ESAB 2026년 3분기 실적 발표 콜: 매출 14% 성장 및 연간 가이던스 범위 축소

핵심 요약

• 2026년 3분기 매출은 전년 동기 대비 14% 증가한 7억 8,700만 달러를 기록했습니다. 제품 가격 인상에 따른 2.5%를 포함한 핵심 자체(유기적) 매출 성장률은 2.3%였으며, 판매량은 전년과 비슷한 수준을 유지했습니다.
• 조정 EBITDA는 1억 5,600만 달러로 17% 증가했으며, 조정 EBITDA 마진율은 19.8%로 40bp 확대되었습니다. 조정 총이익률은 40.2%로 260bp 상승했습니다.
• 인수합병(M&A)이 매출 성장률에 11%포인트, 환율 효과가 1%포인트를 기여했습니다. 에디파이(Eddyfi)는 두 자릿수 성장을 달성했고, EWM은 한 자릿수 후반대의 성장률을 기록했습니다.
• 조정 잉여현금흐름은 인수 자금 조달에 따른 현금 이자 비용이 3,800만 달러로 증가하면서 기존 8,600만 달러에서 6,000만 달러로 감소했습니다. 조정 순차입금 비율은 전분기 대비 3.4배로 개선되었습니다.
• ESAB는 2026년 매출 전망치를 30억 5,500만~30억 6,000만 달러로, 조정 EBITDA 가이던스를 6억 300만~6억 700만 달러로 범위를 좁혔습니다. 조정 EPS는 5.28~5.33달러로 예상됩니다.
• 경영진은 10월 주문량이 한 자릿수 중반대 성장률을 기록했다고 밝혔으며, 4분기가 핵심 성장률, 마진율 및 현금흐름 측면에서 2026년 중 ESAB에 가장 강력한 분기가 될 것으로 전망했습니다.

주요 재무 데이터

사업 및 영업 실적

미주 지역 매출은 3억 3,700만 달러로 15% 증가했으며, 자체 성장률은 약 1%를 기록했습니다. 가격 인상이 약 3%포인트 기여했으나 약 2%포인트의 판매량 감소로 일부 상쇄되었습니다. 미국 및 캐나다의 자체 매출은 한 자릿수 후반대의 성장률을 기록한 반면, 북미 장비 부문은 10%대 초반, 가스 제어 부문은 두 자릿수 성장을 기록했습니다.

남미 지역은 콜롬비아 지진과 브라질 대선 관련 활동 둔화로 약세를 보였습니다. 경영진은 4분기에 해당 지역 실적이 개선될 것으로 예상하고 있습니다.

EMEA(유럽·중동·아프리카) 및 아시아태평양(APAC) 매출은 4억 4,900만 달러로 14% 증가했으며, 자체 성장률은 3.4%를 기록했습니다. 유럽은 한 자릿수 초반대 성장세로 돌아섰고 아시아태평양은 두 자릿수 성장을 이뤘으며 중동은 전분기 대비 변동이 없었습니다. 사업부문 조정 EBITDA는 8,900만 달러로 17% 증가했고 마진율은 19.8%로 50bp 확대되었습니다.

제품 카테고리별로는 장비 및 자동화 부문이 한 자릿수 후반대 성장률을 보였고, 소모품은 전년과 비슷한 수준을 유지했으며, 가스 제어 장비는 자체 기준으로 한 자릿수 중반대 성장세를 보였습니다. 경영진은 장비 설치 확대가 소모품, 마모 부품 및 가스 제어 제품의 지속적인 반복 수요를 뒷받침한다는 점을 강조했습니다.

에디파이(Eddyfi)의 인수 통합 작업은 계획보다 빠르게 진행되고 있습니다. 통합된 ESAB-에디파이 교차 판매 파이프라인은 원자력, 항공우주, 방산, 에너지, 인프라 및 철도 분야 전반에 걸쳐 약 4억 6,500만 달러 규모에 달했습니다. 경영진은 10~15개의 기회가 후기 단계에 도달했으나, 실제 매출 전환율을 추정하기에는 아직 이르다고 밝혔습니다.

EWM 또한 기존에 진출이 미진했던 시장으로 영역을 확장하고 있습니다. ESAB는 우수 역량 센터(Center of Excellence) 및 고객 인증 프로그램에 투자하고 있으며, 경영진은 이러한 이니셔티브가 2027년 이후의 성장을 뒷받침할 것으로 기대하고 있습니다.

