A maker of belts, hoses, and fittings that keep machines and vehicles running, sold in over 130 countries under the Gates brand. Founded in 1911 when Charles Gates bought a struggling Denver shop and later invented the V-belt with his brother John, replacing rope belts on machinery. Its first product was the "Durable Tread," a steel-studded leather band motorists strapped to their tires to make them last longer.
Net income tripled to $170.9M on a $100.7M discrete tax benefit, while revenue rose 6.6% to $941.6M on volume and pricing.
returned to volume-driven growth for the first time in over a year. Revenue rose 6.6% to $941.6 million and widened 0.2 points to 41.0%, but the quarter's defining number was a $100.7 million that lifted to $170.9 million. The underlying business improved, but the bottom line overstates the operating gain.
Key takeaways
rose 6.6% to $941.6 million, driven by volume and pricing, with both Power Transmission (up 7.0%) and Fluid Power (up 5.8%) contributing — the first volume-driven growth since at least early 2025.
widened 0.2 points to 41.0%, as $6.5 million in favorable manufacturing performance offset $7.8 million in inflation and $6.9 million in tariff costs.
rose 202.5% to $170.9 million, almost entirely because of a $100.7 million net that included $97.1 million from realizability in Luxembourg.
Section summaries
Management's Discussion and Analysis
Q2 FY2026 net sales rose 6.6% to $941.6M driven by volume and pricing; net income surged on a $100.7M discrete tax benefit.
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Total increased 6.6% to $941.6M in Q2, with Power Transmission up 7.0% and Fluid Power up 5.8%, driven by volume, pricing, and favorable currency.
grew 7.2% to $386.1M, aided by $6.5M in favorable manufacturing performance, partially offset by $7.8M in inflation and $6.9M in tariff costs.
rose 13.6% to $131.6 million, but SG&A expenses rose $19.5 million on higher labor, , and unfavorable foreign exchange, partially offset by lower corporate-owned life insurance costs.
fell 27.9% to $60.3 million for the quarter, as a $112.8 million increase in was more than consumed by a $102.8 million increase in deferred taxes and movements.
What changed
The volume decline that persisted through Q1 2026 ($44.7 million) reversed: Q2 rose on volume and pricing, answering the question of whether the H2 2025 recovery was a pricing-driven bump or the start of durable demand growth.
recovered to 41.0% after falling to 39.7% in Q1 2026 on $8.7 million in tariff costs and $5.0 million in impairments, suggesting the Q1 tariff hit was not a new run-rate at that magnitude.
The 5.0% drop in automotive aftermarket sales in Power Transmission flagged in Q1 did not persist as a -wide drag: Power Transmission rose 7.0% in Q2, though the filing does not break out the aftermarket channel specifically.
of $60.3 million in Q2 improved from $13.5 million in Q1 but remains below the $83.6 million generated in Q2 2025, as movements continue to absorb the cash benefit of higher .
What to watch
Whether can hold above 40% in Q3 as the $6.9 million in quarterly tariff costs persist and the comparison faces the 39.9% margin reported in Q3 2025.
The trajectory of in the second half, given the $73.8 million year-to-date result and the need to fund one-time costs for footprint optimization, restructuring, and system implementations.
Whether the Luxembourg release signals a structural change in the company's tax position, and how the normalizes after the $100.7 million discrete benefit.
The pace of volume growth in Q3, to confirm that the Q2 volume-driven increase marks a durable inflection after the $40.5 million full-year volume decline in 2025.
SG&A expenses rose $19.5M to $250.7M, primarily from higher labor, , and unfavorable FX, partially offset by lower corporate-owned life insurance costs.
from continuing operations jumped to $178.2M from $63.4M, largely due to a $100.7M net discrete tax benefit, including $97.1M from deferred tax asset realizability in Luxembourg.
was $108.8M for H1 2026, slightly down from $110.3M, as a $112.8M increase in was offset by a $102.8M increase in deferred taxes and movements.
The company expects one-time costs in H1 2026 for footprint optimization, restructuring, and system implementations, while continuing investments in personal mobility and data centers for long-term growth.
Quantitative and Qualitative Disclosures About Market Risk
Our market risk includes the potential loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices, and the credit risk of our customers and third-party depository institutions that hold our cash and short term deposits. From time to…
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Our market risk includes the potential loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices, and the credit risk of our customers and third-party depository institutions that hold our cash and short term deposits. From time to time, we use derivative financial instruments, principally foreign currency swaps, forward foreign currency contracts, interest rate caps (options), and interest rate swaps to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes and monitor closely the credit quality of the institutions with which we transact. Our objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rate movements. For a discussion of quantitative and qualitative disclosures about market risk, please refer to our annual report from which our exposure to market risk has not materially changed.
Information regarding legal proceedings is incorporated into this Part II, Item 1 from Note 18 of the notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Information regarding legal proceedings is incorporated into this Part II, Item 1 from Note 18 of the notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
New Bermuda economic substance rules and tax-residency risks could raise costs; share structure and enforcement barriers persist.
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Bermuda’s Economic Substance Act may require the Company to increase local presence and spending if deemed to conduct more than a holding entity activity.
A change in tax residency away from Bermuda could create unexpected tax liabilities that harm financial results.
The is expected to fluctuate after a Q2 2026 decrease from a release, potentially hurting results when the deferred asset is used.
Bermuda’s lack of comprehensive tax treaties may limit intercompany transaction benefits, and OECD Pillar Two rules could impose top-up taxes on global profits.
U.S. investors may be unable to enforce federal securities law judgments in Bermuda, and bye-laws restrict shareholder suits against officers and directors.