Q3 2024 ESAB Corp Earnings Call
Thank you for standing by. At this time I would like to welcome everyone to today's Esad Corporation 3rd quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. And if you'd like to withdraw your questions, simply press star one again. Thank you.
Speaker Change: I would now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. Mark, please go ahead.
Mark Barbalato: Thanks, operator. Welcome to ESOP 3rd Quarter 2021, earnings call. This morning, I'm joined by our president and CEO, Shyam Kambeyanda and CFO Kevin Johnson.
Mark Barbalato: Please keep in mind that some of the statements we are making are forward looking in a subject of risks, including those set forth in our SEC filing and today's earnings release.
Mark Barbalato: Actual results may differ and we do not assume any obligation or intend to update these forward-looking statements.
Mark Barbalato: except as required by law. With respect to any non-gap financial measures mentioned during the call today, the company reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our president and CEO, Shyam Kambeyanda.
Shyam Kambeyanda: Thank you Mark and good morning everyone. Thank you all for joining us today. We'll please report another strong quarter, Mark by positive volume growth, record third quarter margins and robust cash flow in a challenging market.
Shyam Kambeyanda: Our differentiated geographic footprint, award-winning products, commercial excellence initiatives, and strategic acquisitions continue to drive our organic growth.
Shyam Kambeyanda: Let's move to slide three to discuss specific highlights for the quarter.
Shyam Kambeyanda: First, I want to recognize our teams globally for their relentless commitment to our strategy and EVX.
Shyam Kambeyanda: Strong demand in high growth markets such as India, other parts of Asia and the Middle East have helped counterbalance slower markets.
Shyam Kambeyanda: Our portfolio of light and heavy industrial equipment has continued to deliver with equipment sales increasing in the low double digits this quarter.
Shyam Kambeyanda: These new products continue to gain momentum across our channels.
Shyam Kambeyanda: Additionally, we're seeing steady growth in our gas control equipment business with positive volume and price.
Shyam Kambeyanda: A Justice League with a margins expanded 130 basis points to reach a record, 19.6% for the third quarter.
Shyam Kambeyanda: And here today we have generated record, $215 million in adjusted free cash flow enabling us to execute our compound strategy.
Shyam Kambeyanda: Turning to Slide 4, I've been sharing stories that reflect the passion of our teams and the power of our enterprise to shape the world we imagine.
Shyam Kambeyanda: This time, I want to share my reflections from my recent trip to visit our teams and customers in the Middle East and India.
Shyam Kambeyanda: As you know, we pride ourselves as an executive team and going to Gamba.
Shyam Kambeyanda: District was reassuring. I know I've mentioned this to you all before. I grew up in India and have been visiting the Middle East since the early 2000s.
Shyam Kambeyanda: I have to reiterate the energy is different and on every trip you see meaningful change in infrastructure in both these regions
Shyam Kambeyanda: and you get additional insights to new projects and plans.
Shyam Kambeyanda: For those of you familiar with the Emirates, you now see development beyond Abu Dhabi and Dubai. There are ambitious plans in Ras al-Kaima.
Shyam Kambeyanda: Similarly, Salvi continues its progress creating growth for ESAB and generating significant excitement.
Shyam Kambeyanda: A largest customers in the Middle East now have a backlog of orders extending five years.
Shyam Kambeyanda: and if anticipated government investments in Saudi Arabia materialized, this could further increase the backlog and our customers.
Shyam Kambeyanda: We're also focused on addressing the skilled welder shortage by training the next generation of welders. We've established several training schools in the Middle East. This quarter I'd like to highlight our team's activities in India.
Speaker Change: Clearly, it's no longer the country I grew up in. The changes are noticeable now, with every visit you see cranes and construction in the year three cities.
Speaker Change: and our team in India is doing some exceptional work.
Speaker Change: We're proud of our business there, and we are the market leaders in this dynamic, rapidly expanding geography.
Speaker Change: We've made consistent investments in expanding our R&D capabilities in Chennai, as well as adding manufacturing capacity to meet both current and future demand.
Speaker Change: On the specific project called Project Bundan which means bond or binding in English, our team is very proud of this initiative, where we are actively training the new generation of welders on ESOV's equipment to meet the unprecedented growth we're expecting.
