Element Solutions Inc (ESI)·Q2 2025 Earnings Summary

Executive Summary

• Element Solutions delivered solid Q2 2025 results: revenue rose 2% reported and 6% organic to $625.2M; adjusted EPS of $0.37 and adjusted EBITDA of $136.0M; GAAP EPS of $0.20 as FX losses and a small divestiture loss weighed on reported net income .
• Results beat Wall Street consensus on both revenue and EPS; management raised FY 2025 adjusted EBITDA guidance to $530–$550M and introduced Q3 guidance of $140–$145M. The beat was driven by continued strength in leading-edge electronics (HPC/data center, wafer-level packaging) and resilient industrial margins despite weak volumes .
• Electronics posted a fifth consecutive quarter of high single-digit organic growth; Viaform wafer-level packaging grew >20% YoY; power electronics grew double-digit with broader EV customer penetration, though management flagged potential H2 EV headwinds and smartphone cyclicality .
• Strategic positioning and tariff mitigation underpinned confidence: “Our solutions are helping to solve emerging customer pain points associated with power and thermal management… Global trade dynamics remain volatile… [our footprint] has allowed us to minimize the impact of higher tariffs” .
• Capital allocation and balance sheet remain supportive: net leverage ~2.1x, fully fixed-rate debt with no maturities until 2028; repurchased ~0.9M shares for ~$19.5M; Q3 dividend declared at $0.08/share .

What Went Well and What Went Wrong

• What Went Well
  • Electronics strength across HPC/data center and advanced packaging: “Sales from our wafer-level packaging products grew more than 20%… programs on leading-edge nodes continue to ramp” .
  • Industrial & Specialty margin expansion despite weak volumes; segment adjusted EBITDA would have grown 10% ex-Graphics divestiture .
  • Raised FY guidance and Q3 outlook; FX expected to be a >$5M tailwind in H2; Q2 adjusted EBITDA exceeded initial guidance (raised intra-quarter) .
• What Went Wrong
  • GAAP net income fell 49% YoY to $47.5M on FX losses and a small divestiture loss; GAAP EPS declined to $0.20 and net income margin to 7.6% .
  • Electronics margins faced headwinds from pass-through metals and higher OpEx (corporate allocation post-divestiture and Cuprion R&D); adjusted EBITDA margin declined 40 bps YoY to 21.7% .
  • Industrial end markets remain soft, particularly in Europe and the Americas; smartphone demand mediocre with seasonality damped by mix shift to B2B .

Financial Results

Segment breakdown and margins

Actual vs Wall Street consensus

Notes: *Values retrieved from S&P Global.

KPIs and cash/Capital structure (Q2 2025)

Key YoY outcomes (Q2 2025 vs Q2 2024): Revenue +2% reported (+6% organic); adjusted EPS +$0.01; adjusted EBITDA +1%; total adjusted EBITDA margin −40 bps; Electronics net sales +12% reported (+9% organic); Industrial & Specialty −16% reported, +1% organic (divestiture impact −17%) .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “This was the fifth consecutive quarter of high-single digit organic growth in our Electronics segment… Our solutions are helping to solve emerging customer pain points associated with power and thermal management in increasingly complex circuit board and chip designs.” — Benjamin Gliklich, CEO .
• “Adjusted EBITDA of $136 million exceeded our initial guidance… Excluding ~$113 million pass-through metal sales, our adjusted EBITDA margin would have been just under 27%.” — Carey Dorman, CFO .
• “Global trade dynamics remain volatile… [our] localized sourcing, manufacturing and technical footprint… allowed us to minimize the impact of higher tariffs… Our recently increased 2025 adjusted EBITDA guidance range demonstrates our ability to navigate the current tariff environment.” — CEO .
• “We opened a new world-class research center in Bangalore… building labs in Thailand and Vietnam… our first mid-scale active copper manufacturing site is under construction and expected to be commissioned at the end of this year.” — CEO .

Q&A Highlights

• Demand sustainability: No evidence of Q2 demand pull-forward; smartphone pull-forward last year did not recur; expecting some smartphone ramp in Q3 .
• Power electronics outlook: Strong Q2 growth; H2 growth may slow due to customer-specific issues, offset by new ramps; product skew to high-performance EVs .
• Electronics margins/OpEx: Margin detrimentals driven by pass-through metals and OpEx (corporate allocation shift post-graphics divestiture and Cuprion investments); should normalize sequentially .
• Guidance guardrails: Upper end driven by stronger EV and smartphone and benign macro; lower end risk from macro deterioration and weaker FX tailwind; tariffs remain uncertainty .
• Cuprion scale-up: First production line to operate by year-end; likely need another site within ~18 months given demand forecasts; above-average margins expected .

Estimates Context

• Q2 2025 beat: Revenue $625.2M vs $604.9M consensus (+3.4%); EPS $0.37 vs $0.356 consensus. Q1 and Q4 also beat consensus on both metrics. These beats reflect strength in leading-edge electronics and resilient execution despite FX/tariff volatility .

Notes: *Values retrieved from S&P Global.

Implications: Consensus likely revises upward for Electronics-led businesses; the CFO signaled H2 FX tailwind (> $5M) and sequential adjusted EBITDA step-up in Q3, but management maintains caution around tariffs and EV/smartphone variability .

Key Takeaways for Investors

• Strong execution with breadth: Electronics outgrowth in HPC/data center and wafer-level packaging is durable; industrial margins improved despite weak volumes — supportive of sustained earnings power .
• Significant beat vs Street and guidance raise: Actual Q2 beat vs consensus on revenue and EPS; FY adjusted EBITDA guidance raised to $530–$550M; Q3 guide $140–$145M — a clear positive catalyst. Bold: Beat vs consensus and raised FY guidance .
• Margin optics: Reported EBITDA margins were depressed by pass-through metals and OpEx shifts; underlying margins excluding metals were just under 27% — supportive as mix normalizes. Bold: Underlying margin quality better than headline .
• FX/tariff dynamics: H2 FX tailwind (> $5M) provides a buffer; tariff impacts mitigated operationally but remain a macro risk to demand — monitor policy developments .
• Capital deployment and balance sheet: Net leverage ~2.1x, fully fixed debt at ~4% cost, no maturities until 2028; buyback capacity remains with $562M authorization; quarterly dividend steady — supports per-share accretion .
• Near-term trading: Favorable setup into Q3 on sequential EBITDA guide and anticipated smartphone ramp; watch EV demand signals and tariff headlines for volatility .
• Medium-term thesis: Structural advantages (local footprint, R&D scale-up, Cuprion) and leadership at the leading edge of electronics should sustain outperformance vs end markets; additional Cuprion capacity likely over ~18 months .