ESAB Q2 2025 Earnings Report

ESAB EPS Results

• Actual EPS: $1.36
• Consensus EPS: $1.34
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $1.32

ESAB Revenue Results

• Actual Revenue: $715.59 million
• Expected Revenue: $670.80 million
• Beat/Miss: Beat by +$44.79 million
• YoY Revenue Growth: +1.30%

ESAB Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 6, 2025
• Conference Call Time: 8:00AM ET

ESAB (NYSE:ESAB) engages in the formulation, development, manufacture, and supply of consumable products and equipment for use in cutting, joining, automated welding, and gas control equipment. Its comprehensive range of welding consumables includes electrodes, cored and solid wires, and fluxes using a range of specialty and other materials; and cutting consumables comprising electrodes, nozzles, shields, and tips. The company's equipment ranges from portable welding machines to large customized automated cutting and welding systems. It also offers a range of software and digital solutions to help its customers increase their productivity, remotely monitor their welding operations, and digitize their documentation. The company sells its products under the ESAB brand to various end markets, such as general industry, infrastructure, renewable energy, medical and life sciences, transportation, construction, and energy. It offers its products through independent distributors and direct salespeople. The company operates in North America, South America, Europe, the Middle East, India, Africa, and the Asia Pacific. ESAB Corporation was founded in 1904 and is headquartered in North Bethesda, Maryland.

ESAB Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record margins and 2% sales growth this quarter, driven by resilient global execution, with adjusted EBITDA margin hitting 20.4% and full-year guidance raised.
• Negative Sentiment: Tariff-related headwinds and delayed automation orders weighed on Americas volumes (approx. 500 bps drag), particularly in Mexico, although early signs of recovery emerged in July.
• Positive Sentiment: Productivity initiatives leveraging EBX and AI exceeded targets, raising productivity savings to $13 M and back-office savings to $17 M, while allocating $20 M to strategic growth investments.
• Positive Sentiment: Strategic acquisitions advanced the compounder strategy: gas control deals (Delta P, Active) expand medical gas portfolio, and pending €120 M EWM acquisition accelerates heavy-industrial welding capabilities with breakthrough REACT technology.
• Positive Sentiment: Generated $46 M in free cash flow, maintained net leverage within target range, and lifted 2025 adjusted EBITDA guidance to $525–535 M, reinforcing financial flexibility for future growth.

Presentation

[Operator]

Thank you for standing by, and welcome to the ESOP Second Quarter twenty twenty five Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Mark Barbolato, Vice President of Investor Relations. You may begin.

[Mark Barbalato, VP - Investor Relations at ESAB]

Thanks, operator. Welcome to ESOP's second quarter twenty twenty five earnings call. This morning, I'm joined by our President and CEO, Shyam Kamayanda and CFO, Kevin Johnson. Please keep in mind that some of the statements we are making are forward looking and are subject to risks, including those set forth in our SEC filings and today's earnings release. Actual results may differ and we do not assume any obligation or intend to update these forward looking statements except as required by law.

[Mark Barbalato, VP - Investor Relations at ESAB]

With respect to any non GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our President and CEO, Shyam Kambyanda.

[Shyam Kambeyanda, President & CEO at ESAB]

Thank you, Mark, and good morning, everyone. Thank you for joining us today. Before we begin, I want to express my appreciation to our teams around the world for their unwavering commitment to our customers, to PBX, to the disciplined execution of our long term strategy. Despite operating in a challenging market environment, we delivered another quarter of strong results with record margins, a clear reflection of the resilience of our model and the dedication of our teams. During the quarter, I had the opportunity to go to Gemba and visit several of our recent acquisitions.

[Shyam Kambeyanda, President & CEO at ESAB]

I'm excited about the capabilities and competencies that these businesses bring to ESA. I also visited teams in Gothenburg and Shanghai. It's always energizing to meet with our teams in the field to listen, learn and witness firsthand the passion and execution that drive our success. Amid this dynamic environment, our teams remain laser focused on the fundamentals, disciplined cost control, elevating the customer experience and sharpening our go to market differentiation. These priorities are paying off and it's clear that ESAB continues to stand out as a world class franchise positioned to benefit from long term structural tailwinds, particularly across Asia and Europe.

[Shyam Kambeyanda, President & CEO at ESAB]

In EMEA and APAC, the performance this quarter was strong. This momentum is a direct result of our team's ability to execute the EBX growth playbook with precision, driving organic growth and capturing broad based share gains across our markets. Turning to The Americas, a few dynamics are worth calling out. Tariff related uncertainty introduced unexpected volume headwinds, particularly impacting our local customers in Mexico. And we saw some automation orders delayed with demand now expected to shift into the second half of the year.

[Shyam Kambeyanda, President & CEO at ESAB]

That said, the underlying health of the business remains strong, our pipeline of opportunities is robust and our teams are focused on delivering. Encouragingly, we began to see signs of improved market conditions in North America in July, an early but positive indicator as we move deeper into the second half. Despite the short term headwinds, our teams delivered total sales growth of 2% and achieved record adjusted EBITDA margins of 20.4%. This performance speaks to the resiliency and strength of our operating model and the consistent focused execution by our teams even under pressure. In parallel, we continue to make meaningful strides on our compounder journey.

