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    ESAB
    Earnings call· Jun 2026(Q2 FY26)

    ESAB Q2 FY26 earnings call ESAB

    Aug 6, 2026 Source

    Executive summary

    ESAB Q2 FY26 — Record Sales & EBITDA, DFI Acquisition Closed

    ESAB delivered a strong second quarter, marked by record sales and adjusted EBITDA, and a return to organic growth in both segments. The strategic DFI acquisition closed ahead of schedule, accelerating the company's transformation towards a higher-margin, equipment-centric business model. While navigating temporary price-cost pressures and geopolitical headwinds in the Middle East, ESAB is focused on leveraging its enhanced workflow solutions and EBX AI to drive organic growth, margin expansion, and deleveraging.

    Highlights

    5

    • Total sales for the quarter were $766 million, up 13% year-over-year.

    • Core organic growth was 2.5%, reflecting a return to organic growth in both segments.

    • Adjusted EBITDA grew 8% to $150 million, achieving a record for the company.

    • The DFI acquisition was closed ahead of schedule, positioning ESAB for faster organic growth and higher margins.

    • Equipment mix shifted from 38% to over 50% on a pro forma basis, improving gross margins by approximately 500 basis points over the past decade.

    Concerns

    4

    • Adjusted EBITDA margin declined 90 basis points year-over-year due to transitory price-cost neutrality and targeted commercial investments.

    • The full-year outlook includes an assumed $15 million drag from transitory price-cost neutrality.

    • Middle East geopolitical headwinds impacted volumes, which were down double digits in the region.

    • Adjusted EPS guidance was reduced by $0.35 at the midpoint, primarily due to DFI acquisition dilution and price-cost impacts.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year 2026 total core sales
    $3 billion to $3.1 billion
    high materiality
    High
    Full-year 2026 organic growth
    2% to 4%
    high materiality
    High
    Full-year 2026 acquisitions contribution to growth
    approximately 9 points
    medium materiality
    High
    Full-year 2026 adjusted EBITDA
    $615 million to $625 million
    high materiality
    High
    Full-year 2026 adjusted EPS
    $5.40 to $5.50
    high materiality
    High
    Full-year 2026 free cash flow conversion
    approximately 90%
    medium materiality
    High
    Full-year 2026 price-cost neutrality drag
    about $15 million
    medium materiality
    High
    DFI EPS impact
    modestly dilutive in Q4, confidently positive in '27
    high materiality
    High
    Sequential pricing improvement
    modest, moving up into the 3% and exiting at a better rate in Q4
    medium materiality
    Medium
    Organic volume outlook
    flat to slightly better
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Americas
    Delivered a strong Q2 with North America showing particularly strong performance in equipment, gas equipment, and automation. Mexico continues to stabilize, while South America faces expected headwinds.
    Organic growth: 5%North America organic growth: double-digitEquipment growth: strongGas equipment growth: double-digitAutomation growth: double-digit
    		$316 million12%——
    EMEA & APAC
    Achieved organic growth despite meaningful geopolitical headwinds in the Middle East impacting volumes and pressuring margins. Better-than-expected performance in Europe (Eastern Europe, Scandinavia, Germany) partially offset these headwinds. EWM integration and associated margin expansion plans are on track.
    Organic growth: 1%Middle East volume impact: down double digits
    		$450 million14%——

    Operational metrics

    14
    Adjusted EBITDA margin
    19.5%-90 bps YoY
    Q2 FY26

    Margin decline due to transitory price cost neutrality and deliberate targeted commercial investments.

    Core organic growth
    2.5%
    Q2 FY26

    Reflecting double-digit growth in automation and equipment, and a return to organic growth in both segments.

    Acquisitions contribution to sales
    8%
    Q2 FY26

    Contribution from acquisitions to total sales growth.

    Equipment revenue mix
    over 50%up from 38%
    FY26 pro forma

    Strategic shift towards faster-growing, higher-margin portfolio.

