Gates Industrial Corporation plc (NYSE: GTES) reported Q3 EPS of $0.26, $0.10 better than the analyst estimate of $0.16. Revenue for the quarter came in at $712.2 million versus the consensus estimate of $695.38 million.

Third-Quarter 2020 Highlights

• Net sales of $712.2 million compared to prior-year period of $746.6 million.
• Net income attributable to shareholders of $41.9 million, or $0.14 per diluted share, compared to prior-year period net income attributable to shareholders of $35.5 million, or $0.12 per diluted share.
• Adjusted Net Income of $75.8 million, or $0.26 per diluted share.
• Adjusted EBITDA of $140.0 million and Adjusted EBITDA margin of 19.7%.

Ivo Jurek, Gates Industrial's Chief Executive Officer, commented, "Our strong third-quarter results reflect a continuation of the momentum we saw exiting the second quarter, as well as focused execution by our global teams. Demand trended positively throughout the third quarter, with our business showing significant sequential improvement across all geographies and end markets. Productivity improvements, both at our new manufacturing plants and with broader internal initiatives under the Gates Production System, contributed to our 190 basis points of gross margin expansion. We expect this progress, along with the execution of our restructuring activities and the ongoing diligent management of discretionary spending, to drive elevated incremental margins as we return to growth."

Jurek continued, "We believe we are effectively managing the controllable aspects of our business during this pandemic, and are doing so while prioritizing the health and safety of our employees and communities. We have a resilient business model, underpinned by a leading competitive position in our markets, a commitment to product innovation leadership and strong cash flow generation. Although we recognize there is some level of uncertainty, we are encouraged by the trajectory of the business and are confident that we are well positioned to navigate the environment and capitalize on the recovery of our end markets."

2020 Outlook

Due to the continuing level of uncertainty related to the COVID-19 pandemic and the inability to predict the trajectory and sustainability of the demand recovery, the Company is not reinstating full-year 2020 core revenue or Adjusted EBITDA guidance at this time. The Company continues to expect total capital expenditures of approximately $70 million for the full year. Based on the significant rebound of the business from the second-quarter low, the Company expects that higher net working capital investment to support increased demand, as well as certain non-cash deferred tax impacts, will result in Free Cash Flow Conversion greater than 80% of Adjusted Net Income.

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