Q1 2025 ESAB Corp Earnings Call
Operator: Thank you for standing by and welcome to the ESAB First Quarter 2025 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by and welcome to the Aesop first quarter 2025 earnings release and conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question.
Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you.
Speaker Change: Again press Star one thank you I'd now like to turn the call over to Mark Barbel Auto Vice President of Investor Relations you may begin.
Mark Barbalato: I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. You may begin. Thanks, operator.
Speaker Change: Thanks, Operator, welcome to <unk> first quarter 2025 earnings call. This morning, I'm joined by our President and CEO, Sean Combi Yonder and CFO, Kevin Johnson. Please keep in mind that some of the statements. We're making are forward looking and are subject to risks.
Shyam Kambeyanda: Welcome to ESAB's first quarter 2025 earnings call.
Mark Barbalato: This morning, I'm joined by our President and CEO, Shyam Kambeyanda, and CFO, Kevin Johnson. Please keep in mind that some of the statements we are making are forward-looking and are subject to risks, including those set forth in our SEC filings and today's earnings release. Actual results may differ, and we do not assume any obligation or intend to update these forward-looking statements except as required by law.
Speaker Change: Those set forth in our SEC filings and today's earnings release actual results may differ and we do not assume any obligation or intend to update. These forward looking statements, except as required by law with respect to any non-GAAP financial measures mentioned during the call today. The accompanying reconciliation information related to those measures can be found in our earnings press release.
Mark Barbalato: With respect to any non-GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation.
Speaker Change: And today's slide presentation.
Shyam Kambeyanda: With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda. Thank you, Mark. And good morning, everyone. Thank you all for joining us today. We had a strong start to the year. These results reflect our ability to perform in a challenging market and underscores the performance driven, accountable culture we've built at ESAB.
Speaker Change: With that I'd like to turn the call over to our president and CEO, Sean come beyond that.
Speaker Change: Thank you Mark and good morning, everyone. Thank.
Speaker Change: Thank you all for joining us today.
Speaker Change: Had a strong start to the year. These results reflect our ability to perform in a challenging market and underscores the performance driven accountable culture, we have built at Aesop.
Shyam Kambeyanda: Let me step back and share how we're creating a comparative advantage and why we're confident about our future. We deliberately shaped ESAB to be locally responsive, while leveraging our unmatched global scale. This dual advantage allows us to serve customers more effectively and maintain secure, resilient supply chains in a dynamic market. Additionally, we have deployed our capital well, invested in innovation, resulting in a fully refreshed equipment product line and acquired 15 outstanding businesses. enabling us to expand our serviceable market and strengthen our global presence.
Speaker Change: Let me step back and share how we're creating a competitive advantage and why we're confident about our future.
Speaker Change: We deliberately shaped aesop to be locally responsive, while leveraging our unmatched global scale.
Speaker Change: This dual advantage allows us to serve customers more effectively and maintain secure resilient supply chains in a dynamic market.
Speaker Change: Additionally, we have deployed our capital well invested in innovation, resulting in a fully refreshed equipment product line and acquired 15 outstanding businesses.
Speaker Change: Enabling us to expand our serviceable market and strengthen our global presence.
Shyam Kambeyanda: Our focus is on building a long-term winner, one that thrives regardless of economic backdrop. Today, we're driving sales excellence, shifting our portfolio towards equipment and gas control. Looking ahead, we're intensifying our investment in innovation, deepening partnerships with universities and harnessing the power of AI and continuing a steady cadence of high-impact acquisition.
Speaker Change: Our focus is on building a long term went up one that thrives regardless of economic backdrop.
Speaker Change: Today, we're driving sales excellence shifting our portfolio towards equipment and gas control.
Speaker Change: Looking ahead, we're intensifying our investments in innovation deepening partnerships with universities and harnessing the power of AI and continuing a steady cadence of high impact acquisitions.
Shyam Kambeyanda: Over the past four weeks, I've had the opportunity to make three trips to Europe and one to India. There's a noticeable sense of optimism and excitement about the future in both regions. The stimulus and investment plans announced by the EU, Germany in particular, are especially encouraging and signal significant upside potential once stimulus and investment spending begins. I was also encouraged by our team's ability to execute effectively. We're seeing strong traction with our new equipment offering and our gas control business is gaining momentum, both organically and through promising acquisition opportunities.
Speaker Change: Over the possible weeks I've had the opportunity to make three trips to Europe and want to India.
