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ESAB (ESAB) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Industrials· May 7, 2026

Source: earnings call transcript

Executive summary

ESAB Corporation Q1 FY26 — Record Sales and Strategic Acquisitions Drive Margin Expansion

ESAB delivered a strong Q1 FY26 with record sales, driven by its compounder strategy and successful integration of recent acquisitions. The company is actively reshaping its portfolio towards higher-margin equipment and services, with the Eddyfi acquisition set to further accelerate this shift and expand gross margins. Despite geopolitical headwinds and associated cost pressures, ESAB reiterated its full-year guidance, confident in its strategic trajectory and operational agility.

Highlights

5

  • Total core sales grew 10% year-over-year, reaching a record $715 million.

  • Adjusted EBITDA increased 6% year-over-year to $136 million.

  • Acquisitions EWM and Aktiv both grew double digits year-over-year.

  • Adjusted free cash flow was $40 million, with cash conversion improving to 49% from 40% in the prior year.

  • Net leverage improved to 1.9x at the end of the first quarter.

Concerns

3

  • The conflict in Iran resulted in an expected 30 basis points headwind to adjusted EBITDA margin company-wide.

  • Q1 organic sales volume was negative 3% year-over-year.

  • EWM acquisition was EBITDA dilutive by 40 basis points company-wide, as expected for the first three quarters of FY26.

Guidance & targets

CategoryTargetConfidence
Full-year total sales growth
6% to 9%
high materiality
High
Full-year organic sales growth
2% to 4%
high materiality
High
Full-year adjusted EBITDA
$575 million to $595 million
high materiality
High
Full-year adjusted EPS
$5.70 to $5.90
high materiality
High
Eddyfi acquisition close
Midyear
high materiality
High
Net leverage
Below 3x
medium materiality
High
Consolidated gross margins
Greater than 40%
high materiality
High
EWM EBITDA accretion
EBITDA accretive
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Americas
The Americas segment delivered a steady performance with revenue growth and stable margins. North America, excluding Mexico, showed mid-single-digit growth, while Mexico remained stable. South America experienced a volume drag due to prior-year tariff comparables.
Adjusted EBITDA: $56 million (up 3% YoY)North America (excluding Mexico) growth: mid-single digitsMexico performance: stable
$288 million3%—19.4%
EMEA and APAC
EMEA and APAC demonstrated strong sales growth, gaining share from competition. Margins declined primarily due to the Iran conflict and the dilutive impact of EWM. Europe and India performed as expected, and the Middle East saw limited disruption due to agile operational responses.
Adjusted EBITDA: $80 million (up 9% YoY)Margin impact from Iran conflict: 50 bpsMargin impact from EWM: 70 bpsEWM and Aktiv growth: double digits
$426 million16%—Declined 130 bps

Product announcements

ProductTypeDetails
Ruffian 270 engine-powered welderlaunch
Aristo Edgelaunch
EWM React technologyupdate
Tetrix 350launch

Deals & partnerships

Eddyfi Extends ESAB's workflow solutions into the inspection and monitoring space, a market leader in electromagnetic testing, ultrasonic testing, and automated inspection. Serves mission-critical end markets like aerospace, defense, nuclear, and energy infrastructure. Brings meaningful North American exposure.

Previously announced acquisition, expected to close midyear. Integration team is already in place, sharpening combined workflow solutions value proposition and sharing Eddyfi's capabilities with ESAB customers.

EWM Strengthens equipment portfolio, filling gaps in product lineup. Leader in additive manufacturing technology.

One of 18 successful acquisitions that reshaped the equipment portfolio. Integration is progressing ahead of schedule, with early benefits from the combination.

Aktiv Strengthens position in gas control.

One of the acquisitions that strengthened the gas control portfolio.

DeltaP Strengthens position in gas control.

One of the acquisitions that strengthened the gas control portfolio.

Bavaria Added to leadership position in proprietary filler metal.

One of the acquisitions that strengthened the proprietary filler metal portfolio.

Risks & headwinds

Conflict in Iran Q1 FY26, ongoing

30 bps headwind to adjusted EBITDA margin (company-wide); 50 bps headwind to EMEA and APAC segment margin. Increased costs for tungsten, nickel, steel, and freight.

Mitigation:Rerouting inventory through ports of Jeddah and Salalah in Oman. Implementing surcharges to offset higher costs. Moving price to the market to achieve price/cost neutrality in Q2 and slightly positive in H2.

