Power transmission and fluid power solutions provider Gates Corporation (NYSE: GTES) met Wall Street’s revenue expectations in Q3 2026, with revenue up 5.6% year on year to $903.6 million. Its non-GAAP profit of $0.47 per share was 6.8% above analysts’ consensus estimates.

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Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "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."

Revenue growth

A company’s long-term revenue performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Gates Industrial Corporation struggled to consistently increase demand as its $3.55 billion in revenue for the trailing 12 months was close to its revenue five years ago. That underwhelming result points to poor business quality.

Long-term growth matters most, 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 annualized revenue growth of 1.6% over the last two years is above its five-year trend, which is encouraging.

Organic revenue helps explain the company’s revenue dynamics by stripping 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% year-on-year growth. This was in line with its two-year revenue growth, indicating that core operations, rather than acquisitions and divestitures, drove most of its results.

This quarter, Gates Industrial Corporation grew its revenue by 5.6% year on year, and its $903.6 million of revenue was in line with Wall Street’s consensus estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, according to S&P. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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, with an average operating margin of 12.8%. That result is unsurprising given the favorable starting point provided by its high gross margin.

Analyzing the trend in its profitability, Gates Industrial Corporation’s operating margin rose by 3.2 percentage points over the last five years, showing its efficiency has improved.

In Q3, Gates Industrial Corporation generated an operating margin of 14.5%, up 1 percentage point year on year. Since its gross margin expanded more than its operating margin, leverage on its cost of sales appears to have been the primary driver of the recent improvement in efficiency.

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 revenue through excessive spending on advertising and promotions.

Gates Industrial Corporation’s EPS grew at a 5.4% compounded annual growth rate over the last five years. On the positive side, this performance was better than its flat revenue and indicates management responded to softer demand by adapting its cost structure.

A closer look at Gates Industrial Corporation’s earnings helps explain its performance. As mentioned earlier, Gates Industrial Corporation’s operating margin expanded by 3.2 percentage points over the last five years. In addition, its share count shrank by 14.7%. These are positive signs for shareholders because improving profitability and share buybacks boost EPS growth relative to revenue growth.

As with revenue, analyzing EPS over a shorter period can reveal changes in the business.

For Gates Industrial Corporation, its two-year annual EPS growth of 8.6% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q3, Gates Industrial Corporation reported adjusted EPS of $0.47, up from $0.39 in the same quarter last year. This result beat analysts’ consensus estimates by 6.8%. Over the next 12 months, Wall Street expects Gates Industrial Corporation’s full-year EPS to grow 13.8% from $1.64 to $1.87, according to S&P.

Key takeaways from Gates Industrial Corporation’s Q3 results

Gates Industrial Corporation’s quarter was mixed: EPS beat analysts’ consensus estimates and EBITDA narrowly topped Wall Street’s consensus, but full-year EBITDA guidance was in line. Investors were likely hoping for more, with shares falling 2.8% to $25.51 immediately after the results.

When deciding whether to buy the stock, consider the bigger picture: valuation, business quality and the latest earnings. Read the full research report for more on Gates Industrial Corporation (it’s free).