[Shyam Kambeyanda, President & CEO at ESAB]

Since our last update, we have successfully completed two gas control acquisitions, Delta P and Active and signed EWM, which accelerates our heavy industrial product roadmap and expands our equipment capabilities. Given our confidence in the strength of our equipment portfolio, the momentum in our gas control business, improving market conditions in North America and the continued resilience in our high growth markets, all underpinned by EVX, we have raised our full year guidance. Moving to Slide four. Before we go into detail about our performance and recent acquisitions, let me share another initiative that highlights our passion for our industry. At ESAB, we believe that investing in talent is a strategic priority to ensure the long term success of our business and the future of the fabrication technology industry.

[Shyam Kambeyanda, President & CEO at ESAB]

The Flame internship program, originally launched in Brazil, represents a global initiative designed to give college students immersive hands on experience working within industrial companies like ours. This initiative spans across every functional area from engineering, operations to marketing, finance, supply chain, and now digital innovation. The program is energizing not only for our interns who gain vital exposure to real world challenges and sharpen their skills, but also for our local teams who benefit from fresh perspectives and enthusiasm that these young professionals bring. It has become a catalyst for learning, collaboration, mentorship across our organization. Beyond its near term impact, the Flame internship program is an intentional investment in building robust talent pipeline for the fabrication technology sector By accelerating professional growth and fostering leadership potential, we're shaping the next generation of leaders for our industry.

[Shyam Kambeyanda, President & CEO at ESAB]

Turning to Slide five to talk about the quarter and give you more color around our performance by geography. As this slide illustrates, ESOP continues to benefit significantly from our unmatched global footprint. Our balanced presence across Americas, EMEA and APAC not only provides resilience in the face of regional volatility, but it also positions us to capitalize on growth opportunities wherever they may arise. Our business outside North America continues to build on its strength. Europe remains steady, and we're well positioned to benefit from EU stimulus measures already in motion.

[Shyam Kambeyanda, President & CEO at ESAB]

Motion. The Bavaria acquisition is off to a strong start, further strengthening our regional capabilities. In The Middle East, we delivered double digit growth, a clear evidence of their diversification strategy and investment. India also remains a standout, growing at high single digits with our leadership position and strong local presence. We're confident in our capability to capture an outsized share of both public infrastructure investment and private sector growth over the next decade.

[Shyam Kambeyanda, President & CEO at ESAB]

In China and Southeast Asia, the business grew mid single digits supported by increased capital expenditure and ongoing LNG investments in China. Meanwhile, Australia and New Zealand delivered solid performance in the quarter and we remain optimistic about the outlook for the rest of 2025. This sustained EMEA APAC performance is no coincidence. It is a product of our well matched geographic footprint, a world class team, a differentiated product portfolio and disciplined and consistent execution. In both EMEA and APAC, our teams continue to exemplify the EBX playbook, driving strong organic growth and robust margin expansion.

[Shyam Kambeyanda, President & CEO at ESAB]

Shifting our focus to The Americas. As mentioned earlier, we faced near term headwinds primarily due to tariffs. This particularly impacted our local customers in Mexico where we saw unexpected softness. Additionally, customer orders and automation were delayed into the second half of the year. Despite these challenges, our automation funnel continues to be robust and gives us confidence in the second half.

[Shyam Kambeyanda, President & CEO at ESAB]

As South America continued to perform well and our recent acquisitions, Sumig and Sager are performing as expected. In summary, we're executing from a position of global strength. ESAB remains a globally balanced and agile franchise, one that is built to perform, adapt and grow through all phases of the economic cycle. Moving to Slide six to discuss how we're leveraging EBX and AI to accelerate our long term growth. During the fourth quarter, we laid out a road map leveraging EBX and AI to reduce structural costs and accelerate growth.

[Shyam Kambeyanda, President & CEO at ESAB]

Today, I'm pleased to share that we're not only delivering on that plan, but exceeding it. We're taking this opportunity to go even further, driving more cost out of the system while investing decisively in our future. These initiatives are not just reducing complexity, they're enhancing how we serve our customers. As a result, we have raised our full year productivity savings target to approximately $13,000,000 up from our original $10,000,000 estimate. In parallel, our back office optimization work has gained momentum and we now expect to deliver $17,000,000 in savings, reflecting stronger than anticipated execution.

[Shyam Kambeyanda, President & CEO at ESAB]

At the same time, we remain firmly committed to investing in the future. In 2025, we're deploying approximately 20,000,000 in strategic growth investments, funding university research partnerships, expanding commercial excellence initiatives, and advancing our AI capabilities. Looking ahead, we plan to bring our EBX Office and AI initiatives together, creating a more integrated engine for operational excellence and innovation. These capabilities are increasingly converging, enabling smarter, faster decision making and more adaptive systems. It's still early, but the progress is real, and we're confident this combined approach will have a lasting impact on both productivity and customer experience.

[Shyam Kambeyanda, President & CEO at ESAB]

Turning to Slide seven to discuss how EWM strengthens our equipment and robotics portfolio. Earlier this year, we announced that we entered into an agreement to acquire EWM. EWM is a leading provider of premier arc welding and robotic technology solutions with a leadership position in the Germanic region. This business brings advanced technology, a highly respected global brand and a strong team. Our businesses are highly complementary in terms of customer bases and channel partnership, making for a unique strategic fit.

