Gates Industrial Corporation Smashes Q4 Expectations with Strong Earnings Growth and Record Gross Margin
Gates Industrial Corporation has just announced its fourth-quarter and full-year 2024 financial results, and the numbers are nothing short of impressive. The company's CEO, Ivo Jurek, took to the conference call stage to share the highlights, and it's clear that Gates is hitting all the right notes.
On a non-GAAP basis, Gates reported adjusted earnings per share (EPS) growth, driven by operating income contribution, lower interest expense, and a lower share count. This more than offset a higher tax rate and lower contribution from other items. The company's financial flexibility has improved significantly, with a record-adjusted EBITDA margin expansion of 140 basis points.
Looking at the fourth quarter specifically, Gates' core revenue performance was consistent with expectations, despite the strengthening U.S. dollar negatively impacting reported revenues. The replacement channel posted growth, supported by a mid-single-digit increase in replacement sales, while OEM sales decreased primarily due to volume reductions in the Agriculture and Construction end markets.
A notable highlight from Q4 is the personal mobility core growth, which increased for the first time in 7 quarters and expanded approximately 20%. This growth, combined with a solid profitability performance, saw adjusted EBITDA margins expand by 30 basis points to 21.8%, driven by a record gross margin of 40.4%.
Gross margin benefited from ongoing contributions from Gates' various enterprise initiatives, which supported improved operating performance and price realization as well as favorable channel mix. The company's free cash flow conversion during the quarter was 160%, bringing the full year to 74%. This suggests that Gates is well-positioned to capitalize on an expected cycle inflection in some of its end markets.
Gates' CEO, Ivo Jurek, emphasized that the company believes it has made significant progress in 2024, with a focus on enterprise initiatives and operational strength. The refinancing of debt, reduction in financing costs, and lower net leverage ratio have improved Gates' financial flexibility, allowing it to capitalize on potential industrial demand recovery during 2025.
The company's midterm targets are within reach, with strong headway made towards achieving them. With a solid profitability performance, increased free cash flow conversion, and a record gross margin, Gates Industrial Corporation is well-positioned for success in the coming year.