Speaker Change: We are training 5,000 plus welders annually in India and more importantly, we're providing the new generation of welders special training around workplace safety. As you may know, at each arm, we believe zero incidence is possible.
Speaker Change: As we shape our future in India, our teams have volunteered over 45,000 hours to this initiative in 2024.
Speaker Change: Let me leave you with another statistic on India. We know India's infrastructure needs a significant and the government has announced investments of around 1.7 trillion over the next seven years.
Speaker Change: I'm proud to say that Esab is playing a crucial role in training the skilled workforce necessary to support India's growth plans.
Speaker Change: Moving to slide five, let's explore how we're building the capabilities to accelerate sustainable long-term growth
Speaker Change: As I mentioned during Invest today and earlier in my comments today, we're seeing good progress in equipment sales globally. Let me share what our teams have been working on to enable this growth. First, our commercial excellence initiative, highlighted at our Invest today is gaining traction.
Speaker Change: By refining our approach to better serve customers and aligning our organization around these apps key customer segments to our product-line simplification process, we're accelerating growth while enhancing customer experiences.
Speaker Change: As a result, we are growing faster in equipment.
Speaker Change: We're also amplifying our innovation pipeline supported by our EVX Open Innovation model which continues to shorten the time needed to bring new products to market.
Speaker Change: Alongside these efforts, we're enhancing our presence in the channel with targeted marketing initiatives, including creating social media studios across each geographic region to showcase new products and build brand equity.
Speaker Change: These digital marketing efforts supported by content creators are already generating significant positive impact, resulting in approximately 900 million social media impressions for each of them.
Speaker Change: All this hard work was validated by a brand-market study we did that showed ESOP's brand recognition in North America has improved by 200%.
Speaker Change: Moving to slide 6, let's review our quarterly performance.
Speaker Change: Organic sales increase by 100 basis points reflecting continued strength in high-growth markets. These results reflect double-digit growth in equipment sales and positive growth from our gas control business.
Speaker Change: A Justin Deva, the expanded 130 basis point to year of year, setting a third quarter record of 19.6%.
Speaker Change: All this was driven by EVX initiatives across the company.
Speaker Change: Turning to slide 7 and focusing on the performance in the Americas, organic sales rose by 200 basis points driven by strong pricing performance, which offset softer and markets that we expect.
Speaker Change: Our equipment and workflow solutions continue to drive excitement in the channel and the team did an excellent job using EBX sales tools and lean initiatives to deliver 190 basis-point increase in adjusted EBDum margin reaching a third quarter record of 20.6%.
Speaker Change: Moving to slide 8 to discuss the performance in Amir and A-FAC regions. Our teams in Europe, Asia and the Middle East achieved another quarter of solid performance.
Speaker Change: Volume increased by 200 basis points with high growth markets offsetting the volume softness in Europe as expected.
Speaker Change: Effective use of VBX, net pricing tool and strong operational execution led to a 100 basis points margin expansion year over year reaching 18.9%.
Speaker Change: On that positive note, let me hand it over to Kevin for slide 9.
Kevin Johnson: Thanks Shyam, Good Morning.
Kevin Johnson: During the third quarteries of delivered positive for cancels, 130 pieces of year over year, margin expansion, and robust recast food generation, despite more challenging market conditions.
Kevin Johnson: More specifically, on cash flow, we generated $96 million in the quarter on how to cash conversion of greater than 120% as we continue to use EVX to drive improvements in our order to cash processes.
Kevin Johnson: We used part of this precast flow to form the terrific Lindy Bangladesh acquisition we completed in the quarter, which is integrating well into each other.
Kevin Johnson: The combination of our strong balance sheet coupled with our consistent cash flow generation positions that we have well to execute on our Comparter journey.
Kevin Johnson: Movie Night, to slide number 10.
Kevin Johnson: Given our stronger than expected results in this third quarter, we have raised the midpoint of our guidance across the board.
Kevin Johnson: C.O.S. guidance has been raised half a point at the midpoint to zero to 1%. Benefitting from the performance of our high-growth markets and continued churkins in equipment.
