What Happened?
Shares of welding and cutting equipment manufacturer ESAB (NYSE: ESAB) fell 3.7% in the afternoon session after the company reported mixed third-quarter results that showed declining margins, which overshadowed a revenue beat and an increased full-year forecast. ESAB announced third-quarter sales of $727.8 million, an 8.1% increase that surpassed analyst estimates. The company’s adjusted earnings of $1.32 per share also came in ahead of expectations. However, investors appeared to focus on weaker aspects of the report. Profitability tightened as the company's operating margin fell to 14.6%, down 1.1 percentage points from the same quarter last year. Despite the company slightly raising its full-year guidance for adjusted earnings per share, the stock's drop suggested that concerns over shrinking margins weighed more heavily on investor sentiment than the otherwise strong top-line performance and improved outlook.
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What Is The Market Telling Us
ESAB’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 16.7% on the news that the company reported a decline in its second-quarter profit and underlying sales. The company's net income dropped to $66.88 million from $82.91 million a year earlier, and earnings per share also decreased. While acquisitions helped lift total sales by 1%, core organic sales, a key measure of underlying performance, actually slipped by 1%. A significant weak spot appeared in the Americas segment, where sales fell 9% from the prior year, a downturn the company attributed to tariff impacts. Despite these challenges, ESAB raised its full-year guidance, but investors appeared to concentrate on the erosion in profit and the sales weakness in a key region.
ESAB is down 2.4% since the beginning of the year, and at $115.48 per share, it is trading 14.5% below its 52-week high of $135.08 from November 2024.
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