What ESAB (ESAB) Said on Its Q3 Earnings Call

Key Points

• Q3 sales rose 14% to $787 million, with adjusted EBITDA up 17% to $156 million and margin expanding 40 basis points to 19.8%. Acquisitions contributed 11 percentage points to sales growth, while core organic growth was 2.3%.
• ESAB narrowed its full-year outlook, forecasting adjusted EBITDA of $603 million to $607 million and adjusted EPS of $5.28 to $5.33. Management expects Q4 growth near mid-single digits, with margin expansion and stronger cash generation.
• Integration of Eddyfi is ahead of plan, and ESAB has identified about $465 million in potential cross-selling opportunities, though it is too early to estimate conversion. The company plans to use excess cash flow to reduce leverage, targeting the low threes by year-end 2026.

ESAB NYSE: ESAB reported higher third-quarter sales and adjusted earnings before interest, taxes, depreciation and amortization, helped by acquisitions and organic growth in both of its reporting segments. The company also updated its full-year outlook and said it expects a stronger fourth quarter.

Third-quarter sales rose 14% from a year earlier to $787 million, including core organic growth of 2.3%. Adjusted EBITDA increased 17% to $156 million, while adjusted EBITDA margin expanded 40 basis points to 19.8%.

President and CEO Shyam Kambeyanda said higher freight and electronic component costs prompted targeted price increases, leaving the company price-cost neutral. CFO Brent Jones said pricing contributed 2.5 percentage points to organic growth, while volume was roughly flat. Acquisitions contributed 11 points to sales growth and foreign currency added one point.

Core adjusted net income rose to $83 million from $80 million a year earlier, but core adjusted earnings per share fell to $1.30 from $1.32. Jones said the results included the first full quarterly impact of financing for the Eddyfi acquisition.

Regional growth and South American headwinds

Sales in the Americas rose 15% to $337 million, including approximately 1% organic growth. The U.S. and Canada grew at a high-single-digit organic rate, while the rest of the region declined at a high-single-digit rate, Jones said. Management attributed the weakness in part to an earthquake in Colombia and Brazil’s presidential elections.

Americas adjusted EBITDA rose 17% to $67 million, with margin expanding 30 basis points to 19.9%. North American equipment sales grew at a low-double-digit rate, and North American gas control grew by double digits, Jones said.

In EMEA and APAC, sales increased 14% to $449 million, with organic growth of 3.4%. Europe returned to low-single-digit growth and APAC grew by double digits, while the Middle East and Africa declined at a high-single-digit rate. Segment adjusted EBITDA rose 17% to $89 million, and margin expanded 50 basis points to 19.8%.

Across the company, equipment and automation grew at a high-single-digit organic rate, consumables were roughly flat and gas control equipment grew at a mid-single-digit rate, Jones said.

Eddyfi opportunities remain early

Kambeyanda said Eddyfi’s integration was ahead of plan and that the inspection and monitoring business grew at a double-digit rate in the quarter. He said ESAB has identified approximately $465 million in potential cross-selling opportunities between Eddyfi and its other businesses.

Asked how much of that funnel could be realized and over what period, Kambeyanda said it was too early to provide a conversion rate. He said 10 to 15 opportunities were at a late stage, with samples provided and customer meetings held.

The CEO said customers had shown interest in a single provider for welding, inspection and monitoring. He also highlighted opportunities to introduce EWM welding equipment in markets where it previously had little presence. Jones said EWM grew at a high-single-digit rate in the quarter.

Outlook and debt reduction

ESAB narrowed its full-year core sales expectation to $3.055 billion to $3.060 billion, representing 2% organic growth at the high end. It projected adjusted EBITDA of $603 million to $607 million and adjusted earnings per share of $5.28 to $5.33. The company also expects adjusted free cash flow conversion of approximately 80%.

Kambeyanda said the fourth quarter was off to a solid start, with October orders growing at a mid-single-digit rate and sales coming in close to that pace. He said ESAB expects fourth-quarter growth close to mid-single digits, along with margin expansion and improved cash generation.

Third-quarter adjusted free cash flow fell to $60 million from $86 million a year earlier. Jones attributed the decline to higher cash interest associated with acquisition financing, including the timing of semiannual bond payments. Cash from operations before interest rose 23% to $111 million.

Adjusted net leverage declined sequentially to 3.4 times. ESAB expects it to fall to the low threes by the end of 2026 and the mid-twos by the end of 2027. Jones said the company expects to use excess cash flow for debt reduction, either by increasing its cash balance or paying down debt, while EBITDA growth also contributes to deleveraging.

About ESAB (NYSE:ESAB)

ESAB Corporation NYSE: ESAB is a global provider of welding and cutting technologies. The company develops and supplies equipment, consumables, automation solutions and related products used to join, cut and process metals across industrial and commercial applications.

Its product portfolio includes welding machines, cutting systems, welding electrodes and wires, filler metals, gas-control equipment, plasma and oxyfuel technologies, and digital or automated solutions. ESAB also offers products and services designed to support fabrication, manufacturing, construction, transportation, energy and maintenance operations.

ESAB serves customers in the Americas, Europe, the Middle East, Africa and the Asia-Pacific region through a portfolio of established brands and distribution channels.

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