Kevin Johnson: Adjusted Evita has been increased $5 million at the midpoint to $515 million. As we use our business system, EDX to drive further improvements in our business.
Kevin Johnson: Below the line, Interest Expansed Guidance has been narrowed to $60-$70 million, whilst tax guidance remains on chains that 23-24 percent.
Kevin Johnson: A just at EPS has been increased to midpoint and is now $4.00, $2.00, $2.95 benefiting from our stronger performance.
Speaker Change: We are pleased with our team's execution so far this year. How do we expect to finish 2024 with positive momentum?
Speaker Change: or not, let me hand back to Shyam on Spiral 11 to wrap up.
Shyam Kambeyanda: Before I close, something I have not mentioned yet, in September, ESOV celebrated its year in business.
Speaker Change: He's out started in Sweden with the invention of a coded electrode by Oscar Shalberg.
Speaker Change: Since then, Eshaab has been a leading global innovator in fabrication technology.
Shyam Kambeyanda: Our associates and customers joined us to celebrate our 120th anniversary.
Shyam Kambeyanda: We received great feedback on the improvements we've made since 2016 and suggestions on what we could do better It is also clear that there was great excitement about our future and in particular our latest products and workflow solutions
Shyam Kambeyanda: As we look back on our 120 year history with pride, we understand we need to change and adapt to win the future.
Speaker Change: To summarize the quarter, a strategy continues to drive robust performance. We delivered another strong quarter with positive organic growth, record third quarter margins and solid free cash flow generation.
Speaker Change: Our EVX approach continues to permeate the business. The innovation engine continues to deliver, and this quarter, we are bringing our manufacturing leaders together to share best practices and raise the bar on our standards of performance.
Speaker Change: A balance sheet is at a strongest point, or active acquisition pipeline is full and positions as well to pursue strategic assets that enhance growth and margin expansion.
Speaker Change: We are on track to achieve our 2028 goals, 4 billion in sales, 22% plus in EBITDA margins and free cash flow that exceeds net income.
Speaker Change: Remember, we're just getting started. Thank you all for joining us this morning with that operator. Let's open the line for questions.
Speaker Change: Thank you. And I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Once again star one. In the interest of time, we ask that you please limit your questions to one primary question and one follow-up. And we will pause just a moment to compile the Q&A roster.
Speaker Change: Okay, it looks like our first question comes from the line of Meg Dobre with Bear. Meg, please go ahead.
Meg Dobre: Thank you and good morning everyone. I guess where I like to start, your comment on quitman sales being an off double digits. I thought that was quite interesting relative to.
Meg Dobre: You know, the more sedude and markets or macro backdrop, if you would. So I'm sort of curious here, can you give us some funds for where which geography you're seeing this growth in equipment? I don't know if it's broad base or if it's just one or two select geographies. And then secondarily is this...
Meg Dobre: Just a function of pure new product rollouts is there like a channel stock in dynamic theory that we need to be aware of. Yeah, let's start there again.
Speaker Change: Yeah, good morning, make always good to hear from you. So a couple of things. First, I do believe there's a couple of things in play here for ESAP. The first one is the commercial excellence initiative that we embark on.
Speaker Change: which really drove training selection.
Speaker Change: and the changes in our incentive plans and training of ourselves for us to be able to sell really well as a different portfolio for ESOP.
Speaker Change: The second piece and something that we've talked about is that today is our place.
Speaker Change: With a full portfolio both in consumables and in equipment and don't forget we also have our gas equipment business that did well in the quarter
Speaker Change: and so as a matter of fact our sales teams are out there now selling a very good portfolio that competes extraordinarily well with our peer group in the marketplace.
Speaker Change: The third piece, which I think you sort of highlighted, you know, we're making great progress in North America, tremendous interest.
Speaker Change: We always knew that the North American market for us was going to be something that we would work on and slowly begin to make the turn.
Speaker Change: We are seeing significant interest there, but what we are seeing in markets where we had positions of strength in the past, like Europe, like South America, India.
Speaker Change: Our equipment business is actually doing very well and US customers in those markets continue to shift to our brand.
Speaker Change: and so that's what's driving our equipment sales and to your question of whether we're seeing some, you know, if I was sort of the paraphrase, which you said the regular movements in the channel that's causing some stalking, the short answer is no, what we are seeing is good progress against our execution plans.
