Lincoln Electric (LECO) 27 Jul 232023 Q2 Earnings call transcript

Greetings, and welcome to the Lincoln Electric's 2023 Second Quarter Financial Results Conference Call. [Operator Instructions]. 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's Second Therese, 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

well our Executive quarterly Chief will our Chris assumption. me Officer; Mapes, today Lincoln's and Officer; cover financial on Gabe as discussion and President begin will Gabe joining Hedlund, Bruno, And Steve quarterly trends XXXX a is performance Chief Financial Chris and end as Chief highlights. the Chairman, Officer. more market in of will provide call Operating Steve with detail

remarks, may to certain actual note forward-looking, please questions. a Following take provided discussion the start are call are that risks on and expectations due that results we differ SEC of our from happy of this your release be our during in results uncertainties our prepared our our before But materially today, XX-Q. number discussion may and A to statements made XX-K and affect filings may our and some press in Forms factors. risk of we

call measure website again In Mapes. which section I'll at Relations U.S. is release, GAAP to do in measures found addition, our tables GAAP. the the our that the available with we earnings to to in lincolnelectric.com. discussed not that, the A comparable of Chris? Chris conform financial measures turn non-GAAP reconciliation of is in And Investor over financial

everyone. you, Thank Good morning, Amanda.

all income of second adjusted another report quarter business. we Slide generation earnings and reinforced to pleased operating X. adjusted results. solid momentum Record the Turning margin, share in flow quarter per record cash sales, generated I'm profit to

effectively balancing The the levels managed year-to-date. the production target more solid job we chain supply tight of price dynamic in capital neutral excellent and continued the the normalized and inflation portfolio supply achieved across win automation. We of conditions of constraints portfolio. In equipment supporting our continue market conditions the second with our an activity, our adoption team to is chain industrial strong conditions cost rest doing in quarter, and spending operating elevated

In the segments quarter, commercial generated margins the effectiveness margin reportable our demonstrating standard all their strategy profit of and higher our operational ranges, within initiatives. of EBIT

We of on also cash performance of months which XXX% levels. plan the inventory achieved is in improved over the conversion ahead X first profit year, and

of top an and decile returned ROIC maintained to in shareholders $XX with returns XX.X% adjusted million also quarter. We the

of Fori integration from XXXX. Automation will on Our to margins low is MIG percent portfolio drive mid-teens which percent double-digit and our automation by track, Power

our fast and and remains The to team planned are our and serving a fourth schedule, exceptional innovation our operational compatible NACS CCS advancing job launch our addition, planning quarter on across production continues In do charger customers, XXX-kilowatt DC and excellence in XXXX of driving version facilities. we early XXXX. an

XXXX to progress, strategy by I and couldn't which our be standard higher positions targets. pleased exceed us our more meet

I'll call to on detail Hedlund. the sales to Now quarter share more performance, second our Steve pass

Thank you, morning, Chris, and good everyone.

Slide to Turning X.

Asia resilient key X regions, across with Middle all Our by East. in our Pacific in Welding investment and volumes the growth higher capital volume organic activity growth industrial sales and and our X.X% product strong reflects segments led groups Americas, main

pipe ahead, end-market first we And mill activity. across as saw actions. growth perspective, of growth demand end From pipeline the organic activity quarter's anniversarying we an markets. by strong our of and rate energy from with accelerating our quarter compared XXXX Second in midstream we the look as energy, all of led high moderated substantially price levels expect primarily in

as replenish well timing to inventory activity. growth OEMs of deliveries, production led strong, strong levels. continues remains in Automotive quarter construction to while which down transportation, by automation agricultural as serve also as had and the to the work activity industry shipbuilding Heavy equipment production large consumables equipment due and auto

We the completion by expect the the inflect positively balance in year, to of automotive projects. of driven automation

industry general the organic Harris. International rate in Our Welding from quarter declined weakness percent sales and single-digit low in

comparisons In in nonresidential Americas, into mid-teen grew we infrastructure cycle the on compression as July. construction and general quarter to in we seen and ended The conditions. prior percent narrowed industry strengthened challenging the quarter have sector, year off-peak our

managing improved strong through and performance. book order this a are expect in sector We sequential

year, in a For demand Harris, challenging seasonality the in quarter half we the that remain cautious of and segment, comparison. residential trends third the back related challenged and given on retail trends

in while deliveries and high end backlog third remain growth Overall, the and demand mode. by across solid product was favorable equipment we areas, quarter quarter, in We timing more automation entered mixed supported all the of market industrial performance levels.