경영진 가이던스

경영진은 4분기 성장률이 한 자릿수 중반대에 도달하고 마진율 확대 및 강력한 현금 창출 능력을 보일 것으로 전망하고 있습니다. 지속적인 운송비, 원자재 및 전자 부품 인플레이션을 상쇄하기 위해 추가 가격 인상이 실시되고 있습니다.

ESAB는 2026년 말 조정 순차입금 비율이 3배대 초반으로 마감하고 2027년 말까지 2배대 중반으로 낮아질 것으로 예상합니다. 회사는 잉여현금흐름을 부채 상환에 활용하는 한편 EBITDA 성장에 따른 혜택도 누릴 계획입니다.

리스크 및 주요 점검 사항

• 운송비 및 전자 부품 비용이 다시 상승하면서 가격-비용 중립성을 유지하기 위해 추가적인 가격 인상이 필요한 상황입니다.
• 중동 지역의 분쟁이 지속되면서 해당 지역의 물량에 압박을 가하고 물류 복잡성을 가중시키고 있습니다.
• 남미 수요는 콜롬비아 지진과 브라질 대선 여파로 차질을 빚었으나, 경영진은 4분기에 개선될 것으로 보고 있습니다.
• 고객 지원 및 장비 판매 지원을 위해 보유한 추가 재고가 현금 전환율에 부담으로 작용했습니다.
• 에디파이의 4억 6,500만 달러 규모 교차 판매 파이프라인은 아직 초기 단계이며, 경영진은 예상 매출 전환율을 정립하지 않은 상태입니다.
• 인수 자금 조달로 인해 현금 이자 비용이 증가했으며, 이는 조정 잉여현금흐름과 조정 EPS 감소의 요인이 되었습니다.

애널리스트 Q&A 주요 내용

에디파이 매출 시너지: 경영진은 4억 6,500만 달러 규모의 교차 판매 파이프라인이 실체적이지만 초기 단계라고 설명했습니다. 고객들이 샘플을 구매하고 제품 테스트를 시작했으며, 10~15개의 기회가 후기 단계로 진입했습니다. ESAB는 향후 실적 발표 컨퍼런스 콜에서 매출 전환에 관한 세부 내용을 공개할 예정입니다.

4분기 모멘텀: 10월 주문은 한 자릿수 중반대 성장률을 기록했으며, 매출 성장률도 비슷한 수준을 나타냈습니다. 경영진은 추가 가격 인상을 단행했으며 남미 지역 여건이 개선될 것으로 기대하고 있습니다.

마진 전망: 경영진은 3분기의 약 23% 한계 마진율(incremental margin)이 합리적인 수준이라고 밝혔으며, 4분기 마진 확대를 예상하고 있습니다. EBXai 생산성 향상, 인수합병, 가격 인상이 인플레이션을 상쇄하고 영업 투자를 재정적으로 지원하는 데 기여하고 있습니다.

자동화 기회: 자동화 부문은 ESAB 매출의 두 자릿수 비중을 차지합니다. 경영진은 에디파이를 통해 구현되는 자동 검사 및 모니터링 응용 분야를 포함하여 한 자릿수 후반대의 성장 잠재력이 있다고 보고 있습니다.

EWM 확장: EWM은 이번 분기 동안 한 자릿수 후반대 성장률을 기록했습니다. ESAB는 북미 OEM 인증, 적층 제조, TIG 용접 및 반도체 적용 분야를 목표로 하고 있으며, 2027년 이후 실질적인 수혜가 예상됩니다.

부채 감축(디레버리징): ESAB는 잉여현금을 부채 상환이나 현금 보유고 확충에 투입할 계획입니다. 경영진은 순부채 감소와 EBITDA 성장이 모두 차입금 목표 달성을 뒷받침할 것으로 기대하고 있습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Hello, everyone. Thank you for joining us, and welcome to the ESAB Corporation Third Quarter 2026 Earnings Release and Conference Call. [Operator Instructions]

I will now hand the conference over to Mark Barbalato, Vice President of Investor Relations. Mark, please go ahead.

Mark Barbalato

Thanks, operator. Welcome to ESAB's Third Quarter 2026 Earnings Call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Brent Jones.

