Lincoln Electric (LECO) 28 Oct 212021 Q3 Earnings call transcript

Greetings, and welcome to the Lincoln Electric 2021 Third Quarter Financial Results Conference Call. [Operator Instructions]. And this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you.

begin. may You

as and Electric Third Angelica, financial everyone. to Investor as our Welcome earlier slide section. this Thank as Relations at presentation XXXX good lincolnelectric.com Conference Electric's well release find can Quarter and the our attachment call. Lincoln to today, call's Lincoln you, on you morning, an website We results the released in

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everyone. Amanda. Good morning, you, Thank

earnings sales that report we in Turning record to Slide to pleased the quarter. third X. and I'm generated

and strong operating an from do demand while global our and strategic to continues commercial environment long-term navigating our initiatives. underlying operational a team job customers, excellent servicing challenging advancing Our

led price expense incremental with a benefits organic Volume control XX%, operating of growth, our a basis on year-over-year XX.X% reduction XX% Profitability third management, actions a margin. and strong results. and by increased XX% strong sequentially, structural growth. cost increased sales adjusted quarter Our margin and delivered

million capital, XX.X%. return basis with our was to generation improved conversion. to $XXX XXX quarter We invested the $XX million up approximately remained on points cash the to also in $XX our $XX with by XX% a including dividends. flow million in and approximately allocation in We growth, Harris in Capital share a invested led returned $XX shareholders, balanced strong, $XX million business. repurchases up in million XX% million Cash

our previously a our increase annual consecutive Board increase. announced, payout, XXth approved XX% near in XXth our dividend the -- As marking

business key the near is expansion we're at performing levels and on headwind, near-term higher on record despite strategy. across industrial focused or standard So capitalizing our metrics, an and

Turning cover underlying to Slide to detail. trends in growth X, more

growth Both in equipment strong see in as organic a percent high product organic automation due to XX% of increased quarter internationally and a rates out XXXX accelerating faster of late our than approximately Geographically, and the region growth portion activity solid challenging With all order last we customers or that sales robotic early rebounded approximately year. consumables quarter and Americas single-digit delays. backlog across pace, our revenue XX% Third regions. comparisons space, to year automation. capital supply to fourth spending this portfolio areas in remained prior pushed and automation system increased levels arm due at continue slowed with

fundamentals improved as we quarter and into automotive production mid-XX% should and end organic steady year organic by with the demand to our in XXXX. in levels accelerated flat Underlying end all markets. remains the comparisons XX% recovery industry to third sales low quarter and trend slow across cautiously mid-teens as despite growing in customers energy. strong in segment to Energy rate. growth sectors, increased industries general sales the challenged move and and rate, gas at infrastructure now positive began a the Heavy This of to prior automotive, Looking with while the third was construction eased, a reinvest in sector. oil sector

is agility due business to ample demand healthy mid-XXXX product In our are inflation in markets international supply expect supply availability. choppiness persist We're for operations, elevated to and supply underlying and our with inventory managing there conditions, While end footprint network leveraging see tight to conditions some chain maintain we our backlog. we levels. increased and in the through accordingly

incentive and Our in to to customer-first is We're We our in well also to good employees fully a given a operations our be the investment has vaccine in program quarter the market. across and our employees vaccinated. approach believe communities. launched risks positioned continuing U.S. business, safely COVID for this us operate encourage

Our world have and the operations to environment. managed more through around work a migrated flexible

at month program we in campus, flexible example, with commitment Lincoln like these, believe of an I out managers As best employees this our are Electric by which employees headquarters and our world's across recognized to rolled Forbes why as XXXX. approach one was strong a more work our Electric. our appropriately and again culture employers programs work provides Lincoln the

we well our with as year, in finish the business we accelerated continue segments So growth standard from as volume expect in as seasonality to our acquisitions. our contributions

material actions to by rising year-end. cost raw price that elevated costs we've achieved due pricing additional expect neutral also announced We to and recover remain to

favorable We're As call pass detail. to environment. I'll trends quarter we excel XXXX, as this now to industrial to look we Gabe in into in well cycle third cover positioned the more And positive. the remains expect the demand financials continued

Thank you, Chris.

