Cuộc họp báo kết quả kinh doanh Quý 3/2026 của ESAB: Tăng trưởng doanh thu 14% và thu hẹp dự báo cả năm

Điểm tin chính

• Doanh thu quý 3 năm 2026 tăng 14% so với cùng kỳ năm trước lên 787 triệu USD. Tăng trưởng hữu cơ cốt lõi đạt 2,3%, trong đó 2,5% đến từ việc tăng giá, trong khi sản lượng gần như đi ngang.
• EBITDA điều chỉnh tăng 17% lên 156 triệu USD, và biên EBITDA điều chỉnh mở rộng 40 điểm cơ bản lên 19,8%. Biên lợi nhuận gộp điều chỉnh tăng 260 điểm cơ bản lên 40,2%.
• Các thương vụ thâu tóm đóng góp 11 điểm phần trăm vào tăng trưởng doanh thu và biến động tỷ giá hối đoái đóng góp thêm 1 điểm. Eddyfi đạt mức tăng trưởng hai chữ số, trong khi EWM tăng trưởng ở mức một chữ số ở khoảng cao.
• Dòng tiền tự do điều chỉnh giảm xuống 60 triệu USD từ mức 86 triệu USD, chủ yếu do chi phí lãi vay bằng tiền mặt tăng lên 38 triệu USD sau khi tài trợ cho các thương vụ thâu tóm. Tỷ lệ đòn bẩy ròng điều chỉnh cải thiện so với quý trước xuống còn 3,4 lần.
• ESAB đã thu hẹp triển vọng doanh thu năm 2026 xuống còn 3,055 tỷ - 3,06 tỷ USD và dự báo EBITDA điều chỉnh xuống 603 triệu - 607 triệu USD. EPS điều chỉnh dự kiến đạt 5,28 - 5,33 USD.
• Ban lãnh đạo cho biết đơn hàng trong tháng 10 tăng trưởng ở mức một chữ số ở khoảng trung bình và kỳ vọng quý 4 sẽ là quý mạnh nhất của ESAB trong năm 2026 về tăng trưởng cốt lõi, biên lợi nhuận và dòng tiền.

Dữ liệu tài chính trọng tâm

Kết quả hoạt động kinh doanh và vận hành

Khu vực châu Mỹ đạt doanh thu 337 triệu USD, tăng 15%, với mức tăng trưởng hữu cơ khoảng 1%. Việc tăng giá đóng góp gần 3 điểm phần trăm, bù đắp một phần cho mức giảm sản lượng khoảng 2 điểm phần trăm. Doanh thu hữu cơ tại Mỹ và Canada tăng trưởng ở mức một chữ số ở khoảng cao, trong khi mảng thiết bị tại Bắc Mỹ tăng trưởng ở mức hai chữ số ở khoảng thấp và mảng kiểm soát khí nén tăng trưởng hai chữ số.

Khu vực Nam Mỹ suy yếu do trận động đất ở Colombia và các hoạt động kinh tế chậm lại xung quanh cuộc bầu cử tổng thống của Brazil. Ban lãnh đạo kỳ vọng khu vực này sẽ cải thiện trong quý 4.

Doanh thu khu vực EMEA và APAC tăng 14% lên 449 triệu USD, với tăng trưởng hữu cơ đạt 3,4%. Châu Âu tăng trưởng trở lại ở mức một chữ số ở khoảng thấp, APAC tăng trưởng hai chữ số và Trung Đông đi ngang so với quý trước. EBITDA điều chỉnh của phân khúc tăng 17% lên 89 triệu USD, với biên lợi nhuận mở rộng 50 điểm cơ bản lên 19,8%.

Theo danh mục sản phẩm, thiết bị và tự động hóa tăng trưởng ở mức một chữ số ở khoảng cao, vật tư tiêu hao gần như đi ngang và thiết bị kiểm soát khí nén tăng trưởng hữu cơ ở mức một chữ số ở khoảng trung bình. Ban lãnh đạo nhấn mạnh rằng việc lắp đặt thiết bị hỗ trợ nhu cầu định kỳ đối với vật tư tiêu hao, linh kiện hao mòn và các sản phẩm kiểm soát khí nén.

Quá trình tích hợp Eddyfi đang tiến triển nhanh hơn kế hoạch. Phễu bán hàng chéo kết hợp giữa ESAB và Eddyfi đạt khoảng 465 triệu USD, với các cơ hội trong các ngành hạt nhân, hàng không vũ trụ, quốc phòng, năng lượng, hạ tầng và đường sắt. Ban lãnh đạo cho biết có 10 đến 15 cơ hội đang ở giai đoạn cuối, nhưng còn quá sớm để ước tính tỷ lệ chuyển đổi.

EWM cũng đang mở rộng sang các thị trường mà trước đây họ có ít sự hiện diện. ESAB đang đầu tư vào các trung tâm năng lực xuất sắc và các chương trình đánh giá năng lực nhà cung cấp cho khách hàng, trong đó ban lãnh đạo kỳ vọng các sáng kiến này sẽ hỗ trợ tăng trưởng từ năm 2027 trở đi.