And will now second financials. the Bruno to I cover pass quarter to call Gabe

Steve. you, Thank

X. Slide to Moving

increase second $X.XXX point a X.X% from The quarter volumes basis price. consolidated higher XX increased reflected X.X% a X% to in and sales billion. Our acquisitions, increase benefit

prior was versus year. translation the exchange steady Foreign relatively

or Gross volumes, and acquisitions. from management prior million profit benefits XX% the cost approximately $XX versus effective dollars increased higher year on

neutral quarter second gross the first the effective price of year. cost management, and points Our to cost margin on including profit XX.X% basis half position XX increased volumes a for

and to of or transaction XX% exchange points million, Our first foreign incentive higher to primarily basis as results. quarter and increased SG&A, to XX.X%, sales, compensation costs. which is SG&A unfavorable costs XXX comparable a expense employee-related $XX increased due approximately percent

to X% increased million. income operating Reported $XXX

$X of to XX% offset from operating management inflation elevated drove and growth, special higher business. profit step-up cost contributions million. charges $XXX which helped the Excluding of from in volumes, inventories, Higher amortization acquisitions increased adjusted dollar items approximately acquired to million and rationalization the income of

quarter year XX.X%. of the and and $XX in comparisons effective million acquisitions. million expect expense million. adjusted expense $XX Our margin impact operating increased by basis the to volumes $XX year to prior partially continue of full We points management recorded to interest income XX as higher cost was On offset of approximately net challenging interest

recognized is SG&A. other of $X in which which nonoperating represents income non-recurring million in including the quarter, offset items, We approximately gains, of approximately half

and effective discrete rate adjusted rate prior tax reported This due mix in XX.X% to our as quarter earnings of year. approximately tax items. adjusted second XX.X% Our an compares the and to of was

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

share Second quarter earnings diluted per $X.XX. was

diluted per adjusted was $X.XX. items, earnings special a Excluding record share

and segments on partially basis X. increased $XXX points by was Moving approximately cost offset which management, Welding segment XX adjusted second EBIT EBIT volumes to on XX.X% acquisitions. to Americas reportable margin our The to adjusted XX% increased quarter Slide million. effective higher

segment X% sales in Americas all in higher and capital across and by driven industrial from lines growth increase Welding from continued the volumes generated organic activity increased sales benefit XX% on momentum regional investments. quarter, X% an X% product acquisitions. The in a approximate

Backlogs quarter U.S. the increases of in quarter. inflation high end both continued to XXXX in as to quarter strengthen pricing exports in actions well automation. early reflects and implemented remain in price prior equipment as at anniversary mitigate XXXX. second primarily targeted Price the

points million of is XX% to basis adjusted X.X% segment's EBIT Industrial adjusted margin XXX to prior the Slide and XXX basis XX%. X. targeted XX.X% $X points improved approximately or decreased The but $XX The versus year to standard sequentially Moving range within Welding million. EBIT declined to higher

Pacific the XX X% actions. growth East Price Africa. points, year-to-date increased volume Organic greater and with and in led new X%, strength by Middle approximately reflecting prior and pricing basis the price anniversary sales select of actions Asia increased year

Group the Slide Harris Products Moving on X. to

effective X% approximately $XX.X Volumes EBIT XX.X% to reflecting in compression EBIT in prior increased declined adjusted retail, X% Harris' year basis improvements sales Second integration XXX initiatives. HVAC approximately X% volumes applications. quarter operational Their in and million. reflected management softness continued from margin organic cost in lower and a modest increased on higher points comparison to adjusted price industrial approximately X% performance. challenging