Please keep in mind that some of the statements we are making today are forward-looking and are subject to risks, including those set forth in today's SEC filings and 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, the accompanying reconciliation information can be found in our earnings press release and today's slide presentation, which is available on our website.

With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda.

Shyam Kambeyanda

Thank you, Mark, and good morning, everyone. Thank you for joining us today. Before I turn to the quarter, I want to thank our teams around the world. In a dynamic environment, we moved our strategy forward with focus and determination, and the results we're reporting today reflect their efforts.

I spent a significant part of the quarter at Gemba, visiting our sites in Mexico and our teams in Brazil, Europe and India. There is no substitute for seeing the work firsthand, walking the floor, meeting our commercial and manufacturing teams and hearing directly from our customers. I came away convinced that we are focused on the right initiatives and that our strategy is working.

In India, our team is delivering strong sales growth, and our gas control team is executing the DeltaP and Aktiv business plans ahead of expectations. The opportunity for growth here is even bigger than we first thought. The energy and optimism across ESAB is palpable, and there is clarity and conviction of what this enterprise can achieve when strategy and execution come together.

With that, let me move to Slide 3 and walk you through our third quarter results. Total sales for the quarter were $787 million, up 14% year-over-year, with core organic growth of 2.3%. Adjusted EBITDA grew 17% to $156 million, and our adjusted EBITDA margin improved 40 basis points year-over-year to 19.8%.

Freight and electronic component costs rose again, and we responded with targeted price increases that kept us price/cost neutral. At the same time, EBXai is delivering sequential improvement in our key metrics across the enterprise.

Both regions delivered positive organic growth in the quarter. EMEA and APAC performed better than expected despite the conflict in the Middle East. In the Americas, we faced unexpected headwinds in South America. First, from the earthquake in Colombia in early August and then Brazil's presidential elections, which slowed economic activity in September. Our teams have responded quickly and decisively as conditions changed. We're creating new work streams for growth and using EBXai to strengthen our market position and gain share while accelerating our cost-out initiatives.

Eddyfi integration is ahead of plan. EWM continues to impress customers in geographies where it had no prior presence.

Moving to Slide 4. This slide captures the new ESAB in one picture, an unrivaled category-defining fabrication workflow with Eddyfi completing the picture. ESAB leads at every step of the process. Our cutting system, torches and consumables prepare the metal. Our power sources, feeders and filler metal join it, and EWM has strengthened this core with premium welding technology.

Gas control is an integral part of every weld. Our regulators, flow control devices deliver the shielding gas that protects the weld pool. That same expertise in precise high-purity gas control opens new vectors of growth in specialty and medical gas. Our robotic and automated cells let customers scale with consistency and InduSuite turns weld data into insight. Eddyfi completes the workflow, inspecting and monitoring our customers' assets in the field.

Each step builds on the next and the economics are powerful. It is a razor-razor blade model. Every installed power source and automated cell drives recurring pull-through of filler metal, flux, gas control equipment, wear parts and now inspection sensors and probes. The result is superior quality, higher productivity, lower cost of total ownership and protection of the asset for its entire life.

FABTECH last month was a defining moment for ESAB. For the first time, we showcased the full power of the enterprise we have built over the last 15 months, and customers saw the new ESAB as one cohesive team. The response was overwhelmingly positive. Our AI-enabled weld solution was the highlight of the show. Together with EWM and Eddyfi, it brought the strength of our workflow to life.

The breadth of our offering came through powerfully. EWM stole the show. Added to ESAB's industry-leading portfolio, EWM creates a formidable combination. In conversation with large U.S. customers, once they saw EWM in action, the verdict was consistent. Its performance is unmatched, and they told us exactly why. EWM combines a highly responsive power source with precisely tuned software and deep application expertise, all working together with the torch and wire to deliver an arc that is stable, easy to control and with very low spatter.

We believe EWM will be a powerful new growth engine for ESAB. EWM is already making inroads with customers in North America, and our teams are now qualifying it with key accounts, so it's specified into their operations.

Our workflow strategy is resonating beyond fabrication. A week before FABTECH, I attended the American Society for Nondestructive Testing, ASNT's Industry Conference in Columbus, Ohio. I was pleasantly surprised to hear the keynote speaker connect welding and inspection and monitoring, describing a significant overlap between the 2 fields. The speaker suggested that training welders in inspection could raise the competency, expand career opportunities and build stronger workforce in both industries.

