Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 31, 2026 · Beat 6 of last 6 quarters
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Gates' data center revenue more than doubled y/y, with sales contribution anticipated to step up in the second half as certain high-value project launches occur. Management reaffirmed a $100M–$200M revenue target by 2028. This signals continued strength in liquid cooling and power transmission components for AI infrastructure, supporting the buildout thesis. The company's raised guidance and industrial recovery commentary also suggest broader demand tailwinds that could benefit the supply chain.
Gates delivered record quarterly sales of $942M, with core growth of 4.9%, driven by double-digit growth in industrial OEM and strong performance in personal mobility (+25%) and commercial on-highway (+20%+). Adjusted EBITDA was $211M (22.5% margin), and adjusted EPS rose 13% to $0.44. The company raised full-year guidance and expects H2 core growth of ~6% y/y. Data center revenue more than doubled y/y, with sales contribution anticipated to step up in the second half as certain high-value project launches occur.
Management raised full-year 2026 guidance: core sales growth now 2.5%–4.5% (up 100 bps at midpoint), adjusted EBITDA $800M–$830M (up $10M at midpoint), and adjusted EPS $1.62–$1.70 (up $0.06 at midpoint). They expect H2 core growth of ~6% y/y, a significant acceleration from ~1% in H1, and reaffirmed achieving adjusted EBITDA margin of at least 23.5% in H2. The tone was constructive, citing early stages of an industrial recovery, improving OEM schedules, and solid distributor orders. They also noted pricing actions to offset oil-related cost inflation, with incrementals expected in the 35%–40% range in Q3 and 45%+ in Q4.
“We believe that we have entered the early stages of an industrial recovery. Industrial OEM schedules are generally improving with some end markets further down the recovery curve and industrial distributor orders are solid.”
on Industrial recovery
“We continue to grow our data center business, which expanded more than 2x versus the prior year quarter, and we anticipate sales contribution to step up in the second half as certain high-value project launches occur.”
on Data center opportunity
“We are on track to achieve an adjusted EBITDA margin of at least 23.5% in the second half of this year, putting us on a good path to achieve our midterm margin target outlined in 2024.”
on Margin trajectory
How much of the second-half margin improvement is from temporary headwinds going away versus better organic growth fall-through? What are the medium-term incrementals?
Brooks Mallard said footprint optimization and cost savings are coming through, with Q3 incrementals of 35%–40% due to pricing dilution from oil-related cost increases, moving to 45%+ in Q4 and continuing into H1 2027.
How should we think about the pervasiveness of the demand recovery and what it could mean for the organization?
Ivo Jurek said historical recoveries typically see solid acceleration for the first 4–6 quarters, with PMIs expanding and broad-based recovery across end markets, though agriculture is still troughing. He expects continued acceleration and noted self-help initiatives add to the momentum.
Can you unpack the strong personal mobility and commercial on-highway growth? Is it new products, catch-up, or inventory sell-in?
Ivo Jurek cited a significant recovery in Class 8 truck orders (up a couple hundred percent y/y) and strong Class 5/7 orders, benefiting Gates. Personal mobility growth of 25%–30% is driven by design wins and product portfolio expansion, with that growth rate expected to continue for the next couple of years.