[Shyam Kambeyanda, President & CEO at ESAB]

This €120,000,000 revenue business is expected to be accretive in year one and expected to close in the fourth quarter. We could not be more excited to have EWM team join ESOP as EWM accelerates our global equipment growth strategy. Moving to Slide eight to discuss how ESOP and EWM together create a premier workflow solution. Together, the combination of ESOP and EWM accelerates our product road map. EWM strengthens our heavy industrial portfolio with advanced welding technologies, while our innovative light industrial lineup fills key product gaps within EWM.

[Shyam Kambeyanda, President & CEO at ESAB]

It's a natural fit, one that creates a truly differentiated offering. Now what makes this partnership even more exciting is EWM's REACT technology, a true breakthrough in the welding space. The holy grail of welding has always been the ability to deposit metal faster at a lower heat in order to reduce distortion, improve precision and enhance overall productivity. With React technology, we're achieving exactly that. In some applications, we're seeing up to 100% faster weld speeds, twice the deposition rates, all while operating at 35 less heat input compared to traditional short arc welding processes.

[Shyam Kambeyanda, President & CEO at ESAB]

This doesn't just improve performance, it delivers real world customer benefits, less fume, zero splatter and significantly improved safety and environmental conditions on the shop floor. With EWM in our portfolio, we have expanded our best in class workflow solution for advanced applications, including additive manufacturing and thin metal precision welding, especially for materials like aluminum and stainless steel. When paired with our proprietary consumables, torches and industry digital overlay, we are delivering a fully customizable end to end ecosystem. And we see substantial global selling opportunities ahead. This is more than an acquisition.

[Shyam Kambeyanda, President & CEO at ESAB]

It's a strategic leap forward in how we serve industrial, automation and advanced manufacturing customers around the world. Moving to Slide nine to discuss our newly acquired Medical and Gas Control businesses. During the second quarter, we acquired Delta P and closed on Active in early July, which propels us further on our compounded journey. Let me first start with Delta P, a European based medical gas system manufacturer. This business further strengthens our medical gas control position in Europe and is highly complementary with our existing business.

[Shyam Kambeyanda, President & CEO at ESAB]

This business generates annual sales of approximately $10,000,000 and has gross margins greater than 40%. We see significant opportunities to accelerate growth as we insert Delta P products into our global distribution. I'm also excited about the addition of Active, an India based business with local manufacturing. This business has annualized sales of approximately $5,000,000 and gross margins north of 40%. We're excited with the opportunities this brings for global product expansion.

[Shyam Kambeyanda, President & CEO at ESAB]

Together, these acquisitions accelerate our medical gas equipment strategy, providing ESAB with complementary products and an entry into the fast growing India market. Turning to Slide 10 to discuss how Delta P and Active extend our medical gas portfolio. As you can see on this slide, these two acquisitions significantly expand our portfolio by providing advanced integrated solutions across the full spectrum of hospital gas systems. The product offerings from Delta P and Active cover critical components found throughout the health care facilities, including in mission critical environments like the ICU, emergency room, surgical suites, and general wards. As shown on the slide, our solution now spans the entire supply and distribution chain delivering, controlling, and monitoring medical gases safely and reliably throughout a hospital.

[Shyam Kambeyanda, President & CEO at ESAB]

Together, these acquisitions expand our total available market by $200,000,000 and positions ESAB as a truly world class provider of medical gas control products, one that is aligned with our compounded strategy and built for scalable profitable growth. On that note, let me hand it over to Kevin.

[Kevin Johnson, Executive VP & CFO at ESAB]

Thanks, Shyam, and good morning. Let's turn to slide number 11. During the quarter, ESOP benefited from strong market demand in our high growth markets, offsetting tariff impacts in North America and supporting balanced organic growth. Total sales rose 200 basis points year over year driven by acquisitions and more favorable currency trends. The team's execution this quarter reflects their adaptability and commitment to excellence, which has been instrumental in achieving the highest adjusted EBITDA margin in the company's history.

[Kevin Johnson, Executive VP & CFO at ESAB]

Turning to Slide number 12. Organic sales in The Americas declined due to delays in automation orders caused by tariff uncertainty and a weaker Mexican market as new customers from last year delayed investments. However, strong pricing helped balance this. The Summit acquisition added 300 basis points of growth, partially countering the negative effects of a stronger U. S.

[Kevin Johnson, Executive VP & CFO at ESAB]

Dollar. ESAB remains focused on long term growth using the EBX business system to enhance pricing, productivity and efficiency. A strong operational performance eased the impact of tariffs in the quarter and adjusted EBITDA reached 20.1% highlighting our team's resilience. Moving now to Slide number 13. EMEA and APAC maintained strong growth, especially in The Middle East, India and Asia with robust sales funnels and increased optimism heading into the 2025.

[Kevin Johnson, Executive VP & CFO at ESAB]

Total sales rose 11%, while EBITDA margins hit a record 20.6%. Volume grew by 600 basis points led by high growth markets and Europe showed positive momentum benefiting from new stimulus measures. The Bavaria and Bangladesh acquisitions contributed an additional 400 basis points of growth and are performing well. Favorable FX, particularly a stronger euro versus the U. S.

[Kevin Johnson, Executive VP & CFO at ESAB]

Dollar supported results. Our teams in EMEA and APAC delivered an outstanding quarter, surpassing expectations and establishing a strong momentum for continued success throughout the remainder of the year. Moving on to Slide number 14 to discuss our cash flow. In the quarter, we generated $46,000,000 in free cash flow. This cash flow reflects some increased pre buys related to tariffs and increased working capital in EMEA and APAC to meet higher growth.

