Gates targets productivity as market challenges persist

Denver, Colorado – Gates Industrial Corp. plc has posted a 10.0% year-on-year drop in first-quarter earnings (adjusted EBITDA), on net sales 5.5% lower at $804.9 million (€719.1 million).

CEO Ivo Jurek said the fluid power and power transmission products maker had faced challenging conditions in Europe and China over the three months to end of March.

“We were [also] impacted by destocking in our replacement channels in Europe and, most notably, North America,” Jurek added in a 7 May financial report.

Looking ahead, the CEO expects destocking and some of the regional market weakness to persist through the first half of the year, particularly in Europe.

While anticipating a return to “more typical performance” in the second half, Gates is stepping up productivity actions and “footprint optimisation” initiatives, he added.

In the first quarter, net sales at Gates' Power Transmission unit fell 8.5% to $499.5 million, reflecting core revenue decline of 3.7% and a foreign currency headwind of 4.8%.

Core sales growth in industrial markets was offset by a decline in automotive-market slowdowns in China and Europe, and replacement parts destocking.

Segment earnings declined 12.3% to $109.9 million on lower volumes and unfavourable currency exchange-rate movements.

Gates' Fluid Power net sales were almost level at $305.4 million in the first quarter: core revenue growth and recent acquisitions slightly offset by negative currency effects.

Sales gains included double-digit growth in South America and China, as well as strong growth in the general industrial and oil & gas markets.

Excluding acquisitions, Fluid Power earnings dropped by 5.1% to $55.6 million, in part due to higher costs partly associated with ramping up new manufacturing facilities.