We to $XXX cash million in record in the generated Slide cash X. from operations in XXX% quarter, flows Moving resulting conversion. a

ratio levels. Our to inventory sales improved working on to average XX.X% decreased operating capital

challenging to and supply inventory sales. inventory our portfolio, we equipment have normalized conditions continue chain While largely we elevated support in to levels maintain mitigate consumables

Moving to approximately repurchases $XX million our million million capital $XX through payout. of million spending. and maintained MIG We CapEx and dividend initiatives invested reflecting in our XX.X%. in the Power share $XX higher Slide to a on solid shareholders growth We returned quarter, XX. invested of We acquisition in $XX return

XX Slide and assumptions. our to full Turning year

our We assumptions, business. full drivers from are in of full growth organic year but expect from the of maintaining year our are the balance organic growth strength and adjusting price. volumes to X/X We approximately now volume mix the reflect

estimate. returns that exceed we assumption a price contribution recognize outperformed are will year our We price cash confident has full year that rate. our full XXXX normalized more we to initial and assumption, conversion highly Our

turn progress for And to the I the now to call the expect Chris over to like would continue We in remarks. of half to back year. seasonally concluding

member today, upcoming to President serve Executive be who Board. our my position with we retirement a I Thank CEO President be Steve of January you, Chairman announced will appointed Gabe. as year-end. Lincoln the the work at closely Hedlund, XXXX, will of of and and Electric as as X, Effective will company will Earlier promoted and CEO of and

next as be aligns higher planning strategy near strategy. long-term a after of advances will thoughtful our planned well years I timing to very the in role, XX organization believe with the After XXXX succession its CEO comes the retirement the what and multiyear process. completion my standard

thankful the industrial over value we the I'm in high-performing has last accelerated been for CEO. support solutions. has great business Board the the team significant the and during of investment and customers. It led operational have the innovation, privilege and accelerating global tremendously my excellence, position working I'm a automation decade cutting and industry's how leader a our best the organization, company tenure as to transformed our and serving in of proud by welding, as which creation especially global community with growth

During these company's and ensure and I'm confident have to company in our achieved to future Steve alongside and ability success. continue Steve's years, leadership strong the together team, worked the we momentum the lead I've

congratulating for call questions. role. now his join turn Please Steve in to new on like And me the I'd over

[Operator Instructions].

from from comes Jefferies. question first Saree Our Boroditsky

wanted looks turn and new to in of of a retirement, you'll quarter. the performance on I end some It more strong on through and markets just industries Congratulations over Chris, the role. in very general the go to detail. leading be decade auto And like negative Steve more your missed. following Lincoln,

You noted second inflect the auto half. that in should positively

that So to also industrial, continue. expected on maybe timing then on any that? just was color general or And if

we was that that automotive look that's production this an If volume really up, the and which Saree, capital exposure large The purchases. Harris by us retail strong, projects, Industry, that category. encouragement General gives Industry was segment. we and the equipment we driven by Europe Steve. and the continuing consumables decline in of sales by it in growth Group the there and have softness it strong in had bellwether Yes. quarter. in at was in in is accelerate General automotive, really during driven a we automation the And saw very really U.S. was demand residential International and The Products

slightly in that segments, that think would of a a strong I throughout Steve's recognize it the of Europe, softness of see surprising thematic the not be to our the especially knew momentum the negative us saw in relates we in there. turned some to where some markets internationally, quarter portions softer Saree, business quarter that's we with business that where we we going of for Yes. see have quarter, certain Harris areas comment, were industrial performance the than as we important of momentum. really that And quarter. and did as in the more the ended was

having impacts our really business think Americas I business. business, and Americas positioning about volume the strength is right the in in like the been in now, volume the the that I just performance about of regional X.X% although momentum generating company, we're has the When I across our that's very quarter, think And Americas and strong some strong.

