Power transmission and fluid power solutions provider Gates Corporation (NYSE: GTES) met Wall Streets revenue expectations in Q3 CY2025, with sales up 3% year on year to $855.7 million. Its non-GAAP profit of $0.39 per share was 5.4% above analysts’ consensus estimates.

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Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "Our team helped deliver improved sales and core growth in the third quarter supported by solid growth in Automotive Replacement and strong growth in Personal Mobility. Replacement channel revenues expanded low-single digits. We delivered double-digit EPS growth year-over-year and our adjusted EBITDA margin increased 90 basis points. Our balance sheet continued to improve as we paid down $100 million of gross debt during the quarter."

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.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Gates Industrial Corporation’s 4.6% annualized revenue growth over the last five years was tepid. This was below our standard for the industrials sector and is a tough 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 2.6% 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 2% year-on-year declines. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Gates Industrial Corporation grew its revenue by 3% year on year, and its $855.7 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Gates Industrial Corporation’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 12.9% over the last five years. This profitability was top-notch for an industrials business, showing it’s an well-run company with an efficient cost structure. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Gates Industrial Corporation’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Gates Industrial Corporation generated an operating margin profit margin of 13.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Gates Industrial Corporation’s EPS grew at a spectacular 16.8% compounded annual growth rate over the last five years, higher than its 4.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Gates Industrial Corporation’s earnings quality to better understand the drivers of its performance. A five-year view shows that Gates Industrial Corporation has repurchased its stock, shrinking its share count by 11.7%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

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 11.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Gates Industrial Corporation reported adjusted EPS of $0.39, up from $0.33 in the same quarter last year. This print beat analysts’ estimates by 5.4%. Over the next 12 months, Wall Street expects Gates Industrial Corporation’s full-year EPS of $1.50 to grow 9.8%.

Key Takeaways from Gates Industrial Corporation’s Q3 Results

It was good to see Gates Industrial Corporation beat analysts’ EPS expectations this quarter. On the other hand, its organic revenue slightly missed and its revenue was in line with Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 1.4% to $25.49 immediately after reporting.

Is Gates Industrial Corporation an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.