Gates Industrial's Q2 2025 Earnings Call: Key Contradictions on Data Centers, Tariffs, and Mobility Growth

Data centers opportunity and growth expectations, tariff impact and pricing strategy adjustment, personal mobility growth and demand inflection, and restructuring savings and impact on financials are the key contradictions discussed in Gates Industrial's latest 2025Q2 earnings call.



Revenue Performance and Currency Impact:
- Gates Industrial Corporation reported total sales of $884 million for Q2 2025, indicating a 0.6% decline on a core basis.
- The slight positive foreign currency impact helped the company marginally in Q2.
- The core decline was due to softer demand in key industrial segments, particularly on-highway and construction, despite growth in personal mobility and automotive replacement.

Personal Mobility and Data Center Growth:
- The personal mobility segment grew 18% in Q2, contributing significantly to the company's revenue.
- In the data center sector, Gates is beginning to see an acceleration in quoting and booking activity, expected to positively impact the Fluid Power segment in Q4 2025 and beyond.
- Growth in these areas is driven by increased demand due to industry trends towards liquid cooling and new product developments in these segments.

Operational and Financial Metrics:
- Adjusted EBITDA margin for Gates was 22.5%, with gross margin at 40.8%, both remaining above 40% for five consecutive quarters.
- The company reduced its net leverage ratio to 2.2x, continuing to trend towards its short-term target of below 2x net leverage.
- Operational efficiencies and cost savings continue to improve margins despite currency fluctuations and tariff impacts.

Regional Performance and Tariffs:
- Core sales in North America declined 1.3%, with industrial OEM channel sales decreasing low teens, primarily affected by construction and on-highway demand.
- Tariffs are expected to have an annualized impact of approximately $50 million, with 85% to 90% of the impact expected to be covered by price increases and operational actions.
- The enacted tariffs continue to fluctuate, impacting business operations and requiring mitigation strategies.