Speaker Change: There is a noticeable sense of optimism and excitement about the future in both regions.
Speaker Change: The stimulus and investment plans announced by the EU, Germany in particular.
Speaker Change: Especially encouraging and signal significant upside potential once stimulus and investment spending begins.
Speaker Change: I was also encouraged by our team's ability to execute effectively we're seeing strong traction with our new equipment offering and our gas control business is gaining momentum.
Speaker Change: Organically and through promising acquisition opportunities.
Shyam Kambeyanda: I want to take this moment to recognize the extraordinary efforts of our associates, their tireless work, dedication to our customers, and commitment to EBX gives me confidence that we're well positioned to navigate the current environment and continue winning. At ESAB, we're shaping the world we imagine without limits.
Speaker Change: I want to take this moment to recognize the extraordinary efforts of our associates their tireless work dedication to our customers and commitment to E. B X gives me confidence that we're well positioned to navigate the current environment and continue winning.
Speaker Change: At Aesop was shaping the world, we imagine without limits.
Shyam Kambeyanda: Let's turn to slide three to review our first quarter financial performance. We delivered 100 basis points of margin expansion on slightly positive organic growth, resulting in a record first quarter adjusted EBITDA margin of 19.8%. The strong performance underscores our disciplined execution of the EBX framework complemented by accelerated strategic growth investments that are expected to generate returns in the long term. As I mentioned last quarter, ESAB's unmatched global footprint is a key competitive advantage with 80% of our manufacturing located in region for region, we're uniquely positioned to manage today's global dynamics with agility and scale. Our commercial excellence initiative, coupled with a steady stream of innovative product launches, continues to drive momentum.
Speaker Change: Let's turn to slide three to review, our first quarter financial performance, we delivered 100 basis points of margin expansion on slightly positive organic growth, resulting in a record first quarter adjusted EBITDA margin of 19, 8%.
Speaker Change: This strong performance underscores our disciplined execution of the AVX framework complemented by accelerated strategic growth investments that are expected to generate returns in the long term.
Speaker Change: As I mentioned last quarter Aesop's unmatched global footprint is a key competitive advantage with 80% of our manufacturing located in region for region, we're uniquely positioned to manage todays global dynamics with agility and scale.
Speaker Change: Our commercial excellence initiatives, coupled with a steady stream of innovative product launches continues to drive momentum in Q1, both our global welding equipment and gas control equipment businesses grew by mid single digits, reflecting strong channel acceptance of our new offerings.
Shyam Kambeyanda: In Q1, both our global welding equipment and gas control equipment businesses grew by mid-single digits, reflecting strong channel acceptance of our new office. We're also leveraging EBX to enhance supply chain performance, drive process improvements, and expand margins.
Speaker Change: We're also leveraging <unk> to enhance supply chain performance drive process improvements and expand margins.
On the acquisition front, I'm thrilled to share that we have received all regulatory approvals and officially completed the Bavaria acquisition yesterday. This strengthens our proprietary consumables portfolio and positions us to gain share in faster-growing end segments. As a result of our strong execution driven by EBX initiatives, new product launches and recent acquisitions, I'm confident in our outlook for 2025.
On the acquisition front I'm thrilled to share that we have received all regulatory approvals and officially completed the <unk> acquisition yesterday the.
Speaker Change: This strengthens our proprietary consumables portfolio and positions us to gain share in faster growing end segments.
Speaker Change: As a result of our strong execution driven by E <unk> initiatives, new product launches and recent acquisitions I'm confident in our outlook for 2025. It is important to note that our full year guidance also reflects the expected impact of tariffs, which Kevin will detail shortly.
Speaker Change: Turning to slide four over the past few quarters I've highlighted the passion our associates have for both our business and their communities this quarter I want to spotlight and other initiatives on how we're making a difference by investing in the next generation of fabricators.
Speaker Change: Weeks ago, I visited Denton, Texas, where we hosted students from the agricultural welding class at Mcarthur High School in Irving, Texas. The students steward, our facility engaged and hands on training at our customer innovation Center and received the fab equipment PPE and consumables for their lab.
Speaker Change: We also awarded a scholarship to the students in memory of our beloved Aesop Associate Charlie it.
Speaker Change: It was an inspiring day for both our team and the students.
Speaker Change: Similarly in India, we partnered with two organizations to establish a state of the art welding training Institute and rural download model. This.