    Gross margin improvement
    approximately 500 bps
    over the past decade

    Improved alongside the shift in equipment mix.

    DFI gross margin
    approximately 65%
    current

    Financial profile of the acquired DFI business.

    DFI EBITDA margin
    roughly 30%
    current

    Financial profile of the acquired DFI business.

    DFI synergy target
    $20 million
    future

    Synergy target between ESAB and DFI, with potential for more.

    Middle East revenue impact
    down double digits
    Q2 FY26

    Due to geopolitical headwinds, Middle East represents 7-8% of ESAB's business.

    Middle East logistics costs
    tripled
    Q2 FY26

    As a result of the conflict, contributing to price-cost neutrality.

    Consumables growth
    low single digits
    Q2 FY26

    Continues to trend positively but not as positive as equipment, with pockets of weakness in the Middle East.

    Total debt financing EPS impact
    $0.13
    Q2 FY26

    Impact from the DFI acquisition financing.

    Prefunding debt EPS impact
    $0.03
    Q2 FY26

    Portion of the total debt financing impact attributable to prefunding.

    Equity financing EPS impact
    $0.03
    Q2 FY26

    Impact from common shares and mandatorily convertible preferred stock issuance.

    Industry KPIs

    2
    MetricValueDetails
    Parts aftermarket businesslow single digits%
    Order backlog order intake by segment$450 millionUSD

    Orderbook & backlog

    2
    DFI funnel$450 millionQ2 FY26

    Active funnel of commercial opportunities, conversion timing not specified.

    Standard automation ordersreally niceQ2 FY26

    Expected to ship in the second half of the year, contributing to organic growth.

    Deals & partnerships

    5
    DFIAcquisition of a global leader in inspection and monitoring technologies for mission-critical applications.

    Closed ahead of schedule. Adds talented leaders and strengthens ESAB's workflow solution across aerospace, defense, nuclear, infrastructure, and oil & gas end markets.

    ActiveAcquisition to strengthen gas control leadership.

    Part of capital deployment into high-quality assets that reshaped ESAB.

    Delta PAcquisition to strengthen gas control leadership.

    Part of capital deployment into high-quality assets that reshaped ESAB.

    EWMAcquisition establishing ESAB as a technology leader in equipment.

    Part of capital deployment into high-quality assets that reshaped ESAB. Integration and margin expansion plans are on track.

    BavariaAcquisition extending proprietary filler metal product line.

    Part of capital deployment into high-quality assets that reshaped ESAB.

    Risks & headwinds

    7
    Transitory price-cost neutralityQ2 FY26, full-year 2026

    90 bps adjusted EBITDA margin decline in Q2 FY26; ~$15 million drag in full-year 2026 outlook

    Mitigation: Expected to correct over the next few quarters with price and cost-out activities.

    Increased logistics costsQ2 FY26

    Middle East logistics costs tripled in Q2 FY26

    Mitigation: Considered transitory, depending on geopolitical developments.

    Commodity inflationQ2 FY26

    Contributed to transitory price-cost neutrality

    Mitigation: Expected to be addressed through price and cost-out activities over the next few quarters.

    Geopolitical headwinds in Middle EastQ2 FY26, ongoing

    Volumes down double digits in Q2 FY26; pressured EMEA & APAC margins

    Mitigation: Teams are protecting customer share, finding new accounts, and gaining share in the region.

    Headwinds in South Americaongoing

    Expected

    Mitigation: Working to mitigate.

    Costs associated with restructuring and acquisition integrationH1 FY26

    Impacted cash flow in H1 FY26

    Mitigation: These activities are enabling future growth and margin expansion.

    Higher equipment inventory levelsH1 FY26

    Impacted cash flow in H1 FY26

    Mitigation: Strategic decision to serve customers, focused on leveraging eBx AI to improve working capital turns and expect strong second half cash generation.