Speaker Change: and our growth bridges.
Speaker Change: That's great.
Speaker Change: I guess my follow-up question on Europe, times like things have gotten tougher there, the autosector obviously is going through some tougher times. I'm curious how your business, if you can kind of separate out your specific, how your business is performing there.
Speaker Change: and you think about 2025 and I'm not looking for you to provide guidance but just some context here. Is there an argument to be made that eventually you're a start to see a bit of a bottom forming and that becomes a little more creative rather than detractive to grow? Thank you.
Speaker Change: Yeah, you know, I think for us just so that we calibrate ourselves, maybe that we saw Europe perform similar to how it performed in Q2. So we didn't see Nestlea pronounce dip or a change in how our European market performed.
Speaker Change: But that being said, I would also state that our teams are doing a phenomenal job in Europe gaining share.
Speaker Change: and our product line simplification activity with 80, 20 and where we're focused to the road. If you remember I had mentioned to some of you that as we looked at our product line simplification our view was to take that initiative with an inclination towards growth.
Speaker Change: and that's really what our teams have been executing in Europe and doing extraordinarily well.
Speaker Change: And so our view of Europe is we finish out the years at its stage at similar levels. It is some dude. The question you asked me regarding end markets, you're right. We see yellow goods, we see automotive.
Speaker Change: Down a bit, but we generally are finding opportunities to grow shared, to penetrate in terms of share of wallet. And so our intention on that particular front is to continue to play that, but we're not seeing a worsening market in Europe if that was the just a few questions.
Speaker Change: It was, thank you.
Speaker Change: Alright, thanks, Meg. And our next question comes from the line of Nathan Jones with Steeble. Nathan, please go ahead.
Speaker Change: Good morning, this is Adam Farley on for Nathan.
Adam Farley: They would be so repricing, could you talk about the differences in pricing and input costs, reasonally and a price cost, sorry, go ahead, John.
Speaker Change: Now I'll finish our two questions Adam sorry.
Speaker Change: I was going to say, it's price cost still favorable and I mean, I have to spike the price in compression.
Speaker Change: Yeah, I think let me start that question off and I'll hand it to Kevin to kind of give you a little bit more color I think one of the things that we've often talked about with all of you is our pricing discipline and the process that we've instilled within our businesses and it's great to see that really show itself in how we performed in the third quarter and we've talked about value pricing, we've talked about shifting the mix of our business to a higher quality higher calorie content content. [inaudible]
Speaker Change: product lines.
Speaker Change: And then the third piece is inflation-based pricing where, you know, whether we see prices going down or up, we're very quickly going out to the market with that particular aspect. So, to answer your question on net price, we are positive in net price both in the Americas and in Europe. And then Kevin can give you some color by region as to how we're thinking about pricing.
Speaker Change: Hi, good morning, Adam. So, as Sean mentioned, you know, we're expecting flat organic growth in the fourth quarter, both in the Americas and in EMEA and APAC.
Kevin Johnson: In America, the expectation is we'll have positive price and flat to negative volume or whereas in the me and APAC, we're expecting positive volume and negative price and as Shyam has said, you know, we're very pleased.
Kevin Johnson: with the performance of our teams, we put a lot of effort and work into the management of Net price and in both of the segments our expectation is that we will be margin positive
Speaker Change: Okay, that's really helpful. And then just kind of shifting gears here, you know, South Asia, India, Bangladesh, all obviously a very key growth market for ESAB. You know, are there any key product or channel gaps that the company still needs to address in the region?
Speaker Change: Well, I think there's a there's a few things that we often.
Speaker Change: talk about in those those markets. You know I think the view for us and what I talked about briefly is how do you create better brand equity, how do you create better demand, how do you create a workforce that's very comfortable with your brand and is trained on your brand. And so our focus
Speaker Change: in those geographies are establishing schools, establishing training centers, creating content that make people familiar with our products much easier. Access to our products are getting easier through e-commerce.
Speaker Change: And as a result, what we're doing is adding to our spaces there. And I think I've mentioned this before, in those markets and now with the acquisition that we did in Bangladesh, which is another fast-growing economy, we're basically 4, 5x size our closest competitor.
