News Release

Lincoln Electric Reports First Quarter 2017 Results

Lincoln Electric Reports First Quarter 2017 Results


 
First Quarter 2017 Highlights
 -  Sales increase 5.5% on higher volumes and price
 -  Operating income margin of 14.0%, 14.6% on an adjusted basis
 -  EPS increases 11% to $0.84, Adjusted EPS increases 16% to $0.88
 -  Solid cash flow from operations and cash conversion of net income (1)
   
 (1)  Cash conversion is defined as Net cash provided by operating activities less Capital expenditures divided by Adjusted net income.
   

CLEVELAND, April 18, 2017 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the "Company") (Nasdaq:LECO) today reported first quarter 2017 net income of $55.8 million, or diluted earnings per share (EPS) of $0.84 which includes acquisition transaction costs of $3.6 million, $2.7 million after-tax, or $0.04 EPS, related to the proposed acquisition of Air Liquide Welding.  This compares with net income of $53.6 million, or $0.76 EPS in the comparable 2016 period.

First quarter 2017 sales increased 5.5% to $580.9 million primarily due to 2.9% higher volumes, a 2.1% increase in price and a 0.6% benefit from acquisitions.  Excluding Venezuela from prior year results due to the deconsolidation of the operation, sales increased 6.4%, primarily from 3.9% higher volumes and a 2.1% increase in price.

Operating income for first quarter 2017 was $81.5 million, or 14.0% of sales. Adjusted operating income margin was 14.6% of sales, reflecting higher volumes and favorable mix.  This compares with operating income of $75.3 million, or 13.7% of sales, in the comparable 2016 period.

"We achieved a solid start to the year on improving demand, favorable prior year comparisons and higher profitability across all of our segments," stated Christopher L. Mapes, chairman, president and chief executive officer. "As markets continue to recover in 2017, we are advancing our '2020 Strategy' with exciting product launches and an active M&A pipeline with the proposed acquisition of Air Liquide Welding. We expect these investments will enhance our portfolio of solutions and provide us with a stronger, broader organization to serve our global customers."

On March 2, 2017, the Company entered into exclusive negotiations to acquire the Air Liquide Welding businesses, which generated sales of approximately $400 million in 2016. The proposed acquisition is subject to the execution of a definitive agreement between the parties and customary conditions and provisions for a transaction of this type, including the "information-consultation" process with employee representative bodies and applicable competition authorities' approval.

Webcast Information

A conference call to discuss first quarter 2017 financial results will be webcast live today, April 18, 2017, 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 3102743.  Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.

Financial results for the first quarter 2017 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 47 manufacturing locations, including operations and joint ventures in 19 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 www.lincolnelectric.com.

Non-GAAP Financial 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 enter into a definitive agreement for the purchase of Air Liquide's welding business and the ability to successfully complete such acquisition; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; 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, 2016.

 
 
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
    2017   % of
Sales
  2016   % of
Sales
  $   %
Net sales   $ 580,897     100.0 %   $ 550,722     100.0 %   $ 30,175     5.5 %
Cost of goods sold   377,041     64.9 %   361,620     65.7 %   (15,421 )   (4.3 %)
Gross profit   203,856     35.1 %   189,102     34.3 %   14,754     7.8 %
Selling, general & administrative expenses   122,370     21.1 %   113,810     20.7 %   (8,560 )   (7.5 %)
Operating income   81,486     14.0 %   75,292     13.7 %   6,194     8.2 %
Interest income   777     0.1 %   430     0.1 %   347     80.7 %
Equity earnings in affiliates   795     0.1 %   626     0.1 %   169     27.0 %
Other income   956     0.2 %   661     0.1 %   295     44.6 %
Interest expense   (6,114 )   (1.1 %)   (3,827 )   (0.7 %)   (2,287 )   (59.8 %)
Income before income taxes   77,900     13.4 %   73,182     13.3 %   4,718     6.4 %
Income taxes   22,052     3.8 %   19,558     3.6 %   (2,494 )   (12.8 %)
Effective tax rate   28.3 %       26.7 %       (1.6 %)    
Net income including non-controlling interests   55,848     9.6 %   53,624     9.7 %   2,224     4.1 %
Non-controlling interests in subsidiaries' income (loss)   4         (14 )       18     128.6 %
Net income   $ 55,844     9.6 %   $ 53,638     9.7 %   $ 2,206     4.1 %
                         
