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Lincoln Electric Reports First Quarter 2018 Results

Apr 23 2018

Lincoln Electric Reports First Quarter 2018 Results

 

First Quarter 2018 Highlights
•   Sales increase 30.4% with 9.4% higher organic sales
•   EPS increases 9.5% to $0.92, Adjusted EPS increases 25.0% to $1.10
•   ROIC increases 50 basis points to 16.7%
 

CLEVELAND, April 23, 2018 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq:LECO) today reported first quarter 2018 net income of $60.8 million, or diluted earnings per share (EPS) of $0.92.  This compares with $55.8 million, or $0.84 EPS in the prior year period.  Reported EPS includes special item after-tax charges of $12.5 million, or $0.18 EPS.  Excluding these items, first quarter 2018 adjusted net income increased 25.1% to $73.3 million, or $1.10 EPS, as compared with $58.6 million, or $0.88 EPS in the prior year period.  The first quarter 2018 effective tax rate was 27.8% due to special items.  Excluding special items, the effective tax rate was 24.5%, which compares to 28.1% in the comparable 2017 period.

First quarter 2018 sales increased 30.4% to $757.7 million from an 18.3% benefit from acquisitions, 5.2% higher volumes, a 4.2% increase in price and 2.7% from favorable foreign exchange.

Operating income for the first quarter 2018 was $85.2 million, or 11.2% of sales.  This compares with operating income of $79.4 million, or 13.7% of sales, in the comparable 2017 period.  On an adjusted basis, operating income increased 17.2% to $97.3 million, or 12.8% of sales, as compared with $83.0 million, or 14.3% of sales, in the prior year period.  The Air Liquide Welding acquisition had an unfavorable 110 basis point impact to the adjusted operating income margin.

"We are pleased to report good sales momentum in the first quarter,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “Higher capital investment and the drive for higher productivity have increased demand across our main product categories and trends remain positive.  While we work to mitigate inflationary headwinds, we are continuing to invest in long-term profitable growth. In the quarter, our European integration team continued to pace ahead of plan and we celebrated the grand opening of our new Welding Technology and Training Center. These investments support our ‘2020 Vision and Strategy’ and long-term value creation for our customers and shareholders."

Webcast Information

A conference call to discuss first quarter 2018 financial results will be webcast live today, April 23, 2018, at 10:00 a.m., Eastern Time.  This webcast is accessible at http://ir.lincolnelectric.com.  Listeners should go to the web site prior to the call to register, download and install any necessary audio software.  A replay of the webcast will be available on the Company's web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 2969867.  Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.

Financial results for the first quarter 2018 can also be obtained at http://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market.  Headquartered in Cleveland, Ohio, Lincoln has 63 manufacturing locations, including operations and joint ventures in 23 countries and a worldwide network of distributors and sales offices covering more than 160 countries.  For more information about Lincoln Electric and its products and services, visit the Company’s website at http://www.lincolnelectric.com.

Non-GAAP Information

Adjusted operating income, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.

Forward-Looking Statements

The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect management’s current expectations and involve a number of risks and uncertainties.  Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning.  Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results.  The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate the Air Liquide Welding business acquisition; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general.  For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
           
 