Speaker Change: and we've got a ground game with the sales team that's also
Speaker Change: a multiple size bigger than our closest competitor.
Speaker Change: and our intention there is to serve that market well.
Speaker Change: So, that market in a way that makes, you know, pleases our customers, most importantly, and then introduce products that make sense. And so one of the things I talked about was our investment in the R&D center, creating product that are that are pertinent to the market, and building that out. So the short answer is that.
Speaker Change: We're not resting on our laurels in those geographies where we have a lead. We're continuing to change the game using new tools that we're bringing to market and trying to expand our user base.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thanks, Adam.
Speaker Change: And our next question comes from the line of Tammy Zakaria with JP Morgan. Tammy, please go ahead.
Tammy Zakaria: Hey, good morning, Team Aesop. A really nice quarter. Two questions. The first one is actually about EMEA-APEC.
Tammy Zakaria: I thought that segment's performance was very good and interesting because
Tammy Zakaria: Your volume group
Tammy Zakaria: on top of a really strong number last year.
Tammy Zakaria: and volume has been actually quite strong for some time for that region against a very not so great macro backdrop so I'm trying to understand are you gaining share in that market?
Tammy Zakaria: or do you have a different type of end market exposure that's driving this volume growth? Anything you can share about what you're seeing in that end market and how you're sustaining positive volume growth for some time now?
Speaker Change: Yeah, well good morning Tammy. Thanks for the question. A couple of things that I want to start with. First is our teams. One of the things that we've always spoken about is that we've got local teams with local leaders that understand their markets, that understand the distribution channel and understand our products well.
Speaker Change: And in the geographies where we've had, you know, legacy strength in my opinion, you can see us outperform. And so for some of the questions that we often get is, how is your product line performing? And did you develop a strong product line? The results actually reflect the strength of our product line that we've developed over the last eight years.
Speaker Change: The second piece around that is the Middle East and India. And we have worked extraordinarily hard over the last eight years to establish our leadership position.
Speaker Change: create separation between us and what's available in that particular market using our growth bridges, using our digital toolkits that we've brought to market along with our portfolio to continue to separate ourselves and make it easier to do business with.
Speaker Change: And so the short answer is all of those aspects are what's allowing ESOP to begin to separate itself in these geographies.
Speaker Change: And I think the numbers would state that, yes, we are gaining share.
Speaker Change: But we're gaining share because we've focused on these markets and have invested in these markets over the last eight years. This is not something that ESAB has done in the last 12 months. This is something that we've been up to for the last 60 months.
Speaker Change: And if I could just add to the end of it, it's important to also state that, you know, we've been investing in our business for the last eight years, you know, I would I would submit and something that I've said to all all of you individually as well.
Speaker Change: is that we're very comfortable with our margin expansion journey and the reason being is that over the last five years we've reinvested in our business.
Speaker Change: that has allowed us to kind of gain share, allowed us to introduce new products.
Speaker Change: allowed us to create separation and we expect to continue to do that, you know. So our margin expansion story is not just taking everything that we do and put it down to the bottom line. It also means that we're taking something away and investing in our business for the long term.
Speaker Change: Got it, that's very helpful. So your investment in India and Middle East seems like definitely paying off along with the other stuff.
Speaker Change: Okay, great. And then my next question is...
Speaker Change: Going back to that equipment growth, I think you said low double-digit growth in the quarter.
Speaker Change: Can you sort of remind us, as a refresher, on what your equipment share...
Speaker Change: is in North America versus consumable share in this region, and do you see a path to bridging that gap? I'm assuming consumable share is higher, but do you see a path to bridging that gap?
Speaker Change: between the two over time.
Speaker Change: Yeah.
Speaker Change: So, let me answer that question. I think specifically you were sort of talking about North America with that question, but let me sort of answer that question a little broadly and then I'll speak about North America in particular. So, broadly speaking, you're spot on. We are seeing our equipment portfolio perform extraordinarily well in markets where we've always had a brand presence in equipment.
Speaker Change: So in Europe, in South America, in India, in the Middle East, we're seeing our equipment begin to sort of really gain traction.
