DENVER—Gates Industrial Corp. P.L.C. reported reduced net sales in its first quarter financial statement.
Net sales for the first quarter of 2019 were $804.9 million, down 5.5 percent from the same period last year, according to the company's news release.
That slowing was driven primarily by automotive first-fit weakness in China and Europe, Gates said. The company reported destocking in the replacement channel business primarily in North America and to a lesser degree in Europe. Regionally, South America and East Asia and India contributed single-digit growth. Recent acquisitions, such as last year's of molded and branched hose manufacturer Rapro, added 0.7 percent to net sales during the period. Those gains were offset by a 4.1 percent negative impact from foreign currency.
Gates saw a significant increase in net income in the first quarter because of a one-time, non-cash net tax benefit related primarily to the release of certain valuation allowances, the company said. Net income for the quarter was $604.8 million, up from last year's $29.3 billion.
Net sales for the Power Transmission segment decreased to $499.5 million in the quarter, down 8.5 percent from last year. Gates said those numbers reflect a core revenue decline of 3.7 percent and a foreign currency headwind of 4.8 percent. Core revenue growth in industrial end markets was offset by a decline in Gates' automotive business, primarily as a result of regional market slowdowns in China and Europe, as well as destocking in the replacement channel.
The Fluid Power segment also saw decline of 0.2 percent to $305.4 million from the previous year. The segment had incremental core revenue growth of 0.8 percent and a 1.8 percent contribution from recent acquisitions, offset by unfavorable foreign currency effects of 2.8 percent. The core revenue growth was driven by regional double-digit growth in South America and China, as well as growth in the general industrial and oil and gas end markets, offset by a decline in the agriculture end market and the impact of destocking.
Gates' first quarter started weaker than expected, facing challenging market conditions in Europe and China, Gates CEO Ivo Jurek said in a statement. The company was also impacted by destocking in replacement channels in Europe and North America. Slower conditions impacted the company's core growth and margins, and Gates took action to align production and inventory levels with the environment.
The company is moderating its full-year expectations, Jurek said.