Dự báo của Ban lãnh đạo

Ban lãnh đạo kỳ vọng tăng trưởng quý 4 sẽ tiệm cận mức một chữ số ở khoảng trung bình, đi kèm mở rộng biên lợi nhuận và khả năng tạo dòng tiền mạnh mẽ hơn. Việc điều chỉnh tăng giá bổ sung đang được thực hiện nhằm bù đắp tình trạng lạm phát kéo dài của chi phí vận tải, nguyên vật liệu thô và linh kiện điện tử.

ESAB kỳ vọng tỷ lệ đòn bẩy ròng điều chỉnh sẽ kết thúc năm 2026 ở vùng thấp của mức 3x và giảm xuống vùng trung bình của mức 2x vào cuối năm 2027. Công ty có kế hoạch sử dụng dòng tiền thặng dư để giảm nợ, đồng thời hưởng lợi từ sự tăng trưởng EBITDA.

Rủi ro và các yếu tố cần theo dõi

• Chi phí vận tải và linh kiện điện tử tăng trở lại, đòi hỏi phải tiếp tục tăng giá để duy trì trạng thái trung lập giữa giá bán và chi phí.
• Xung đột tại Trung Đông tiếp tục gây áp lực lên sản lượng khu vực và làm tăng tính phức tạp về logistics.
• Nhu cầu tại Nam Mỹ bị gián đoạn do trận động đất ở Colombia và cuộc bầu cử tổng thống của Brazil, mặc dù ban lãnh đạo kỳ vọng tình hình sẽ cải thiện trong quý 4.
• Hàng tồn kho bổ sung được lưu giữ để hỗ trợ khách hàng và mảng bán thiết bị đã gây áp lực lên tỷ lệ chuyển đổi dòng tiền.
• Phễu bán hàng chéo trị giá 465 triệu USD của Eddyfi vẫn đang ở giai đoạn đầu và ban lãnh đạo chưa đưa ra tỷ lệ chuyển đổi dự kiến.
• Việc tài trợ vốn cho các thương vụ thâu tóm đã làm tăng chi phí lãi vay bằng tiền mặt, góp phần làm giảm dòng tiền tự do điều chỉnh và EPS điều chỉnh.

Điểm tin hỏi đáp với chuyên gia phân tích

Hiệu ứng cộng hưởng doanh thu từ Eddyfi: Ban lãnh đạo mô tả phễu bán hàng chéo trị giá 465 triệu USD là rõ ràng nhưng vẫn ở giai đoạn đầu. Khách hàng đã bắt đầu mua sản phẩm mẫu và thử nghiệm, trong khi 10 đến 15 cơ hội đã tiến sang các giai đoạn sau. ESAB dự kiến sẽ cung cấp chi tiết hơn về tỷ lệ chuyển đổi trong cuộc họp công bố kết quả kinh doanh tương lai.

Động lực tăng trưởng quý 4: Đơn đặt hàng trong tháng 10 tăng ở mức một chữ số ở khoảng trung bình, với tăng trưởng doanh thu ở mức tương đương. Ban lãnh đạo đã thực hiện đợt tăng giá tiếp theo và kỳ vọng điều kiện kinh doanh tại Nam Mỹ sẽ cải thiện.

Triển vọng biên lợi nhuận: Ban lãnh đạo cho biết biên lợi nhuận gia tăng khoảng 23% trong quý 3 là một giả định hợp lý và kỳ vọng biên lợi nhuận quý 4 sẽ mở rộng. Năng suất từ hệ thống EBXai, các thương vụ thâu tóm và việc điều chỉnh giá đang giúp bù đắp lạm phát và tài trợ cho các khoản đầu tư thương mại.

Cơ hội từ tự động hóa: Tự động hóa chiếm tỷ trọng hai chữ số trong doanh thu của ESAB. Ban lãnh đạo nhận thấy tiềm năng tăng trưởng ở mức một chữ số ở khoảng cao, bao gồm các ứng dụng kiểm tra và giám sát tự động do Eddyfi hỗ trợ.

Mở rộng hoạt động EWM: EWM tăng trưởng ở mức một chữ số ở khoảng cao trong quý. ESAB đang nhắm tới các chương trình đánh giá năng lực từ các nhà sản xuất thiết bị gốc (OEM) tại Bắc Mỹ, công nghệ sản xuất bồi đắp, hàn TIG và các ứng dụng bán dẫn, với lợi ích dự kiến mang lại từ năm 2027 trở đi.

Giảm đòn bẩy tài chính: ESAB có kế hoạch dùng dòng tiền thặng dư để giảm nợ hoặc gia tăng lượng tiền mặt tích trữ. Ban lãnh đạo kỳ vọng cả việc giảm nợ ròng lẫn tăng trưởng EBITDA sẽ hỗ trợ đạt được các mục tiêu về đòn bẩy tài chính.

Toàn văn biên bản cuộc họp báo kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

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.

Phần hỏi đáp

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.