Welding and cutting equipment manufacturer ESAB (NYSE:ESAB) announced better-than-expected revenue in Q1 CY2025, but sales fell by 1.7% year on year to $678.1 million. Its non-GAAP profit of $1.31 per share was 8.6% above analysts’ consensus estimates.
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ESAB (ESAB) Q1 CY2025 Highlights:
- Revenue: $678.1 million vs analyst estimates of $663.7 million (1.7% year-on-year decline, 2.2% beat)
- Adjusted EPS: $1.31 vs analyst estimates of $1.21 (8.6% beat)
- Adjusted EBITDA: $133.9 million vs analyst estimates of $120.9 million (19.7% margin, 10.7% beat)
- Management reiterated its full-year Adjusted EPS guidance of $5.18 at the midpoint
- EBITDA guidance for the full year is $525 million at the midpoint, above analyst estimates of $520.4 million
- Operating Margin: 16.2%, in line with the same quarter last year
- Free Cash Flow Margin: 4.1%, down from 5.4% in the same quarter last year
- Organic Revenue was flat year on year (2.2% in the same quarter last year)
- Market Capitalization: $7.85 billion
StockStory’s Take
ESAB’s first quarter results were shaped by a resilient product mix and regional shifts, as management highlighted growth in its equipment and gas control businesses despite a challenging economic backdrop. CEO Shyam Kambeyanda emphasized that the company’s local manufacturing footprint and ongoing innovation initiatives helped offset market softness in the Americas, while demand in Europe, India, and the Middle East remained robust. The completion of the Bavaria acquisition and the ramp-up of new product launches supported margin stability, while proactive actions addressing tariff impacts were cited as effective.
Looking ahead, management reiterated its full-year profit guidance, pointing to continued investments in innovation, digital capabilities, and targeted acquisitions as key drivers. CFO Kevin Johnson noted that tariff exposure is concentrated in North America but is being managed through price adjustments and supply chain flexibility. Kambeyanda also cited optimism around European stimulus and emphasized that ESAB’s evolving product mix—particularly the expansion of gas control—will be a major contributor to future margin and revenue growth.
Key Insights from Management’s Remarks
A combination of disciplined execution and strategic portfolio shifts shaped ESAB’s Q1 performance, according to management. The company’s focus on differentiated equipment, gas control, and regional agility helped explain both the outperformance versus Wall Street estimates and the overall resilience despite macroeconomic headwinds.
- Equipment and Gas Control Growth: ESAB’s global welding equipment and gas control businesses both delivered mid-single-digit growth, credited to recent product launches and channel acceptance. Management stated these segments are increasingly central to the company’s long-term strategy.
- Tariff Mitigation Efforts: Management cited the “in region for region” manufacturing approach as critical for minimizing tariff impacts. With 80% of products manufactured locally, ESAB’s exposure is largely contained to North America, where price adjustments have been implemented to offset estimated tariff costs.
- Acquisition of Bavaria: The completed Bavaria acquisition expands ESAB’s proprietary consumables portfolio, especially in Europe. Management expects this to open new market opportunities in sectors such as energy, infrastructure, and defense, while also contributing to future margin expansion through synergy capture.
- Regional Divergence: While the Americas saw volume softness and a “wait-and-see” approach from customers due to tariff uncertainty, Europe, India, and the Middle East demonstrated optimism and stronger order activity. Management noted early signs of growth in China as well.
- EBX Framework and Margin Expansion: The EBX operational framework—which includes supply chain improvements, pricing discipline, and product mix shifts—was highlighted as a key driver of the 100-basis-point adjusted EBITDA margin expansion. Management also referenced ongoing investment in growth initiatives, including AI partnerships and university collaborations, as part of its long-term value creation strategy.
Drivers of Future Performance
ESAB’s management anticipates that product mix evolution, regional market trends, and continued operational discipline will shape performance for the remainder of the year.
- Expansion of Gas Control Segment: Management aims to increase gas control to 25% of total revenue by 2028, citing its higher gross margins and growth potential in medical and specialty gas markets. This shift is expected to support margin improvements.
- Strategic Acquisitions and Integration: The recently closed Bavaria deal and planned gas control tuck-in acquisitions are expected to accelerate growth, particularly in Europe. Management believes successful integration and synergy realization could drive both top-line and margin gains.
- Managing Tariff and Regional Headwinds: Ongoing price adjustments in North America are designed to offset tariff-related costs, but management notes that volume softness in the region remains a risk. Conversely, stimulus measures and infrastructure investment in Europe present upside opportunities.
Top Analyst Questions
- Bryan Blair (Oppenheimer): Asked about the magnitude and mitigation of tariff headwinds, management detailed that North American impact is estimated at $15–20 million and is being offset by price increases and regional supply chain adjustments.
- Bryan Blair (Oppenheimer): Inquired about the momentum and outlook for gas control equipment, with CEO Kambeyanda highlighting strong growth, accretive margins, and upcoming acquisitions that are expected to further boost the segment.
- Saree Boroditsky (Jefferies): Sought clarification on the balance between price and volume within guidance; CFO Johnson explained that price gains in North America are offsetting lower volumes, while EMEA and APAC pricing remains flat.
- Mig Dobre (Baird): Questioned the progression of margins in the Americas given new tariff dynamics, with management noting margin expansion is driven by a combination of pricing, EBX initiatives, and product mix, but the year may not follow previous margin build patterns.
- Nathan Jones (Stifel): Asked about the timing and impact of European stimulus and the integration of Bavaria, with management anticipating positive effects starting in the second half of the year and highlighting the acquisition’s strategic fit and synergy opportunities.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the integration and performance of the Bavaria acquisition and potential additional tuck-in deals, (2) the trajectory of gas control segment growth and margin contribution, and (3) signs of recovery or continued softness in North American volumes as tariff uncertainty is resolved. Progress on innovation initiatives and the impact of European stimulus programs will also be important to track.
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