ESAB Corporation (ESAB) Q2 2025 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the ESAB Second Quarter 2025 Earnings Release and Conference call. [Operator Instructions] Thank you. I would now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. You may begin.

Thanks, operator. Welcome to ESAB's Second Quarter 2025 Earnings Call. 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 for 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 and today's slide presentation. 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 for joining us today. Before we begin, I want to express my appreciation to our teams around the world for their unwavering commitment to our customers to EBX to the disciplined execution of our long- term strategy. Despite operating in a challenging market environment, we delivered another quarter of strong results with record margins, a clear reflection of the resilience of our model and the dedication of our teams. During the quarter, I had the opportunity to go to Gemba and visit several of our recent acquisitions. I'm excited about the capabilities and competencies that these businesses bring to ESAB. I also visited teams in Gothenburg and Shanghai. It's always energizing to meet with our teams in the field to listen, learn and witness firsthand the passion and execution that drive our success. Amidst this dynamic environment, our teams remain laser-focused on the fundamentals, disciplined cost control, elevating the customer experience and sharpening our go-to-market differentiation. These priorities are paying off, and it's clear that ESAB continues to stand out as a world-class franchise positioned to benefit from long-term structural tailwinds, particularly across Asia and Europe. In EMEA and APAC, the performance this quarter was strong. This momentum is a direct result of our team's ability to execute the EBX growth playbook with precision, driving organic growth and capturing broad-based share gains across our markets. Turning to the Americas. A few dynamics are worth calling out. Tariff-related uncertainty introduced unexpected volume headwinds, particularly impacting our local customers in Mexico. And we saw some automation orders delayed with demand now expected to shift into the second half of the year. That said, the underlying health of the business remains strong. Our pipeline of opportunities is robust, and our teams are focused on delivering. Encouragingly, we began to see signs of improved market conditions in North America in July and early but positive indicator as we move deeper into the second half. Despite the short-term headwinds, our teams delivered total sales growth of 2% and achieved record adjusted EBITDA margins of 20.4%. This performance speaks to the resiliency and strength of our operating model and the consistent focused execution by our teams, even under pressure. In parallel, we continue to make meaningful strides on our Compounder journey. Since our last update, we have successfully completed 2 gas control acquisitions, DeltaP & Aktiv and signed EWM, which accelerates our heavy industrial product road map and expand our equipment capabilities. Given our confidence in the strength of our equipment portfolio, the momentum in our gas control business, improving market conditions in North America and the continued resilience in our high-growth markets, all underpinned by EBX, we have raised our full year guidance. Moving to Slide 4. Before we go into detail about our performance and recent acquisitions, let me share another initiative that highlights our passion for our industry. At ESAB, we believe that investing in talent is a strategic priority to ensure the long-term success of our business and the future of the fabrication technology industry. The Flame Internship Program originally launched in Brazil, represents a global initiative designed to give college students immersive hands-on experience working within industrial companies like ours. This initiative spans across every functional area from engineering, operations, to marketing, finance, supply chain and now digital innovation. The program is energizing not only for our interns who gained vital exposure to real-world challenges and sharpen their skills, but also for our local teams who benefit from fresh perspectives and enthusiasm that these young professionals bring. It has become a catalyst for learning, collaboration, mentorship across our organization. Beyond its near-term impact, the Flame Internship Program is an intentional investment in building robust talent pipeline for the fabrication technology sector. By accelerating professional growth and fostering leadership potential, we're shaping the next generation of leaders for our industry. Turning to Slide 5 to talk about the quarter and give you more color around our performance by geography. As this slide illustrates, ESAB continues to benefit significantly from our unmatched global footprint. Our balanced presence across Americas, EMEA and APAC, not only provides resilience in the face of regional volatility, but it also positions us to capitalize on growth opportunities wherever they may arise. Our business outside North America continues to build on its strength. Europe remains steady, and we're well positioned to benefit from EU stimulus measures already in motion. The Bavaria acquisition is off to a strong start, further strengthening our regional capabilities. In the Middle East, we delivered double-digit growth, a clear evidence of their diversification strategy and investment. India also remains a standout, growing at high single digits. With our leadership position and strong local presence, we're confident in our capability to capture an outsized share of both public infrastructure investment and private sector growth over the next decade. In China and Southeast Asia, the business grew mid-single digits, supported by increased capital expenditure and ongoing LNG investments in China. Meanwhile, Australia and New Zealand delivered solid performance in the quarter and we remain optimistic about the outlook for the rest of 2025. This sustained EMEA, APAC performance is no coincidence. It is a product of our well- matched geographic footprint, a world-class team, a differentiated product portfolio and disciplined and consistent execution. In both EMEA and APAC, our teams continue to exemplify the EBX playbook, driving strong organic growth and robust margin expansion. Shifting our focus to the Americas. As mentioned earlier, we faced near-term headwinds, primarily due to tariffs. This particularly impacted our local customers in Mexico, where