XQ levels? color. increase of be should see auto the volumes expect the up back I in appreciate half Or in year, this? will And we just there expected that offsets to versus any step given the to

would is, think comments, thinking between at heard really you what's the even start as important as an Gabe's Saree, the the about actually business. we almost we and of year, be price mix -- I volume were we're that we where in thought

we'll volumes we're As the up at of business, that are have portion the X/X of believe the and about we stepped actually looking the organic. probably half within back what see of

up that just we've in are us naturally believe that our So tells we volumes the from stepping what first seen half.

be quarter that when to year, each expect days, X seen momentum, think seen less a I would also it we've half certainly the think able volume. again, us about year-over-year into leverage comparison. more would shift about that But the do QX, confronted back you one we be momentum with of volume see The you've exiting towards as acknowledge I we our operationally will business. that that as think that. comes have we And strong the to

next coming from with Our Bryan question Oppenheimer. is Blair

promotion. to Congratulations Chris, and tenure Steve successful on very well-deserved

Yes. Thank you.

level or spending a there of in was was that demand? capital don't that? QX quarter, QX. set. to quantifying you they're the QX it particularly shifted catch-up to mind of -- terms wanted is Just terms perhaps I -- automation, seems in It if some in What in pushback timing or that impact QX like And

single-digit I'd And year, organic growth. we're high wouldn't just you I shifting At some our the right? X.X% as our for So the remind of business. of mid-to describe Bryan, that assumptions. midpoint, we're at assumptions kind in

So of operating our assumptions. accelerate the on That automation, mix in talked do as we've half automotive the with our the expect back in the on about right year contributions to sector. top business we said, of we're of

automation shifting any saw particular our between we year. the first in half I of posture the in for don't So see what

add Bryan. a Fori addition we the our to the of we probably our only Yes, which would do last year. December about other knew acquisition, had spectacular the team. they're just job ownership It's, portfolio. And integration up there that portfolio into was to been Board portion our quite have early had meeting is And we And company. large just of I the We that comment talking of that brought a last in automation Gabe's week. that the we doing bit work a -- into for

I we're the with So making. couldn't be progress happier

quarters, and been I'm Gabe. continuing that's thing be better and But or integration sort first expect of better, than get couple but can has to with to about not the better back demand half to of first the the I aware we in to the because half as would half just talking of imagine, another of the operational is year back the you of automation, some and that agree softness we've it in as that issues. completely anything moved relates year

very the the completed of contrast, business. -- the quarter strong Bryan, There a order in automation second might see didn't activity is another, of it's business. gets revenue quite projects that We and when activity in still business automation we move in proposal quarter. get in timing they we large any very good in see recognized automation from to one terms but the don't softening we some see

what know year. Okay. to growth growth And this we organic an rate Understood. think as substantial should there's sticking great Fori, with We the year. automation, That's hear. with platform full the for about for stepped-up

Organic, mid- to high single digits.

Baird. Our from question RW Dobre Mig from next comes

head in questions. guidance, terms longer One I shorter-term Two on up. guess, shorter-term the follow bit me components have sort as everybody congratulations understand pricing and looking like that? bit. of kind I'm a congrats down Chris, and scratcher great term for you've else, of what's a of a a kind questions how From maybe of a to you to X coming for of the one a -- of perspective, driving tweaked I to Steve, on well. career, me.

of Or something and going Is the confidence there is at instance? the on What time volume? on in negative that any automotive visibility automation? volume volumes And of turns much a to pricing in you think accelerate? actually it sort tweaking we purely gives the that maybe up. there? function year, side, that business how else the as QX, should curious I'm have for And you point on in then

Yes.

Mig, volume So just with start me let the of off side it.

So as strong. backlogs we remain noted, our

We quarter. have the third entering orders strong

to I more mix that So Industry within the on of what being General business see being in And while tips side. second speak does Automotive digits that we progression mid-single the mean? to see the strengthening single down to Automotive we Think digits. and about volumes. we General in Industries, low mean our quarter, strengthening

overall confidence is to mix us our organic gives that the going side. lean that on volume So

we In to like running the what's environment, rate for an wage mention terms now the of this but inflationary didn't and -- in second quarter. at for $X our run million. year, to I in operate pricing, continue to in my I'd point LIFO we're We deploy did comments, increases

you've cost And very pricing we're now, the enact in we're as that along of neutral. philosophy but And price posture. term. operating our we'll long those And on we So an feel required. continue as lines inflationary at right we're that confident seen to neutral we'll execute environment, in anchored

