Gates Industrial Reports Record Second-Quarter 2018 Results, Raises Guidance

DENVER, Aug. 1, 2018 /PRNewswire/ —

Second-Quarter 2018 Highlights

• Net sales up 13.8% year-over-year to $875.1 million, a quarterly record.
• Net income attributable to shareholders of $85.6 million, or $0.29 per diluted share, compared to prior-year quarter net income attributable to shareholders of $0.5 million, or $0.00 per diluted share.
• Adjusted Net Income of $112.1 million, or $0.38 per diluted share.
• Record quarterly Adjusted EBITDA of $204.9 million and Adjusted EBITDA margin of 23.4%.
• Increasing full-year 2018 guidance.

Gates Industrial Corporation plc (NYSE:GTES), a leading global provider of application-specific fluid power and power transmission solutions, today reported results for the second quarter ended June 30, 2018.

Ivo Jurek, Gates Industrial’s Chief Executive Officer, commented, “Our solid execution provided another quarter of record results, as we observed top line growth driven by strong demand across our industrial end markets globally, coupled with significant strength in emerging markets, notably China.  In addition to sales growth, our manufacturing performance also contributed to our record quarterly Adjusted EBITDA.  We have exciting opportunities across both our Power Transmission and Fluid Power segments, and have continued to invest in our growth initiatives.  We are pleased with the progress the global Gates team has achieved to date and have increased our full-year expectations for both net sales growth and Adjusted EBITDA.”

Jurek added, “We are excited by what we believe are significant growth opportunities within our core markets.  We remain committed to executing our growth strategies to capitalize on these opportunities, while continuing to deleverage the business.”

Second-Quarter Financial Results

Second-quarter net sales of $875.1 million increased 13.8% over the prior-year quarter net sales of $769.1 million, including 6.7% core revenue growth, which includes increased volumes across both segments as the Company continued to experience strong demand in industrial end markets.  Regionally, emerging markets contributed to the strong growth rate, particularly China.  Net sales in the quarter also benefited 4.9% from our recent acquisitions and 2.1% from foreign currency effects.

Net income attributable to shareholders in the second quarter was $85.6 million, or $0.29 per diluted share, compared to $0.5 million, or $0.00 per diluted share, in the prior year period.  Adjusted Net Income, which primarily excludes amortization of certain intangibles, transaction-related expenses and foreign currency financing gains and losses, was $112.1 million, or $0.38 per diluted share, compared to $64.8 million, or $0.26 per diluted share, in the prior-year period.  The diluted weighted average number of shares outstanding in the second quarter of 2018 was 297,385,570 compared to 251,589,550 in the second quarter of 2017.

Second-quarter Adjusted EBITDA was $204.9 million, or 23.4% of sales, compared to $179.0 million, or 23.3% of sales in the prior-year quarter.  Excluding acquisitions, the impact of which was not in the prior-year quarter, Adjusted EBITDA margin expanded by approximately 60 basis points to 23.9% in the second quarter.

Power Transmission Segment Results

Power Transmission net sales increased 7.6% to $549.6 million in the second quarter, which reflects strong core revenue growth of 5.0% and a 2.6% benefit from foreign currency effects.  During the quarter, we continued to see increased demand across nearly all of our end markets and geographies.  Growth in emerging markets outpaced growth in developed regions, with our highest global growth rates in Brazil and China.

Adjusted EBITDA grew double-digits over the prior-year quarter, while Adjusted EBITDA margin expanded by 70 basis points, attributable to benefits from higher net sales and continued manufacturing productivity improvements.

Fluid Power Segment Results

Fluid Power net sales increased 26.0% to $325.5 million in the second quarter, which reflected core revenue growth of 10.1%, incremental net sales from recent acquisitions of 14.7% and favorable foreign currency effects of 1.2%.  Core revenue growth continued to be driven by strong demand in industrial end markets, particularly in mobile hydraulic applications.  The Company also saw significant strength in emerging markets during the quarter.

Excluding acquisitions, Adjusted EBITDA margin increased 50 basis points over the prior-year quarter and was favorably impacted by higher net sales and manufacturing productivity improvements.

Liquidity and Capital Resources

During the second quarter of 2018, the Company generated $120.4 million of cash from operations, driven by the strong Adjusted EBITDA performance, offset partially by net outflows from the normal seasonality in working capital.  Second-quarter capital expenditures were $53.7 million, the largest portion of which represented investment in new manufacturing capacity in the Fluid Power segment.