we saw unexpected softness. Additionally, customer orders and automation were delayed into the second half of the year. Despite these challenges, our automation funnel continues to be robust and gives us confidence in the second half as South America continued to perform well, and our recent acquisitions, SUMIG and Sager are performing as expected. In summary, we're executing from a position of global strength. ESAB remains a globally balanced and agile franchise, one that is built to perform, adapt and grow through all phases of the economic cycle. Moving to Slide 6 to discuss how we're leveraging EBX and AI to accelerate our long-term growth. During the fourth quarter, we laid out a road map, leveraging EBX and AI to reduce structural costs and accelerate growth. Today, I'm pleased to share that we're not only delivering on that plan, but exceeding it. We're taking this opportunity to go even further, driving more cost out of the system while investing decisively in our future. These initiatives are not just reducing complexity, they're enhancing how we serve our customers. As a result, we have raised our full year productivity savings target to approximately $13 million, up from our original $10 million estimate. In parallel, our back office optimization work has gained momentum, and we now expect to deliver $17 million in savings, reflecting stronger-than-anticipated execution. At the same time, we remain firmly committed to investing in the future. In 2025, we're deploying approximately $20 million in strategic growth investments, funding university research partnerships, expanding commercial excellence initiatives and advancing our AI capabilities. Looking ahead, we plan to bring our EBX office and AI initiatives together, creating a more integrated engine for operational excellence and innovation. These capabilities are increasingly converging, enabling smarter, faster decision-making and more adaptive systems. It's still early, but the progress is real and we're confident this combined approach will have a lasting impact on both productivity and customer experience. Turning to Slide 7 to discuss how EWM strengthens our Equipment & Robotics portfolio. Earlier this year, we announced that we entered into an agreement to acquire EWM. EWM is a leading provider of premier arc welding and robotic technology solutions with a leadership position in the Germanic region. This business brings advanced technology, a highly respected global brand and a strong team. Our businesses are highly complementary in terms of customer bases and channel partnership, making for a unique strategic fit. This EUR 120 million revenue business is expected to be accretive in year 1 and expected to close in the fourth quarter. We could not be more excited to have EWM team join ESAB as EWM accelerates our global equipment growth strategy. Moving to Slide 8 to discuss how ESAB and EWM together create a premier workflow solution. Together, the combination of ESAB and EWM accelerates our product road map, EWM strengthens our heavy industrial portfolio with advanced welding technologies while our innovative light industrial lineup builds key product gaps within EWM. It's a natural fit, one that creates a truly differentiated offering. Now what makes this partnership even more exciting is EWM's React technology, a true breakthrough in the welding space. The Holy Grail of welding has always been the ability to deposit metal faster at a lower heat in order to reduce distortion, improve precision and enhance overall productivity. With React technology, we're achieving exactly that. In some applications, we're seeing up to 100% faster weld speeds, twice the deposition rate, all while operating at 35% less heat input compared to traditional short arc welding processes. This doesn't just improve performance. It delivers real-world customer benefits, less fume, zero splatter and significantly improved safety and environmental conditions on the shop floor. With EWM in our portfolio, we have expanded our best-in-class workflow solution for advanced applications, including additive manufacturing and thin metal precision welding, especially for materials like aluminum and stainless steel. When paired with our proprietary consumables, torches and InduSuite digital overlay, we are delivering a fully customizable end-to- end ecosystem. And we see substantial global selling opportunities ahead. This is more than an acquisition. It's a strategic leap forward in how we serve industrial, automation and advanced manufacturing customers around the world. Moving to Slide 9 to discuss our newly acquired medical and gas control businesses. During the second quarter, we acquired DeltaP and closed on Aktiv in early July, which propelled us further on our Compounder journey. Let me first start with DeltaP, a European- based medical gas system manufacturer. This business further strengthens our medical gas control position in Europe and is highly complementary with our existing business. This business generates annual sales of approximately $10 million and has gross margins greater than 40%. We see significant opportunities to accelerate growth as we insert DeltaP products into our global distribution. I'm also excited about the addition of Aktiv, an India-based business with local manufacturing. This business has annualized sales of approximately $5 million and gross margins north of 40%. We're excited with the opportunities this brings for global product expansion. Together, these acquisitions accelerate our medical gas equipment strategy, providing ESAB with complementary products and an entry into the fast-growing India market. Turning to Slide 10 to discuss how DeltaP & Aktiv extend our medical gas portfolio. As you can see on this slide, these 2 acquisitions significantly expand our portfolio by providing advanced integrated solutions across the full spectrum of hospital gas systems. The product offerings from DeltaP & Aktiv cover critical components found throughout the health care facilities including in mission- critical environments like the ICU, emergency room, surgical suites and general wards. As shown on the slide, our solution now spans the entire supply and distribution chain, delivering, controlling and monitoring medical gases safely and reliably throughout a hospital. Together, these acquisitions expand our total available market by $200 million and positions ESAB as a truly world-class provider of medical gas control products. One that is aligned with our Compounder strategy and build for scalable, profitable growth. On that note, let me hand it over to Kevin.

