Gates Industrial (GTES) Morgan Stanley's 14th Annual Laguna Conference summary

Business performance and market trends

• Delivered growth and improved margins despite four years of negative PMIs, positioning well for an industrial recovery now underway.

• Industrial OEM volumes rebounded in Q4 last year, with commercial construction and transportation showing strong order flow into Q1.

• About 70% of portfolio end markets have inflected or show demand growth; core growth guided at 5.5% for Q3 and 6.5% for Q4.

• Agricultural cycle bottomed in H1, with improvement expected into 2027; auto OEM remains a small, dislocated segment.

• Aftermarket growth is driven by sell-through rather than restocking, with expectations for more robust distributor activity in 2027.

Segment highlights and growth drivers

• Automotive aftermarket, 36% of revenue, grew at a 4.5% CAGR over 10 years and high single digits recently, half from share gains.

• Aging vehicle fleets and high miles driven support continued aftermarket outperformance.

• Brand strength, operational cadence, and portfolio breadth drive aftermarket share gains.

• Data center revenue is scaling rapidly, with $25–30M expected this year and a pipeline growing exponentially; target of $100–200M by 2028 may be conservative.

• New product launches in fittings and couplings for liquid cooling are opening significant opportunities in data centers.

Regional and product-specific performance

• Personal mobility segment, with 2–3% current penetration, targets 10% market share over 10 years, focusing on mid-to-premium two-wheeler markets.

• Personal mobility revenue grew 25% in Q2, with similar growth expected over the next few years due to a $300M pipeline and expanding applications.

• Margins in personal mobility are at or above company average, supporting future EPS growth.

• Asia, especially China and India, shows strong growth from local market focus and share gains, not reliant on exports.

• Localized strategy in China, focusing on local brands and customers, has paid off, with mid-to-high single-digit growth seen as sustainable.