Speaker Change: and as a result we're seeing sales and equipment grow faster than our sales in consumables and so that's really reassuring. One, because the product line we've developed. Two, because our sales teams are capable of selling it.
Speaker Change: The second aspect of that is something that I've told you is North American customers in those regions are shifting to yellow.
Speaker Change: And so, we're very confident that over time, we're going to see a lot of that also happen in the geography that you and I sit in, which is North America. Our position in North America in terms of equipment was low. We've not given out the exact numbers of our share in filler metal or in equipment, but what we are...
Speaker Change: comfortable with is that you know it's something that I spoke about even in my script where our brand recognition has grown 200% in North America.
Speaker Change: The other thing that we've stated to to all of you is that we plan to work in the North American market by selling value
Speaker Change: Our intention is that we're building best-in-class product.
Speaker Change: We've got a great nomenclature and brand that we're establishing in North America.
Speaker Change: And we're going to play this game for the long term. And so I'm very comfortable. The progress that we're seeing globally, we're seeing, you know, green spouts also in North America. And and over the next couple of years, we should see that that grow as well and us gain share.
Speaker Change: Thank you very much.
Speaker Change: Got it. Thank you so much.
Tammy Zakaria: Thanks, Tammy. And our next question comes from the line of David Rasa with Evercore. David, please go ahead.
David Rasa: Hi, thank you for the time. I don't mean to take you through too many numbers here, but just a couple quick ones.
David Rasa: I believe you said flat organic for the fourth quarter. That would imply the full year is closer to the high end of the range. Is that fair to say? Am I doing my math right?
David Rasa: This is the fourth quarter.
Speaker Change: closer to one for the full year.
Speaker Change: Can you just confirm that, Matt?
Speaker Change: The maths would take you there around about 50 probably that midpoint of the guidance if you use the midpoint of the ratings that was given David
Speaker Change: points to get you to only 50 bips so we can
Speaker Change: Thank you. Thank you.
Speaker Change: But when it comes to the American volumes, the Americas, I think you said flat for the fourth quarter.
Speaker Change: All I need
Speaker Change: and we'd expect slightly negative volumes.
Speaker Change: and it was it was the reverse for the rest of the world.
Speaker Change: Correct, I got that. Thank you so much. The spirit of the question is just making sure, when I look at the consensus for next year on the top line, over 4%
Speaker Change: The carryover in acquisitions from Sager in Lindy, Bangladesh, is probably 40 bps or 50 bps. The Sumig acquisition, I assume that's still expected to close. Any help on the revenue there?
Speaker Change: for helping for total sales for next year.
Speaker Change: I'm assuming it closes. Yes.
Speaker Change: Yes, we've given out, David, on the last call we expect Summit to have around about 30 million dollars of revenue for the full year. We're still working through the process and we still expect the Summit acquisition to close in the fourth quarter.
David Rasa: Okay, so that's helpful, that adds another.
Speaker Change: you know maybe 100 pips or so. So basically organic in the guides about two and a half plus. The volumes in a Mayov is here you know having helpful in that trajectory with the common absorbed saying Europe's not getting worse.
Speaker Change: The America's volumes. I'm just curious that the negative volumes. Can you give us a little more color on what's going on there? Is there a bit of a selective?
Speaker Change: You know, hey, we're focused on price, which was impressive in the quarter, even the fourth quarter, again, price, but a little negative volume, maybe. Can you just take us through what parts of the channel, light, heavy?
Speaker Change: Where is the volume negative because you don't seem like you feel America's getting any worse on a macro perspective if I'm Not representing that correctly. Please. Let me know. I'm just trying to make sure I understand the trajectory starting 25 Particularly on America's volumes. Thank you
Speaker Change: The best way to put it, the third quarter had a few weather-related items in there.
Speaker Change: The channel was a bit slower on its uptake. The DIY, the do-it-yourself channel was a bit slow.
Speaker Change: In the quarter
Speaker Change: But then we also had opportunities, you know, for growth.
Speaker Change: and margin expansion but also be able to sort of pull through some other product lines that we had brought to the market. So short answer is the broad spec of stuff is that North America is a bit sluggish.