X. Slide to Moving

contribution a XX%, and in and a quarter impact third volumes, price X% approximately by favorable from driven consolidated from foreign XX-basis-point exchange. a increase acquisitions X% sales higher XX% Our increased

increased freight is additional and year-to-date, it costs, an year full we pricing and inflation including charge the million we points XXX inflation. charge. the to million in $X slightly reduction the basis LIFO XX.X% X Price months positive for LIFO due as gross input and anticipate neutral profit quarter million, margin for $XX actions will volumes, material from LIFO and expect Our $XX cost benefits to offset charges. fourth approximately an and cost costs first due raw be continued were charges higher to and

special Our the or all the $XXX substantially Operating SG&A decreased XX.X% XXX million higher million basis Reported to SG&A sales. expense of to and compensation increase. XX% of in income included $X due $XX acquisitions approximately million to XX.X% Higher represented to points $XXX approximately quarter. of as income or increased approximately XX% of increased million incentive items. operating a sales percent sales.

on reduction price/cost benefits the increased or margin. management, generated million XX% a Excluding and volumes, $XXX special XX.X% of XXX-basis-point prior sales, improved which income cost diligent year adjusted XX.X% a to items, increase operating incremental versus

an charge year to a income substantially related the frozen expected of settlement to continue high We million full pension the incurred fourth expect termination margin quarter in range. XX% margin incremental $XX a $XX in We range a in with associated mid-XX% a plan. the million other incremental benefit expense with U.S.-defined

additional an $XX settlement million of quarter. $XX expect to charge fourth in approximately million the We noncash

due effective on earnings was items. Our discrete quarter third our basis tax XX.X% and rate to XX.X% an of mix or adjusted

of our low tax earnings XX% We full the items. to rate mix subject of in be discrete expect the to and range, effective to anticipated extent XXXX year continue

the compared to decreased share per XX% in earnings diluted quarter $X.XX with $X.XX year. prior Third

items, a to quarter. the increased record $X.XX special in Excluding diluted adjusted XX% earnings per approximately share

higher and segments quarter segment's price and EBIT The XXX reportable EBIT Slide million by industry a moving inflation to $XX organic approximately actions. XX% an increased higher $XX Welding increased LIFO led to markets Americas offset heavy Organic adjusted benefit margin basis higher and XX% from pricing on adjusted from led and XX%, end management, charge. acceleration benefits to across which sales in product our approximately increased X. XX% cost increased an quarter, Welding of points demand. third Now million. the Americas XX.X% volumes all sales in by volumes areas

XXX% of initiatives management X. Organic The The International benefits $XX million. the cost EBIT segment's price structural saving basis on XXX adjusted and approximately mitigate XX.X% Slide to inflation cost while X% Moving systems. Welding in higher compressed due of segment increased The also grew sector. XX%, to the notably increased Welding's increased volumes, markets power reflecting third price margin continued sales the EBIT comparisons points by to adjusted to prior management. acquisition. Zeman quarter, tough in International led from Approximately equipment energy benefited approximately and in the generation slightly heavy automotive, and volume growth, to XX% end industries

Harris Group Moving to The Products on X. Slide

record Third costs. points challenging $XX and XXX quarter to million. less retail on prior adjusted and decreased favorable a margin X% Adjusted EBIT mix decreased approximately integration year to acquisition margin volumes EBIT XX.X% basis lower

slightly compressed comparisons. is mitigate due lower pricing approximately fourth our performance margin similar to increasing raw X%, integrated. once expect XXXX We prior by in fully quarter year in to with channel retail actions acquisition costs. challenging Organic material sales Volumes increased margins led sales the on

retail, continued volumes applications. quarter the growth HVAC increased industrial Harris Excluding in on and in

generated We expect we in X. XX% constraints to that million Slide chain mitigate to achieved approximately to operations recovery supply from Working maintain support into elevated remains cash as capital Moving the intentionally posture conversion. and XXXX. cash $XXX and flows

Slide approximately year. $XX million including million capital acquisition growth, to shareholders to in share $XX million the invested now this million We $XX returned expenditures. including repurchases. to spend $XX to expect XX. in in million in We Harris approximately $XX approximately Moving million and million $XX $XX We the for CapEx quarter, in

invested months, XX.X%. returning capital shareholders. target would questions. X With and million remain to cash first strong, turn leverage the the $XXX within million range. we approximately maturities to quarter third and and near-term maintained that, investments on remains the we'll flows, for to debt in over up XXX call With liquidity shares. We no cash I strong focused growth like points Return in ample For with $XXX basis repurchased on our remain