Thanks, Shyam, and good morning. Let's turn to Slide #11. During the quarter, ESAB benefited from strong market demand in our high-growth markets, offsetting tariff impacts in North America and supporting balanced organic growth. Total sales rose 200 basis points year-over-year, driven by acquisitions on more favorable currency trends. The team's execution this quarter reflects their adaptability and commitment to excellence, which has been instrumental in achieving the highest adjusted EBITDA margin in the company's history. Turning to Slide #12. Organic sales in the Americas declined due to delays in automation orders caused by tariff uncertainty and a weaker Mexican market as new customers from last year delayed investments. However, strong pricing helped balance this. The SUMIG acquisition added 300 basis points of growth, partially countering the negative effects of a stronger U.S. dollar. ESAB remains focused on long-term growth using the EBX business system to enhance pricing, productivity and efficiency, a strong operational performance eased the impact of tariffs in the quarter and adjusted EBITDA reached 20.1%, highlighting our team's resilience. Moving now to Slide #13. EMEA and APAC maintained strong growth, especially in the Middle East, India and Asia with robust sales funnels and increased optimism heading into the second half of 2025. Total sales rose 11%, while EBITDA margins hit a record 20.6%. Volume grew by 600 basis points, led by high-growth markets and Europe showed positive momentum, benefiting from new stimulus measures. The Bavaria and Bangladesh acquisitions contributed an additional 400 basis points of growth and are performing well. Favorable FX, particularly a stronger euro versus the U.S. dollar, supported results. Our teams in EMEA and APAC delivered an outstanding quarter, surpassing expectations and establishing a strong momentum for continued success throughout the remainder of the year. Moving on to Slide #14 to discuss our cash flow. In the quarter, we generated $46 million in free cash flow. This cash flow reflects some increased prebuys related to tariffs and increased working capital in the EMEA and APAC to meet higher growth. Looking ahead, we expect an improvement in cash flow during the second half of 2025, primarily due to a reduction in tariff-related inventory as well as normal seasonal trends, which historically drives stronger cash flow in the second half of the year. Maintaining net leverage within our 2x target range has been a key focus and this disciplined approach enhances our ability to invest flexibly in growth opportunities aligned with our Compounder strategy. This strong financial position ensures that we can adapt to changing market conditions, pursue strategic acquisitions and continue generating shareholder value over time. Moving now to Slide #15 and our 2025 outlook. Revenue assumptions have been increased around 25 basis points due to the DeltaP & Aktiv acquisitions, which together provide approximately $7 million. The remainder is attributed to changes in FX rates. The current guidance does not include the EWM acquisition expected to close in Q4, which presents some additional upside. Guidance for organic growth remains unchanged. In the second half of 2025, we expect low single-digit organic growth for ESAB. EMEA and APAC is expected to achieve mid-single-digit growth offset by a low single-digit decline in the Americas. Adjusted EBITDA guidance has been increased to a range of $525 million to $535 million. Cash flow conversion guidance is unchanged. The company continues to prioritize cash flow performance and maintains a strong balance sheet to support our growth plans. With that, let me hand back to Shyam on Slide 16 to wrap up.

