Power transmission and fluid power solutions provider Gates Corporation (NYSE: GTES) missed Wall Street’s revenue expectations in Q1 CY2026, with sales flat year on year at $851.1 million. Its non-GAAP profit of $0.35 per share was 6.5% above analysts’ consensus estimates.

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Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "We executed well in the first quarter, successfully implementing a new enterprise resource planning system in Europe and continuing to invest in strategic process and growth initiatives. We exited the quarter with solid order rates and our book to bill was nicely above 1. Our cash from operating activities increased compared to the prior year period and our balance sheet is well positioned to support our strategic objectives."

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 performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Gates Industrial Corporation’s 3.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. 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 1.3% 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 1.3% 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’s $851.1 million of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Gates Industrial Corporation’s operating margin has more or less stayed the same over the last 12 months , 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 12.9%, down 1.8 percentage points year on year. Since Gates Industrial Corporation’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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 13% compounded annual growth rate over the last five years, higher than its 3.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

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 13.3%. 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 shorter period to see if we are missing a change in the business.

For Gates Industrial Corporation, its two-year annual EPS growth of 3.5% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q1, Gates Industrial Corporation reported adjusted EPS of $0.35, down from $0.36 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.5%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from Gates Industrial Corporation’s Q1 Results

It was good to see Gates Industrial Corporation beat analysts’ EPS expectations this quarter. On the other hand, its revenue fell slightly short of Wall Street’s estimates. Looking ahead, EBITDA guidance was in line, and the company reaffirmed full-year guidance for EPS. Overall, this was a fine quarter showing that although Gates Industrial is not handily beating estimates, the business is very much on track. The stock traded up 2% to $26.12 immediately after reporting.

Is Gates Industrial Corporation an attractive investment opportunity at the current price? 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).