Esab (ESAB) Q3 2026 earnings review
ESAB's acquisitions lift revenue, but management cuts the profit outlook
Esab, a maker of welding and industrial inspection gear, grew total revenue through acquisitions while underlying demand cooled. Sales from businesses owned a year ago (excluding Russia) rose 2%, and recent buyouts lifted total core sales by 14% to $787 million. Chief executive Shyam P. Kambeyanda highlighted higher operating margins, but interest on acquisition debt caused profit per share excluding one-offs to slip.
| Core sales from businesses owned a year ago | +2.3% +2.5% last quarter |
|---|---|
| Core sales (excluding Russia) | $786.8M +14.5% from a year ago |
| Core profit per share, excluding one-offs | $1.30 -1.5% from a year ago |
| Full-year core profit per share outlook | Cut $0.15 middle of the range: $5.31 (+0.7% growth) |
⚖️ Verdict: 🔴 Bearish
The story got worse because management lowered its full-year targets for underlying sales growth, operating profit, and profit per share. Last year Esab missed its second-half growth plan, and cutting the underlying sales target to under 2% confirms that the expected second-half rebound is falling short again. On the bright side, adding Eddyfi lifted core gross margin excluding one-offs above 40%, and European margins improved.
The question now is whether the Eddyfi buyout will build a higher-margin business or merely leave Esab with twice as much debt and slow underlying growth. If cross-selling works and overhead comes down, profit per share will accelerate as debt is paid off; if industrial demand stays weak, financing costs will keep eating the acquired profit. Fourth-quarter cash generation and next year's initial outlook will tell.
🐂 Bull Case
Acquisitions Lift Gross Margin Above 40%
Chief executive Shyam P. Kambeyanda wants Esab to serve customers "from the first cut and weld through decades of inspection, monitoring and repair". To do that, the welding group bought Eddyfi, a maker of inspection equipment, in June. In the first full quarter of owning Eddyfi, Esab introduced a new profit measure that strips out acquisition accounting costs on inventory.
- Gross margin excluding Russia and inventory step-up: 40.2%, up 2.5 percentage points from a year ago
- Cost of making the products: 60.7% of sales, down 2.3 percentage points
- Selling and overhead costs: 26.7% of sales, up 5.0 percentage points
- Core Ebitda margin excluding one-offs: 19.8%, up 0.4 percentage points
Higher-margin inspection gear reduced the cost of making products as a share of sales. However, Esab spent an extra 5.0 percentage points of sales on selling and overhead, including $8.8 million of deal fees and $31.2 million of acquisition accounting charges. Even after stripping out those one-offs, operating profit margin rose by just 0.4 percentage points because the newly acquired businesses carry higher ongoing overhead.
What to watch: fourth-quarter core Ebitda margin, which the full-year outlook puts at 20.7% by our math. Hitting that mark will show that Esab is trimming overhead at Eddyfi rather than giving back its gross margin gains.
Europe and Asia Carry Underlying Sales Growth
Esab divides its operations into the Americas and a combined region covering Europe, the Middle East, Africa and Asia-Pacific (EMEA & APAC). For all of 2026, the company reports "core" figures that strip out its Russian business. Kambeyanda noted that the group achieved "organic growth in both segments" during the third quarter.
That growth was uneven across regions. In EMEA & APAC, core sales from businesses owned a year ago grew 3.4%, adding $13.6 million, while core Ebitda margin excluding one-offs rose 0.5 percentage points to 19.8%. In the Americas, underlying sales grew just 0.8%, or $2.3 million, and core Ebitda margin excluding one-offs rose 0.3 percentage points to 19.9%.
What to watch: fourth-quarter underlying sales growth in the Americas when Esab reports full-year results. A pickup above 1% would show that North and South American demand is recovering alongside overseas markets.
Positives this quarter didn't test
Kambeyanda said Esab is starting to win business "from cross-selling opportunities at ESAB and Eddyfi", but two standing growth drivers got no new numbers in the release.
- Equipment versus consumables sales mix: not in the release; the quarterly Form 10-Q filing's revenue footnote will show whether equipment kept outgrowing welding consumables.
- Defense, nuclear and energy orders: not quantified in the release; the conference call will show whether government and energy spending sped up.
🐻 Bear Case
ESAB Cuts Its Full-Year Profit and Organic Sales Plan
"ESAB delivered record third quarter core sales and adjusted EBITDA, with organic growth in both segments, despite a dynamic global environment and continued inflationary pressure," chief executive Shyam P. Kambeyanda said. For three quarters in a row, management had kept its full-year target for core sales from businesses owned a year ago at 2.0% to 4.0%.
This quarter, the industrial group lowered that underlying sales target to 1.6% to 2.0%. At the same time, it raised the expected sales boost from acquisitions to 9.5% and from currency moves to 2.0%. Because currency and deal timing added more top-line dollars than underlying demand lost, the company raised the bottom of its total core sales growth range to 13.1%.
The cut contradicts Kambeyanda's framing of strong demand momentum because currency translation does not replace lost volume profit. As a result, Esab cut its full-year core Ebitda outlook by $15 million at the middle of the range, to $603 million to $607 million. By our math, even the lowered plan requires underlying sales growth to speed up to 3.4% in the fourth quarter, up from 2.3% in the third.
What to watch: fourth-quarter underlying sales growth when full-year results arrive in February. A reading below 2.7% would miss even the bottom of the reduced full-year range.
Debt Costs Erase Operating Profit Gains
Esab spent $1.47 billion in cash on acquisitions during the first nine months of 2026, primarily to buy Eddyfi. To pay for the deal, the company issued $1.0 billion of senior notes, drew on its credit lines, and sold $175 million of mandatory convertible preferred stock, which pays a 6.5% yearly dividend before converting into common shares in 2029.