Thank you, Kevin. We delivered another strong quarter, driven by outperformance in our EMEA and APAC segments, and we expect this momentum to continue. Our high-growth markets are thriving, and we remain confident that our automation business in North America and the activity in Mexico will rebound in the second half of the year as customers adapt to evolving market dynamics and trade conditions stabilize. This year, we're on track to complete 4 acquisitions Bavaria, DeltaP, Aktiv and EWM. These moves further accelerate our Compounder journey, strengthening our portfolio, expanding our reach and enhancing our technology offering. Our balance sheet remains strong, and we continue to drive EBX to deliver strong margin performance. We have started Q3 with good momentum and are confident in our execution. As a result, we have raised our 2025 guidance. Looking ahead, we are executing with discipline, backed by the power of EBX, the potential of AI and the passionate global team. ESAB is built to lead, build to grow and build to win across cycles and around the world. With that, operator, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Tami Zakaria with JPMorgan.

My first question is on tariffs. By the way, great results in outside the Americas. But I think you mentioned tariffs were 500 basis points of volume headwind. And I just wanted a little more color. Is that headwind tied to a few customers? Or was it broad-based? Is it more of a timing shift and you expect to recover in the back half? I heard you mentioned Mexico. But any more color you can give regarding what gives you confidence that things can get better in the back half?

Tami, always good to hear from you. So thank you for that question. First, I do want to reiterate that we were very proud of our performance in the rest of the world, especially EMEA, APAC, really strong volume performance. And as you know, the business continues to build from a momentum that we had started really a few years back. So really strong performance and proud of the team in EMEA and APAC. On the North America side, you're spot on. What we did see is once the tariffs hit in April, our local customers in Mexico, which is a combination of both the channel and some transportation customers that we had won a year earlier sort of delayed ordering and sort of went into a wait-and-see mode, which was unexpected on our part as we went into the quarter. We expect that to sort of abate as we get into the third quarter and the fourth quarter, but it's still a wait-and-see piece. On the automation side, we are actually very confident. We do have the orders on hand. We do have a schedule that it now shapes to a better position in the second half and a lot more confident about that recovery, not only in the robustness of our funnel, but also the orders that we have to ship in the second half.

Got it. That's super helpful. And then a very quick one. I think I saw in one of the slides, you quantified $30 million savings. Can you just remind us what those savings were in 2024 or 2023? Just trying to understand if the savings are accelerating or remaining stable.

Tami, yes, we've -- the last -- over the last few years, we've been increasing the number of savings that we've been able to generate. So we've been doing a lot of footprint rationalization over the last few years. And now as you can see with what Shyam discussed today in the call, we started to move a lot more into back office automation. We're doing a lot more EBX initiatives around our facilities to actually improve the productivity, but there's been a -- certainly a ramp-up in terms of the savings we've generated over the last 3 years.

Your next question comes from the line of Bryan Blair with Oppenheimer.