 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
 
Consolidated Statements of Income        
    Three Months Ended March 31,   Fav (Unfav) to
Prior Year
    2018   % of Sales   2017   % of Sales   $   %
Net sales   $ 757,696     100.0 %   $ 580,897     100.0 %   $ 176,799     30.4 %
Cost of goods sold   501,142     66.1 %   378,234     65.1 %   (122,908 )   (32.5 %)
Gross profit   256,554     33.9 %   202,663     34.9 %   53,891     26.6 %
Selling, general & administrative expenses   161,191     21.3 %   123,256     21.2 %   (37,935 )   (30.8 %)
Rationalization and asset impairment charges   10,175     1.3 %           (10,175 )   (100.0 %)
Operating income   85,188     11.2 %   79,407     13.7 %   5,781     7.3 %
Interest expense, net   4,441     0.6 %   5,337     0.9 %   896     16.8 %
Other income (expense)   3,451     0.5 %   3,830     0.7 %   (379 )   (9.9 %)
Income before income taxes   84,198     11.1 %   77,900     13.4 %   6,298     8.1 %
Income taxes   23,378     3.1 %   22,052     3.8 %   (1,326 )   (6.0 %)
Effective tax rate   27.8 %       28.3 %       0.5 %    
Net income including non-controlling interests   60,820     8.0 %   55,848     9.6 %   4,972     8.9 %
Non-controlling interests in subsidiaries’ earnings (loss)   (4 )       4         (8 )   200.0 %
Net income   $ 60,824     8.0 %   $ 55,844     9.6 %   $ 4,980     8.9 %
                         
Basic earnings per share   $ 0.93         $ 0.85         $ 0.08     9.4 %
Diluted earnings per share   $ 0.92         $ 0.84         $ 0.08     9.5 %
Weighted average shares (basic)   65,579         65,688              
Weighted average shares (diluted)   66,443         66,583              
                             


 

 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands)
(Unaudited)
 
Balance Sheet Highlights        
         
         
Selected Consolidated Balance Sheet Data   March 31, 2018   December 31, 2017
Cash and cash equivalents   $ 369,056     $ 326,701  
Marketable securities   136,704     179,125  
Total current assets   1,445,845     1,373,608  
Property, plant and equipment, net   482,805     477,031  
Total assets   2,488,500     2,406,547  
Total current liabilities   550,200     528,742  
Short-term debt (1)   1,981     2,131  
Long-term debt, less current portion   700,869     704,136  
Total equity   980,672     932,453  
         
Operating Working Capital   March 31, 2018   December 31, 2017
Accounts receivable, net   $ 442,740     $ 395,279  
Inventories   381,530     348,667  
Trade accounts payable   277,122     269,763  
Operating working capital   $ 547,148     $ 474,183  
         
Average operating working capital to Net sales (2) (3)   18.1 %   15.9 %
         
Invested Capital   March 31, 2018   December 31, 2017
Short-term debt (1)   $ 1,981     $ 2,131  
Long-term debt, less current portion   700,869     704,136  
Total debt   702,850     706,267  
Total equity   980,672     932,453  
Invested capital   $ 1,683,522     $ 1,638,720  
         
Total debt / invested capital   41.7 %   43.1 %
             

(1) Includes current portion of long-term debt.

(2) Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales.

(3) Average operating working capital to Net sales excluding the acquisition of Air Liquide Welding was 16.5% and 14.2% in the 2018 and 2017 periods, respectively.

 

 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
 Non-GAAP Financial Measures
 
    Three Months Ended March 31,
    2018   2017
Operating income as reported   $ 85,188     $ 79,407  
Special items (pre-tax):        
Rationalization and asset impairment charges (2)   10,175      
Acquisition transaction and integration costs (3)   1,907     3,615  
Adjusted operating income (1)   $ 97,270     $ 83,022  
As a percent of total sales   12.8 %   14.3 %
         
Net income as reported   $ 60,824     $ 55,844  
Special items (after-tax):        
Rationalization and asset impairment charges (2)   7,870      
Acquisition transaction and integration costs (3)   1,520     2,734  
Pension settlement charges (4)   569      
Adjustment related to the U.S. Tax Act (5)   2,500      
Adjusted net income (1)   $ 73,283     $ 58,578  
         
Diluted earnings per share as reported   $ 0.92     $ 0.84  
Special items   0.18     0.04  
Adjusted diluted earnings per share (1)   $ 1.10     $ 0.88  
         
Weighted average shares (diluted)   66,443     66,583  
             

(1)  Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.

(2)  Charges primarily related to severance and asset impairments, net of tax of $2,305.

