up 1.2 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Gates Industrial Corporation’s EPS grew at a decent 9.7% compounded annual growth rate over the last five years, higher than its 2.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Gates Industrial Corporation’s earnings can give us a better understanding of its performance. As we mentioned earlier, Gates Industrial Corporation’s operating margin expanded by 4.9 percentage points over the last five years. On top of that, its share count shrank by 12.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Gates Industrial Corporation, its two-year annual EPS growth of 10.4% is similar to its five-year trend, implying stable earnings power.

In Q1, Gates Industrial Corporation reported EPS at $0.36, up from $0.34 in the same quarter last year. This print beat analysts’ estimates by 9.2%. Over the next 12 months, Wall Street expects Gates Industrial Corporation’s full-year EPS of $1.41 to grow 3.7%.

Key Takeaways from Gates Industrial Corporation’s Q1 Results

We enjoyed seeing Gates Industrial Corporation beat analysts’ organic revenue, EPS, and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance topped Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 3% to $18.45 immediately following the results.

Gates Industrial Corporation had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.