clarify, X Or of that a full year am pricing months for Gabe, through misunderstanding flows I consumables? materials function ago. raw and to outlook But relative that your has to something? moderated how Is

a function we trends. of overall that see And is cost It how right? inflation, includes material

see don't the over in we the seen business few last we've years. So our acceleration that

that's moderation we and in to currently inflation. very pricing we we positioning our look see how a progression posture see price with And actions in will currently. But any pricing right don't accelerate respond we to the now, in when we're drive at So going a of drivers pricing good cost. feel

to we'll you way, a know, price cost we do. disciplined So in very as continue manage

so guess has the Electric. for Understood. X to this automation out, opportunities? question, kind of Then years about you I'm or perspective, Lincoln even how as obviously, of X, Chris a biggest transition And as you're and within leadership here the might from thinking my started for expand the Fori I definition more is longer-term curious where be Steve company maybe happening see the to

of you longer out you about prepared charging remarks, see love then, And that. little bit course, on I'd opportunity, thoughts hear that playing Steve's but it a term? hear your how to to more mentioned the love in I'd So EV

Well, Mig, this Chris. is

a of look, So couple comments.

will of last enormously we the the a I I have in these has with Electric several into because be I we've transformed company believe you underlying in occurred years higher-performing I enormously as over business. Lincoln looks industrial our what to And talk looks the what strong. just believe think automation the for space. like it catalysts First, that company future strong And the within it business

we that that see larger million And quite that. industrial high business going no in well we're beyond We're continue there's a permeate to which believe rate, to secular become portfolio looking the frankly, that, may might and is for growth we're to very trends to next automation with a committed that capital deploy that, I $XXX even of and rates larger the cycles, what over the X today, run business. And reason over years. X, X, won't believe portion and single-digit

well And have as the continued business, creation and cutting technology. welding initiative company the elements other with that additive in as global leader catalysts charger associated the these then or for investment whether as that's other value growth we create within

when see of positioned the even some of well the team we we the enormously those, larger aggregate think those leadership make Steve continuing about So in to because larger I I probably being investments business, but and just accelerate to company. needing company Lincoln you'll a think and think areas in as

I that leadership to worked why And support and over team have discussions, And think and team since the it's are role Chairman's the them and drive Lincoln. to and Steve operating right that. into Steve for but step together and do to those day me the let I that. that's time I the the came the ready in voice associated side a take with to be

starts we'll Steve look as that on guidance you when February to CEO know his the And with providing you to company. So I I'm familiar next it very in the strategy perspectives to provide to long-term for the be steps as relates more and forward frame time business.

[Operator Instructions].

Our comes Stifel. from next question Nathan with Jones

a and congratulations best had strengthening my commentary the to and question quarter. throughout congratulations to add Chris, I'll wishes I Steve. on the about just

quarter. see fairly typical throughout to it's strengthening think the I

the through having are and businesses you little talking more it went underlying So that just And that? driving about more quarter? are the about could bit talk you you would think than trends typically you strengthened maybe as a

strength tell strengthened we which with the think than Yes. that I Look, business a you the catalyst tone, underlying were exiting I that Welding think seeing of think more lot right I when volume I at about strength and X.X%. seen Americas that normally is would quarter. seasonally other the in think segment as the the we that's a that And within strength little had what has that we about

want the favorable the that of to and at end was had tell the fair. demand of July of real wouldn't we we first quarter, solid as be through quarter attributes wouldn't some So mean, progression but the to quarter I weeks the over continuing acceleration couple within that I you saw nice of business. trends see the those backloaded, we're

then follow-up Welding, be going growth, of can the quite of not question of coming out pretty on world outlook of data Still Europe I think the X% the really Welding. to whether of And macro particularly to some some international given volume growth International good, volume my International given numbers think, some coming you continue on is Maybe macro is in strong. and out you there, some Europe? comments in the see or challenges

Yes.