[Kevin Johnson, Executive VP & CFO at ESAB]

Looking ahead, we expect an improvement in cash flow during the 2025, primarily due to a reduction in tariff related inventory as well as normal seasonal trends, which historically drives stronger cash flow in the second half of the year. Maintaining net leverage within our two times target range has been a key focus and this disciplined approach enhances our ability to invest flexibly in growth opportunities aligned with our compounder strategy. This strong financial position ensures that we can adapt to changing market conditions, pursue strategic acquisitions and continue generating shareholder value over time. Moving now to Slide number 15 and our 2025 outlook. Revenue assumptions have been increased around 25 basis points due to the delta P and active acquisitions, which together provide approximately $7,000,000 The remainder is attributed to changes in FX rates.

[Kevin Johnson, Executive VP & CFO at ESAB]

The current guidance does not include the EWM acquisition expected to close in Q4, which presents some additional upside. Guidance for organic growth remains unchanged. In the 2025, we expect low single digit organic growth for ESOP. EMEA and APAC is expected to achieve mid single digit growth offset by a low single digit decline in The Americas. Adjusted EBITDA guidance has been increased to a range of $525,000,000 to $535,000,000 Cash flow conversion guidance is unchanged.

[Kevin Johnson, Executive VP & CFO at ESAB]

The company continues to prioritize cash flow performance and maintains a strong balance sheet to support our growth plans. With that, let me hand back to Shyam on slide 16 to wrap up.

[Shyam Kambeyanda, President & CEO at ESAB]

Thank you, Kevin. We delivered another strong quarter driven by outperformance in our EMEA and APAC segments and we expect this momentum to continue. Our high growth markets are thriving and we remain confident that our automation business in North America and the activity in Mexico will rebound in the second half of the year as customers adapt to evolving market dynamics and trade conditions stabilize. This year, we're on track to complete four acquisitions, Bavaria, Delta P, Active and EWM. These moves further accelerate our compounded journey, strengthening our portfolio, expanding our reach and enhancing our technology offering.

[Shyam Kambeyanda, President & CEO at ESAB]

Our balance sheet remains strong and we continue to drive EBX to deliver strong margin performance. We have started Q3 with good momentum and are confident in our execution. As a result, we have raised our 2025 guidance. Looking ahead, we are executing with discipline, backed by the power of EBX, the potential of AI and the passionate global team. ESAB is built to lead, built to grow and built to win across cycles and around the world. With that, operator, let's open the line for questions.

[Operator]

Your first question comes from the line of Tami Zakaria with JPMorgan. You may go ahead.

[Tami Zakaria, Executive Director at JP Morgan]

Hey, thank you so much. Good morning, everyone. My first question is on tariffs. By the way, great results in outside The Americas. But I think you mentioned tariffs were 500 basis points of volume headwind.

[Tami Zakaria, Executive Director at JP Morgan]

And I just wanted a little more color. Is that headwind tied to a few customers? Or was it broad based? Is it more of a timing shift and you expect to recover in the back half? I heard you mentioned Mexico.

[Tami Zakaria, Executive Director at JP Morgan]

But any more color you can give regarding what gives you confidence that things can get better in the back half?

[Shyam Kambeyanda, President & CEO at ESAB]

Hi, good morning, Tammy. Always good to hear from you. So thank you for that question. First, I do want to reiterate that we were very proud of our performance in the rest of the world, especially EMEA, APAC, really strong volume performance. And as you know, the business continues to build from a momentum that we had started really a few years back.

[Shyam Kambeyanda, President & CEO at ESAB]

So really strong performance and proud of the team in EMEA and APAC. On the North America side, you're spot on. What we did see is once the tariffs hit in April, our local customers in Mexico, which is a combination of both the channel and some transportation customers that we had won a year earlier, sort of delayed ordering and sort of went into a wait and see mode, which was unexpected on our part as we went into the quarter. We expect that to sort of abate as we get into the third quarter and the fourth quarter, but it's still a wait and see piece. On the automation side, we are actually very confident.

[Shyam Kambeyanda, President & CEO at ESAB]

We do have the orders on hand. We do have a schedule that now shapes to a better position in the second half and a lot more confident about that recovery, not only in the robustness of our funnel, but also the orders that we have to ship in the second half.

[Tami Zakaria, Executive Director at JP Morgan]

It. That's super helpful. And then very quick one. I think I saw in one of the slides, you quantified 30,000,000 savings. Can you just remind us what those savings were in 2024 or 2023?

[Tami Zakaria, Executive Director at JP Morgan]

Just trying to understand if the savings are accelerating or remaining stable.

[Kevin Johnson, Executive VP & CFO at ESAB]

Tommy, we've the last over the last three years, we've been increasing the number of savings that we've been able to generate. So we've been doing a lot of footprint rationalization over the last few years. And now as you can see with what Sean discussed there in the call, we started to move a lot more into back office automation. We're doing a lot more EDX initiatives around our facilities to actually improve the productivity. But there's been certainly a ramp up in terms of the savings we've generated over the last three years.

[Tami Zakaria, Executive Director at JP Morgan]

Understood. Thank you.

[Operator]

Your next question comes from the line of Brian Blair with Oppenheimer.

[Bryan Blair, MD & Senior Research Analyst at Oppenheimer & Co. Inc.]