Speaker Change: But nothing getting worse. The growth bridges that I've worked with the team clearly show our plans and customers that we can go after in terms of share of wallet and activities that we can put together as a team.
Speaker Change: So we feel really confident about our execution against those plans, regardless of what the market does.
Speaker Change: And the other thing there, David, I think we've said this before.
Speaker Change: Our share position and equipment in North America is small enough where small increments and shifts are beneficial to ESOP.
Speaker Change: and we're seeing progress on that particular front. And we have not talked about this enough, our gas control business is also doing well in the North American market and all of that is benefiting us.
Speaker Change: That's why I wanted to focus a little bit on gas control. For next year, is there any indication, even if we think
Speaker Change: you know welding equipment as an industry sluggish next year.
Speaker Change: Maybe you can take a little share within it. Is gas control in a situation where just you're obviously gaining some momentum as the industry leader? Is that a business you would feel a lot of the things that we're talking about obviously you're usually confident on your margins?
Speaker Change: Gas control growth in 25. Is that something you'd put pretty high on the comfort list of what we can expect?
Speaker Change: You know, we were obviously expecting...
Speaker Change: You know, we've talked about that business over time being mid-single digits. Next year, we think on the higher side of low single digits on the gas control side.
Speaker Change: of our business and something that we've talked about in the past, that business for us today is that sort of premier industrial margin profile. And so any growth that we get there is a higher caloric mix.
Speaker Change: for ESAB.
Speaker Change: and then also what it allows us to extend into
Speaker Change: as we look at our funnel of acquisitions as well, which my dad, David, I know we didn't talk about this earlier and I mentioned my script. Our funnel is, you know, the strongest it's ever been. And so we hope that we can continue to do a few inorganic deals as well to strengthen our position there.
Speaker Change: In gas control deals, as much as your margins are above company average, are the general targets you're looking at also accretive to margins?
Speaker Change: That's right.
Speaker Change: That's helpful. Thank you so much.
Speaker Change: Great. Thanks, David. And our next question comes from the line of Chris Dankert with Loop Capital. Chris, please go ahead.
Chris Dankert: Hey, morning guys. Thanks for taking the questions. I guess first off, just a point of clarification, maybe. Great to hear about the double-digit growth in equipment, but looking at the 10Q, equipment was up closer to 5%. Is the difference there just how Russian sales are disaggregated, or maybe you could just clarify on that point?
Speaker Change: Yeah, the numbers would include some element of the total business, so it's on a gap basis, so that would have a little bit of impact.
Speaker Change: and also when we were talking about equipment you also would have some automation running through that mixed number within the 10 Q and when we were just talking about the heavy industrial and light industrial equipment and not including the automation component
Speaker Change: Got it, got it, that's really helpful and I guess kind of a nice segue. Just when we're thinking about automation sales in the quarter, you gave us the K here, but any comment on automation sales growth specifically and if that's still around 10% of overall equipment sales, you kind of lump it all together?
Speaker Change: Yeah, that's right. It is about 10% of our sales today.
Speaker Change: Yeah, and in terms of, you know, the automation business, on the Cobot side, we're continuing to see good.
Speaker Change: trajectory, Chris, so that was up nicely within the quarter. Obviously the area that's a little bit slower is the work that we do via the integrators which has been a little bit slower in the quarter.
Speaker Change: I think on the order side and the backlog side of automation the funnel looks really good and I think that you know we're expecting that market to continue to go. One of the other things that I tell you Chris is that several we've received several inbounds from integrators to partner with ESOP now now that they've seen our workflow solution.
Speaker Change: and what we've created, which actually has been a pleasant surprise because one of the things that we have been doing is we're very comfortable partnering with integrators and not doing end-arounds and that has helped.
Speaker Change: ESOP position itself to where in the past some integrators
Speaker Change: we have not had access to and today we're getting calls from them. So there's real good momentum as we go into the third, the fourth quarter and into 2025 on the OPEC side of automation for us and how we were thinking about that business that makes us less cyclical and better margins over the long term.
Speaker Change: That's really helpful. Thanks so much for the call, you guys.
Speaker Change: Thank you, Chris.
Speaker Change: And just a reminder, folks, again, if you'd like to ask a question, press star one on your telephone keypad. Once again, star one.