Speaker Change: This initiative supports grassroots development of talent and provides local youth with a sustainable career path and welding and automation.
Speaker Change: These are just a few examples of how our associates are shaping a better world one community at a time moves.
Speaker Change: Moving to slide five.
Speaker Change: Over the last eight years, our strategy has been clear to improve operational performance with AVX invest in innovation delight, our customers to local agility and deploy our capital effectively buyout.
Speaker Change: By optimizing our footprint executing our product line simplification strategy and streamlining our supply chain, we have built the capability to manufacture all of our major products within each of our three regions the Americas, EMEA and APAC a key factor in mitigating tariffs.
Speaker Change: Our footprint combined with our AVX net pricing tool positions aesop to outperform even in volatile markets.
Speaker Change: Long term, we're building a higher margin less cyclical and higher cash flow enterprise.
Moving to slide six to talk about our journey to Premier.
Speaker Change: Through open innovation and our AVX stage gate process, we've revitalized our equipment line at the same time, we've exited unattractive capital intensive automation projects and focus on high growth swim lanes, most notably gas control.
Speaker Change: Our gas control business has grown from 10% to 18% of total revenue and is on track to reach 25% of revenue by 2028.
Speaker Change: With gross margins in the mid Forties. This segment has opened new adjacencies and medical and specialty gas markets.
Speaker Change: This shift in mix towards gas control and welding equipment supports our 2028 target of 22% EBITDA.
Speaker Change: At the bottom of the slide you can see the progress we've made in adjusted EBITDA. Since 2016, we've steadily moved towards a more profitable mix and achieved approximately 700 basis points of margin expansion.
Speaker Change: All while generating strong cash flow to fund our compounding strategy.
Speaker Change: Turning to slide seven and sharing more on our compound our journey.
Speaker Change: Our disciplined capital allocation has been the cornerstone of our success.
Speaker Change: One of our primary objectives has been to grow our gas control portfolio strength in digital and standard automation capabilities fortify our core fab tech business and expand our addressable market. We've executed this plan with discipline, adding 15 high quality businesses, including Bulgaria as of yesterday.
Speaker Change: Last week I visited our <unk> team in Munich, and was deeply impressed by their manufacturing capabilities. The proprietary flux, they've developed and the innovative culture. They have fostered the.
Speaker Change: This acquisition significantly strengthens our portfolio of proprietary consumables and strategically positions us to benefit from the EU and German stimulus programs targeting key sectors.
Speaker Change: For context flux is the secret sauce and supply shock welding by combining <unk> flux and our sub arc wire, we're unlocking growth opportunities across key sectors like oil and gas when nuclear transportation infrastructure and defense web Avaya products are already.
Speaker Change: Specified.
Speaker Change: While the acquisition is expected to be EPS neutral in year, one we see significant margin expansion upside through <unk> global distribution and scale efficiencies.
Speaker Change: Our balance sheet is the strongest it's ever been and our acquisition pipeline is robust in fact, we made close to more tuck in gas control deals before the end of Q2.
Speaker Change: We continue to prove ourselves as a premier industrial compound.
Speaker Change: On that note, let me hand, it over to Kevin for slide eight to discuss our financial performance.
Kevin Johnson: Thanks, John Good morning, despite a challenging market environment, our quarterly sales met our expectations.
Kevin Johnson: Growth markets in India, Asia Pacific and the Middle East performed strongly.
Kevin Johnson: Offset softness in the Americas as we had expected.
Kevin Johnson: Our welding and gas control equipment product lines showed strong growth supported by the investments in new products. We have made over the last several years.
Kevin Johnson: Our recent acquisitions in Bangladesh stomach in Brazil are performing well.
Kevin Johnson: At a 200 basis points of growth in the quarter.
Kevin Johnson: Adjusted EBITDA increased by 100 basis points due to strong price discipline product mix improvements and.
Kevin Johnson: <unk> initiatives offset by continued growth investments.
Kevin Johnson: Our global teams made a strong start to 2025 and I. Thank them for this performance.
Kevin Johnson: Turning to slide number nine in the Americas organic sales declined by 200 basis points as expected.
Kevin Johnson: Lower volumes being offset by a strong price performance.
Kevin Johnson: The <unk> acquisition continues to perform well.
Kevin Johnson: At 300 basis points of growth.
Kevin Johnson: Offsetting some of the FX headwind due to the stronger U S dollar.
Kevin Johnson: Investing in long term growth remains a priority for you.