Challenging environment Q1 FY26

Q1 organic sales volume was -3% YoY.

Mitigation:Strategic acquisitions, product innovation, and operational agility are expected to drive volume inflection in the latter half of the year. Additional price actions and automation orders are also expected to contribute.

What to watch in Q2 FY26

EWM EBITDA accretion

Exit of FY26
Current EBITDA dilutive (Q1 FY26)
Target EBITDA accretive

Why it matters

EWM's profitability trajectory is key to overall margin expansion and the success of the acquisition strategy.

Our cost out and sales synergy efforts are running ahead of schedule, and we expect EWM to be EBITDA accretive as we exit the year.

Find out whether ESAB delivers this. Inve re-checks your case every morning.

Q&A highlights

Given Q1 volume was -3% and price was +2%, how will ESAB achieve 2-4% organic growth for the full year, implying a significant volume inflection?

Management explained Q1 faced tough comparables due to prior-year tariff pull-ahead. They anticipate additional price in Q2, and acquisitions becoming organic in the second half of the year will drive positive volume inflection in Q3 and Q4. Automation orders booked for H2 also contribute.

“The thoughtful way to look at it is down slightly neutral, a little bit more positive in Q3. And then when the acquisitions become part of the base, you really see that organic driver kick in.”

asked by Nathan Jones · answered by Shyam Kambeyanda

2 min read 6 chapters

Detailed narrative

Strategic Transformation and Portfolio Reshaping

ESAB is undergoing a significant transformation, reshaping its portfolio and building new capabilities to become a premier industrial compounder. This involves strategic acquisitions like DeltaP, Aktiv, EWM, Bavaria, and the pending Eddyfi, which collectively strengthen positions in gas control, equipment, and filler metal. These moves, coupled with over 40 active AI projects, are designed to drive growth, reduce cyclicality, and expand gross margins, making the company more durable through economic cycles.

Gross Margin Expansion Driven by Mix Shift

The company's gross margin has expanded from approximately 35% in 2016 to nearly 38% today. This improvement is largely attributed to a strategic shift towards higher-margin equipment, which now accounts for 44% of revenue, up from 38% in 2016. With the Eddyfi acquisition, this mix is projected to rise to approximately 52%. Acquisitions like EWM (gross margins ~45%) and Eddyfi (gross margins ~65%) are key drivers, expected to push consolidated gross margins to over 40% by 2027.

Product Innovation and Market Expansion

ESAB launched two key products, the Ruffian 270 engine-powered welder and the Aristo Edge, adding approximately $250 million to its servable market. The Ruffian fills a critical gap with its simultaneous full power delivery, while the Aristo Edge sets new performance benchmarks with ultrafast arc control and spatter reduction. Additionally, EWM's React technology in additive manufacturing and the Tetrix 350 for TIG applications are opening access to an additional $900 million market, including semiconductor wafer manufacturing.

Eddyfi Acquisition and Strategic Rationale

The pending acquisition of Eddyfi, expected to close midyear, is a significant step in extending ESAB's workflow solutions into the faster-growing, higher-margin inspection and monitoring space. Eddyfi is a market leader in electromagnetic and ultrasonic testing, serving mission-critical end markets like aerospace, defense, nuclear, and energy infrastructure. Financially, Eddyfi boasts high single-digit growth, 65% gross margins, and 30% EBITDA margins, aligning with ESAB's strategy to expand margins and reduce cyclicality.

Operational Resilience in the Middle East

Despite the conflict in Iran, which caused a 30 basis points EBITDA margin headwind company-wide, ESAB demonstrated strong operational resilience. The Middle East, representing approximately 7% of sales, experienced limited disruption due to the company's local footprint and agile response. Teams rerouted inventory through ports in Jeddah and Salalah and implemented surcharges to offset higher costs, positioning ESAB to benefit from future rebuild efforts.

Strong Balance Sheet and Cash Flow Generation

ESAB maintained a strong financial position, reporting adjusted free cash flow of $40 million and an improved cash conversion rate of 49%, up from 40% in the prior year. The company ended the quarter with a net leverage of 1.9x. While leverage is expected to temporarily increase with the Eddyfi acquisition, management anticipates deleveraging back below 3x by year-end, underscoring a disciplined capital allocation strategy.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.