I guess somewhat a follow-up to Tami's question. It looks like Americas Q2 core growth would have been essentially flat, excluding the tariff impact that you outlined. Maybe offer a little more color on the underlying order trends through the quarter. You mentioned some improvement in July. If there are any finer points you can offer there, that would be helpful. And then touch on or quantify preferably how we should think about the catch-up in automation demand and Mexico orders, the impact to Q3, Q4 revenue.

Yes. If you remember, Bryan, the way that we had talked about the Americas, even as we went into the quarter, we had talked about volume sort of being down mid-single digits. And obviously, when you see the print today, it's a bit worse than that. And we sort of talk specifically about the 2 items that you mentioned, which was Mexico and automation sort of creating that additional down drag. We see automation coming back nicely. And so that no longer, in our view, is an issue in the second half. Mexico, on the other hand, has shown some life, but I think it takes a bit longer. As you know, we still don't have a complete trade agreement with both Canada and Mexico at this current time. We think whenever that sort of gets figured out and settles, we'll see sort of Mexico come back to normal. And the second aspect of it is something that we've always felt as we guided our numbers for the year is that the second half comparables also for ESAB get better. If you remember, we did have a really solid post last year in the second quarter in the Americas. And so all of that sort of play into how we're guiding the second half of the year. To the comment that you had on orders, we did see stability in the orders and a slight improvement in the Americas. So that is the other encouraging piece for us. I think as we sort of exit July, surely feel a lot better about how we're guiding the rest of the year.

That's helpful color and encouraging. It would be great to hear a bit more about EWM. Your commentary was, I would say, uniquely enthusiastic on the deal. To quickly cover just the basic financials, how should we think about growth rates and margin at the outset and where your team believes profitability can climb over time? And then more importantly, with the deal being somewhat of a proxy for R&D, any other detail you can offer on how it influences the refresh of your heavy industrial portfolio and related opportunities?

Yes. So let me start with the piece about enthusiastic. I appreciate that. Obviously, it's a sizable deal for us and took a significant effort from our team. The other piece that we loved about the process was that it was proprietary that we were able to sort of execute on the deal working with the team at EWM. So really kudos to our entire team in Europe and our corporate team here on executing that transaction. There is enthusiasm partially because what I mentioned on my call, which is this React technology that they have. And as you know, Bryan, I think we've been working to -- working our way into industries that we don't currently participate in. And this technology and process gives us access to that. When it comes to additive manufacturing, when it comes to thin metal, when it comes to larger OEMs that need this technology today, there was really -- there's maybe one other player that sort of has something similar. And so we really feel good about the acquisition, the technology that it brings and how it fills out our portfolio. From a sales perspective, as we mentioned, it's EUR 120 million business. We expect it to benefit from the stimulus that's coming up in Europe. It has a position of strength in the Germanic region where we had very little exposure. We think the Germanic region is at the bottom, and it moves up from here. The question really is around timing as to when the German market improves, whether it's in the third or the fourth quarter. We expect to close the deal in the fourth quarter. So we're hoping the timing sort of fits perfectly on top of each other. But no different than our expectations for our equipment business. We think over the long term, it has mid-single-digit growth potential. The gross margins in this business are north of 40%. And yes, there is some opportunity to sort of save on the R&D spend side where we no longer have to invest in building out that technology at ESAB, and we can now focus our business along with the EWM towards growth. Anything I missed, Kevin, on EPS?

I mean the deal brand is highly synergistic, as Shyam mentioned. So significant overlaps with ESAB globally, and we're looking forward to partnering together. And the ROIC on this deal looks a little bit more like a bolt-on than a strategic asset, which is what it is. So our expectation would be carrying a 10% ROIC threshold within sort of 3-, 4-year time period. So real excellent return on this investment.

Your next question comes from the line of Nathan Jones with Stifel.

This is Adam Farley on for Nathan. Maybe first on China and Southeast Asia. You noted a positive outlook for the year. What industries are driving the improvement? What industries are still struggling? And what gives you confidence for a continued positive outlook?