Kevin Johnson: As reflected in the mid single digit growth in welding and gas control equipment this quarter.
Sean Come: As Sean mentioned earlier.
Sean Come: Our global operations positions us well to handle part of fluctuations and.
Sean Come: And in the quarter, our adjusted EBITDA improved by 110 basis points, reaching 19, 4% showcasing our team's resilience.
Sean Come: Moving to slide number 10.
Sean Come: Our teams in Europe Middle East on the Asia delivered strong results. This quarter total sales rose 200 basis points with adjusted EBITDA margins at 20%.
Sean Come: Volume increased by 400 basis points, driven by high growth markets and we saw some positive signs out of Europe with Germany's recent stimulus decisions likely to create some opportunities for <unk> in 2025 and beyond.
Sean Come: Equipment sales grew mid single digits year over year with positive customer feedback on new product launches. The Aesop, Bangladesh acquisition added 100 basis points of growth on its performing well.
Sean Come: Our teams delivered another quarter of strong performance and we are confident that this positive momentum will continue throughout the remainder of 2025.
Sean Come: Moving now to slide number 11 to discuss our cash flow.
Sean Come: This quarter, we generated $30 million in free cash flow, including approximately $10 million inventory pre purchased ahead of tariffs.
Sean Come: We expect a stronger cash flow in the second half of 2025, as we invest to protect our supply chains in the first half.
Sean Come: Our consistent strong cash flow has enabled these up to complete several acquisitions since our spin off.
Sean Come: Also at the same time, reducing our net debt to one five turns we have significant financial flexibility on our well positioned to execute our compound our strategy.
Sean Come: Moving now to slide number 12 on our 2025 outlook.
Sean Come: We have raised our revenue assumptions by approximately $30 million, mainly due to the <unk> acquisition on the risk from an improvement in FX.
Sean Come: There has been no change to our organic growth guidance for the year, which remains at zero to 2%.
Sean Come: We expect low to mid single digit organic growth in EMEA and APAC.
Sean Come: Offset by negative low to mid single digit organic growth in Americas, where market conditions are more challenging.
Sean Come: Our adjusted EBITDA guidance has been increased to $520 million to $530 million, reflecting the Bavarian acquisition, which was purchased for 60 million euros.
Sean Come: Interest expense guidance has been increased as a result, and we expect interest costs to increase in Q2 and decline through.
Sean Come: 2025, as we generate cash flow.
Sean Come: Our cash flow guidance remains unchanged, we continue to commit to a strong cash flow performance and a robust balance sheet to support our <unk> strategy.
Sean Come: With that let me hop back to shop on slide 13 to wrap up.
Sean Come: Thank you Kevin to summarize we've had a strong start to 2025 delivering another quarter of strong execution, we're protecting our growth investments investing in sales excellence and AI.
Sean Come: And tightening our belts where needed we're.
Sean Come: Are gaining traction and shifting our portfolio towards equipment light automation and gas control all while strengthening our consumables platform.
Sean Come: We have consistently raising the bar with AVX and enhancing our enterprise through strategic accretive acquisitions.
Sean Come: We build a winning culture at Aesop, one that is positioned for creating long term shareholder value.
Thank you all again for joining us this morning, operator, please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, we ask that you. Please limit yourself to one question and one follow up.
Speaker Change: Our first question comes from a line of Bryan Blair from Oppenheimer. Your line is open.
Bryan Blair: Thank you good morning, guys could start to the year.
Speaker Change: Good morning, Brian.
Speaker Change: I was hoping you could offer a little more detail in terms of.
Speaker Change: Gross or on mitigated headwinds from from tariffs.
Speaker Change: Were there specific to 2025 or four annualized.
Speaker Change: With some incremental pricing.
Speaker Change: So I'll set how your teams now thinking about volume versus price contribution in the full year guide and if there are any notable differences in the bridge for Americas versus EMEA and APAC.
Speaker Change: Well, let me start that and I'll hand, it over to Kevin to kind of go through some of the numbers, Brian I think the important piece is something that we talked about earlier as well in our script, where we've positioned the business extraordinarily well to be in region for region. We spend a lot of time as you know with our product line simplification.
Speaker Change: Patients are footprint actions and then also everything that went along with it in terms of supply chain. So as a result, yes.
Speaker Change: Yes, we do have some tariff exposure, but 80% of our product is built in region and as a result, the exposure is not as big.