Hearing back from the inspection communities reinforced what we already believe, welding and inspection belong together, and ESAB is best positioned to capitalize on it. With Eddyfi, we now inspect and monitor our customers' most valuable assets, opening new growth vectors in composites and asset monitoring. ESAB's workflow is unrivaled and every deeper customer engagement is uncovering new opportunities for additional growth.

Turning to Slide 5. We're on our way to unlocking the full potential of ESAB and Eddyfi together. Eddyfi serves high-growth applications in attractive end markets with aerospace, defense, oil and gas and nuclear representing approximately 60% of its sales. It is a strategic addition that accelerates ESAB's organic growth trajectory.

Here's what that looks like in practice. In energy, tower and foundation sections are joined with submerged arc welding using our proprietary ICE technology and Eddyfi inspects it. In space, critical structures and propulsion systems depend on precision TIG welding. Our orbital TIG system welds them, GCE and Victor provide the gas control and Eddyfi inspects the result. In nuclear, reactor piping, steam generator tubing require MIG and TIG welds built to the highest standards. EWM provides the welding, GCE, the gas control and Eddyfi inspects and monitors those welds for the life of the plant.

Just to give you a bit more on nuclear, Eddyfi is the market leader in nuclear inspection with more than $80 million in sales growing double digits. A nuclear plant is welded once and inspected and repaired for 60 to 80 years, and we are there at every phase. These are large, fast-growing markets, and ESAB today is uniquely positioned to win in them. This potential is showing up in our cross-selling funnel, which stands at approximately $465 million.

Our focus now is on conversion. Our teams are refining a disciplined approach to go to market together with strategic customers where inspection and fabrication combined add meaningful value.

On the right side of the slide, you see the funnel by end market and the leads run both ways. Eddyfi relationships in nuclear and aerospace are pulling through ESAB products, ESAB's relationship in energy are pulling through Eddyfi. And in infrastructure and rail, we're calling on customers together. It is early, but we are opening new paths to organic growth, and that is exactly why we brought Eddyfi into ESAB.

Turning to Slide 6, showcasing our commitment to continuous improvement. Quarter after quarter, in 2026, we have improved our execution. Through conflict in the Middle East, inflation in freight, raw materials and electronic components and more recent headwinds in South America, this team has risen to every challenge, and we've improved the business each quarter.

Core revenue has grown from $714 million in the first quarter to $787 million in this quarter. After a soft start to the year, organic growth has now been positive for 2 consecutive quarters. Our adjusted gross margin has expanded sequentially in each quarter of 2026, from 38% in the first quarter to 40.2% in the third quarter, an improvement of 220 basis points. As we reshape our portfolio and our mix, adjusted EBITDA margin has improved 80 basis points since the first quarter to 19.8% and cash flow from operations continues to improve. We expect the fourth quarter to be even stronger with improved organic growth, margins and cash flow, setting us up to enter 2027 with strong momentum.

On that positive note, let me hand it over to Brent to walk you through the numbers.

Brent Jones

Thank you, Shyam, and good morning, everyone. Turning to Slide 7, which summarizes our performance by geography. All major regions grew organically, except South America and the Middle East. In our Americas segment, organic sales were up low single digits. We had high single-digit growth in the U.S. and Canada, a continuation of the strong growth we saw in Q2. The rest of the region was down high single digits, impacted by the earthquake in Colombia and the Brazilian elections, while Mexico was flat sequentially.

Our EMEA and APAC segment grew low single digits. Europe returned to growth with low single digits and APAC had another strong quarter with double-digit growth. While the Middle East and Africa were down high single digits, they were up modestly on a sequential basis as we continue to execute well against the challenging backdrop. Said differently, our major regions with growth are growing at nearly 5% in the aggregate. The known headwinds we are navigating are dampening growth by approximately 250 basis points.

By product, equipment and automation were up high single digits, consumables were flattish and gas control equipment was up mid-single digits organically. Strength in equipment and automation matters because every installed power source and automated cell drives recurring pull-through of our consumables. Taken together, these results demonstrate the consistency and resilience of our business model.

Let's turn to Slide 8 to review our results in greater detail. We delivered $787 million in total core sales, a 14% increase over the third quarter of 2025. Core organic growth was 2.3% with price contributing 2.5% and volume roughly flat. Acquisitions contributed 11 points and foreign currency added 1 point. Core adjusted gross profit was $316 million, or 40.2% of sales, up 260 basis points year-over-year. Adjusted EBITDA was $156 million, up 17%. Adjusted EBITDA margin was 19.8%, up 40 basis points year-over-year.