On that particular front, if you've sort of seen us, we've been actually quite positive on China, partially because of where we play on the top tier of the market. We never really saw a down drag in China. And if you remember, even on the calls in the past where people were seeing sort of a significant headwind in China, we've actually held our business stable. In fact, in my recent visit to our team in Shanghai, we sort of go through an operating plan as to what we set as goals 5 years ago and where the team has come. Our business has doubled. And our EBITDA margins have expanded over 700 basis points in that time period. So an extraordinary effort by our team in China. Where we see the strength is again on the energy sector. We participate also in the rail, high-speed rail and a little bit on high-end infrastructure build-outs. Where we see China continue to work on its energy independence, we do see them continuing to invest and maintain their high-speed lines, rail lines. And so as a result, ESAB continues to benefit from that tailwind in China. The Southeast Asian market was a bit down and has shown signs of recovery. Part of it is manufacturing and infrastructure improvements that are moving into the region. That's benefiting ESAB. And then we also saw life and positivity out of Australia and New Zealand. So that whole geography for us, at least on the bottom side of China, Southeast Asia and Australia were a bit down, but are showing signs of recovery. And really, I can't say enough. I think the number that we posted in the rest of the world, EMEA and APAC, almost a 6% volume growth based on everything that we're seeing out there in the market and how people are talking about those markets. I think we have an exceptional enterprise and something to be very proud of.

That's great. And maybe on price cost, what was the impact of price cost in the quarter to margins? And is ESAB covering tariffs with price?

Yes. So we're -- as we've done in the past, Adam, the business has done a great job of getting price to cover tariffs. We were price cost neutral against tariffs in the quarter. So it did create a little bit of compression on the gross profit margin, but we are covering all of our tariff costs with price.

Your next question comes from the line of Neal Burk with UBS.

So incrementals were pretty solid in the quarter, up 37% for the company. I guess like the guide for the back half, if my math is correct, implies a step down in incrementals. So I guess, number one, is that right? And number two, like what kind of leads to that step down in incrementals given it seems like the volume declines were worse in 2Q?

Yes. I think there's a couple of pieces to it. The first one is, obviously, you saw we guided to a better FX range and FX doesn't drop at the same incrementals. I'll let Kevin talk through the rest of it.

Yes. So on the FX side, which was really the majority of the arrears we put through, as you know, we have a lot of our costs in the geographies where we operate. So when we go up or down on FX, we typically get incrementals or decrementals somewhere in the sort of 10% type range. So therefore, that does create a little bit of compression in terms of the year-over-year incrementals or decrementals for us as FX moves. Underlying that, of course, we're working hard on all of the initiatives that Shyam discussed, and we'll continue obviously to work hard on savings and look to see if we can find opportunities to continue to improve that number. But that's the main reason why you're seeing that year-over-year.

Yes. I think just to sort of add to Kevin's comment, we are expecting to see better volume, organic volume in the second half than the first half, and then obviously, some better FX tailwind as well in the second half. So those would be the 2 aspects.

All right. That's clear. On new products, I know this gets sort of complicated with all the tariff noise in the Americas, in North America in the quarter. But like can you just give us an update on new product introductions and like any contribution to sales?

Yes. We continue to maintain -- we do measure it. It's part of our key KPIs. It's something that's core to ESAB, measuring our vitality and new product introductions. I think we had talked about earlier on that we plan to maintain our momentum in new products. And this year, again, in terms of how we look at our product introductions, we're going to be very close to 100 new products introduced. Our vitality rate on a 5-year basis will still be closer to 23% to 24%, a little lower than where we were last year just based on some of this tariff-related noise that has come in. But all in all, we continue to feel very good about our vitality metric. We feel good about the new products that are being introduced. And now with EWM, DeltaP & Aktiv, we get to introduce really a new array of portfolio of products that I think our customers will really like, but more importantly, allows ESAB to sell an entire workflow, both in our gas control side of the business and in our Fabtech side of the business.

Your next question comes from the line of Mig Dobre with Baird.

