ESAB Corp Q2 FY2025 earnings call

• Appreciated teams' commitment despite challenging market, with record margins. - Visited acquisitions and regional teams, emphasizing focus on fundamentals, cost control, and customer experience. - EMEA and APAC performance driven by executing EBX growth playbook. - Americas faced near-term headwinds but underlying business health strong. - Progress on Compounder journey with acquisitions, raised productivity savings target to ~$13M, back office optimization savings to $17M, and $20M strategic growth investments in 2025. - Flame Internship Program as talent investment initiative.

Americas: Organic sales declined due to tariff uncertainty and a weaker Mexican market, but strong pricing helped, and the SUMIG acquisition added 300 basis points of growth. Adjusted EBITDA margin was 20.1%. EMEA and APAC: Maintained strong growth, with total sales rising 11%, EBITDA margins hitting a record 20.6%, and volume growing by 600 basis points. Medical and Gas Control: Acquisitions of DeltaP (annual sales ~$10M, >40% gross margins) and Aktiv (annualized sales ~$5M, >40% gross margins) expanded the portfolio. Equipment & Robotics: Acquisition of EWM, a EUR 120M revenue business, expected to be accretive in year 1 and close in Q4, complementing ESAB's equipment growth strategy.

• Raised full-year adjusted EBITDA guidance to $525M-$535M. - Revenue increased due to acquisitions and FX trends. - Second half expected to have low single-digit organic growth in Americas, mid-single-digit in EMEA and APAC. - EWM acquisition expected to close in Q4, adding upside.

• Tariff-related uncertainty impacting North America, especially Mexico customers delaying orders. - Automation orders delayed in North America. - Dependence on economic conditions in key regions (Europe, Asia) for growth.

Q: On tariffs, details on headwind in North America, especially Mexico?

A: Tariffs hit in April caused local Mexico customers to delay ordering; expected to abate in third and fourth quarters, with confidence in automation recovery.

Q: Quantification of $30 million savings?

A: Savings from footprint rationalization, back office automation, and EBX initiatives, with ramp-up in recent years.

Q: EWM deal details, growth rates and margins?

A: EUR 120M business, expects mid-single-digit growth potential, gross margins north of 40%, benefits from European stimulus.

Q: China and Southeast Asia outlook, driving industries?

A: Strength in energy sector, rail, high-speed rail, and infrastructure build-outs; Southeast Asia showing recovery.

Q: Price cost impact and tariff coverage?

A: Price cost neutral against tariffs in the quarter, covering tariff costs with price.

Q: Incrementals and FX impact?

A: FX moves create compression in year-over-year incrementals, with expectation of better volume and FX tailwind in second half.

Q: New product introductions and contribution?

A: Close to 100 new products introduced, vitality metric still strong despite tariff noise.

Q: Productivity improvement and back office optimization?

A: Saving while protecting investments in commercial excellence, AI, and long-term growth.

Q: Mexico size and driving industry?

A: ~20%-25% of business in Mexico, impacted by transportation and general industry, with slow recovery expected.

Q: Europe outlook and margins?

A: Europe steady, margins strong, expected flattish growth; high-growth markets drive EMEA and APAC growth.

Q: Gas control M&A outlook?

A: Chunky deals possible with proprietary processes, strong funnel for future M&A.

Q: Automation sales quantification and Mexico trend?

A: Global automation sales down high 20s, Mexico seeing slow recovery with pause mode ending but not at Q2 rates.