Acquisitions and EBXai productivity helped drive the expansion. We were price/cost neutral in the quarter and EBXai productivity helped fund our continued investments in equipment growth.

Core adjusted net income was $83 million, compared with $80 million last year, and core adjusted EPS was $1.30 per share compared with $1.32 per share last year. It is important to note that our third quarter results include the first full quarterly impact of our Eddyfi acquisition financing.

Turning to our Americas segment on Slide 9. The Americas delivered a solid quarter with organic growth and margin expansion. Total sales grew 15% to $337 million with organic growth of about 1%. We had almost 3 points of price, partially offset by approximately 2 points of volume decline. Acquisitions contributed 12 points and FX added 3 points. The U.S. and Canada were again the highlights, up high single digits organically, continuing the momentum we saw in Q2. North American equipment was up low double digits, which again shows the progress we are making on one of our key growth priorities. This performance offset unexpected softness in South America. We expect improved performance in South America in the fourth quarter.

Finally, North America Gas Control was up double digits. Adjusted EBITDA for the segment increased 17% to $67 million and margin expanded 30 basis points to 19.9%. Acquisitions and EBXai productivity helped drive the expansion. We again saw modest margin headwinds from our continued commercial investments to drive equipment growth.

Moving to Slide 10. EMEA and APAC again demonstrated their resiliency, delivering strong performance in a challenging environment. Segment sales grew 14% to $449 million with organic growth of 3.4%, driven by approximately 2 points of price and 1 point of volume. Acquisitions contributed 11 points and foreign exchange translation was a 50 basis point headwind. Europe returned to growth, up low single digits and APAC had another strong quarter, up double digits. The Middle East was flat sequentially. Gas control equipment was up mid-single digits.

Adjusted EBITDA was $89 million, up 17% and margin expanded 50 basis points year-over-year to 19.8%. We continue to face headwinds from logistics and commodity costs and lower volumes in the Middle East. Like the Americas, acquisitions and EBXai productivity helped drive margins.

Turning to Slide 11. Cash generation remains one of our top priorities. Adjusted free cash flow in the quarter was $60 million, compared with $86 million last year. The decline reflects our acquisition financing with cash interest of $38 million versus $8 million last year. Cash interest was elevated due to the timing of semiannual bond interest payments.

Before interest, cash from operations grew 23% to $111 million from $90 million last year. Excluding the capital structure impacts, operational cash generation continues to increase. On a GAAP basis, free cash flow conversion was 135% of net income. We also made a deliberate decision to carry additional inventory to support our customers in the Middle East and equipment sales in North and South America, negatively impacting conversion. Adjusted net leverage fell sequentially to 3.4x through adjusted EBITDA growth and net debt reduction.

We remain focused on cash generation and deleveraging, and we expect net leverage to be in the low 3s to end 2026 and in the mid-2s by the end of 2027. Our capital structure is approximately 70% fixed at very attractive rates, so we do not have significant exposure to increasing interest rates. Our next debt maturity is not until 2029.

Moving to Slide 12 and our updated full year 2026 outlook. We are narrowing our total core sales expectation to $3.055 billion to $3.06 billion, representing 2% organic growth at the high end. Acquisitions should contribute approximately 9.5 points and FX is expected to add approximately 2 points. We now expect adjusted EBITDA of $603 million to $607 million. This reflects the impact of continued inflationary effects, which are driving price/cost neutrality and higher freight costs to ensure product and component availability.

We continue to protect our targeted investments in equipment growth. We are also accelerating strategic AI investments that are critical to delivering growth and productivity in 2027 and beyond. Adjusted EPS is now expected to be $5.28 to $5.33 per share, and we expect adjusted free cash flow conversion of approximately 80%.

I will now turn the call back to Shyam for concluding remarks.

Shyam Kambeyanda

Thank you, Brent. And turning to Slide 13. 2026 has been a transformational year. We returned to organic growth in a dynamic global environment and expanded margins sequentially every quarter. We are leaning in with EBXai to drive growth, eliminate structural costs and reinvest in commercial initiatives, all while offsetting persistent inflation. We have the right strategy. We're executing it with discipline, focus and urgency. The fourth quarter is off to a good start, and we expect it to be our strongest quarter of the year for core growth, margin and cash flow.