- Core Ebitda excluding one-offs: $156.1 million, up 17.0% from a year ago
- Interest expense: $36.5 million, up 54.8% from $23.6 million a year ago
- Preferred stock dividends: $2.8 million in the third quarter
- Core profit per share excluding one-offs: $1.30, down 1.5% from $1.32 a year ago
While Eddyfi boosted operating profit, the cost of funding the purchase absorbed all of that gain and more for common shareholders. Reported profit per share from continuing operations fell 41.3% to $0.61 because of deal amortization and restructuring charges. Even excluding one-offs, core profit per share slipped for a second straight quarter, prompting Esab to trim its full-year per-share profit outlook by 14.5 cents at the middle of the range.
What to watch: fourth-quarter interest expense and net debt paydown. Only a drop in debt balances will let next year's operating profit growth reach per-share earnings.
Working Capital and Capex Weigh on Cash Generation
Kambeyanda noted that Esab improved its cash generation from the second quarter. The company tracks free cash flow excluding one-offs, which starts with operating cash flow, subtracts factory equipment purchases, and adds back cash paid for acquisitions and old discontinued businesses.
In the third quarter, that cash measure rose from $41.4 million in the prior quarter to $60.0 million, but it fell 30.6% from $86.4 million a year ago. Over the first nine months, inventory build absorbed $47.3 million of cash and factory spending nearly doubled to $49.7 million. Consequently, only 57.2% of nine-month core profit excluding one-offs turned into cash, far below the 90% full-year target management set last quarter.
What to watch: fourth-quarter free cash flow excluding one-offs. By our math, Esab must generate about $180 million of cash in the final quarter to reach its 90% full-year conversion goal.
Risks this quarter didn't answer
Four standing concerns from prior quarters cannot be read from the earnings release alone.
- Customer price versus shipment volume: not in the release; the Form 10-Q filing's management discussion table will show whether third-quarter volume shrank.
- Middle East shipping costs and Eddyfi 100-day integration plan: not in the release; the conference call will show whether shipping costs eased and whether the $20 million cost-saving target changed.
- Russian business volatility: Russian sales fell 6.7% from a year ago to $37.7 million and Ebitda halved to $3.0 million, remaining excluded from core results.
- Asbestos claims and option grants: discontinued operations took $3.7 million of cash and June's one-time executive option grant added $2.8 million of excluded expense; the Form 10-Q footnotes will update claim counts.
💲 Other KPIs
Net debt — total borrowings minus cash on hand — more than doubled from $1,049 million at the end of 2025, by our math. Total debt stood at $2,329 million on October 2, down slightly from $2,397 million in July, as Esab began paying down the credit lines used to buy Eddyfi.
Combined inventories ($570.2 million) and trade receivables — bills customers have not yet paid ($551.7 million) — rose 20.2% from the end of 2025, by our math. While the Eddyfi acquisition added to both balances, the cash flow statement shows Esab also tied up $92.8 million of cash in working capital across its existing operations this year.
Combined pretax charges for factory closures ($11.3 million, almost all in the Americas) and acquisition expenses ($39.9 million) more than doubled from $20.8 million a year ago, by our math. Over the first nine months, these excluded charges reached $148.6 million, weighing heavily on reported net income.
🔮 Guidance
Raised at the middle of the range. The plan now calls for 13.2% core sales growth (excluding Russia), up from a 12.5% midpoint previously. By our math, that leaves 14.7% core sales growth for the fourth quarter. Higher expected contributions from acquisitions (now about 9.5% vs 9.0% prior) and foreign currency translation (now about 2.0% vs 0.0%–1.0% prior) more than offset the cut to underlying sales.
Cut. Management lowered its outlook for core sales from businesses owned a year ago by 1.2 percentage points at the middle of the range, to 1.8%, after holding it at 2.0%–4.0% for three straight quarters. By our math, hitting the new midpoint requires fourth-quarter underlying sales growth to reach 3.4%, up from 2.3% in the third quarter, against an easy comparison of -1.8% a year ago.
Cut. The welding and inspection group reduced its full-year core Ebitda target by $15 million at the middle of the range, to $605 million (12.0% growth from 2025). By our math, that leaves $163.5 million for the fourth quarter, up 16.6% from a year ago, and implies a fourth-quarter core Ebitda margin of 20.7%, up from 19.8% in the third quarter.
Cut. Esab lowered its full-year per-share profit plan by 14.5 cents at the middle of the range, to $5.305, leaving full-year growth at just 0.7% above 2025's $5.27. It is the second cut in two quarters: 0 cents in Q1, -35 cents in Q2, and -14.5 cents in Q3. By our math, the outlook leaves $1.365 per share for the fourth quarter, up 2.6% from a year ago.
❓ Key Questions
Did shipment volumes shrink in the third quarter?
Underlying core sales grew 2.3% in the third quarter, and management previously expected customer price increases to contribute about 3%. The press release does not split price from volume, leaving open whether physical shipments declined.
Why was the core Ebitda outlook cut by $15 million?
Cutting underlying sales growth by 1.2 percentage points removes about $32 million of sales, which alone does not explain a $15 million Ebitda reduction, especially with a higher currency tailwind. Investors need to know whether shipping costs or Eddyfi expenses drove the cut.
Did the company keep its 90% cash conversion target?
Through nine months, Esab converted just 57% of its core profit excluding one-offs into free cash flow ($140.9 million vs $246.2 million). The release omits any mention of the 90% full-year conversion goal set last quarter.
How much did Eddyfi contribute to third-quarter sales and profit?
Acquisitions added $77.3 million to third-quarter sales, combining Eddyfi with last year's EWM deal. Separating Eddyfi's standalone revenue and Ebitda in its first full quarter will show whether it is tracking toward its $270 million annual run rate.