As of June 30, 2018, the Company had total cash of $305.2 million and total outstanding debt of $3.0 billion, representing an improved net leverage ratio of 3.7 times Adjusted EBITDA.

2018 Outlook

The Company is increasing its full-year outlook for both net sales growth and Adjusted EBITDA.  Total net sales growth is now expected to be in a range of 10.0% to 12.0%, the core revenue growth component of which is expected to be 6.0% to 7.0%. Adjusted EBITDA is now expected to be in the range of $745 million to $765 million, increased from the previous range of $738 million to $758 million.  Additionally, the Company now expects total capital expenditures to be approximately $180 million compared to the previous range of $150 million to $170 million, reflecting investment in certain additional organic initiatives.

Conference Call and Webcast

Gates Industrial Corporation plc will host a conference call today at 5:00 pm ET to discuss the Company’s financial results.  The conference call can be accessed by dialing (866) 393-4306 (domestic) or +1 (734) 385-2616 (international) and requesting the Gates Industrial Corporation Second Quarter 2018 Earnings Conference Call.  A webcast of the conference call and accompanying presentation materials can be accessed through Gates Industrial’s website at investors.gates.com.  An audio replay of the conference call can be accessed by dialing (855) 859-2056 (domestic) or +1 (404) 537-3406 (international), and providing the passcode 7087698, or by accessing Gates Industrial’s website at investors.gates.com.

About Gates Industrial Corporation plc

Gates is a global manufacturer of innovative, highly engineered power transmission and fluid power solutions.  Gates offers a broad portfolio of products to diverse replacement channel customers, and to original equipment (“first-fit”) manufacturers as specified components.  Gates participates in many sectors of the industrial and consumer markets.  Our products play essential roles in a diverse range of applications across a wide variety of end markets ranging from harsh and hazardous industries such as agriculture, construction, manufacturing and energy, to everyday consumer applications such as printers, power washers, automatic doors and vacuum cleaners and virtually every form of transportation.  Our products are sold in 128 countries across our four commercial regions: the Americas; Europe, Middle East & Africa; Greater China; and East Asia & India.

Forward-Looking Statements

This press release contains certain “forward-looking statements” within the meaning of the federal securities laws.  Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties.  Statements relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements.  These forward-looking statements are subject to risk, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  Important factors could affect our results and could cause results to differ materially from those expressed in our forward-looking statements, including but not limited to the factors discussed in the section entitled “Risk Factors” in Gates’ Annual Report on Form 10-K for the fiscal year ended December 30, 2017, as filed with the Securities and Exchange Commission (“SEC”) and the following: conditions in the global and regional economy and the major end markets we serve; economic, political and other risks associated with international operations; availability of raw materials at favorable prices and in sufficient quantities; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; competition in all areas of our business; pricing pressures from our customers; continued operation of our manufacturing facilities; our ability to forecast demand or meet significant increases in demand; exchange rate fluctuations; market acceptance of new product introductions and product innovations; our cost-reduction actions; litigation, legal or regulatory proceedings brought against us; enforcement of our intellectual property rights; recalls, product liability claims or product warranties claims; anti-corruption laws and other laws governing our international operations; existing or new laws and regulations that may prohibit, restrict or burden the sale of aftermarket products; our decentralized information technology systems and any interruptions to our computer and IT systems; environmental, health and safety laws and regulations; lives of products used in our end markets as well as the development of replacement markets; our ability to successfully integrate future acquired businesses or assets; our reliance on senior management or key personnel; our ability to maintain and enhance our brand; work stoppages and other labor matters; our investments in joint ventures; liabilities with respect to businesses that we have divested in the past; terrorist acts, conflicts and wars; losses to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events; additional cash contributions we may be required to make to our defined benefit pension plans; the loss or financial instability of any significant customer or customers; changes in legislative, regulatory and legal developments involving taxes and other matters; our substantial leverage; and the significant influence of our majority shareholder, The Blackstone Group L.P., over us, as such factors may be updated from time to time in its periodic filings with the SEC which are accessible on the SEC’s website at www.sec.gov.  Gates undertakes no obligation to update or supplement any forward-looking statements as a result of new information, future events or otherwise, except as required by law.