ESAB raises 2025 sales guidance to $2.73B and targets 22%+ EBITDA margin by 2028 as EWM integration accelerates

Earnings Call Insights: ESAB Corporation (ESAB) Q3 2025

MANAGEMENT VIEW

* President and CEO Shyam Kambeyanda highlighted "another solid quarter and returned to positive organic growth" with disciplined execution and the early closure of the EWM acquisition, which "advanc[es] our shift into equipment and further[ing] our compounder journey." He announced a guidance increase and noted, "sales rose 8% to $687 million, more importantly, organic sales increased 2% year-over-year, reflecting solid sequential improvement in the Americas and continued strength in EMEA and APAC." Adjusted EBITDA increased 7% to $133 million, with the EWM acquisition described as bringing "high-level talent, unmatched technology and highly accretive gross margins to ESAB."
* Kambeyanda emphasized the shift toward equipment and gas control, aiming at "22-plus EBITDA margins by 2028 or sooner." He stated, "We have closed 4 acquisitions this year Bavaria, Delta P, Aktiv and EWM, expanding proprietary consumables, medical gas and welding equipment."
* Executive VP & CFO Kevin Johnson reported, "We are pleased to have completed the EWM acquisition ahead of schedule, which contributed approximately 2 points of growth and roughly $1 million in adjusted EBITDA within our Q3 results."

OUTLOOK

* ESAB raised full-year guidance, with Johnson stating, "We expect total sales of $2.71 billion to $2.73 billion, reflecting around 1-point of organic growth, a modest FX improvement on the EWM acquisition. Adjusted EBITDA is now $535 million to $540 million, including approximately $3 million from EWM."
* Adjusted EPS guidance was "tightened to between $5.20 and $5.30 reflecting improved profit offset by increased interest expense due to EWM."
* Free cash flow guidance was updated to "around 95% because of EWM."
* Kambeyanda reiterated, "We're shifting our mix towards equipment and gas control, building a higher margin, less cyclical enterprise aimed at 22-plus EBITDA margins by 2028 or sooner."

FINANCIAL RESULTS

* Kambeyanda reported, "sales rose 8% to $687 million...organic sales increased 2% year-over-year."
* Johnson added, "Total sales increased by 800 basis points year-over-year, supported by organic growth, contributions from acquisitions, including EWM and favorable currency movements."
* Adjusted EBITDA margin was impacted by EWM, "reduced by about 20 basis points," but the base business "delivered expected profitability."
* Americas segment organic sales growth was driven by "strong U.S. equipment and automation growth as well as price discipline." Adjusted EBITDA margin was "19.6%, which included ongoing investment for long-term growth and a drag driven by price/cost dynamics related to tariffs."
* EMEA and APAC sales grew 14% year-over-year to $395 million, with organic sales up 3% and volume increasing 4%. Adjusted EBITDA margin expanded to "19.3%, rising 40 basis points year-over-year."
* Free cash flow conversion "exceeded 100% this quarter."

Q&A

* Bryan Blair, Oppenheimer: Asked about catching up on deferred automation and Mexico sales. Kambeyanda said, "there was a bit of catch-up, but not much...We did catch up to a little bit of that automation pushout, but not all of it. We think that sort of kind of feeds in into Q4 and a little bit into Q1."
* Blair: On EWM integration and SG&A. Kambeyanda described "really strong gross margins, better than 45%." Johnson said, "our expectation this year for EWM is around $3 million of profit...we are making some investments in that business, and we'll continue to make those investments over the next 12 months."
* Tami Zakaria, JPMorgan: Asked about Americas EBITDA margin decline. Kambeyanda said, "we did expect some of it...we did see some tariff-based impact come at us late in the quarter that we will offset by making sure that we appropriately move the manufacturing to the regions."
* Mircea Dobre, Baird: On margin improvement drivers for 2026. Kambeyanda mentioned, "pricing that will occur as we start the year, the tariff-based movements...and then the restructuring that we're doing that all of it, which we feel will sort of come to fruition somewhere in that early first quarter, giving us really solid momentum for margin expansion in 2026."
* Nathan Jones, Stifel: Asked about Q4 start and price/cost neutrality. Kambeyanda said, "our core growth improves from where we were in Q3, and we feel good about that as we sit here today" and noted "price cost slightly off of neutral" in Q3 due to copper tariffs.

SENTIMENT ANALYSIS

* Analysts maintained a constructive but probing tone, focusing on margin drivers, integration of EWM, and regional performance. Questions sought clarity on operational improvements and guidance sustainability.
* Management's sentiment was confident, emphasizing "robust list of productivity and transformational projects" and describing the EWM acquisition as an "exciting addition" and "at an appropriate time."
* Compared to the previous quarter, management maintained confidence but increased emphasis on integration execution and regional growth strategies, while analysts probed more directly on margin and integration specifics.

QUARTER-OVER-QUARTER COMPARISON

* Management raised guidance this quarter, compared to a previous quarter that also saw guidance increases but noted more uncertainty in the Americas due to tariffs.
* The strategic focus continues to shift toward equipment and automation, with integration of EWM now underway and highlighted as a driver for growth and margins.
* Analysts' concerns shifted from tariff impact and automation delays in the Americas to the integration and cross-selling potential of EWM and timing for margin expansion.
* Key metric: Q3 returned to organic growth and 8% sales rise, compared to Q2's record margin but softer Americas performance.
* Management's tone on growth and integration is more assertive this quarter, reflecting greater confidence in synergy realization and margin expansion for 2026.

RISKS AND CONCERNS

* Tariff impacts in the Americas led to margin drag, with late-quarter copper tariffs noted. Management is "moving manufacturing capacity to the region that the products are sold in and take away that drag."
* Ongoing investments in sales and restructuring are expected to set up margin improvement, but some automation and Mexico sales recovery will extend into Q4 and Q1.
* Integration risks with EWM are acknowledged, but management describes a "proven EBX integration process" and sees "tremendous opportunities, both on the top line and also synergies."

FINAL TAKEAWAY

Management emphasized ESAB's resilience through positive organic growth, early EWM integration, and a raised full-year outlook. The company is accelerating its shift toward higher-margin equipment and gas control, aiming for 22%+ EBITDA margins by 2028. Investments in automation, regional manufacturing, and integration are expected to drive both near-term and long-term shareholder value, with continued focus on disciplined execution and strategic acquisitions to support ongoing growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/esab/earnings/transcripts]

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