    What to watch in Q3 FY26

    5

    Middle East rebuild efforts

    future quarters
    CurrentVolumes down double digits in Q2 FY26
    TargetIncreased share of rebuild activities, growth equivalent to or better than 20%

    Why it matters

    The Middle East is a significant region for ESAB, and rebuild efforts could provide a substantial tailwind for revenue growth.

    From a rebuild perspective, we've said this before. Most of the assets that will need rework and rebuild, have ESAB product specked in. And so when those rebuild activities come in, we expect to get a larger share of it.

    Q&A highlights

    6

    How did orders progress through Q2 and into Q3, and what is the organic growth outlook for the back half of the year, including Q3/Q4 cadence and segment contribution?

    Management noted continued positive trends into Q3, expecting sequential improvement in growth profile and performance. Confidence in the organic growth guide is supported by EWM initiatives, equipment growth, and significant standard automation orders shipping in the second half.

    “We expect to continue that core growth trend into Q3 and Q4. The other piece that I would add there, Brent, is that we have, as I mentioned before, there were a couple of things that we were very comfortable with. One was EWM and the initiatives that we're working on for equipment in the second half of the year. And then we also had some really nice automation, standard automation orders that ship in the second half of the year, giving us confidence about the organic growth guide that we've given.”

    asked by Bryan Blair · answered by Shyam Kambeyanda

    2 min read5 chapters

    Detailed Narrative

    01

    DFI Acquisition and Strategic Transformation

    ESAB successfully closed the DFI acquisition ahead of schedule, integrating a global leader in inspection and monitoring technologies. DFI serves attractive end markets like aerospace, defense, nuclear, and oil & gas, bringing high single-digit growth, approximately 65% gross margins, and roughly 30% EBITDA margins. This acquisition is a key part of ESAB's deliberate strategy over the past decade to shift its mix towards faster-growing, higher-margin equipment and gas control products, moving equipment revenue from 38% to over 50% pro forma and improving gross margins by 500 basis points.

    02

    Unrivaled End-to-End Workflow Solution

    The combination of ESAB and DFI creates an unrivaled end-to-end workflow solution, supporting customers from initial preparation and joining through real-time asset management, data-driven insights, and full traceability. A recent customer event showcased the combined power of ESAB, DFI, EWM, and GCE teams, demonstrating solutions across nuclear, oil and gas, wind, and pipeline segments. This integrated offering is generating an active funnel of commercial opportunities, particularly in the defense sector, and positions ESAB to accelerate the industry shift towards connected and digital workflow solutions.

    03

    Operational Execution and EBX AI Focus

    ESAB delivered a strong quarter through focused execution, controlling controllable factors. The company is reinvigorating its EBX AI system, sharpening focus, and driving out costs. Management highlighted four key funnels: new customers, synergy sales, cost out, and Kaizen, indicating a renewed emphasis on operational excellence and continuous improvement. These efforts are aimed at driving organic growth, margin expansion, and deleveraging the balance sheet, transforming ESAB into a faster-growing, higher-margin enterprise.

    04

    Segment Performance and Regional Dynamics

    The Americas segment delivered strong Q2 results with 5% organic growth, driven by double-digit organic growth in North America, particularly in equipment, gas equipment, and automation. The EMEA & APAC segment achieved 1% organic growth despite geopolitical headwinds🌐 in the Middle East, which saw volumes decline by double digits and logistics costs triple. Better-than-expected performance in Europe, including strength in Eastern Europe, Scandinavia, and Germany, helped offset these pressures, with EWM integration remaining on track.

    05

    Price-Cost Neutrality and Investment Strategy

    ESAB experienced transitory📎 price-cost neutrality in Q2, leading to a 90 basis point adjusted EBITDA margin decline, primarily due to increased logistics and commodity costs. Management expects this to correct over the next few quarters through price and cost-out activities. The company is also making deliberate, targeted commercial investments to accelerate growth in its equipment product line, viewing these as essential for future growth and margin expansion as equipment becomes a larger portion of revenue.

    AI-generated summary of the company’s earnings call. Not investment advice.