A question on Slide 6, if I may. Can you talk a little bit more on this productivity improvement and the back office optimization? I'm looking at this chart, and I'm trying to make sure that I'm clear in terms of what this chart is telling us. Are these savings that you're generating relative to 2024? Does this contribute directly to EBITDA? Is that the way to interpret this chart?

That's right. Yes, Mig, these are additional savings that were generated in the year. So as we entered into the year, we were targeting around $25 million of savings. And as we've progressed through the first few quarters, we've actually increased the target that we're aiming for.

I see. So you've increased your savings by $5 million. It sounds like FX is contributing $5 million to EBITDA. You've only raised your guidance by half of what FX and savings are contributing. Is the implication here that the volume compression that you've experienced and the headwind that you've experienced in Americas, in Mexico & Automation, there's essentially no catch-up whatsoever that's embedded in the back half, hence, you raising by only $5 million rather than $10 million plus.

Yes. So I mean, what the slide is trying to project is the fact that we have been working hard on driving additional savings, Mig. But what we're also doing is protecting investments back within the business. So as you can also see on the slide, we're actually putting back into the business $20 million incremental on last year in terms of additional investments that we're making. So what we're trying to do is look for opportunities always to see how we can further deploy investments back into our commercial excellence program, back into work that we're doing around AI to accelerate long-term growth and improve the overall business in the future.

And I think on that front, Mig, I can tell you that some of the stuff that we have been working on, both with universities and with AI, it's extremely exciting, in my view, transformational in many ways. And our view today is that early investment in those things will reap a far more benefit to ESAB and the right thing to do. So we're saving. We're sort of protecting our margins in the business, but we're putting money back that we think will benefit ESAB in 2026 and beyond.

And then my follow-up, if I may, on Mexico specifically. A little bit hard to gauge what's going on from my seat at least. Can you maybe help understand how large Mexico is as part of this segment? And in terms of the disruption to demand that you're seeing over there, is there a particular industry that is driving that? I don't know if it's auto or heavy manufacturing? Or is there something else going on with your distributors? And really, the reason why I'm asking is because I'm trying to figure out exactly what we have to watch for in order to determine if something is different other than, obviously, the trade headlines over there.

Yes. I think that's a fair question, Mig. I think we had mentioned before in one of our calls that we were on par with our peers in Mexico. So you can, one, assume that our portion of Mexico is a little higher than our sort of peer set. And the second piece that we have not given out specific Mexico numbers, but what I can tell you is about 25% of our business sits within -- 20% to 25% sits between Mexico & Automation. And we saw that business sort of take the down drag of that 500 basis points that we spoke about, and you could probably split the 2 kind of down the middle the way that we see it. And then to your additional question, we did have a really good strategy and benefited from it. One of the things that we've often talked about is how we intend to kind of go out and play in our space. We did win several distributors and several new customers in Mexico last year. And this year, when the tariffs sort of came at them in April, they slowed down significantly. And so if you were to sort of gauge the Mexican market, you'd see that the volumes are down quite hard on that particular front. In terms of the industries that were -- that we have exposure to, transportation being one and then sort of general industry and really in the channel as well. And both sort of saw that down drag. The industry saw maybe a little harder down drag versus the channel, but both saw sort of a stalling is the best way that I could put it. But we do see a recovery coming at us, probably a little slower than where we see North America and the U.S. market in particular. But we're off to a good start, as I mentioned, Mig. Mexico is still slow, but the U.S. market is doing okay. And then the last piece, as I mentioned, the automation was really an issue in the quarter that got pushed out. And we see that sort of coming back at us in Q3 and Q4. And so we're very confident about that piece. And if semiconductor investment kicks in and some of the other stuff kicks in, then we've got additional upside.

Your next question comes from the line of David Raso with Evercore.

I'm most interested in Europe, just given it's your largest geography, and you made a comment EU stimulus measures already in motion. You mentioned the business is steady there. But I'm just curious, what are you expecting from Europe in the second half of the year into early '26? Are those stimulus measures already showing up in the order book? And can you remind us the margins in Europe versus the rest of EMEA, APAC?

