Executive Summary / Key Takeaways

• MSA Safety, a century-old leader in safety products, is executing its "ACCELERATE" strategy, leveraging innovation and a strong balance sheet to drive profitable growth despite a dynamic operating environment.
• First quarter 2025 results showed modest reported sales growth (1.9%) but stronger organic growth (4%), fueled by robust performance in the Detection segment (up 15.7%), which is benefiting from new products and connected solutions.
• Near-term challenges include foreign currency headwinds impacting gross margins, the potential impact of global tariffs (affecting ~15% of COGS), and tough year-over-year comparisons in the Fire Service segment due to prior large orders.
• The company maintains its low single-digit organic sales growth outlook for 2025, acknowledging potential choppiness but expressing confidence in its diversified portfolio, stable order trends, and operational agility to manage external factors.
• A strong balance sheet, highlighted by a 0.7x net leverage ratio and an expanded $1.3 billion revolving credit facility, provides ample liquidity for strategic investments, including the recent $200 million acquisition of M&C TechGroup to bolster the Detection segment.

A Foundation Built on Safety: MSA's Enduring Mission and Strategic Evolution

For over 110 years, MSA Safety Incorporated has been guided by a singular mission: ensuring men and women can work in safety across the globe. Founded in 1914, the company has evolved from a manufacturer of essential safety equipment into a global leader in advanced safety technologies and solutions. This transformation, recently recognized by the Product Development and Management Association, underscores MSA's commitment to innovation as a core driver of its business. The company's comprehensive product line, spanning fire service, detection, and industrial personal protective equipment (PPE), serves diverse, highly regulated end markets including fire service, energy, utility, construction, and industrial manufacturing.

MSA's strategic approach, formalized in its "ACCELERATE" strategy introduced in May 2024, focuses on capitalizing on secular safety trends, targeting high-growth areas, developing solutions with recurring revenue streams, and utilizing its financial strength for strategic capital deployment. This strategy builds on a history of resilience, having delivered mid-single-digit sales growth and double-digit earnings growth on average over the past decade, navigating industrial recessions, a global pandemic, and supply chain disruptions. The company's operational backbone, the MSA Business System, is central to driving continuous improvement, managing costs, and enhancing customer experience.

Technological Edge: The Core of MSA's Competitive Moat

At the heart of MSA's market leadership lies its differentiated technology, particularly within its core product categories. In Fire Service, the company's Self-Contained Breathing Apparatus (SCBA) platforms, like the G1 SCBA (with the new XR Edition featuring elements of the 2025 NFPA standard), are designed for durability and reliability in extreme conditions. While specific quantifiable benefits over competitors like Honeywell (HON) in areas like battery life were noted in prior periods (10-15% greater battery life), the focus remains on optimizing comfort, functionality, and integrated features like connectivity, communication, and thermal imaging, which were key to recent competitive wins like the Orange County Fire Authority contract.

The Detection segment, a significant growth driver, benefits from MSA's expertise in both fixed and portable gas and flame detection. The company's flame detectors offer 15% greater accuracy in harsh environments compared to some competitors like Johnson Controls (JCI). In portable gas detection, MSA offers a diverse portfolio, including traditional platforms and the connected io4 monitor, which is central to the MSA+ subscription offering. This connected technology provides customers with enhanced data analytics, improving safety operations. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's strong performance in portable detection, with high acceleration in connected platforms and over half of MSA+ customers being new, suggests share gains and expansion of wallet share by providing greater value.

Recent R&D initiatives, including the FL5000 multi-spectrum IR flame detector and enhancements to the G1 SCBA and Globe turnout gear, aim to extend this technological leadership. The acquisition of M&C TechGroup for approximately $200 million, announced in May 2025, further expands MSA's Detection capabilities into gas analysis and process safety, adding approximately $55 million in annual revenue and expected to be accretive to adjusted earnings in 2025. This strategic move leverages MSA's strong balance sheet and targets growth accelerators within the safety technology space.

Competitive Landscape: Positioning and Performance Against Rivals

MSA operates in a competitive environment alongside larger, more diversified industrial companies like Honeywell International, 3M Company (MMM), and Johnson Controls International, as well as specialized safety equipment providers. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, MSA holds an estimated 10-15% aggregate market share in its primary markets.