Speaker Change: All right, our next question comes from the line of Brian Blair with Oppenheimer. Brian, please go ahead.
Brian Blair: Thank you. Good morning, everyone.
Speaker Change: Hi, Brian.
Brian Blair: I was hoping to offer a little more color on early stage integration with Lundy Bangladesh and where your team is really focused in the early going.
Brian Blair: if you've seen any any surprises and then
Brian Blair: In terms of M&A, you just mentioned that the funnel has never been better. Are near-term prospects weighted to gas control, you know, kind of consistent with the medium-long-term planning of your team? Or should we think about funnel composition, you know, differently over the, you know, coming quarters?
Speaker Change: Yes, to answer the question on Bangladesh, I was actually with the team and spoke to them more recently. I think the team is excited to be part of ESAB. I think one of the things that we've talked about as well is that having focus on a business helps.
Speaker Change: I had a chance to review some of the growth bridges with our team. They look extraordinarily strong. But the other part for us is that it gives us capacity to continue to serve that subcontinent.
Speaker Change: and so the opportunities for for Lindy Bangladesh is not just to the for the for the country of Bangladesh but also extends
Speaker Change: for South Asia and possibly Southeast Asia as well in terms of our growth opportunities. So we're very excited. The other piece that we've often talked about it was primarily a consumables business and we now get to introduce equipment into the market and so all in all we feel really good.
Speaker Change: about how we're positioning ESAB in that subcontinent. You know, your question around acquisitions, we actually have a funnel that's full both on the Fabtech side and gas control side. So it's tough to sort of predict which one comes first.
Speaker Change: And so the thoughts for us is that we're going to extend both. If you remember from investor day, we had about 300 million of acquisitions we wanted to do and get in our Fabtech side of the business and about 400 to do in gas control.
Speaker Change: My thoughts are that what you've seen today is us make some really strong progress on the Fabtech side.
Speaker Change: and we could be done earlier on the Fabtech side and it could take us our time till 2027 to finish out the gas control side of the business but really feeling good about the pipeline, the cultivation that our team is doing on the acquisition front and the quality of businesses that we're looking at.
Speaker Change: on both sides.
Speaker Change: Understood. Very helpful, Pillar. And your team's multi-year focus on refreshing your equipment portfolio, particularly in North America, obviously bearing fruit at this point.
Speaker Change: I guess, two-part question. One, I believe you're fully through the late industrial refresh. Is that the case? And then, second, in terms of heavy industrial applications, where do you stand now and what's the timeline to, you know, completing the full refresh?
Speaker Change: Yeah, I think the view that we had, I want to be sort of...
Speaker Change: clearer on this. I think it's probably a good way to look at the big refresh is done but we continually want to innovate on our product line and introduce
Speaker Change: you know, changes and better models.
Speaker Change: and improvements to the products that we already have in the marketplace.
Speaker Change: And so there are a few that we want to get done. I think one of the things, if you were at Fabtech, you probably saw our engine-driven welder. We expect to kind of build out that product line. And the second one we absolutely want to get done is on the robotic side of Warrior Edge. We plan to introduce more product lines on that front in 2025, in the first and second quarter, and possibly into the third quarter.
Speaker Change: And the other one also for us would be more battery driven product. You know we're looking at also creating more battery driven product and widening the range off of what I think has been an extraordinarily successful product for us with the Renegade Volt.
Speaker Change: All makes sense. Thanks again.
Speaker Change: All right. Thanks, Brian.
Speaker Change: And guys if I could just sort of highlight one one last thing, you know We talked very little about our gas control business, but I'd say the innovation piece there the performance of our specialty and medical business
Speaker Change: on that particular side of the equation has done really well. We talked about positive price and volume on that side, so we're really pleased with how gas control is performing and the momentum it's taking into the fourth quarter and our expectations for 2025. But again, thank you for your questions.
Speaker Change: Thank you. And that does conclude the question and answer session so I will now hand it back over to Mark Barbalato for closing comments. Mark.
Mark Barbalato: Thank you for joining us today and we look forward to talking to you again next quarter.
Speaker Change: And ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a great day, everyone.
Speaker Change: [music]