Key Highlights

  • Net sales rose 15.1% to USD 1.22 billion, with volume adding 8.8% and price adding 5.7%.
  • Operating income grew 19.7% to USD 211.4 million, and the operating margin widened to 17.3% from 16.6%.
  • Diluted EPS was USD 2.63 versus USD 2.21, while adjusted diluted EPS reached USD 2.98 versus USD 2.47.
  • Nine-month operating cash flow was USD 571.7 million, and no borrowings were outstanding under revolving credit facilities.

Volume and Price Lift Sales

Lincoln Electric (NASDAQ:LECO) filed its quarterly report for the three months ended Sept. 30 on Tuesday. Net sales were USD 1.22 billion, up 15.1% from USD 1.06 billion. Volume contributed 8.8% and price 5.7%, while acquisitions added 0.5% and foreign exchange 0.1%.

Gross profit rose 9.2% to USD 425.0 million, but gross margin narrowed to 34.8% from 36.7%. Selling, general and administrative expenses were USD 205.8 million, or 16.9% of sales, compared with 19.5% a year earlier. Rationalization and asset impairment net charges were USD 7.9 million, against USD 5.8 million. Operating income rose to USD 211.4 million, a 17.3% margin.

Earnings and Segments

Net interest expense fell to USD 11.3 million from USD 13.6 million. Other income was nearly nil, compared with USD 3.0 million. The effective tax rate rose to 27.8% from 26.1%, reflecting earnings mix, discrete items and about USD 13.0 million of tax expense tied to a change in the indefinite reinvestment assertion for certain foreign earnings. Net income was USD 144.3 million, up 17.7%.

Americas Welding sales rose 15.8% to USD 801.3 million, with volume up 13.2% and price up 2.4%. International Welding sales rose 3.3% to USD 226.9 million, as price and acquisitions offset a 1.4% volume decline. The Harris Products Group sales rose 28.9% to USD 193.1 million, driven by 25.7% from price. Total segment adjusted EBIT was USD 224.6 million, of which the Americas contributed USD 166.5 million.

Nine-Month Results and Cash

For the nine months, net sales rose 12.9% to USD 3.56 billion and operating income rose 15.8% to USD 618.2 million, a 17.4% margin. Diluted EPS was USD 7.97 versus USD 6.86, and adjusted diluted EPS was USD 8.41 versus USD 7.22. Gross margin was 35.7% against 36.8%.

Net cash provided by operating activities was USD 571.7 million, compared with USD 566.2 million. Capital expenditures were USD 111.8 million, up from USD 84.0 million. The company repurchased USD 232.2 million of shares, compared with USD 286.5 million, and declared dividends of USD 0.79 per share in the quarter versus USD 0.75. Short-term borrowings fell by USD 143.9 million, and cash was USD 283.2 million.

Balance Sheet and Capital Allocation

As of Sept. 30, the company reported no outstanding borrowings under its USD 1.05 billion of revolving credit facilities. Its stated priorities are internal investment, acquisitions and returning capital through dividends and share repurchases. The authorization covers up to 10 million shares, and 4.3 million shares remained available. Management stated that cash flow from operations can be cyclical.

Accounts receivable rose to USD 603.3 million and inventories to USD 699.4 million, up from USD 538.8 million and USD 633.4 million at year end, consistent with the higher sales base.

Welding Demand Markers to Follow

Tracking points include volume growth against 8.8%, International Welding volume relative to the 1.4% decline, and gross margin against 34.8%. Further items are the effective tax rate after the repatriation charge, working capital levels, and the pace of buybacks within the remaining 4.3 million shares.