Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gates Industrial Corp PLC (GTES, Financial) achieved a 30 basis points increase in adjusted EBITDA margins, driven by a 110 basis point increase in gross margin.
- The company returned capital to shareholders through a $125 million share repurchase.
- Gates Industrial Corp PLC (GTES) reported durable demand trends in its global automotive replacement business.
- The company experienced core sales growth in key Asian geographies and South America.
- Gates Industrial Corp PLC (GTES) is on track to achieve over 100 basis points of adjusted EBITDA margin improvement since becoming a public company.
Negative Points
- Gates Industrial Corp PLC (GTES) experienced a 4% decline in core sales, primarily due to weaker demand in agriculture, construction, and personal mobility markets.
- OEM sales decreased in the low double-digit range, impacting overall sales performance.
- The company's adjusted earnings per share was $0.33, which was 8% lower compared to the previous year.
- North American core sales declined approximately 6%, driven by weaker OEM sales trends.
- The Fluid Power segment saw a core sales decrease of just under 5%, with industrial OEM sales declining mid-teens.
Q & A Highlights
Q: Great execution on the decremental. It seems like a lot of the restructuring savings come in '25, '26, maybe just talk about what you're doing in the near term to kind of mitigate the decremental headwind here in the short-term soft period.
A: Yes. Look, I mean we have a ton on our plates associated with our enterprise initiatives. So obviously, front-to-back 80/20 execution is what we are focused on, and I think we have fast spoken on last couple of calls about our focus on material cost reductions, optimized pricing through '20 and factory productivity. And I think that's what's a bit unique about this cycle than maybe in a previous cycle. We feel pretty good where we sit and we continue to execute our teams execute well and we are managing to extend our gross margins in a somewhat negative demand backdrop. - Ivo Jurek, CEO
Q: It seems like your peers are putting up some pretty challenging numbers in China and Asia and you guys kind of bucked the trend. And so that really stood out. I'm just wondering what you think you're doing there, is it share gain? Is it kind of where you play that's kind of driving that meaningful outgrowth?
A: Yes, Jeff, thank you. I'm very proud of what our China team has been able to execute. We've spoken for a while that we have had a pretty significant focus (technical difficulty) region, for region. So that our business is really more dependent on the local macro environment than as demonstrated, that's not been necessarily great. It's been challenging for some time. But we did see some green shoots in industrial end markets in Q3. Our team has been focused on expanding our market share, expanding our presence across various applications in the industrial space, just as much as in the automotive replacement side of our business, and they have executed really well. - Ivo Jurek, CEO
Q: Brook, you had made a comment that you believe you're nearing a trough and are starting to position for a recovery. Just curious -- maybe you could elaborate on what you're seeing and hearing that leads you to that viewpoint. And if that is, in fact, the case, how do you suspect that translates to growth range for the business in 2025.
A: Yes. So look, there's been a lot several quarters, what, eight, nine quarters of negative PMI and volume down volumes, particularly on the industrial side. And so as we've moved through the year, there's a couple of things that we're really focused on, right? One is we talked about kind of labour availability and making sure that we have the ability to run our factories optimally. And then also making sure that we're positioning our inventory for superior customer service and then to be ready for the inflection. - L. Brooks Mallard, CFO
Q: Just wanted to clarify on Julien's question regarding the inventories. If we look at the increase, how much of it was for this new auto replacement account, the channel fill, if you will, versus positioning ahead of demand, ensuring your fill rates and service levels. So if we just -- if you could separate those two.
A: Yes. I mean I would say the inventory positioning for the new business is probably in the $10 million to $15 million range. And then the balance is us working through optimizing our inventory using the 80/20 tools, thinking about when the inflection might come, what those demand signals that might look like and then how we make sure we take full advantage of the up cycle when it comes. - L. Brooks Mallard, CFO
Q: How has price costs trended throughout the year as material costs have slowed? And then how does this inform how we think about pricing for next year?
A: So look, there's really two components to our pricing. We have always maintained and always I think we'll maintain. We have pretty strong pricing power, and we'll always offset material freight inflation price. And I think the second component is the 80-20 pricing as part of our 80/20 enterprise initiative. And that's been nicely accretive not hugely accretive but nicely accretive as we move through 2024. - L. Brooks Mallard, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