Our priorities are clear: drive organic growth, expand margins and generate cash to deleverage the balance sheet. We have reshaped ESAB into a faster-growing, higher-margin enterprise. Our teams are ready. EBXai is a real differentiator. We are building momentum to close '26 and enter 2027.

With that, operator, please open the line for questions.

Operator

[Operator Instructions] Your first question comes from Nathan Jones with Stifel.

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Nathan Jones

I guess I'll start on this $465 million funnel of what -- I mean, what are revenue synergies effectively. Can you talk about, like, of that $465 million, how much you expect to actually realize and over what time frame you might expect to realize that?

Shyam Kambeyanda

Well, first of all, we're thrilled with how Eddyfi performed in the quarter. We saw Eddyfi's growth rate be sort of double digits in the quarter, great margins. Something that I mentioned earlier, Nathan, was at FABTECH and also when I was at the ASNT conference, real energy around the fact that we had combined the businesses where fabrication technology now matched inspection and welding. So real excitement around that front.

And on the $465 million, obviously, we have some models internally that we're sort of working through. But what we're thrilled about is our teams going out there and finding the opportunities. What I can tell you is there are about 10 to 15 opportunities out there at the late stage where we have provided samples and gone out and met with the customers, specifically with the intent of converting the inspection and welding side to Eddyfi or converting a fabrication technology business that's on the shop floor today to yellow.

And so we'll see how that kind of performs. My thoughts to you are, I'd love to come back and answer that question in our Q1 or Q4 earnings call. We think we would have made some good progress on that front.

Nathan Jones

Okay. So too early to say, is kind of the answer?

Shyam Kambeyanda

Too early to sort of define an exact conversion rate. But what I can tell you is that on each one of these, the level of engagement and the fact that these customers have started to buy samples and start to test the product on their shop floor is very exciting.

And as we sort of speak today, my thoughts are that, that funnel should continue to expand as we get into Q1. But I think the conversion is the biggest piece. And I think for that, it's too early to sort of speak what that number is. But looking at -- I'll give you sort of an example. At ASNT, we met with a specific customer, Brent and I, and the entire conversation was supposed to be a 20-minute introduction where this gentleman then went into how he would like to see yellow on his shop floor because today, he has Eddyfi testing all of his rail cars. And so it was an exciting opportunity, something that we are looking forward to sort of engaging with. The teams are already in there. So these opportunities are real and meaningful for both ESAB and Eddyfi.

Nathan Jones

Yes. Obviously, it's a pretty big number there. So we're certainly interested to get some more color on that as you get more color on it, I guess. I guess the second one on -- you mentioned 4Q off to a good start. Maybe just any commentary you can give us on orders in October and how that's shaping out and kind of the confidence that gives you in further growth in 2027? And I'll pass it on.

Shyam Kambeyanda

Yes. Thanks, Nathan. Yes, we are off to a solid start in October. We sort of had orders grow mid-single digits, and then we also had our sales come in very close to that number as well. So I think the piece for us in the quarter is, as I mentioned to you in Q3, the South America elections caused sort of some business activity to slow in South America. And then we had some freight expenses come our way that was a bit unexpected that we think carries into Q4. But all in all, I think the business did phenomenally well. Sequentially, we moved price by another 50 basis points year-over-year. Sequentially, we were up 100 basis points. We've gone out for more price in the fourth quarter. So we expect all of it to move in the right direction along with cash.

Operator

Your next question comes from Tami Zakaria with JPMorgan.

Tami Zakaria

I wanted to follow up on that revenue funnel question from Nathan. So just stepping back, who are your competitors for these customers that you've identified? Because these customers are probably getting welding consumables and equipment from somebody already. So what's the differentiation that would incentivize some of these customers to switch to you? Don't your competitors already provide maybe some of the inspection solutions? And so basically, what gets them to go over the bridge and switch to you and gives you confidence that this funnel is realizable over the next medium term?

Shyam Kambeyanda

Yes. Tami, good to hear from you. We missed you at FABTECH for sure. So at FABTECH, what was very clear as we brought customers through our booth was the need for a one-stop shop across the value chain and that workflow solution where they now can rely on one solution provider.