Basic earnings per share   $ 0.85         $ 0.77         $ 0.08     10.4 %
Diluted earnings per share   $ 0.84         $ 0.76         $ 0.08     10.5 %
Weighted average shares (basic)   65,688         69,585              
Weighted average shares (diluted)   66,583         70,246              
                             


 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands)
(Unaudited)
 
Balance Sheet Highlights
 
Selected Consolidated Balance Sheet Data   March 31, 2017   December 31, 2016
Cash and cash equivalents   $ 401,440     $ 379,179  
Total current assets   1,148,070     1,043,713  
Property, plant and equipment, net   376,120     372,377  
Total assets   2,052,677     1,943,437  
Total current liabilities   422,263     388,107  
Short-term debt (1)   2,136     1,889  
Long-term debt, less current portion   703,378     703,704  
Total equity   784,124     712,206  
         
Operating Working Capital   March 31, 2017   December 31, 2016
Accounts receivable, net   $ 302,599     $ 273,993  
Inventories   281,250     255,406  
Trade accounts payable   186,253     176,757  
Operating working capital   $ 397,596     $ 352,642  
         
Average operating working capital to Net sales (2)   17.1 %   15.6 %
         
Invested Capital   March 31, 2017   December 31, 2016
Short-term debt (1)   $ 2,136     $ 1,889  
Long-term debt, less current portion   703,378     703,704  
Total debt   705,514     705,593  
Total equity   784,124     712,206  
Invested capital   $ 1,489,638     $ 1,417,799  
         
Total debt / invested capital   47.4 %   49.8 %


(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.
   


 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
 
Non-GAAP Financial Measures
 
    Three Months Ended March 31,
    2017   2016
Operating income as reported   $ 81,486     $ 75,292  
Special items (pre-tax):        
Acquisition transaction costs (2)   3,615      
Adjusted operating income (1)   $ 85,101     $ 75,292  
As a percent of total sales   14.6 %   13.7 %
         
Net income as reported   $ 55,844     $ 53,638  
Special items (after-tax):        
Acquisition transaction costs (2)   2,734      
Adjusted net income (1)   $ 58,578     $ 53,638  
         
Diluted earnings per share as reported   $ 0.84     $ 0.76  
Special items   0.04      
Adjusted diluted earnings per share (1)   $ 0.88     $ 0.76  
         
Weighted average shares (diluted)   66,583     70,246  


(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) Related to proposed acquisition of Air Liquide Welding.
   


 
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   2017   2016
Net income as reported   $ 200,605     $ 112,762  
Rationalization and asset impairment charges, net of tax of $1,776       18,181  
Loss on deconsolidation of Venezuelan subsidiary, net of tax of $1,097   33,251      
Income tax valuation reversals   (7,196 )    
Pension settlement charges, net of tax of $55,428       87,310  
Venezuela currency devaluation       27,214  
Acquisition transaction costs, net of tax of $880 (3)   2,734      
Adjusted net income (1)   $ 229,394     $ 245,467  
Plus: Interest expense, net of tax of $8,180 and $9,114 in 2017 and 2016, respectively   13,186     14,693  
Less: Interest income, net of tax of $934 and $977 in 2017 and 2016, respectively   1,505     1,574  
Adjusted net income before tax effected interest   $ 241,075     $ 258,586  
         
Invested Capital   March 31, 2017   March 31, 2016
Short-term debt   $ 2,136     $ 24,844  
Long-term debt, less current portion   703,378     350,106  
Total debt   705,514     374,950  
Total equity   784,124     892,669  
Invested capital   $ 1,489,638     $ 1,267,619  
         
Return on invested capital (1)(2)   16.2 %   20.4 %


(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.
(3) Related to proposed acquisition of Air Liquide Welding.
   


