Inve US ▾
ESESAB

ESAB (ESAB) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 6, 2026

Source: earnings call transcript

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

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

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%——

Orderbook & backlog

DFI funnel $450 million Q2 FY26

Active funnel of commercial opportunities, conversion timing not specified.

Standard automation orders really nice Q2 FY26

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

Deals & partnerships

DFI Acquisition 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.

Active Acquisition to strengthen gas control leadership.

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

Delta P Acquisition to strengthen gas control leadership.

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

EWM Acquisition 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.

Bavaria Acquisition extending proprietary filler metal product line.

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

Risks & headwinds

Transitory price-cost neutrality Q2 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 costs Q2 FY26

Middle East logistics costs tripled in Q2 FY26

Mitigation:Considered transitory, depending on geopolitical developments.

Commodity inflation Q2 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 East Q2 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 America ongoing

Expected

Mitigation:Working to mitigate.

Costs associated with restructuring and acquisition integration H1 FY26

Impacted cash flow in H1 FY26

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

Higher equipment inventory levels H1 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

Middle East rebuild efforts

future quarters
Current Volumes down double digits in Q2 FY26
Target Increased 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.

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

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

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