Welding and cutting equipment manufacturer ESAB (NYSE:ESAB) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 1.2% year on year to $715.6 million. Its non-GAAP profit of $1.40 per share was 4% above analysts’ consensus estimates.
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ESAB (ESAB) Q2 CY2025 Highlights:
- Revenue: $715.6 million vs analyst estimates of $707.2 million (1.2% year-on-year growth, 1.2% beat)
- Adjusted EPS: $1.40 vs analyst estimates of $1.35 (4% beat)
- Adjusted EBITDA: $143.5 million vs analyst estimates of $136 million (20.1% margin, 5.5% beat)
- Management slightly raised its full-year Adjusted EPS guidance to $5.23 at the midpoint
- EBITDA guidance for the full year is $530 million at the midpoint, in line with analyst expectations
- Operating Margin: 15.2%, down from 16.9% in the same quarter last year
- Organic Revenue fell 2.2% year on year (0.9% in the same quarter last year)
- Market Capitalization: $6.60 billion
StockStory’s Take
ESAB’s second quarter saw modest headline growth but a significant negative market reaction, as investors digested the impact of organic revenue declines and margin compression. Management pointed to strong execution in its EMEA and APAC segments, supported by recent acquisitions and robust performance across high-growth markets. However, tariff-related uncertainty in the Americas—especially in Mexico—and delayed automation orders weighed on overall volume, leading to lower organic growth. CEO Shyam Kambeyanda acknowledged these challenges, noting, “Tariff-related uncertainty introduced unexpected volume headwinds, particularly impacting our local customers in Mexico.”
Looking ahead, ESAB’s slightly raised profit outlook for the year is built on expectations of continued momentum in EMEA and APAC, paired with a gradual recovery in automation and Mexican orders during the second half. Management plans to leverage new portfolio additions, ongoing productivity initiatives, and AI investments to support improved performance. CFO Kevin Johnson highlighted the company’s strategy, stating, “We’re saving, we’re protecting our margins in the business, but we’re putting money back that we think will benefit ESAB in 2026 and beyond.”
Key Insights from Management’s Remarks
Management highlighted international strength and recent acquisitions as key supports, while tariffs and delayed automation orders in the Americas created significant headwinds.
- International markets led growth: EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) regions delivered strong sales and margin expansion, driven by infrastructure and energy sector demand, new product introductions, and successful integration of recent acquisitions.
- Americas faced volume setbacks: Tariff-related uncertainty led to lower order volumes, particularly in Mexico, as local customers paused purchases. Automation business also experienced order delays, with management expecting a rebound in the second half of the year.
- Acquisitions accelerated portfolio expansion: ESAB completed or signed several acquisitions including EWM (advanced welding solutions), DeltaP (medical gas systems), and Aktiv (India-based gas control), strengthening its presence in heavy industrial, medical, and emerging markets. Management expects these deals to expand ESAB’s total addressable market and enhance product offerings.
- Productivity and cost initiatives advanced: The company increased its full-year productivity savings target to $13 million and expects $17 million in back-office optimization savings, reflecting ongoing efforts to offset inflation and support future investments.
- Investment in technology and talent: ESAB continued to fund AI-driven process improvements and launched programs like the Flame Internship to develop future talent, aiming to support long-term operational excellence and innovation.
Drivers of Future Performance
ESAB’s outlook centers on international demand, automation recovery, and ongoing cost optimization balancing new investments.
- International demand remains critical: Management sees sustained high-single-digit growth potential in EMEA and APAC, especially in the Middle East, India, and China, where public infrastructure and energy investments are robust. These trends are expected to partly offset ongoing softness in the Americas.
- Automation and Mexico recovery expected: After a weak second quarter due to tariffs, management anticipates improvement in automation order fulfillment and a gradual return of Mexican customer demand as trade dynamics stabilize, though Mexico’s recovery is expected to lag the U.S.
- Cost discipline and reinvestment: ESAB aims to continue margin improvement via cost savings and back-office automation, while reinvesting in AI, R&D, and commercial excellence initiatives. These efforts are intended to drive future growth and operational efficiency but could limit short-term margin expansion.
Catalysts in Upcoming Quarters
In the quarters ahead, our team will watch (1) whether automation and Mexican order volumes return to pre-tariff levels, (2) the pace of integration and contribution from new acquisitions like EWM, DeltaP, and Aktiv, and (3) continued margin improvement from back-office optimization and productivity initiatives. The trajectory of international infrastructure and energy demand, as well as any developments in trade policy, will also be important markers of ESAB’s performance.
ESAB currently trades at $108.78, down from $132.03 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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