Instructions]. [Operator

comes Oppenheimer. first from Blair Bryan Our question line from of the

operating sounded with you've in pretty on recent bullish call-outs runway quarters demand unique the some environment. today industrial Chris, about understandable

real of can past? some if attractive curious thinking recent there you the any fear supply whether of response talked may dynamics that how to away in destruction the runway color chain price more and about inflation and is you're about lead take impact Just and provide we've demand that that some

positive from Well, of made leadership Bryan. a investing that, demand move us Yes. couple very that, as year is we into a in well standpoint a that a marketplace. team a the One I have that early around is as our strategic seen has cycle well industrial things in that decision say positioned that from confidence think this to as this as we've I'd the supply the and chain business then behind

that I is think have our not are think, very supply executing that, It's don't well. we chain challenges. look, what's important I teams,

of the in automation marketplace relative arms of You that chain we the in some robotic an the quarter. concerns business supply around in to some out that challenge had of our saw called the availability impact that

any indication we that or backlog. those good backlog and just that them impacting seeing haven't starting signal see our to done we and date they're we job confidence beginning managing other have certainly about segments backlogs had want And those of to teams challenges aren't a segments inflation demand in the variable So that those real to we're various very to forward. is their And those those to be manage got customers there. that out don't have that within we'll I any that business. as in negatively. we're and talk move there major strong We've that It's seen our them, as business, able within I've

as in XXXX. in I So front on through a as see confidence we're into accelerated execute positioned stated the in the in the I cycle I year industrial my And comments, well think we rest to that of think move and model we demand of us. just that

a anything If quarter. to Or the think XX-plus highlight structural percent lower That's on in And third the the kind of the at incrementals margin that all go-forward was structurally would second, of we third basis? drive great point is a there quarter volume jumping speaking off again international hear. going we rate, look as margin is margin forward?

European businesses was shutdowns of is usually had with international traditionally it, some cyclicality in in QX, Well, our it during which where business saw this has we you exciting some to have quarter. performance the shutdowns, and the some especially see past certainly associated

want for teams achieved And our and on Our business higher we to those double-digit our they've get that, that. our margins higher double-digit is what from migrating to the executing said our XXXX, positive and us in achieve we Electric of was result standard very there a we consistency that you'll see areas QX we're as executed targets QX. And but the we in positive market business strategy. able standard show other our of us into In to can standard And think you'll we the myself I have on margins. what see can updating sign and we business Lincoln higher But strategy, certainly and strategy. this very there look then was execute we to longer-term of in what business it a show that cycle, in of as in be at that for achieved need through QX. in a area it couple

[Operator Instructions].

line Our Cumming. Dillon of next from Mr. question comes the

Great. a Harris quickly Obviously and that driving a of segment. margin talking for for deal of I kind about partially the integration off you bit M&A wonder if in you of start was of heavier coming a could like guys, quarter bit a it sounds second. dilution

that is been average? back kind When can to you you progressing? any would the if curious Just towards talk multiplied deals recent segment those business, have expect margin of trending the how

Yes.

unexpected we'd locations, When to necessarily were chain challenges, that some the have didn't to be they probably us. Not we able having see that that would like longer for question. that great term. identified look, we multiple support strength process business, to acquired supply So business

Our Harris to of We those be job that term. talent. really part people We in doing just have businesses. some -- good team larger has and of really getting found longer the an want exceptional business been found assisting

So the but the on not fact surprised had that certainly challenges the we've as that. integration, integration I it relates of think, with portion by to some path,

probably look, that we'll moving a As think and And drag points that's moving XX and would in we're mentioned, just somewhere QX, favorability more expect then for between into Gabe we been us think I XXXX. that XXX basis I that business. see into of as

to as supply 'XX. With we're as chain, products. around some 'XX the exiting found exacting -- we're and noise continue to positioned people. integration target. well great to we that expected, we the that moving on it's We feel of that hard into love hard us love We'll But relative had We get strategy. kind work as the for

Okay. Yes, much like think conversations to still push is year. extent same some And there kind all there we're second. what to you if that outs next need-based maybe first about into you're activity reading I'm quoting in broadly, lot-based? then just certainly over in Obviously, I the switch can the But makes curiously, becoming tone there's more sounds a and I mean automation for sense. It quarter your modest the are the very labor of headlines do more feel like versus associated I challenges market. upbeat.

to and to So still side just that curious what are labor extent doing the solution? payment to look automation a of your starting customers as on

Yes. It's has believe day, of at been most that need-based. interesting end that the I need automation the versus the always of want,

always improvement, about those When need-based have been productivity, about process automation customers having. about mitigation, to when think operations when to think interactions and I I I they're when look, the So I I the think through think I the talk when about and on manufacturers. I'm when our think that labor our go quality and about enhancement, about employees side talking for

people activity we've you have window seen into experienced engagement, energized in because activity. they it that go some a environment really those So seeing through how wanted their with may XXXX, say path of could didn't in they QX. down we're to order COVID even certainly and we But been working around might to was do as of want early because that really employee challenges that strong though migrating be it a There associated they groups strong where I'm need-based, discussions. continue

choppiness I'm still look very business, lot with challenges Lincoln close or see do chain. solutions in. drive the the continue productivity. chain Electric. a challenge there partners. And our one decision-making. They've again, strategic that on that, very But I arm improvements individuals There's think confident area the is we got It's need supply over those in the But that to And working to marketplace. to specifically as supply just right. of we some I the We're when people more the make about of robotic will key confidence profile. going but in demand believe demand. about So towards that in to see continue I to lot a automated over need-based you're