I guess I wanted to follow-up to Tammy's question. It looks like Americas Q2 core growth would have been essentially flat, excluding the tariff impact that you outlined. And maybe offer a little more color on the underlying order trends through the quarter. You mentioned some improvement in July. If there are any finer points you can offer there, that would be helpful.

[Bryan Blair, MD & Senior Research Analyst at Oppenheimer & Co. Inc.]

And then touch on or quantify preferably how we should think about the catch up in automation demand Mexico orders, the impact of Q3, Q4 revenue?

[Shyam Kambeyanda, President & CEO at ESAB]

Yes. If you remember, Brian, the way that we had talked about The Americas, even as we went into the quarter, we talked about volume sort of being down mid single digits. And obviously, when you see the print today, it's a bit worse than that. And we sort of talked specifically about the two items that you mentioned, which was Mexico and automation sort of creating that additional down drag. We see automation coming back nicely.

[Shyam Kambeyanda, President & CEO at ESAB]

And so that no longer in our view is an issue in the second half. Mexico on the other hand has shown some life, but I think it takes a bit longer. As you know, we still don't have a complete trade agreement with both Canada and Mexico at this current time. We think whenever that sort of gets figured out and settles, we'll see sort of Mexico come back to normal. And the second aspect of it is something that we've always felt as we guided our numbers for the year is that the second half comparables also for ESOP get better.

[Shyam Kambeyanda, President & CEO at ESAB]

If you remember, we did have a really solid post last year the second quarter in The Americas. And so all of that sort of play into how we're guiding the second half of the year. To the comment that you had on orders, we did see stability in the orders and a slight improvement in The Americas. So that is the other encouraging piece for us. I think as we sort of exit July, I surely feel a lot better about how we're guiding the rest of the year.

[Bryan Blair, MD & Senior Research Analyst at Oppenheimer & Co. Inc.]

That's helpful color and encouraging. It would be great to hear a bit more about EWM. Your commentary was, I would say, uniquely enthusiastic on the deal. To quickly cover just the basic financials, how should we think about growth rates and margin at the outset and where your team believes profitability can climb over time? And then more importantly, with the deal being somewhat of a proxy for R and D, any other detail you can offer on how it influences the refresh of your heavy industrial portfolio and related opportunities? Thank you.

[Shyam Kambeyanda, President & CEO at ESAB]

Yes. So let me start with the piece about enthusiastic. I appreciate that. Obviously, it's a sizable deal for us and took a significant effort from our team. The other piece that we loved about the process was that it was proprietary that we were able to sort of execute on the deal working with the team at EWM.

[Shyam Kambeyanda, President & CEO at ESAB]

So really kudos to our entire team in Europe and our corporate team here on executing that transaction. There is enthusiasm partially because what I mentioned on my call, which is this REACT technology that they have. And as you know, Brian, I think we've been working to working our way into industries that we don't currently participate in. And this technology and process gives us access to that. When it comes to additive manufacturing, when it comes to thin metal, when it comes to larger OEMs that need this technology today, there was really there's maybe one other player that sort of has something similar.

[Shyam Kambeyanda, President & CEO at ESAB]

And so we really feel good about the acquisition, the technology that it brings and how it fills out our portfolio. From a sales perspective, as we mentioned, it's €120,000,000 business. We expect it to benefit from the stimulus that's coming up in Europe. It has a position of strength in the Germanic region where we had very little exposure. We think the Germanic region is at the bottom and it moves up from here.

[Shyam Kambeyanda, President & CEO at ESAB]

The question really is around timing as to when the German market improves, whether it's in the third or the fourth quarter. We expect to close the deal in the fourth quarter. So we're hoping the timing sort of fits perfectly on top of each other. But no different than our expectations for our equipment business. We think over the long term, it has mid single digit growth potential.

[Shyam Kambeyanda, President & CEO at ESAB]

The gross margins in this business are north of 40%. And yes, there is some opportunity to sort of save on the R and D spend side where we no longer have to invest in building out that technology at ESAB. And we can now focus our business along with EWM towards growth. Anything I missed, Kevin, on EPS?

[Kevin Johnson, Executive VP & CFO at ESAB]

The deal brand is highly synergistic, as Sean mentioned. So significant overlaps with ASAP globally, and we're looking forward to partnering together. And the ROIC on this deal looks a little bit more like a bolt on than a strategic asset, which is what it is. So our expectation would be carrying a 10% ROIC threshold within sort of three, four year time period. Real excellent return on this investment.

[Shyam Kambeyanda, President & CEO at ESAB]

All good to hear. Thank you again.

[Operator]

Your next question comes from the line of Nathan Jones with Stifel. You may go ahead.

[Adam Farley, Associate Analyst at Stifel Financial Corp]

Yes. Good morning. This is Adam Farley on for Nathan.

[Shyam Kambeyanda, President & CEO at ESAB]

Hi, Adam.

[Adam Farley, Associate Analyst at Stifel Financial Corp]

Maybe first on hey. Good morning. Maybe first on China and and Southeast Asia. You noted a positive outlook for the year. What, you know, what industries are driving the improvement?

[Adam Farley, Associate Analyst at Stifel Financial Corp]

What industries are still struggling? And and, you know, what gives you confidence for for a continued positive outlook?