Speaker Change: We haven't talked about a specific number but Kevin has a number that <unk> shared with you on that particular front, we expect to cover that with price.
Speaker Change: As as we go into the year, but also theres a bit of flux. There right I think as you know we will know more at the end of these 90 days as to where things will end up but for the short term we've taken a few actions as you saw we increased.
Speaker Change: Our inventory levels in the Americas to counter some of the tariff actions.
Speaker Change: We are moving manufacturing and assembly to the regions.
Speaker Change: Not affected by the tariffs and as a result, we feel very confident as to how we saw was placed.
Speaker Change: Not just for today, but for the long term Kevin do you want to talk about some of the non yes, Brian in terms of numbers.
Speaker Change: In EMEA and APAC.
Speaker Change: Given particularly the dynamics that John mentioned is about our local manufacturing and supply chain is largely impacted.
Speaker Change: By the tariffs the main impact is in North America.
Speaker Change: Where we see something in the region of $15 million to $20 million of tariff impact and we've already made the moves in terms of price to offset any impact from that.
Speaker Change: Understood I appreciate.
Speaker Change: The detail on that those numbers there.
Speaker Change: I guess, they're not particularly daunting sitting here.
Maybe offer a little more on.
Speaker Change: Gas control equipment trends and the outlook there seems like that business is very nice momentum just curious how growth shook out in Q1 payer teams thinking about core growth rates for the year.
Speaker Change: And John you mentioned, a couple of tuck ins.
Speaker Change: We will hopefully be closed by the end of Q2.
Speaker Change: How additive to growth may there will be any.
Speaker Change: Additional detail would be great. Thank you.
Speaker Change: Yeah.
Speaker Change: Spot on Brian we were very pleased with how our gas control business has started off soft <unk> and the team have done a real nice job with our <unk> process of growth bridges and identifying growth opportunities also the acquisitions that we made a few years back are paying dividends for us.
Speaker Change: Both in terms of the therapy acquisition there'll be that we've made.
Speaker Change: And then yes, you are spot on that we have two more acquisitions that we expect to close in the second quarter that will add momentum to the medical side of our gas control business, adding a bit more fuel to the growth profile of that business.
Speaker Change: <unk> told you before the margins are accretive in fact, the EBITDA margins are already higher than our 2028 goals.
So as we add onto that business and that business grows faster, it's accretive to overall aesop.
Speaker Change: All very encouraging thanks, Ken.
Speaker Change: Your next question comes from the line of <unk> from Jefferies. Your line is open.
Speaker Change: Thanks for taking my question.
Speaker Change: Within your organic growth guidance and you maintain that but how are you thinking about price versus volume within that guidance and has that changed since you started the year and then just on your price actions have been implemented surcharges or are those normal price increases. Thank you.
Speaker Change: I'll take the last end of your question sorry.
Speaker Change: We have not gone out with surcharges, we've gone out but general price increases.
Speaker Change: The tariffs scenario was a bit of a stop and go because initially we thought it was on and then.
Sort of came off the board.
More recently, so a short answer is that as we think about tariffs over the long term, we think about a general price increase and less about surcharge I'll, let Kevin talk about the rest of the year and pricing.
Speaker Change: In EMEA and APAC not really.
Kevin Johnson: Much significant chance, we expect flattish price as we go through.
Kevin Johnson: Rest of the year similar to what we saw.
Kevin Johnson: In the first quarter the main area, where we did make some moves in price wars.
Kevin Johnson: The North American business, sorry, I'd expect the price that we saw in the first quarter to read either at a similar level for the rest of the year.
Speaker Change: I appreciate the color and then you talked about proactively increasing from inventory in the Americas. So just curious if you saw similar pre buying activity from your customers.
Kevin Johnson: The short answer is no.
No sorry, we sort of protecting ourselves in fact, I would submit that there was there was a.
Kevin Johnson: Dynamic in the North American market, where.
Kevin Johnson: We found the channel to be waiting.
Kevin Johnson: Flipping to settle before they sort of engaged completely partially because they were not sure where prices would go to they were unsure whether they would stick.
Kevin Johnson: So as a result, there was a bit of.
Kevin Johnson: Sort of.
Kevin Johnson: Lull in the North American market for Us. So no short answer is we didn't see a significant amount.
Kevin Johnson: Inventory buildup at the channel.
Kevin Johnson: Oh, Thanks, sorry in terms of what were pre buying we obviously learned a lot of lessons. The last time. The tariffs came in there was a number of skus that at that point.
