ESAB Corporation (NYSE:ESAB) is a focused premier industrial compounder that provides fabrication technology, advanced equipment, consumables, gas control equipment, welding robotics and digital solutions to its global customer base. The company's rich history of innovative products, workflow solutions and its business system, ESAB Business Excellence (EBX), enable its purpose of "Shaping the world we imagine."

Business Overview

Founded in 1904, ESAB has transformed itself from a primarily filler metals business in 2016 to a more balanced portfolio today, with equipment now accounting for over 30% of its total sales. This strategic shift has allowed the company to better serve its diverse customer base across multiple end markets, including general industry, infrastructure, renewable energy, medical and life sciences, transportation, construction and energy.

ESAB's geographic diversity is a key strength, with 78% of its $2.77 billion in annual revenue generated outside the United States. The company operates through two reportable segments: Americas and EMEA & APAC. This global footprint has enabled ESAB to capitalize on growth opportunities in emerging markets, such as India and the Middle East, while also maintaining a strong presence in developed regions.

Financials

In the first quarter of 2024, ESAB reported record quarterly sales of $689.7 million, up 0.8% year-over-year. This performance was driven by a 2.4% increase in organic sales, partially offset by a 1.7% unfavorable impact from foreign currency fluctuations. Gross profit margin expanded 80 basis points to 37.0%, reflecting the benefits of pricing actions and improved product mix.

The company's Americas segment delivered a 4.4% increase in net sales, with organic growth of 3.1% partially offset by a 1.8% unfavorable currency impact. Gross profit margin in the Americas expanded 120 basis points to 37.5%, driven by pricing actions. Adjusted EBITDA margin in the Americas increased 130 basis points to 18.3%.

In the EMEA & APAC segment, net sales increased 1.3%, with organic growth of 2.0% partially offset by a 1.7% unfavorable currency impact. Gross profit margin in the EMEA & APAC segment expanded 50 basis points to 36.6%, and adjusted EBITDA margin increased 140 basis points to 19.2%.

ESAB's focus on its EBX business system continues to drive margin expansion across both segments. In the first quarter, the company's consolidated adjusted EBITDA margin increased 150 basis points to 18.7%, and its core adjusted EBITDA margin (excluding Russia) expanded 140 basis points to 18.8%.

Strategic Acquisitions

The company's strategic acquisitions of Sager S.A. in South America and the pending acquisition of SUMIG in the Americas are further enhancing ESAB's product portfolio and expanding its presence in less cyclical, higher-margin end markets, such as maintenance, repair and overhaul (MRO) and light automation.

Liquidity

ESAB's balance sheet remains strong, with net leverage of less than 1.8x as of the end of the first quarter. The company recently completed a $700 million senior note offering, which it used to refinance its existing term loan and strengthen its financial flexibility. This positions ESAB well to continue executing on its strategic initiatives, including further acquisitions and investments to drive growth and margin expansion.

Outlook

For the full year 2024, ESAB has raised its guidance, now expecting total sales growth of 2.5% to 4.5% on an organic basis, adjusted EBITDA of $500 million to $520 million, and adjusted earnings per share of $4.75 to $4.95. The company's cash flow conversion is expected to remain strong at around 95%.

Conclusion

ESAB's focus on innovation, geographic diversification, and strategic acquisitions has enabled the company to outperform its peers and position itself as a premier industrial compounder. With a strong balance sheet, robust acquisition pipeline, and continued execution of its EBX initiatives, ESAB is well-positioned to deliver sustainable growth and value creation for its shareholders.