[Shyam Kambeyanda, President & CEO at ESAB]

You know, on on that particular front, you know, if you've sort of seen us, we've been we've been actually quite positive on China, partially because of where we play on the top tier of the market. We never really saw a down drag in China. And if you remember, even on the calls in the past where people were seeing sort of a significant headwind in China, we've actually held our business stable. In fact, my recent visit to our team in Shanghai, we sort of go through an operating plan as to what we set as goals five years ago and where the team has come. Our business has doubled. And our EBITDA margins have expanded over 700 basis points in that time period. So an extraordinary effort by our team in China. Where we see the strength is again on the energy sector.

[Shyam Kambeyanda, President & CEO at ESAB]

We participate also in the rail high speed rail and a little bit on high end infrastructure build outs. Where we see China continue to work on its energy independence, we do see them continuing to invest and maintain their high speed lines rail lines. And so as a result, ESOP continues to benefit from that tailwind in China. The Southeast Asian market was a bit down and has shown signs of recovery. Part of it is manufacturing infrastructure improvements that are moving into the region.

[Shyam Kambeyanda, President & CEO at ESAB]

That's benefiting ESOP. And then we also saw life and positivity out of Australia and New Zealand. So that whole geography for us, at least on the bottom side of China, Southeast Asia and Australia were a bit down, but are showing signs of recovery. And really I can't say enough. I think the number that we posted in the rest of the world, EMEA and APAC, almost a 6% volume growth based on everything that we're seeing out there in the market and how people are talking about those markets.

[Shyam Kambeyanda, President & CEO at ESAB]

I think we have an exceptional enterprise and something to be very proud of.

[Adam Farley, Associate Analyst at Stifel Financial Corp]

Yeah. That's great. Thanks for the color. And maybe on pricecosts, what was the impact of pricecosts in the quarter to margins? And because you saw covering tariffs with price.

[Kevin Johnson, Executive VP & CFO at ESAB]

Yeah. So we're we're you know, as we've done in the past, Adam, the business has done a great job of getting price to cover tariffs. We were price cost neutral against tariffs in the quarter. So it did create a little bit of compression on the gross profit margin, but we are covering all of our tariff costs with price.

[Adam Farley, Associate Analyst at Stifel Financial Corp]

Okay. Thank you for taking my questions.

[Operator]

Your next question comes from the line of Neil Burke with UBS. You may go ahead.

[Neal Burk, Industrials Equity Research at UBS Group]

Good morning. Hi, Neil. So incrementals were pretty solid in the quarter, up 37% for the company. I guess, like, the the guide for the back half, if if my math is correct, implies a a step down in incrementals. So I guess, number one, is that is that right?

[Neal Burk, Industrials Equity Research at UBS Group]

And number two, like, what kind of leads to that step down in incrementals given it seems like the volume declines were worse in 2Q?

[Shyam Kambeyanda, President & CEO at ESAB]

Yes. I think there's a couple of pieces to it. The first one is obviously you saw we guided to a better FX range and FX doesn't drop at the same incrementals. I'll let Kevin talk through the rest of it.

[Kevin Johnson, Executive VP & CFO at ESAB]

Yes. So on the FX side, which was really the majority of the raise we put through, as you know, we have a lot of our costs in the geographies where we operate. So when we go up or down on FX, we typically get incrementals or decrementals somewhere in the sort of 10% type range. So therefore, that does create a little bit of compression in terms of the year over year incrementals or decrementals for us as FX moves. Underlying that, of course, we're working hard on all of the initiatives that Sean discussed.

[Kevin Johnson, Executive VP & CFO at ESAB]

We'll continue, obviously, to work hard on savings and look at to see if we can find opportunities to continue to improve that number, But that's the main reason why you're seeing that year over year.

[Shyam Kambeyanda, President & CEO at ESAB]

Yes. I think just to sort of add to Kevin's comment, we are expecting to see better volume organic volume in the second half than the first half And then obviously, some better FX tailwind as well in the second half. So those would be the two aspects.

[Neal Burk, Industrials Equity Research at UBS Group]

All right. Thanks. That's clear. On new products, I know this gets sort of complicated with all the tariff noise in in The Americas and North America in the quarter. But, like, can you give us an update on on new product introductions and, like, any contribution to sales?

[Shyam Kambeyanda, President & CEO at ESAB]

Yeah. You know, we we continue to maintain a a we we do measure it. It's it's part of our key KPIs. It's something that's core to ESOP, measuring our vitality and new product introductions. I think we had talked about, earlier on that we plan to maintain our momentum in new products.

[Shyam Kambeyanda, President & CEO at ESAB]

And this year, again, in terms of how we look at our product introductions, we're going to be very close to 100 new products introduced. Our vitality rate on a five year basis will still be closer to 23% to 24%, a little lower than where we were last year just based on some of this tariff related noise that has come in. But all in all, we continue to feel very good about our vitality metric. We feel good about the new products that are being introduced. And now with EWM, Delta P and Active, we get to introduce really a new array of portfolio products that I think our customers will really like, but more importantly allows ESOP to sell an entire workflow both in our gas control side of the business and in our FabTech side of the business.

[Neal Burk, Industrials Equity Research at UBS Group]

Great. Thanks.