I'll give you an example. More recently, we won a space contract, and we were able to pull through some TIG welding certification. Very similarly, I think I mentioned earlier to Nathan on a customer that we met with at the ASNT conference that said he would love to have one -- one provider of the entire workflow on his shop floor that then allows him to have reliable data connectivity across the welding into inspection and monitoring.

And so with every customer that we have met with, including in the nuclear space and defense, that workflow solution combined in a one-stop shop is resonating very well. And for the amount of activity and samples that we have sent out here in the third quarter, we're energized by it. And I think I mentioned earlier in my conversation, I attended the first American Society for Nondestructive Testing, and I was surprised at the amount of conversations around fabrication and welding and the compliments about how we were the first to sort of look at the combination of fabrication and inspection and monitoring, which it seemed like others had not looked into. And so there was a genuine excitement at the ASNT conference.

And then at FABTECH, the energy level at our booth was the best that I've seen in the 10 years that I've been here. Our booth was packed for the 3 days that we were there. The engagement with each visitor was incredible. I'll give you another example. There is a piece here that's working in our favor. The EWM acquisition created another sense of excitement. So the view for us today is, depending on the weld that the customer is doing and what they want to test afterwards, the workflow that we provide, not just with ESAB equipment, but now with EWM is creating a clear differentiator.

One customer actually told me that they had never welded with a machine as good as EWM and the stability of the arc that they felt when they welded with that machine. And they wanted to buy -- they actually bought a system at FABTECH to put on their shop floor. Now this is a large U.S. OEM with thousands of machines on their shop floor. So the combination of ESAB, EWM and Eddyfi is what's making the difference out there. And I believe that today, as ESAB has been connecting the dots, the customers are beginning to see it, which is reflected in our funnel. But as I said to Nathan, and I'll say to you, it's early, and we've got to convert. So let's get through the fourth quarter and sometime in Q1 or Q2, we'll sort of talk about the conversion rates we're seeing.

Tami Zakaria

Understood. That's very helpful. And then you're targeting mid-2 leverage ratio by 2027. Can you remind us, do you expect to do any debt paydown between now and then? Or is it entirely through EBITDA growth?

Brent Jones

Tami, the -- it's Brent. The assumptions there currently are that we're going to deploy excess cash flow to debt reduction, either in the form of the higher cash balance or paying down debt as we have a very flexible amount of prepayable debt. So there obviously is an EBITDA growth deleveraging aspect of that. So it's going both directions, but we're absolutely focused on debt paydown in terms of affecting the numerator.

Shyam Kambeyanda

Yes. I think as we look at 2027, our focus will be organic growth, expanding our margins, deleveraging the business with the cash that we have and then obviously, improvement in EBITDA helps that number as well.

Operator

Your next question comes from Neal Burk with UBS.

Neal Burk

I wanted to ask about incremental margins in the quarter. Despite the step back in volume, incremental margins were still pretty good, I think, 23% year-over-year. Can you just talk about what drove that? I mean I'm sure Eddyfi helped, but wondering what's price cost and anything else that had an impact. And I mean is there any reason that, that should -- that kind of margin performance should get any worse in 4Q? Or can you kind of continue that trend?

Shyam Kambeyanda

No. As I was mentioning, Q4, we expect it to be our best quarter. We expect our growth to be close to mid-single digits. We expect our margins to expand in the quarter, and we expect to deliver better cash. That's -- I mentioned earlier in my comments that it's a reflection of our team, our focus. Sequentially, we went out for a percent of price. It's just that all this year, as all of you have seen, we've been -- we've seen inflationary costs continue to sort of follow us through every quarter. We had an assumption in Q3 and then it escalated again into Q4. We're going out with additional price in Q4 to offset that.

But at some point in time, we think that, that settles in, giving ESAB a really nice tailwind on margin expansion. But on -- to your comment on incremental rates, we think that, that is a good number to assume. Obviously, the team is working hard to be better than that.

Neal Burk

And yes, we saw some automation products being displayed at FABTECH, which was interesting. Can you remind us the kind of automation as a percent of ESAB sales now with Eddyfi? And, like, what's the sort of opportunity over time for automation? And does Eddyfi sort of open up new automation opportunities and test for ESAB?

Shyam Kambeyanda

Yes. In fact, what I would say on that particular front is all the samples that we are providing actually has an automated solution for inspection and monitoring. In fact, in some of the energy customers that we visited, they have been most excited to hear about Eddyfi's solution around automated inspection and monitoring. So think about it as I lay down a sub arc weld and very quickly after that, there is an automated process to check that weld and off it goes into the field.

