Third quarter 2026
Filed Oct 30, 2026Third-quarter net sales of $903.6 million, up 5.6% compared to the prior-year period, with Adjusted EBITDA of $215.4 million and increased full-year profitability and adjusted EPS guidance.
Sales, core sales, gross profit, operating income, net income attributable to shareholders, Adjusted EBITDA and Adjusted Net Income per diluted share increased from the prior-year quarter. Profitability guidance and Adjusted EPS guidance increased, while nine-month operating cash flow was below the prior-year period and Fluid Power Adjusted EBITDA margin declined.
Key metrics
shortened, hover for the filing’s print| Metric | Value | q/q | y/y |
|---|---|---|---|
| Q3 2026 net salesGAAP | $903.6M | – | 5.6% |
| Q3 2026 core sales increasenon-GAAP | 5.5% | – | 5.5% |
| Q3 2026 cost of salesGAAP | 520.3 | – | – |
| Q3 2026 gross profitGAAP | 383.3 | – | – |
| Q3 2026 gross profit marginGAAP | 42.4% | – | – |
| Q3 2026 adjusted gross profitnon-GAAP | $390.6M | – | – |
| Q3 2026 adjusted gross profit marginnon-GAAP | 43.2% | – | – |
| Q3 2026 selling, general and administrative expensesGAAP | 247.4 | – | – |
| Q3 2026 transaction-related expensesGAAP | 4.0 | – | – |
| Q3 2026 asset impairmentsGAAP | — | – | – |
| Q3 2026 restructuring expensesGAAP | 0.6 | – | – |
| Q3 2026 operating income from continuing operationsGAAP | 131.3 | – | – |
| Q3 2026 interest expenseGAAP | 30.5 | – | – |
| Q3 2026 income from continuing operations before taxesGAAP | 108.3 | – | – |
| Q3 2026 income tax expense (benefit)GAAP | 16.7 | – | – |
| Q3 2026 net income from continuing operationsGAAP | $91.6M | – | – |
| Q3 2026 net income from continuing operations marginGAAP | 10.1% | – | – |
| Q3 2026 net incomeGAAP | 91.4 | – | – |
| Q3 2026 net income attributable to shareholdersGAAP | $86.5M | – | – |
| Q3 2026 diluted earnings per shareGAAP | $0.34 | – | – |
| Q3 2026 Adjusted EBITDAnon-GAAP | $215.4M | – | – |
| Q3 2026 Adjusted EBITDA marginnon-GAAP | 23.8% | – | – |
| Q3 2026 Adjusted Net Incomenon-GAAP | $119.5M | – | – |
| Q3 2026 Adjusted Net Income per diluted sharenon-GAAP | $0.47 | – | – |
| Nine months 2026 net salesGAAP | $2.70B | – | 4.2% |
| Nine months 2026 core sales increasenon-GAAP | 2.5% | – | 2.5% |
| Nine months 2026 operating income from continuing operationsGAAP | 372.8 | – | – |
| Nine months 2026 net income from continuing operationsGAAP | 336.2 | – | – |
| Nine months 2026 net income attributable to shareholdersGAAP | $317.1M | – | – |
| Nine months 2026 diluted earnings per shareGAAP | $1.24 | – | – |
| Nine months 2026 Adjusted EBITDAnon-GAAP | $604.2M | – | – |
| Nine months 2026 Adjusted EBITDA marginnon-GAAP | 22.4% | – | – |
| Nine months 2026 Adjusted Net Income per diluted sharenon-GAAP | $1.25 | – | – |
| Nine months 2026 net cash provided by operating activitiesGAAP | 170.0 | – | – |
Segments
| Segment | Revenue | q/q | y/y |
|---|---|---|---|
| Power Transmission, Q3 2026Core sales increase was 5.2%. Management stated that sales in its Industrial OEM channel increased high-teens. | $560.1M | – | 5.0% |
| Fluid Power, Q3 2026Core sales increase was 6.1%. Management stated that year-over-year growth in its Industrial Aftermarket channel accelerated relative to last quarter. | $343.5M | – | 6.5% |
| Power Transmission, nine months 2026Core sales increase was 2.7%. | $1.68B | – | 4.4% |
| Fluid Power, nine months 2026Core sales increase was 2.3%. | $1.01B | – | 3.9% |
Amounts quoted below without a unit are in millions, as in the filing’s tables. Per-share figures are as printed.
Full year 2026 outlook
- NoteCore Sales Growth: 3.2% to 3.8%
- NoteAdjusted EBITDA: $809 to $823 Million
- NoteAdjusted EPS: $1.66 to $1.72
- NoteCapital Expenditures: ~$120 Million
- NoteFree Cash Flow Conversion: 90%+
Capital returns
- Repurchase of shares: (96.1) for the nine months ended September 26, 2026, compared with (13.0) for the nine months ended September 27, 2025.