[Operator]

Your next question comes from the line of Mig Dobre with Baird. You may go ahead.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

Thank you. Good morning. Question on Slide six, if I may. Talk a little bit more on this productivity improvement and the back office optimization? I'm looking at this chart, I'm trying to make sure that I'm clear in terms of what this chart is telling us.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

Are are these savings, that you're generating relative to 2024? Is this contribute directly to to EBITDA? Is that the way to interpret this chart?

[Kevin Johnson, Executive VP & CFO at ESAB]

That's right. Yes, Mig. These are additional savings that were generated in the year. So as we entered into the year, we were targeting around $25,000,000 of savings. And as we've progressed through the first few quarters, we've actually increased the target that we're aiming for.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

I see. So you've increased your savings by $5,000,000 It sounds like FX is contributing 5,000,000 to EBITDA. You've only raised your guidance by by half of what FX and savings are contributing. Is the implication here that the volume compression that you've experienced and the headwind that you've experienced in America, in Mexico, and automation, there's essentially no catch up whatsoever that's embedded in in the in the back half, hence, you raising by only 5,000,000 rather than 10 plus.

[Kevin Johnson, Executive VP & CFO at ESAB]

Yeah. So what I mean, what the slide's trying to project is the fact that we we have been working hard on driving additional savings mix. But what we're also doing is protecting investments back within the business. So as you can also see in the slide, we're actually putting back into the business $20,000,000 incremental on last year in terms of, in terms of additional investments that we're making. So what we're trying to do is look for opportunities always to see how we can further deploy, investments back into our commercial excellence program, back into work that we're doing around AI to accelerate long term growth and improve the overall business in the future.

[Shyam Kambeyanda, President & CEO at ESAB]

And I think on that front, Mig, I can tell you that some of the stuff that we have been working on both with universities and with AI, It's extremely exciting, in my view, transformational in many ways. And our view today is that early investment in those things will reap a far more benefit to ESOP and the right thing to do. So we're saving, we're sort of protecting our margins in the business, but we're putting money back that we think will benefit ESOP in 2026 and beyond.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

And then my follow-up, if I may, on Mexico specifically. A little bit hard to gauge what's going on from my seat at least. Can you maybe help understand how large Mexico is as part of this segment? And in terms of the disruptions to demand that you're seeing over there, is there a particular industry that that that is driving that? I mean, I I don't know if it's auto or heavy manufacturing, or is there something else going on with your distributors?

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

And really, the the reason why I'm asking is because I'm I'm trying to figure out exactly what we have to watch for in order to determine if something is different, other than Yeah. Obviously, the trade headlines over there.

[Shyam Kambeyanda, President & CEO at ESAB]

Yeah. I think that's a fair question, Mig. I think we had mentioned before in one of our calls that we were on par with our peers in Mexico. So you can, one, assume that our portion of Mexico is a little higher than our sort of peer set. And the second piece that we have not given out specific Mexico numbers, but what I can tell you is about 25% of our business sits within 20% to 25% sits between Mexico and automation.

[Shyam Kambeyanda, President & CEO at ESAB]

And we saw that business sort of take the down drag of that 500 basis points that we spoke about, and you could probably split the two kind of down the middle the way that we see it. And then to your additional question, we did have a really good strategy and benefited from it. One of the things that we have often talked about is how we intend to kind of go out and play in our space. We did win several distributors and several new customers in Mexico last year. And this year, when the tariffs sort of came at them in April, they slowed down significantly.

[Shyam Kambeyanda, President & CEO at ESAB]

And so if you were to sort of gauge the Mexican market, you'd see that the volumes are down quite hard on that particular front. In terms of the industries that we have exposure to, transportation being one and then sort of general industry and really in the channel as well. And both sort of saw that ground drag. Industry saw maybe a little harder down drag versus the channel, but both saw sort of a stalling is the best way that I could put it. But we do see a recovery coming at us, probably a little slower than where we see North America and The U.

[Shyam Kambeyanda, President & CEO at ESAB]

S. Market in particular. But we're off to a good start, as I mentioned, Mig. Mexico is still slow, but The U. S.

[Shyam Kambeyanda, President & CEO at ESAB]

Market is doing okay. And then the last piece, as I mentioned, the automation was really an issue in the quarter that got pushed out. And we see that sort of coming back at us in Q3 and Q4. And so we're very confident about that piece. And if semiconductor investment kicks in and some of the other stuff kicks in, then we've got additional upside.

[Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co]

All right. Thank you for the color.

[Operator]

Your next question comes from the line of David Raso with Evercore. You may go ahead.

[David Raso, Senior Managing Director - Equities at Evercore]

Thank you for the time. I'm most interested in Europe, just given it's your largest geography and you made a comment EU stimulus measures already in motion. You mentioned the business is steady there, but I'm just curious what are you expecting from Europe in the second half of the year into early twenty twenty six? Are those stimulus measures already showing up in the order book? And can you remind us the margins in Europe versus the rest of EMEA, APAC?

[Shyam Kambeyanda, President & CEO at ESAB]

Yes. So I'll take a few pieces here. I'll let Kevin jump in as well. So I think we talked about Europe being stable. So we're not seeing Europe sort of drop is the best way to think about it.

[Shyam Kambeyanda, President & CEO at ESAB]

When you when I talk about the stimulus measures in motion, we've seen energy independence. We've seen some spending associated with defense kick in, but not at the rate and the conversations that you've sort of seen in the newspaper. I mean, there's comments around almost $2,000,000,000,000 going into play in Europe over the next decade. That we have not seen come in. But we've seen commentary around the two things that I just spoke about come into play, activity and optimism exist.

