Gates Industrial Reports Second-Quarter 2023 Results

DENVER, Aug. 4, 2023 /PRNewswire/ --

Second-Quarter 2023 Financial Summary

• Record second-quarter net sales of $936.3 million, up 3.3% compared to the prior-year period, including core revenue growth of 3.9%.
• Net income attributable to shareholders of $64.9 million, or $0.23 per diluted share.
• Adjusted Net Income per diluted share of $0.36.
• Net income from continuing operations of $71.3 million, or a margin of 7.6%.
• Adjusted EBITDA of $197.3 million, or a margin of 21.1%.
• Generated $183.9 million of operating cash flow year to date, compared to $(81.8) million in the prior year.
• $250 million share repurchase executed during May 2023.
• Raising 2023 full-year EPS guidance.

Gates Industrial Corporation plc (NYSE:GTES, Financial), a leading global provider of application-specific power transmission and fluid power solutions, today reported results for the second quarter ended July 1, 2023.

Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "We produced solid increases in net income attributable to shareholders as well as core revenue growth and strong margin expansion and cash flow generation. We also reduced our net leverage ratio compared to the prior year period and returned $250 million to shareholders during the quarter."

Jurek continued, "We executed well in the first half of 2023. As we enter the second half, our business prospects remain constructive and the operating environment continues to normalize. We are maintaining the midpoint of our Adjusted EBITDA guidance and offsetting slower demand trends in the back half of the year. In addition, we have increased our full year Adjusted EPS guidance. Long-term, I am confident in our growth, margin and cash flow generation potential and our ability to improve our balance sheet while investing in our growth initiatives and returning meaningful capital to shareholders."

Second-Quarter Financial Results

Second-quarter net sales were $936.3 million, an increase of 3.3% over the prior-year quarter net sales of $906.8 million, including a 3.9% core revenue increase partially offset by unfavorable foreign currency impact of 0.6%. Our Replacement and First-Fit businesses contributed similarly to our core growth in the quarter. Core growth in the Automotive Replacement market exceeded the core growth of the enterprise. The Automotive, Construction and On-Highway end markets experienced the highest growth rates compared to the prior-year period.

Second-quarter net income attributable to shareholders was $64.9 million, or $0.23 per diluted share, compared to net income attributable to shareholders of $53.1 million, or $0.19 per diluted share, in the prior-year quarter. Adjusted Net Income was $101.6 million, or $0.36 per diluted share, compared to $90.2 million, or $0.32 per diluted share in the prior-year period, fueled by improved operating performance. The diluted weighted-average number of shares outstanding in the second quarter of 2023 was 279,915,448 compared to 286,038,818 in the second quarter of 2022.

Second quarter net income from continuing operations was $71.3 million, or 7.6% of net sales, compared to $59.3 million, or 6.5% of net sales in the prior-year quarter. The margin improvement was fueled primarily by increased operating income partially offset by higher net interest expense.

Second-quarter Adjusted EBITDA was $197.3 million compared to $180.1 million in the prior-year quarter. Second-quarter Adjusted EBITDA margin of 21.1% represented an expansion of 120 basis points compared to the prior-year quarter. The increase in Adjusted EBITDA margin stemmed largely from favorable pricing slightly offset by lower volumes.

Second-quarter Power Transmission net sales increased 5.7% to $573.9 million compared to the prior-year quarter, reflecting a core revenue increase of 7.0%, excluding unfavorable currency effects of 1.3%. The segment saw the highest core growth rates in the Automotive, On-Highway and Construction end markets. Core growth was relatively balanced between the first-fit and replacement channels.

Second-quarter Power Transmission Adjusted EBITDA was $119.0 million compared to $102.4 million in the prior-year quarter. The expansion in Adjusted EBITDA was driven by favorable pricing offset partially by lower fixed cost absorption. Adjusted EBITDA margin of 20.7% represented an improvement of 180 basis points compared to the prior-year quarter.

Second-quarter Fluid Power net sales decreased 0.4% to $362.4 million compared to the prior-year quarter, reflecting a core revenue decrease of 0.8%. Foreign currency effects were favorable by 0.4%. The segment experienced core revenue growth in the Construction, Energy and On-Highway end markets. The replacement channels slightly outperformed the first-fit channels.

Second-quarter Fluid Power Adjusted EBITDA was $78.3 million compared to $77.7 million in the prior-year quarter, resulting in an Adjusted EBITDA margin of 21.6% and expansion of 20 basis points compared to the prior-year quarter. The increase in Adjusted EBITDA was driven by favorable pricing partially offset by lower volumes.

Liquidity and Capital Resources

During the second quarter of 2023, the Company generated $131.4 million of cash from operations. Second-quarter capital expenditures decreased to $15.2 million from $20.1 million in the prior-year quarter.

As of July 1, 2023, the Company had total cash and cash equivalents of $565.0 million and total outstanding debt of $2.6 billion, as well as committed borrowing headroom of $368.0 million.

2023 Guidance

The Company is updating its full year financial guidance for 2023. Specifically, the company updates the following:

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 Revenue Growth, Adjusted EBITDA, Adjusted EPS and Free Cash Flow Conversion for 2023. 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 10:00 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 Second Quarter 2023 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 original equipment ("first-fit") manufacturers 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 such as agriculture, construction, manufacturing and energy, to everyday consumer applications such as printers, power washers, automatic doors and vacuum cleaners and 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 our growth, business prospects, margin expansion and cash flow generation), statements regarding the operating environment, demand and backlog trends, cash flow generation capabilities, our balance sheet management, capital deployment options (including share repurchases), and statements regarding our outlook for 2023. 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, bank failures, 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 significant influence of the Company's largest 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 31, 2022, 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.