Kevin Johnson: Created some issues, it's not new sales a large part of our supply chain, but we did learn some lessons last time. So we were very proactive. This time to get ahead to make sure that we protected our supply chain by getting those components onto our shelves.
Speaker Change: I appreciate the color.
Speaker Change: Your next question comes from the line of make debris from Baird. Your line is open.
Speaker Change: Yes, good morning.
Speaker Change: On an Americas maybe.
Speaker Change: Be helpful to get a little more kind of color or clarification in terms of how youre thinking about organic growth for the year and then.
Speaker Change: Maybe splitting it between between price and volume metric rewards in your mouth, but the way I sort of heard it.
Speaker Change: We're going to get a little bit better pricing than we expected before just with tariffs and all of that but maybe maybe volumes compressed a little bit related to this is there a difference in the way price relative to volume flow through to impact your margins.
Speaker Change: Yes, so in terms of.
Speaker Change: I think youre spot on Meg in terms of your overview on the on the organic growth. We expect overall as I said in the script earlier low to mid single digit negative.
Speaker Change: Core volume as we progress through the year, which is in line with what we expected last quarter, when we give our guidance, but theres certainly a little shifts between volume and price in those numbers.
Speaker Change: We did make that move to cover the impacts of the tariffs already and we have seen some more challenge in the <unk>.
Speaker Change: North American market in particular, our expectation in terms of volume for the year.
Speaker Change: It would be in the range of negative mid single digits for the year.
Speaker Change: In terms of actually of margin.
Speaker Change: A large part of that price, we went for and the sort of backend of the quarter. We're trying to make sure that we cover tariffs. We're obviously trying to make sure that we have a little bit extra there, but we'll see how that plays out as we go through the rest of the year.
Speaker Change: And then make the <unk>.
Speaker Change: <unk> process of net pricing stays and so our intention is to look at the entire business and ensure that both regions.
Speaker Change: Our net positive on price and.
Speaker Change: And you saw that sort of come through nicely with both of the regions sort of expanding margins in a tough tough environment.
Speaker Change: And if I may follow up on margin.
Speaker Change: Just just the way the really the last three years kind of played out you had this.
Speaker Change: Nice sequential build in margin through the year in the Americas business.
Speaker Change: And.
Speaker Change: At least I model that at this point for 2025 as well but.
Speaker Change: This year being a little bit different with tariffs I'm wondering if there is.
Speaker Change: A particular cadence that you have in mind here in terms of how margins might progressed in the Americas business that would look maybe different than expectation. Thank you well I think the big difference is the.
Speaker Change: Organic growth in the region and what that.
Speaker Change: Helps drive across the bridge a business make.
Speaker Change: The short answer is sort of where.
Speaker Change: We're we've started off the year.
Speaker Change: And then we've given some seasonality numbers out there and we can talk more about it but my thoughts are that it surely is starting off as a year that doesn't feel like all of the rest.
Speaker Change: But that being said, we've always been confident about the way that we've been running the business and the opportunities that we have to expand margins.
Speaker Change: But it does not feel like.
Speaker Change: As before at.
Speaker Change: At least the last two.
Speaker Change: But I think the team has done a nice job, we've got a slew of projects to work on to.
Speaker Change: To continue to improve margin.
Speaker Change: And but I think it would be incorrect to say that it's like sort of 2024 and 2023.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of <unk> <unk> from Bank of America. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: Just wanted to touch a bit more on Americas margins, we've seen the margin expand notably on lower volumes, how much of that expansion is driven by product mix towards equipment and gas controller automation versus <unk> initiatives.
Speaker Change: We've always talked about.
Speaker Change: Being three aspects to our margin expansion story. The first one obviously is a net price.
Speaker Change: The second piece is our <unk> initiatives and lean activities.
Speaker Change: Kaizen activities that we run through our facilities and then the last portion of it is.
Speaker Change: The portion that we talked about always which is our shift in mix towards gas control and equipment. So all three contributed to it but I would also state that we accelerated some growth investments as well and we've made some growth investments in the quarter and so what you see here in our results is yes.
Speaker Change: Expanded margins, but within those expanded margins. We also invested in our business and Kevin talked about.
Speaker Change: As per as investing close to $15 million to $20 million this year in growth investments and we kept those.
Speaker Change: And that's also reflected in our results.
Speaker Change: Understood and then earlier you noted a lull in North America, just given the tariffs could you unpack performance a bit more regionally.