[Shyam Kambeyanda, President & CEO at ESAB]

So the view for us for Europe is that it continues to be stable and not a business that where we've seen sort of volumes decline or sequential declines in the business. The other piece to answer your question, the margins for us in Europe are very strong, almost equivalent to slightly probably even ahead of our Americas business. So our margins are very strong in Europe.

[David Raso, Senior Managing Director - Equities at Evercore]

Helpful. And sorry, go ahead.

[Kevin Johnson, Executive VP & CFO at ESAB]

Just on the outlook for growth, David, our assumption at the moment is that Europe would be flattish growth. And a lot of the growth in EMEA and APAC in the second half is coming from our high growth markets.

[David Raso, Senior Managing Director - Equities at Evercore]

That's helpful. And BWM, nice chunky acquisition, the technology obviously you're excited about. I'm curious though in Gas Control and the comment you're still positioned to have a strong pipeline of M and A. Anything chunkier in Gas Control, I know Delta P active, but something that EWM type size, is that something we can look for? Or the Gas Control deal is going to stay, call that sub $50,000,000 kind of size?

[Shyam Kambeyanda, President & CEO at ESAB]

I think there's a couple of things. The short answer is yes. There are chunky deals in that space. Where we like to be is when we have a proprietary process in play and can match what we would what we think the asset is valuable to us rather than get into a sort of a regular auction process. We feel that the ROIC to our investors is better when we can create a proprietary process.

[Shyam Kambeyanda, President & CEO at ESAB]

So we've been working really hard. The funnel is actually very strong. We have a chance to sort of have a few bites of the apple here. Hopefully in 2026 or 2025, we'll see some things come into play. But the short answer is there's plenty of assets, plenty of assets that allow us to expand our presence in gas control and sort of achieve our 2028 goals of getting to $4,000,000,000 in sales.

[David Raso, Senior Managing Director - Equities at Evercore]

Thank you. One last, I'm sorry. In the queue, I noticed the equipment revs were flat, consumables up about two, but those are all in numbers. Could you indulge me with the organic equipment consumables? Was it equipment down?

[David Raso, Senior Managing Director - Equities at Evercore]

Or that was maybe heard more by the Americas issues?

[Shyam Kambeyanda, President & CEO at ESAB]

That's right. The automation side of the business did sort of create a bit of a down drag on the equipment side of our business in the quarter, which we think reverses itself as we get into the third and fourth quarter.

[David Raso, Senior Managing Director - Equities at Evercore]

Thank you.

[Operator]

Your final question comes from the line of Chris Dankert with Loop Capital Markets. You may go ahead.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Hey, good morning. Thanks for taking the questions. I guess as just on that automation piece, can you kind of indulge us as to just how steep the drop in automation was? I mean, just my back of the envelope says that we're talking about a pretty substantial cut here. Well, we're talking 40% lower on a year over year basis.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

But just any kind of sense you can give around just how, like, quantifying how big that automation component was?

[Shyam Kambeyanda, President & CEO at ESAB]

Are you sort of looking at it in The Americas or globally?

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

The math? Automation sales.

[Shyam Kambeyanda, President & CEO at ESAB]

Yeah. You know, the the view that we have, you know, globally, no, not not not that severe. I mean, you know, maybe in the twenties, you know, high twenties probably is is where we would look at it. Now we obviously stack up a whole bunch of small ones rather than some big deals. But yes, that would kind of be the number.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Okay. Okay. That's helpful. And then I guess just as far as the Mexico component, you gave some color there. Appreciate that.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

I guess as far as how that's trended in July and August to date, has there been any thought there? Or are we still kind of in a holding pattern?

[Shyam Kambeyanda, President & CEO at ESAB]

No, some thawing. I think the view for us a couple of things came at us in Q2 as I mentioned. We acquired a whole set of new customers last year. We sort of had great momentum in share momentum in the market. And then sort of this Q2, we were kind of coming up against sort of those wins that we had and those customers sort of fundamentally sort of going into a pause mode.

[Shyam Kambeyanda, President & CEO at ESAB]

They've since come off the pause mode, but not at the rates that they were at in Q2. So we see a slow recovery back into Mexico. We think once the trade deals get done, Mexico begins to sort of really move in the right direction. That being said, USMCA is fine. So we're specifically talking about Mexico business for FabTech.

[Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC]

Understood. Thanks so much for the color there.

[Operator]

This concludes our question and answer session. I would now like to turn the call over to Mark Barbolato for closing remarks. You may go ahead.

[Mark Barbalato, VP - Investor Relations at ESAB]

Thank you for joining us today, and we look forward to speaking to you next quarter.

[Operator]

This concludes today's conference call. You may disconnect.

Participants

Executives

• Mark Barbalato, VP - Investor Relations
• Shyam Kambeyanda, President & CEO
• Kevin Johnson, Executive VP & CFO

Analysts

• Tami Zakaria, Executive Director at JP Morgan
• Bryan Blair, MD & Senior Research Analyst at Oppenheimer & Co. Inc.
• Adam Farley, Associate Analyst at Stifel Financial Corp
• Neal Burk, Industrials Equity Research at UBS Group
• Mircea Dobre, Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co
• David Raso, Senior Managing Director - Equities at Evercore
• Christopher Dankert, SVP - Equity Research at Loop Capital Markets LLC