 
Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
 
Condensed Consolidated Statements of Cash Flows
 
    Three Months Ended March 31,
    2017   2016
OPERATING ACTIVITIES:        
Net income   $ 55,844     $ 53,638  
Non-controlling interests in subsidiaries' income (loss)   4     (14 )
Net income including non-controlling interests   55,848     53,624  
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:        
Depreciation and amortization   16,166     15,625  
Equity earnings in affiliates, net   (270 )   (2 )
Pension (income) expense   (1,345 )   4,144  
Pension contributions and payments   (550 )   (20,865 )
Other non-cash items, net   6,541     (2,079 )
Changes in operating assets and liabilities, net of effects from acquisitions:        
  Increase in accounts receivable   (24,195 )   (16,592 )
  Increase in inventories   (20,946 )   (10,780 )
  Increase in trade accounts payable   7,164     4,657  
  Net change in other current assets and liabilities   35,333     (2,554 )
  Net change in other long-term assets and liabilities   2,494     (460 )
NET CASH PROVIDED BY OPERATING ACTIVITIES   76,240     24,718  
         
INVESTING ACTIVITIES:        
Capital expenditures   (12,037 )   (8,885 )
Proceeds from sale of property, plant and equipment   203     458  
Purchase of marketable securities   (34,925 )    
Proceeds from marketable securities   3,800      
NET CASH USED BY INVESTING ACTIVITIES   (42,959 )   (8,427 )
         
FINANCING ACTIVITIES:        
Net change in borrowings   110     21,756  
Proceeds from exercise of stock options   5,643     2,015  
Purchase of shares for treasury   (403 )   (102,488 )
Cash dividends paid to shareholders   (22,986 )   (22,625 )
Other financing activities   (7 )   (3,806 )
NET CASH USED BY FINANCING ACTIVITIES   (17,643 )   (105,148 )
         
Effect of exchange rate changes on Cash and cash equivalents   6,623     5,670  
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   22,261     (83,187 )
Cash and cash equivalents at beginning of period   379,179     304,183  
Cash and cash equivalents at end of period   $ 401,440     $ 220,996  
         
Cash dividends paid per share   $ 0.35     $ 0.32  
                 


 
Lincoln Electric Holdings, Inc.
Segment Highlights
(In thousands)
(Unaudited)
 
    Americas
Welding
  International
Welding
  The Harris
Products
Group
  Corporate /
Eliminations
  Consolidated
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 charge (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 %
Three months ended
  March 31, 2016
                   
Net sales   $ 359,008     $ 124,305     $ 67,409     $     $ 550,722  
Inter-segment sales   23,831     4,426     2,303     (30,560 )    
Total   $ 382,839     $ 128,731     $ 69,712     $ (30,560 )   $ 550,722  
                     
EBIT (1)   $ 61,438     $ 6,233     $ 7,711     $ 1,197     $ 76,579  
As a percent of total sales   16.0 %   4.8 %   11.1 %       13.9 %
Special items charge                    
Adjusted EBIT (2)   $ 61,438     $ 6,233     $ 7,711     $ 1,197     $ 76,579  
As a percent of total sales   16.0 %   4.8 %   11.1 %       13.9 %


(1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income.
(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 reflect acquisition transaction costs related to proposed 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
2016
  Volume   Acquisitions   Price   Foreign
Exchange
  Net Sales
2017
Operating Segments                        
Americas Welding   $ 359,008     $ 14,761     $ 3,338     $ 5,520     $ 697     $ 383,324  
International Welding   124,305     3,347         3,199     (1,963 )   $ 128,888  
The Harris Products Group   67,409     (1,984 )       2,718     542     $ 68,685  
Consolidated   $ 550,722     $ 16,124     $ 3,338     $ 11,437     $ (724 )   $ 580,897  
                         
Americas Welding
(excluding Venezuela)
  $ 354,028     $ 19,741     $ 3,338     $ 5,520     $ 697     $ 383,324  
Consolidated
(excluding Venezuela)
  $ 545,742     $ 21,104     $ 3,338     $ 11,437     $ (724 )   $ 580,897  
                         
% Change                        
Americas Welding       4.1 %   0.9 %   1.5 %   0.2 %   6.8 %
International Welding       2.7 %       2.6 %   (1.6 %)   3.7 %
The Harris Products Group       (2.9 %)       4.0 %   0.8 %   1.9 %
Consolidated       2.9 %   0.6 %   2.1 %   (0.1 %)   5.5 %
                         
Americas Welding
(excluding Venezuela)
      5.6 %   0.9 %   1.6 %   0.2 %   8.3 %
Consolidated
(excluding Venezuela) (1)
      3.9 %   0.6 %   2.1 %   (0.1 %)   6.4 %


(1) First quarter 2016 Venezuelan sales were $5 million.
   
Contact

Amanda Butler
Director, Investor Relations
Tel: 216.383.2534
Email: Amanda_Butler@lincolnelectric.com

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Lincoln Electric Holdings, Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Lincoln Electric Holdings Inc's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.