Speaker Change: For the rest of the globe.
Speaker Change: You mentioned before just in North America, Yes.
Speaker Change: Yes, I think the north American market as I talked about sort of went into a wait and see mode.
Speaker Change: In the first quarter, but what we did notice and I mentioned this even in my earlier commentary, where we see Europe, India in particular in the Middle East continued to be very optimistic about what's ahead of them.
Speaker Change: So as as we saw the U S go into a wait and see mode. We saw the other regions actually pick up.
Speaker Change: Sort of look forward on investing in figuring out.
Speaker Change: Their own path forward in this new world and so we're excited about that obviously because of the way <unk> is set up we think Europe has a lot of upside potential we saw middle east continued to grow in strength.
Speaker Change: See India also picking up and strength, we also saw green shoots in China actually.
Speaker Change: We actually had a really nice growth number out of our business in China, but as you know we play in the top tier of that segment and so we also saw our China business grow.
Speaker Change: And we were stable in South America. So all in all what you see is that the North American market is the one that is feeling the impact of all of these actions the rest of the world seems to be wanting.
Speaker Change: The shift away from the noise thats occurring here.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tami Zakaria from Jpmorgan. Your line is open.
Speaker Change: Hey, good morning. Thank you so much I actually have only one question and nothing related to the quarter per se.
Speaker Change: So your 2020.
Speaker Change: Target.
Speaker Change: China, 2% plus EBITDA margin.
Speaker Change: Do you think it's time to maybe update that target given your already had plenty yet this year and just by improving the mix of equipment within the total portfolio.
Speaker Change: By a few percentage points that get you to a 22% so just.
Speaker Change: I'm, just wondering how youre thinking about.
Speaker Change: Long term margin targets and.
Speaker Change: You know your margin has been surprising to the upside at least from our perspective despite.
Speaker Change: Despite organic growth being lower than the long term target of three to five.
Speaker Change: So if the topline improves the probably the margin flow through is going to be even better so any thoughts on how to think about that 22%.
Speaker Change: Tiny tiny eight target.
Speaker Change: Always good to hear from you Tammy I think we.
Speaker Change: Often talk about when we would.
Speaker Change: Go out and talk about the next targets that we want to set for Aesop I think as I've mentioned before it's very important for us to hit the numbers that we've stated.
Speaker Change: And then raise.
Speaker Change: Expectations off of that.
Speaker Change: You are right that we're off to a great start great momentum, we love where we're at.
Speaker Change: And we are considering giving some thought towards how we take our targets up past the 2028 numbers that we've given but nothing to date, but you're spot on that as our mix changes as <unk> takes hold as.
Speaker Change: As we drive more gas control and equipment business you are right that the potential for margin continues to be that but we've also mentioned that we're investing in growth one of the things that we learned back in 2016 is that for all grade business to grow over the long term you need to invest.
Speaker Change: And we've made those investments and I spoke about them briefly in innovation, our relationships with universities and some new AI use cases that we've got going on within the business and so expect us to do both expect us to grow margins and invest back into business and not just kind of take everything down to the bottom line.
Speaker Change: Understood.
Speaker Change: Thank you.
Speaker Change: Thanks Tommy.
Speaker Change: Your next question comes from the line of Nathan Jones from Stifel. Your line is open.
Good morning, everyone.
Speaker Change: Alright.
Speaker Change: I guess I'll start with.
Speaker Change: Kevin's comments on North America volume.
Speaker Change: I think you said you'd already seen some further softening in volume in North America can you just maybe give us a little bit more color on where you are saying that whether it's deferred capital investments on equipment or lower production on <unk>.
Pat: And consumables or and then Pat.
Speaker Change: Perhaps what end market, you're seeing incremental softness.
Speaker Change: Yeah, Nathan I think maybe I'll start it off and I'll hand, it back to Kevin I think we will be we meant was allowed probably not.
Speaker Change: Further deterioration, but just sort of.
Speaker Change: Ah piece and we expected that once the tariff commentary came in we anticipated that the channel.
Speaker Change: And customers all of them would sort of just wait to see where things land before sort of making investments.
Speaker Change: Our exposure to the large capital automation is lower but we did see the channel also sort of sit back and wait to understand where pricing was going what was going to happen with tariffs prior to making there.
Speaker Change: Plans for the year. So it was sort of a broad based.
Speaker Change: What I'd call a lull in the North American market.