Compared to Honeywell, which has a broader industrial automation portfolio and higher revenue growth (5-year CAGR around 7% vs. MSA's 4-6%), MSA maintains a stronger position in specialized areas like firefighter SCBA and helmets, leveraging its dedicated brand reputation (e.g., Cairns). Honeywell's gas detection systems may offer faster response times and lower operating costs in some applications, but MSA differentiates through the durability and extended battery life of its SCBA and the enhanced impact resistance of its V-Gard helmets (20% greater impact resistance compared to industry benchmarks). MSA's focus on durability and regulatory compliance provides a unique value proposition, particularly in hazardous environments.

Against 3M, a significant player in PPE, MSA's specialized products like V-Gard helmets and fall protection equipment offer superior performance characteristics (e.g., 20% greater impact resistance in helmets, 25% lower failure rates in engineered fall protection systems) despite potentially higher upfront costs due to 3M's economies of scale. 3M's higher R&D investment (around 6% of revenue vs. MSA's 3-4%) and vertical integration could enable faster innovation cycles, posing a vulnerability if MSA doesn't accelerate its own R&D efforts, particularly in areas like sustainable materials.

Compared to Johnson Controls, which focuses on integrated building solutions, MSA maintains stronger operating margins in its core safety segments. While JCI's scale and partnerships offer broader market reach and potentially lower per-unit costs in integrated systems, MSA's flame detectors offer greater accuracy, and its gas monitoring provides faster detection (20% faster). MSA's strategy emphasizes direct sales channels and proprietary technology, allowing it to compete effectively on performance and reliability, although JCI's higher revenue growth (5-year CAGR around 6% vs. MSA's 4-6%) suggests it may be capturing more share in certain emerging markets.

Overall, MSA's competitive strength lies in its deep understanding of specific hazardous environments, its strong brand loyalty in niche markets like fire service, and its proprietary technology offering performance advantages in key product categories. However, it faces challenges from larger competitors with greater scale, higher R&D budgets, and broader integrated offerings. MSA's strategic response involves leveraging its innovation pipeline, focusing on high-growth accelerators like connected technology, and utilizing its operational excellence (MSA Business System) to manage costs and improve efficiency.

Financial Performance and Operational Execution

MSA's financial performance in the first quarter of 2025 demonstrated resilience in a dynamic environment. Net sales grew 1.9% on a reported basis to $421.3 million, representing a 4% organic increase year-over-year. This growth included approximately $10 million of sales pulled forward into the quarter in consideration of tariffs, primarily in the Americas segment. The Americas segment saw a slight reported sales decrease of 0.8% but achieved 1.0% organic growth, driven by strength in Detection and Industrial PPE, partially offset by a decline in Fire Service. The International segment delivered robust reported sales growth of 8.8% and strong organic growth of 10.9%, led by Detection and Fire Service performance, particularly SCBA deliveries in Asia Pacific.

Profitability in Q1 2025 faced headwinds. Gross profit margin decreased by 140 basis points year-over-year to 45.9%. This contraction was primarily attributed to transactional foreign currency headwinds, particularly from Latin American currencies, and inflation, which were only partially offset by higher sales volume, price realization, and favorable product mix. Management expects FX pressure on gross margins to continue in the second quarter. Selling, general, and administrative (SGA) expenses decreased slightly year-over-year, improving as a percentage of sales, reflecting effective cost management and favorable discrete adjustments, although organic SGA increased due to inflation and higher commission expense on strong Detection sales.

Consolidated operating income decreased year-over-year, primarily due to the lower gross profit and increased currency exchange losses. However, segment performance varied. The International segment's adjusted operating margin expanded significantly by 310 basis points to 14.6%, benefiting from strong organic revenue growth, favorable mix, and SG&A leverage. Conversely, the Americas segment's adjusted operating margin decreased by 240 basis points to 26.8%, impacted by transactional FX headwinds and inflation.

Looking back at full year 2024, MSA achieved 1% reported and 2% organic sales growth, building on a strong 17% reported growth in 2023. Full year 2024 adjusted operating margin expanded by 70 basis points to 22.9%, demonstrating effective cost management and productivity gains through the MSA Business System, despite some pockets of market weakness and foreign exchange headwinds.

