ESAB Earnings: New Product Launches Drive Strong Growth in Equipment and Automation

We’re increasing our fair value estimate for narrow-moat-rated ESAB to $78 from $74 after the company posted strong third-quarter results, featuring a 23% year-over-year increase in adjusted EBITDA. Shares rallied by nearly 9% following the strong print but still trade around 12% below our updated fair value estimate.

ESAB’s third-quarter organic sales increased by 7% from the same period last year, driven by 4% volume growth and 3% higher pricing. In the Americas, price was up 7% and volume down 3%, as the company is in the process of simplifying its product line. Americas volumes increased by low single digits excluding the impact of the product line simplification. In EMEA and APAC, price was down 2% while volumes grew by 11%, driven by strong growth in the Middle East, India, and Asia. We were pleased to see ESAB post a 170-basis-point year-over-year improvement in its adjusted EBITDA margin, from 16.6% to 18.3%.

Management raised its full-year outlook for the third time this year and now anticipates core organic revenue growth of 5%-6% (4.0%-5.5% previously) and adjusted EBITDA of $465 million-$475 million ($450 million-$465 million previously). We remain optimistic about the long-term outlook for ESAB as we expect company to capitalize on favorable secular trends, including opportunities due to reshoring and a shortage of skilled welders. We are encouraged by new product launches, which helped equipment and automation revenue grow by low double digits in the third quarter (including triple-digit revenue growth in the cobot line). Lastly, we believe that ESAB is well positioned to continue to drive solid margin expansion thanks to its product line simplification, manufacturing consolidation, and mix shift toward higher-margin equipment sales.