(3)  Related to the acquisition of Air Liquide Welding, net of tax of $387 and $881 in 2018 and 2017, respectively.

(4)  Related to a lump sum pension payment, net of tax of $189.

(5)  Adjustment to taxes on unremitted foreign earnings related to the U.S. Tax Act.

 

 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
 
Non-GAAP Financial Measures
    Twelve Months Ended March 31,
Return on Invested Capital   2018   2017
Net income as reported   $ 252,483     $ 200,605  
Rationalization and asset impairment charges, net of tax of $2,697   14,068      
Pension settlement charges, net of tax of $3,309   5,599      
Loss on deconsolidation of Venezuelan subsidiary, net of tax of $1,097       33,251  
Income tax valuation reversals       (7,196 )
Acquisition transaction and integration costs, net of tax of $2,949 and $880 in 2018 and 2017, respectively   10,345     2,734  
Amortization of step up in value of acquired inventories, net of tax of $1,125   3,453      
Bargain purchase gain   (49,650 )    
Net impact of U.S. Tax Act   31,116      
Adjusted net income (1)   $ 267,414     $ 229,394  
Plus: Interest expense, net of tax of $5,997 and $8,180 in 2018 and 2017, respectively   18,022     13,186  
Less: Interest income, net of tax of $1,369 and $934 in 2018 and 2017, respectively   4,114     1,505  
Adjusted net income before tax effected interest   $ 281,322     $ 241,075  
         
Invested Capital   March 31, 2018   March 31, 2017
Short-term debt   $ 1,981     $ 2,136  
Long-term debt, less current portion   700,869     703,378  
Total debt   702,850     705,514  
Total equity   980,672     784,124  
Invested capital   $ 1,683,522     $ 1,489,638  
         
Return on invested capital (1)(2)   16.7 %   16.2 %
             

(1) Adjusted net income and Return on invested capital are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.

(2) Return on invested capital is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital.

 

 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
     
Condensed Consolidated Statements of Cash Flows    
     
    Three Months Ended March 31,
    2018   2017
OPERATING ACTIVITIES:        
Net income   $ 60,824     $ 55,844  
Non-controlling interests in subsidiaries’ earnings (loss)   (4 )   4  
Net income including non-controlling interests   60,820     55,848  
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:        
Rationalization and asset impairment charges   676      
Depreciation and amortization   18,134     16,166  
Equity earnings in affiliates, net   (538 )   (270 )
Pension (income) expense and settlement charges   (122 )   (1,345 )
Other non-cash items, net   7,424     5,991  
Changes in operating assets and liabilities, net of effects from acquisitions:        
Increase in accounts receivable   (40,468 )   (24,195 )
Increase in inventories   (28,052 )   (20,946 )
Increase in trade accounts payable   3,191     7,164  
Net change in other current assets and liabilities   21,508     35,333  
Net change in other long-term assets and liabilities   1,204     2,494  
NET CASH PROVIDED BY OPERATING ACTIVITIES   43,777     76,240  
         
INVESTING ACTIVITIES:        
Capital expenditures   (14,657 )   (12,037 )
Acquisition of businesses, net of cash acquired   6,235      
Proceeds from sale of property, plant and equipment   118     203  
Purchase of marketable securities   (89,545 )   (34,925 )
Proceeds from marketable securities   131,966     3,800  
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES   34,117     (42,959 )
         
FINANCING ACTIVITIES:        
Net change in borrowings   (63 )   110  
Proceeds from exercise of stock options   1,962     5,643  
Purchase of shares for treasury   (14,724 )   (403 )
Cash dividends paid to shareholders   (25,661 )   (22,986 )
Other financing activities       (7 )
NET CASH USED BY FINANCING ACTIVITIES   (38,486 )   (17,643 )
         
