Neal Burk

Neal Burk inquired about the performance of ESAB's consumables business, given the solid growth reported in equipment and automation.

Answer

Shyam Kambeyanda, President and CEO, stated that the consumables business is 'steady' and performing better than the market, albeit with slightly lower growth compared to the strong performance in equipment and automation. He highlighted the success of new equipment product introductions and the strategy of offering full workflow solutions.

Neal Burk questioned the implied step-down in incremental margins for the second half of the year, given the strong 37% incremental in Q2. He also asked for an update on new product introductions and their contribution to sales.

Answer

CFO Kevin Johnson explained that the change in incrementals is primarily due to the impact of FX, which drops through at a lower rate of around 10%. President & CEO Shyam Kambeyanda added that the company is on track for nearly 100 new product introductions this year, maintaining a vitality rate near 23-24%, and noted new acquisitions will significantly expand the portfolio.

Neal Burk of UBS Group AG questioned why the second-half guidance implies a step-down in incremental margins despite strong Q2 performance. He also asked for an update on new product introductions and their contribution to sales.

Answer

CFO Kevin Johnson and CEO Shyam Kambeyanda explained the implied step-down in incrementals is primarily due to the impact of FX, which has a lower incremental margin of around 10%. On new products, Shyam Kambeyanda stated the company is on track to introduce nearly 100 new products, maintaining a vitality rate near 23-24%, with recent acquisitions set to expand the portfolio further.

Asked about the implied step-down in incremental margins for the second half of the year and requested an update on the contribution from new product introductions.

Answer

The lower implied incremental margin in the H2 guidance is primarily due to the impact of foreign exchange, which has a lower flow-through rate. The company continues to focus on innovation, with nearly 100 new products planned for the year, maintaining a vitality rate of around 23-24%.

Neal Burk asked for a breakdown of the updated guidance, specifically how much revenue and EBITDA the Bavaria acquisition contributes, and whether the outlook embeds macro uncertainty.

Answer

CFO Kevin Johnson stated the Bavaria acquisition adds approximately $20 million to the revenue forecast and accounts for most of the profit guidance increase, contributing $2.5-$3.0 million. CEO Shyam Kambeyanda added that while Bavaria is expected to be EPS neutral in year one, he is confident in significant synergy opportunities that will make it accretive in year two, similar to the past Sandvik acquisition.