Okay. on just I maybe last And then That's was Got in color. the Gabe, your if comments one cost can it. price one helpful really it sneak here. on side.

of would of we positive fourth exit still like I think 'XX price fourth do the that versus of maintain still you're planning kind kind year-to-date. that planning I price imply of you would end the year, how the you're rate like Or comments imply of into should neutrality that said that slightly were going you that guess, increases imply kind negative quarter versus maintain in in level ride kind you still the guess what's to to next about next the of neutrality? that planning into year? at the of to quarter. to run of implied like that price neutral inside cost negative kind kind wanting taking year of entering cost terms I the

Dillon, cost and to year, to we've Yes. maintain management. position we a another bit to freight the see and because that's little maintain over see the how the but X year that's price neutral We input a that's price challenges, and slightly our manage that started a with just anchor And positive. increases additional quarter months, we around some fourth and We're costs. responsive a we how very little enter consistent great be right, we costs how a our price strategy, the question, discussions We material to of round positive is position. migrated bit neutral cost negative. the on right, I want progressed

from Jones? from Mr. Mr. Nathan comes of Jones the Our next Stifel. line question

to the next pass can in we queue queue. the Maybe person --

Yes, ma'am.

question next Mr. from of comes the Our Barger. line Steve

really make know environment. about it's to predictions the I tough year given next

the the strength see, for double-digit backlog that and you Chris, Just order growth -- like, you preparing given next year? are

say You're confidence that our go order confidence the back to that all positive -- reaction segments mean to turn positively, are a of The to bit. right, little create very we demand we start willing segments. cycle, industry that now Steve. end what a trending fact those environment seeing had make critical good we're to are probably our us. at industrial energy in industry very Confidence not business to the believe seeing All things but But that for that confidence or Electric. XXXX, be set as It's Lincoln that prediction. a we're our a setting what necessarily I from as foundationally the awfully a day, will certainly is and in we're that demand in. I'll as target to of business, believe environment we've 'XX into a are for hard moving lot rate up strong favorable

it. about Got year single next whether low margin going supply your growth on. forward, chain incremental it's or And high year? for differently was Does Gabe, incremental for the you or make double-digit prediction think right inflation

I just actually anchor the great our a at would on That's tracking point. So XXs. model, higher high right? we're

XXs. we're when type that, to high in about to mid- high growth, models digit our mid-single traditional that talking Beyond single-digit

execute, chain, we're we've done. about So manage we'll And pricing going that's and seen and how material I as inflation to as manage cost you've we'll think it. supply

navigate able environments. as operating disciplined, challenging in very being are know, we to in So you those

are reflecting getting Got where optimism on insensitive comments? pushback you it. now the market can a you're one. any based same I in if buyers end optimism, And price, basically your short price Chris, just of right kind ask on just

they're pricing. Yes. never to insensitive Look,

think, takes very accomplish. closely -- what work have also So very recognize I customers. that customers we're very we to we sure to those and look, us making And educated have trying it just continuing with they

are a we Our large the seeing is OEM lot similar challenged base with. of issues that

to a that the will going centered the going business But those with those seen So not I on the that think and around that's of to be It there as move to probably us telling to we've need that in I throughout that make managing to frankly, of I us discussion market. on and the some. have about, through point that believe important need still right happen. way our you, year, talking I'm this sheet within support utilization for impact of going out And able make taking might inventories been the our working balance the business. support it one And sheet We're investment to chain conversations to I side. for supply that, some, we're XXXX, as market a expenditures we I to make cash we're I'm the chain us think this the And customers. we'll in looking of in quite targets a much us our assure that But what's the we're that our is customers balance not customer-first you've market. things those utilize them for the effectively to our we're but approach exiting and great at impacted the our manage to to bring the conversations in business. sure which business it's We're is as them. we're in supply has Steve, customers think this very absolutely time. in

appreciate So they so support I we're the making customers around that we're that that efforts supporting the decisions do demand. our believe their making can them and

concludes remarks. This to like question-and-answer to for turn back the would session. our call I closing Gabe Bruno

for Thank I'd your Again, on us in joining and in of the the thank very today We future. like forward progression Angelica. interest discussing everyone much. the strategic Electric. thank you to call initiatives Lincoln for to our look you, continued

conference This call. concludes today's

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