Yes. So I'll take a few pieces here. I'll let Kevin jump in as well. So I think we talked about Europe being stable. So we're not seeing Europe sort of drop is the best way to think about it. When you -- when I talk about the stimulus measures in motion, we've seen energy independence. We've seen some spending associated with defense kick in, but not at the rate and the conversations that you've sort of seen in the newspaper. I mean there's comments around almost $2 trillion going into play in Europe over the next decade. That we have not seen come in. But we've seen commentary around the 2 things that I just spoke about come into play, activity and optimism exists. So the view for us for Europe is that it continues to be stable and not a business that -- where we've seen sort of volumes decline or sequential declines in the business. The other piece to answer your question, the margins for us in Europe are very strong, almost equivalent to slightly probably even ahead of our Americas business. So our margins are very strong in Europe.

Just on the outlook for growth, David, our assumption at the moment is that Europe would be flattish growth. And a lot of the growth in EMEA and APAC in the second half is coming from our high-growth markets.

That's helpful. And EWM, nice chunky acquisition, the technology, obviously, you're excited about. I'm curious, though, in gas control and the comment you're still positioned to have a strong pipeline of M&A. Anything chunkier in gas control, DeltaP, Aktiv, but something that EWM type size, is that something we can look for? Or are the gas control deals going to stay, call it, that sub-$50 million kind of size?

I think there's a couple of things. The short answer is yes, there are chunky deals in that space. Where we like to be is when we have a proprietary process in play and can match what we would -- what we think the asset is valuable to us rather than get into a sort of a regular auction process. We feel that the ROIC to our investors is better when we can create a proprietary process. So we've been working really hard. The funnel is actually very strong. We have a chance to sort of have a few bites of the apple here, hopefully, in 2026 or 2025, we'll see some things come into play. But the short answer is there's plenty of assets, plenty of assets that allow us to expand our presence in gas control and sort of achieve our 2028 goals of getting to $4 billion in sales.

One last, I'm sorry. In the Q, I noticed the equipment revs were flat, consumables up about 2%, but those are all-in numbers. Could you indulge me with the organic equipment consumables? Was it equipment down as that was maybe hurt more by the Americas issues?

That's right. The automation side of the business did sort of create a bit of a down drag on the equipment side of our business in the quarter, which we think reverses itself as we get into the third and fourth quarter.

Your final question comes from the line of Chris Dankert with Loop Capital Markets.

I guess just on that automation piece, can you kind of indulge us as to just how steep the drop in automation was? I mean just my back of the envelope says and we're talking about a pretty substantial cut here, we're talking 40% lower on a year-over-year basis. But just any kind of sense you can give us around just how like quantifying how big that automation component was?

Are you sort of looking at it in the Americas or globally?

Global automation sales.

Yes. The view that we have, globally, no, not that severe. I mean, maybe in the 20s, high 20s probably is where we would look at it. Now we obviously stack up a whole bunch of small ones rather than some big deals. But yes, that would kind of be the number.

Okay. That's helpful. And then I guess just as far as the Mexico component, you gave some color there. I appreciate that. I guess as far as how that's trended in July and August to date, has there been any thaw there? Or are we still kind of in a holding pattern?

No, some [ time ]. I think the view for us, a couple of things came at us in Q2, as I mentioned, we acquired a whole set of new customers last year. We sort of had great momentum in share momentum in the market. And then sort of this Q2, we were kind of coming up against sort of those wins that we had and those customers sort of fundamentally sort of going into a pause mode. They've since come off the pause mode, but not at the rates that they were at in Q2. So we see a slow recovery back into Mexico. We think once the trade deals get done, Mexico begins to sort of really move in the right direction. That being said, U.S. MCA is fine. So we're specifically talking about Mexico business for Fabtech.

This concludes our question-and-answer session. I would now like to turn the call over to Mark Barbalato for closing remarks. You may go ahead.

Thank you for joining us today, and we look forward to speaking to you next quarter.

This concludes today's conference call. You may disconnect.