- Issuance of shares: 3.5 for the nine months ended September 26, 2026, compared with 9.8 for the nine months ended September 27, 2025.
- Dividends paid to non-controlling interests: (2.5) for the nine months ended September 26, 2026, compared with (6.5) for the nine months ended September 27, 2025.
- Share-based metrics in the Company’s guidance do not include the effect of any potential share repurchases.
What drove it
- Third-quarter net sales increased 5.6% and core sales increased 5.5%.
- Power Transmission net sales increased 5.0%, with a 5.2% core sales increase.
- Fluid Power net sales increased 6.5%, with a 6.1% core sales increase.
- Management reported high-teens sales growth in the Industrial OEM channel and accelerating year-over-year Industrial Aftermarket growth relative to last quarter.
- Q3 gross profit margin was 42.4%, compared with 39.9%, and Q3 Adjusted EBITDA margin was 23.8%, compared with 22.9%.
Concerns
- Nine-month net cash provided by operating activities was 170.0, compared with 208.3 in the prior-year period.
- Nine-month Adjusted EBITDA margin was 22.4%, compared with 22.5% in the prior-year period.
- Fluid Power Q3 Adjusted EBITDA margin was 22.8%, compared with 22.9%, and its nine-month Adjusted EBITDA margin was 21.7%, compared with 22.6%.
- Accounts receivable changes of (144.5) and inventory changes of (118.0) were uses of cash in the nine-month cash flow statement.
- The filing identifies risks relating to tariffs, international operations, conflicts in the Middle East and related supply-chain impacts, raw-material availability and costs, channel-partner purchasing power and inventory levels, operational continuity, demand forecasting and market acceptance of new products.
What to watch
- Delivery against full-year 2026 Adjusted EBITDA guidance of $809 to $823 Million.
- Delivery against full-year 2026 Adjusted EPS guidance of $1.66 to $1.72.
- Core Sales Growth within the full-year 2026 guidance range of 3.2% to 3.8%.
- Progress toward the stated 90%+ Free Cash Flow Conversion target and approximately ~$120 Million of capital expenditures.
- Whether Fluid Power Adjusted EBITDA margin improves from 22.8% in Q3 2026 and 21.7% for the nine-month period.
- Management's stated pace toward its previously communicated adjusted EBITDA margin target for the second half of 2026.
Balance sheet and cash flow
- Cash and cash equivalents were $830.8 as of September 26, 2026, compared with $812.1 as of December 31, 2025.
- Debt, current portion was $30.0 as of September 26, 2026, compared with $36.2 as of December 31, 2025.
- Debt, less current portion was $2,190.9 as of September 26, 2026, compared with $2,196.3 as of December 31, 2025.
- Net cash provided by operating activities was 170.0 for the nine months ended September 26, 2026, compared with 208.3 for the nine months ended September 27, 2025.
- Purchases of property, plant and equipment were (53.8) for the nine months ended September 26, 2026, compared with (54.4) for the nine months ended September 27, 2025.
- Net cash used in investing activities was (47.1) for the nine months ended September 26, 2026, compared with (86.9) for the nine months ended September 27, 2025.
- Net cash used in financing activities was (105.4) for the nine months ended September 26, 2026, compared with (134.9) for the nine months ended September 27, 2025.
- Cash and cash equivalents and restricted cash at the end of the period was $833.8 for the nine months ended September 26, 2026, compared with $692.3 for the nine months ended September 27, 2025.
Analysis
Gates reported third-quarter net sales of $903.6 million, compared with $855.7 million in the prior-year period, and core sales increased 5.5%. Both operating segments grew: Power Transmission reported net sales of $560.1 million and a 5.2% core sales increase, while Fluid Power reported net sales of $343.5 million and a 6.1% core sales increase. Management cited high-teens Industrial OEM sales growth and accelerating year-over-year Industrial Aftermarket growth relative to last quarter.
Management, verbatim
Our team executed well during the third quarter, resulting in mid-single digit sales growth and a significant gross profit margin increase compared to the prior year period. Sales in our Industrial OEM channel increased high-teens and year-over-year growth in our Industrial Aftermarket channel accelerated relative to last quarter.
Ivo Jurek, Chief Executive Officer
We have raised our 2026 guidance for profitability and adjusted earnings per share. We are on pace to achieve our previously communicated adjusted EBITDA margin target for the second half of 2026 and our balance sheet provides us with significant capital deployment optionality.
Ivo Jurek, Chief Executive Officer
Not in the filing
stated, not guessed- Q3 2026 free cash flow
- Q3 2026 free cash flow conversion
- Full-year 2026 GAAP revenue guidance
- Full-year 2026 gross margin guidance
- Full-year 2026 operating expenses guidance
- Full-year 2026 tax-rate guidance
- Prior-quarter comparisons for reported Q3 2026 metrics
- A previous-release outlook for comparison with actual reported results
AlphAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.