It's from the need International we of a stay in that business focused there year, mean, probably with, area -- risk, will back probably just could could the point I think demand think simply to really where the about Nathan. elements I that perspective. an be I the the business if be we'll towards half of

Our their the proud demand of of International through portion teams, the this quarter, well manage held in our to up cycle. very ability

extended, in because have QX through exhibited the those could ability that manage we've Will closures. extend their got August to seen they've anything, is least which of We've market, coming know shown not that heard or of But tends softness they at the to we anything yet European an that but those. that cycles, in I of see businesses core up, when also market be performance. be these but we some confidence in we've and have

And business the the it better term. as confidence Welding. see some trends half international back I see we of when year, the relates in the upside about business we Americas in demand trends it longer for as demand the lot to So a in thinking in certainly, see of

Markets. day Steve with KeyBanc And our the from comes final Barger of question Capital

I to focus some newer want the on of businesses.

we've a about the For a a customer customers? partner other lot proposition you why gotten start some questions those any or talk of would Lincoln you're the initial And initiative, as to value feedback conversations? station pick Can versus you charging through presenting manufacturer.

Sure, X we is This are Steve. Steve talk now the right and Hedlund. We to, hear everyone market reliability consistently from availability. in drivers the main

of the the So follow that network, can Supercharger a highly media network app says pull can with up from or you of kinds unreliable. been There's that's outside it's the frustration perspective. online social or they an up you about. power Tesla read to not charger and is it's derated either built pulling is EV and press Consumer all working

from up lead equipment ramps in getting long established are DC very the on investment charging time a the And manufacturers chargers. its then also there as U.S. fast

really use. think the what with I vehicle is behind network able saw that standard for their they're to a all announcements be the of you customers adopting to NACS automakers for the that's reliable looking

product to get talked they're to they prospective we've about their value anxious hands. They're in they understand it. as and So get sample excited proposition, our it, customers,

the continue ability manufacturing focus So we industrialization on product. of and to driving this

So very future. the we remain about optimistic

about making are Ohio. of other this circuit the the manufacturing dealing going own company U.S.-based in company one doing to that with for a I think locally we and see that's be having got portfolio. us necessary we've here for decades. the able lot comfort manufacturing And I our strategy is only acknowledge say that manufacture based the handful power are on chargers product value in Cleveland, United these because been that marketplace our think just of And facilities, about here conversations of be board we've States, this in these types established individuals would execute a to excited ability that for an let's the print I would with I build-out these Yes. to of successful in some individuals, that proposition a And U.S. the Steve, gives electronics that's it

I of into capacitizing XXXX, -- what's know hands? but the customers' line time prototypes for out the some getting for you're what

That will be happening later this year.

And Got percentage sell of to sales automation existing? are force once way new or higher a you systems? the if able the sell customers the on then additional a convert or business, one in another welding that it. incentivized time versus customer, what to And is into arm dollar you or sales an how

there's keep sale. an automation X to of in mind, Steve, Well, aspects

retention we have that is First the on high a that, very uses. rate consumables robot

So the welding applications. wire, those robotic types of for high-volume our wire is highly differentiated

the onetime automation think consumable we the we also but ongoing of the associated So annuity get not sale only first system, stream with it.

the have the existing system have they or the the Buying either and and to we risky production And intended in other in And system time shutdown terms summer new down the commissioning. the then place. window customers. they opportunity because to an their or a business see is some schedule hits for maker delivery get a a of tremendous first supplier it's equipment that narrow decision repeat from to of prospect amount that function of use automation take imperative as

right And so our that's see model. help an with with me me that, can wheelhouse them the of this once we just customer, opportunity and in can selling they we've demonstrated hey, expand help to, relationship to we you the pointing thing? other this? Can that start to with And do you

segment, of quick of some get out And a into a point maybe it. and pulling one progressing? growth are automation getting Is $X so trending with any additive how stand-alone Got thought billion automation towards follow-up. at into initiatives there we sense charging can and charging those better now.

a continue emphasize larger well as continue and investment I believe details for Steve, company, those to the on and they're advance Lincoln the to But as continue provide growth piece of individuals areas those as continue getting larger, we'll going they're be we'll engines portfolio, the as certainly important Electric. and at X and to to that we're the areas at community and long-term very the of other the Lincoln Electric, as evaluate as to are executing have strategy we we those to years for company. that our a those to next looking next X business, for are that acknowledge on we're stakeholders

both of you. to Congratulations

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

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