Gates(US:GTES)2026-02-19 16:27Gates Industrial (NYSE:GTES) FY Conference Summary Company Overview - Company: Gates Industrial Corporation - Industry: Motion Control Industry Key Points Industry and Economic Outlook - The U.S. industrial economy shows signs of recovery, particularly in the industrial OEM sector, which has exceeded expectations [2][10] - The book-to-bill ratio for Gates was reported at 1.06, indicating strong demand [4] - Recovery is noted in commercial construction equipment and agricultural machinery, with cautious optimism for 2026 [10][12] Demand Drivers - The industrial economy has faced over three years of negative performance, with PMIs being negative for approximately 38 months [12][14] - The recent uptick in demand is attributed to a post-COVID restock and a general recovery in specific end markets [16][20] - The recovery is not characterized as a V-shaped recovery but rather a gradual firming of demand [21] Distributor Insights - Strength from large equipment manufacturers typically translates to smaller OEMs, which are serviced by industrial channel partners [22][24] - A lag is expected in distributor confidence, which usually follows OEM performance by one to two quarters [26][30] Personal Mobility and Data Center Markets - Gates has seen significant growth in personal mobility, with expectations of a 30% compound annual growth rate from 2025 to 2028, targeting $300 million in revenue by 2028 [42][44] - The data center market is projected to be a $2 billion opportunity by 2028, with a focus on liquid cooling applications [44][48] Automotive Sector - Automotive OE exposure has decreased to about 8% of revenue from 15% in 2018, with a strategy of selective participation in profitable segments [50][56] - The automotive aftermarket is expected to grow at GDP plus rates, supported by an aging car fleet [62][70] Operational Efficiency and Cost Management - The European ERP rollout is progressing well, with orders being processed and manufacturing operations stabilizing [75][78] - There will be some efficiency headwinds for about one to one and a half quarters due to the ERP implementation [81][83] - The company is focused on optimizing its manufacturing footprint, with completion expected in the second to third quarter of 2026 [91][92] Financial Performance and Guidance - The company anticipates a level-loaded year in 2026, with organic growth projected at 2.5% [109][118] - EBITDA margins are expected to be around 23.5% by the end of the year, with improvements from footprint realignment [113][115] - Incremental margins are projected to be 45%-50% in the first 12 months post-implementation of operational changes [120][123] Capital Deployment and M&A Strategy - Gates has reduced leverage to 1.8 times and has over $800 million in cash on the balance sheet [130][132] - The company plans to focus on share buybacks due to the stock being undervalued, while remaining disciplined in M&A activities [133][134] Market Sentiment - Current ownership is around 65%, with a positive bias towards the company despite low ownership levels [136] This summary encapsulates the key insights and projections discussed during the Gates Industrial FY Conference, highlighting the company's strategic focus on recovery, operational efficiency, and market opportunities.