And so the short answer is the potential for automation growth, the way we define it, which is slightly different, where we are focused on process. We're focused on ensuring that we're the process experts with our customers. We see significant high single-digit growth within that segment. Now, as a percent of sales, we've talked about it being double digits for ESAB and automation. We see that business actually growing nicely. And the important part for us is that we see that as a stable business and not cyclical because of our focus on process and not on all of the material handling.

Operator

Your next question comes from Bryan Blair with Oppenheimer.

Bryan Blair

I wanted to follow up on Nathan's second question in terms of trends and outlook, understanding that you haven't provided 2027 guidance. But if we were to focus across your major geographies and end markets, maybe offer a high-level perspective on where your team is confident in sustained or accelerating growth next year, where you expect year-over-year recovery and where clear watch items remain going into '27?

Shyam Kambeyanda

Yes, Bryan, let me start by first saying I'm very proud of our team and their agility in addressing anything that comes our way. The last couple of years, we've had many things come at us. In '25, we had the tariffs. In '26, we had the Middle East conflict. And then now these inflationary items and a little bit of a downshift in South America that we're already seeing correcting itself in Q4. The short answer, I think, there is that the team is capable of addressing and working in any market environment and delivering a continuous improvement mentality around growth, margins and cash. And I think the way that this year has progressed has reflected that.

Brent gave you the numbers. Excluding the sort of items that we think were extraordinary in the quarter, our core growth was actually around 5%. And so the thoughts for us here is that we are obviously building momentum in our sales process. I have to tell you that we have actually upgraded some of the talent within our team. We've improved the training of our existing team. And I can tell you the focus around sales excellence, the focus around funnel generation, funnel conversion, the focus around value selling and an algorithm towards growth is the strongest it's ever been at ESAB. And so I think I've always felt good about the team that we have. But at this point in time, I believe we have the best team taking us into 2027. And so we walk into that year with some confidence.

Bryan Blair

Understood. Appreciate the color. And then Shyam, you touched on in your prepared remarks, the unique value proposition of EWM and some of the feedback from customers. To date, what has the introduction of EWM meant to equipment growth in North America? Is there anything you can quantify on that front? And then more importantly, how significant or needle moving should EWM be to North American growth and mix looking forward?

Brent Jones

Well, here, taking aside North America, EWM was up high single digits in the quarter. So we talked about strong growth last quarter and continuing. So I'd say that's a real success story, and I'll have Shyam talk about what it means in the portfolio.

Shyam Kambeyanda

Yes. We saw equipment up sort of low double digits globally, which also is a reflection of the products that we have developed, right? The Edge Warrior (sic) [ Warrior Edge ] has been doing extraordinarily well. On the EWM side, and that's where a lot of our investments are coming in, in OpEx. You'll see us actually setting up center of excellences showcasing EWM. We are actually putting together an additive manufacturing center of excellence here in North America to showcase the EWM product.

I think I mentioned to you the one person that I was commenting about at FABTECH told me that the React technology that EWM has truly laps anything else that's out there in the marketplace. And our customers are eager to place that product on their shop floor.

The second avenue for growth is on the TIG welding side. The power source that EWM has, in my view, is the best in the industry around TIG welding. And we see the semiconductor space as a clear avenue for growth there. And then the last piece is large customers, even distributors, if you walk FABTECH with us or if you sort of observed FABTECH, for the first time, you saw EWM equipment in booths that were not ESAB. And that is a big win for us.

I can tell you from 10 years ago when I visited FABTECH and what our equipment lineup was, now to walk around FABTECH and actually see ESAB equipment in other people's booths placed in a prime location showcasing robotics and automation was extraordinary and a real energizer for all of our teams. We actually picked up a significant amount of leads for EWM at FABTECH.

So the short answer is we're expecting strong results out of EWM and a lot of pull-through from geographies that they were not participating in. Our strategy there today is to go out and get specified at as many OEMs and customers in the geographies that EWM is not in, which is where we're spending some of our OpEx dollars. And our view is that all of that will pay dividend sometime in 2027 and beyond.

Operator

This concludes today's question-and-answer session. I will now turn the call back to Mark Barbalato for closing remarks.

Mark Barbalato

Thank you, operator. Thank you for joining us today. We look forward to speaking to you all next quarter.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.