Gates Sees 3Q Sales Declining At Slower Pace As Orders Improve

Gates Industrial, which manufactures engineered power transmission and fluid power solutions, expects revenues in the third quarter to decline at a slower pace than previously guided, as a result of an improvement in orders. Shares of the company rose 1.5% on Monday.

Gates (GTES) now expects 3Q core revenues to drop between 5% to 7% year-over-year. Last month, the company had forecast 3Q sales to fall between 10% to 15%. In addition, Gates anticipates “decremental adjusted EBITDA margins” of approximately 30% for the second half of 2020 versus the previous estimate of approximately 35%.

“We are seeing broad-based continued improvement across our end markets and regions, which has translated into higher orders and sales within the quarter,” Gates CEO Ivo Jurek said.

Gates reported 2Q adjusted earnings of $0.03 per share, beating analysts’ expectations of a loss of $0.04 per share. Its revenues of $576.5 million exceeded Street estimates by 0.73%. However, both earnings and revenues declined 28.8% and 88.5%, respectively, on a year-over-year basis, due to the COVID-19 impact. (See GTES stock analysis on TipRanks).

Earlier on Aug. 10, Barclays analyst Julian Mitchell upgraded Gates to Buy from Hold and lifted the price target to $15 (31.6% upside potential) from $13. Mitchell believes that the company has the highest automotive exposure within multi-industry, and that the sectors should recover quickly in the next one-year period.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys and 4 Holds. The average price target of $13.31 implies upside potential of about 16.8% to current levels. Shares have declined about 17.2% year-to-date.

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