Speaker Change: Not one particular piece sticks out, although I am going to assume.
Speaker Change: That if you had exposure to yellow goods or the auto segment, you saw a bit worse conditions than we did.
Speaker Change: Yes.
Speaker Change: LOE continuing or has it started to kind of normalize and people have gone back to a more normal kind of cadence of buying.
Speaker Change: No I mean Q2 at least in North America started off similar to where we've ended I think it will probably.
Speaker Change: On slide self once there's more clarity on the tariffs at the end of these 90 days.
Speaker Change: And then I guess my follow up question's going to be on Europe.
Speaker Change: It's interesting GE people start to talk positively about.
Speaker Change: The investment.
Speaker Change: Going on in Europe off there a number of years.
Speaker Change: Paying a pretty poor performing market.
Speaker Change: Maybe you could talk about when you would expect some of that stimulus to start hitting the European market and actually benefiting <unk>.
Speaker Change: <unk> had limited pretty limited exposure to Germany, historically very acquisition will increase that but just talk about how you would play in that market specifically.
Speaker Change: Yes.
Speaker Change: There is a broad based European stimulus and then there's the German based European stimulus and we're actively working both.
Speaker Change: And so the view for US is I think the finance Minister, Germany went into place two days ago, if I'm not mistaken.
Speaker Change: And so as a result, now we feel that the German economy begins to sort of activate some of the things that they talked about through the election cycle.
Speaker Change: The third and fourth quarter.
Speaker Change: But that being said.
Speaker Change: There is other activity in Europe in terms of how we've seen orders come in how we've seen the activity level, which gives us strong confidence that it only gets better from what we're already seeing.
Speaker Change: A trillion dollars into the European economy would be extraordinary Nathan and so our view of that is.
Speaker Change: No better Fab Tech company.
Speaker Change: <unk> for that no better gas control business positioned to take advantage of that infrastructure and build out in the European market. So so yes. It is a positive and none of that's in our forecast and we expect that as those things come into play we'll begin to see things sort of shift more positive for us and the rest of the world.
Speaker Change: Great. Thanks for taking my questions.
Nathan Jones: Thanks Nathan.
Speaker Change: Your next question comes from the line of Neal Burk from UBS. Your line is open.
Neal Burk: Hey, thanks.
Speaker Change: One question on the guidance.
Speaker Change: If my math is right I guess, Bavaria adds about $20 million of revenue to this year and you increase EBITDA by about $2 $5 million. So I'm just.
Speaker Change: Curious how much of that increase is from Bavaria, and does the guidance embed any kind of like macro uncertainty given what we're seeing right now with tariffs.
Speaker Change: Yeah as John mentioned, so you are correct it's.
Speaker Change: Just over $20 million is roughly the right number for <unk>.
Speaker Change: Through the <unk>.
Speaker Change: <unk>.
Sean Come: Profit guidance was largely <unk> and are reading through in the numbers, we expect <unk> to be EPS neutral as Sean mentioned in his script in the first year that means that it's slightly below our fleet average.
Speaker Change: A couple of good.
Speaker Change: Synergy opportunities with that business that we're going to roll out in the first year and it will be accretive and quite a bit accretive by the second year, but in the first year just slightly below. So you are seeing there are two $5 million to $3 million kind of reinsure profit reading through on that.
Speaker Change: $20 million of revenue.
Speaker Change: If I could just highlight to that Neal I think when I visited that business last week very impressed with the manufacturing side.
Speaker Change: Validated some of the synergistic opportunities that we have within the business.
Speaker Change: They had just won a large contract as I walk through their site on that day. So that was a bit of a celebration going on our supply chain and our ability to source material would be extraordinary.
Speaker Change: So we're really excited are they similar to what we did with the <unk> acquisition.
Speaker Change: A bit.
But lower than our fleet average in terms of margin, but within six months, we saw it being very positive.
Speaker Change: And accretive to our margins and that's something similar that we expect here and for everything that is going to get investment.
Speaker Change: This code material in flux is going to be key and it really positions <unk> to be a leader in that space. So very excited about the deal.
Speaker Change: Thank you. Thank you I'll pass it on.
Mark: And that concludes our question and answer session I will now turn the call back over to Mark <unk> for closing remarks.
Mark: Thank you for joining us today, and we look forward to speaking to you again next quarter.
Mark: This concludes today's conference call. Thank you for your participation you may now disconnect.
Mark: [music].
Mark: Sure.
Mark: [music].