Liquidity and Capital Allocation Strength

MSA maintains a healthy financial position, providing significant liquidity and capital allocation flexibility. As of March 31, 2025, the company held $170.6 million in cash and cash equivalents. Operating activities generated $61.8 million in cash during Q1 2025, an increase from the prior year, primarily due to lower cash used for variable compensation, partially offset by higher working capital usage.

The company's debt structure is manageable, with approximately 60% of long-term debt at fixed rates and a net leverage ratio of 0.7x trailing 12-month adjusted EBITDA ($470 million). A key development in April 2025 was the amendment and expansion of the revolving credit facility to $1.3 billion, extending its term through April 2030. This strategic action converted the existing term loan into the facility's capacity and significantly enhanced MSA's access to capital, positioning it well to fund future growth initiatives, including potential inorganic opportunities.

MSA's balanced capital deployment strategy prioritizes investing for organic growth, pursuing strategic acquisitions, funding dividends, and servicing debt obligations. In Q1 2025, the company used cash for capital expenditures ($10.8 million), net debt payments ($7.5 million), cash dividends paid ($20.0 million), and share repurchases ($18.3 million, including $10.0 million under the $200 million repurchase program).

Outlook and Risk Factors

MSA maintains its outlook for low single-digit organic sales growth for the full year 2025. Management notes that this forecast is tempered by challenging year-over-year comparisons, particularly in the Fire Service segment due to the timing of large orders like the U.S. Air Force contract delivered in 2024. They expect the sales cadence in 2025 to revert to historical seasonal patterns, with a larger portion of sales occurring in the second half.

Key assumptions underlying the outlook include stable order trends observed into April 2025 and continued strength in the Detection segment, where high single-digit growth is deemed achievable. However, the Fire Service segment is expected to face a negative growth year in 2025 due to the difficult comps, with the first half being particularly challenging. Industrial PPE, specifically fall protection, is a focus area targeted for positive growth.

Below-the-line guidance for 2025 includes an expected effective tax rate between 24% and 25%, interest expense of approximately $24 million to $27 million, and pension and other non-operating income expected to be $45 million higher than 2024 levels. Current foreign exchange rates are anticipated to present a further headwind to reported sales.

Despite the generally healthy underlying market trends and strong commercial pipeline, the outlook is subject to several risks. Increased macroeconomic uncertainty and evolving global tariff policies are significant concerns that could impact growth. Approximately 15% of MSA's cost of sales is currently subject to tariffs, with about one-third originating from China. While mitigation actions, including targeted price increases and productivity initiatives, are underway, their full impact is expected to materialize in the second half of 2025, and there is no guarantee they will fully offset the headwinds in the near term. Transactional foreign currency headwinds are also expected to persist, impacting gross margins.

Other risks include the timing dynamics associated with the 2025 NFPA standard change for fire service, which could lead some customers to delay purchases. Product liability remains an inherent risk, including ongoing litigation related to PFAS in firefighter turnout gear and legacy cumulative trauma claims associated with the divested MSA LLC (though the purchaser has assumed responsibility for the latter). While the company believes it has valid defenses and is pursuing insurance coverage for the PFAS claims, these legal matters could result in unfavorable outcomes.

Conclusion

MSA Safety enters 2025 from a position of operational strength and financial health, underpinned by its enduring mission, market-leading innovation, and the disciplined execution of its ACCELERATE strategy. While the near-term outlook for low single-digit organic growth reflects challenging year-over-year comparisons and macroeconomic uncertainties, the underlying business fundamentals remain robust. The company's diversified portfolio, particularly the strong momentum in the Detection segment driven by new technologies and connected solutions, provides a solid foundation.

The strategic focus on innovation, operational excellence through the MSA Business System, and prudent capital allocation, supported by a strong balance sheet and expanded credit facility, positions MSA to navigate current headwinds and capitalize on long-term growth opportunities in the essential safety industry. Despite potential choppiness from tariffs and FX, and the timing dynamics in Fire Service, MSA's commitment to its 2028 financial targets remains firm. Investors should monitor the company's ability to effectively manage inflationary and tariff pressures, the trajectory of its connected technology offerings, and the timing of Fire Service order normalization as key indicators of its continued progress.