Effect of exchange rate changes on Cash and cash equivalents   2,947     6,623  
INCREASE IN CASH AND CASH EQUIVALENTS   42,355     22,261  
Cash and cash equivalents at beginning of period   326,701     379,179  
Cash and cash equivalents at end of period   $ 369,056     $ 401,440  
         
Cash dividends paid per share   $ 0.39     $ 0.35  
                 

 

Lincoln Electric Holdings, Inc.
Segment Highlights (1)
(In thousands)
(Unaudited)
                     
    Americas
Welding
  International
Welding
  The Harris
Products
Group
  Corporate /
Eliminations
  Consolidated
Three months ended March 31, 2018                  
Net sales   $ 434,772     $ 247,320     $ 75,604     $     $ 757,696    
Inter-segment sales   26,586     4,509     1,907     (33,002 )      
Total   $ 461,358     $ 251,829     $ 77,511     $ (33,002 )   $ 757,696    
                       
EBIT (1)   $ 76,681     $ 4,798     $ 9,225     $ (2,065 )   $ 88,639    
As a percent of total sales   16.6 %   1.9 %   11.9 %       11.7 %  
Special items charges (gains) (3)   758     10,175         1,907     12,840    
Adjusted EBIT (2)   $ 77,439     $ 14,973     $ 9,225     $ (158 )   $ 101,479    
As a percent of total sales   16.8 %   5.9 %   11.9 %       13.4 %  
Three months ended March 31, 2017                  
Net sales   $ 383,324     $ 128,888     $ 68,685     $     $ 580,897    
Inter-segment sales   22,460     4,285     2,300     (29,045 )      
Total   $ 405,784     $ 133,173     $ 70,985     $ (29,045 )   $ 580,897    
                       
EBIT (1)   $ 68,723     $ 9,605     $ 8,460     $ (3,551 )   $ 83,237    
As a percent of total sales   16.9 %   7.2 %   11.9 %       14.3 %  
Special items charges (gains) (3)               3,615     3,615    
Adjusted EBIT (2)   $ 68,723     $ 9,605     $ 8,460     $ 64     $ 86,852    
As a percent of total sales   16.9 %   7.2 %   11.9 %       15.0 %  
                               

(1) EBIT is defined as Operating income plus Other income (expense).

(2) The primary profit measure used by management to assess segment performance is Adjusted EBIT.  EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.

(3) Special items in 2018 reflect rationalization and asset impairment charges, pension settlement charges and acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. Special items in 2017 reflect acquisition transaction and integration costs related to the acquisition of Air Liquide Welding.

 

   
Lincoln Electric Holdings, Inc.
Change in Net Sales by Segment
(In thousands)
(Unaudited)
 
   
Three Months Ended March 31st Change in Net Sales by Segment  
               
        Change in Net Sales due to:      
    Net Sales
2017
  Volume   Acquisitions   Price   Foreign
Exchange
  Net Sales
2018
Operating Segments                        
Americas Welding   $ 383,324     $ 28,562     $ 3,606     $ 17,682     $ 1,598     $ 434,772  
International Welding   128,888     (4,737 )   102,946     7,019     13,204     247,320  
The Harris Products Group   68,685     6,380         (496 )   1,035     75,604  
Consolidated   $ 580,897     $ 30,205     $ 106,552     $ 24,205     $ 15,837     $ 757,696  
                         
% Change                        
Americas Welding       7.5 %   0.9 %   4.6 %   0.4 %   13.4 %
International Welding       (3.7 %)   79.9 %   5.4 %   10.2 %   91.9 %
The Harris Products Group       9.3 %       (0.7 %)   1.5 %   10.1 %
Consolidated       5.2 %   18.3 %   4.2 %   2.7 %   30.4 %
                                   
Contact

Amanda Butler
Vice President, Investor Relations & Communications
Tel: 216.383.2534
Email: Amanda_Butler@lincolnelectric.com

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Source: Lincoln Electric Holdings, Inc.