Lincoln Electric Reports First Quarter 2019 Results Apr 22 2019 Lincoln Electric Reports First Quarter 2019 Results 578.5 KB First Quarter 2019 Highlights Q1 EPS increases 21.7% to $1.12, Adjusted EPS increases 6.4% to $1.17 ROIC increases 450 basis points to 21.2% $106 million returned to shareholders through dividends and share repurchases CLEVELAND, April 22, 2019 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported first quarter 2019 net income of $71.5 million, or diluted earnings per share (EPS) of $1.12, which includes special item after-tax charges of $3.5 million, or $0.05 EPS. This compares with prior year net income of $60.8 million, or $0.92 EPS, which included special item after-tax charges of $12.5 million, or $0.18 EPS. Excluding these items, first quarter 2019 adjusted net income was $75.0 million, or $1.17 EPS, as compared with $73.3 million, or $1.10 EPS in the prior year period. First quarter 2019 sales increased 0.2% to $759.2 million with a 0.9% increase in organic sales. Operating income for the first quarter 2019 was $94.5 million, or 12.4% of sales. This compares with operating income of $85.2 million, or 11.2% of sales, in the prior year period. On an adjusted basis, operating income increased 1.6% to $98.8 million and 20 basis points to 13.0% of sales, as compared with $97.3 million, or 12.8% of sales, in the prior year period. “We achieved earnings growth in the quarter by successfully mitigating inflation and benefiting from favorable mix and our recent growth investments,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “I am proud of our teams’ integration of recent acquisitions and our continued work in Europe. During this cautious period in the cycle, we remain focused on profitable growth and improving returns. Exciting new product launches, acquisitions and a strong balance sheet position us well to continue to generate value for all of our stakeholders." Webcast Information A conference call to discuss first quarter 2019 financial results will be webcast live today, April 22, 2019, at 10:00 a.m., Eastern Time. This webcast is accessible at https://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 6491686. Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call. Financial results for the first quarter 2019 can also be obtained at https://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 60 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 https://www.lincolnelectric.com. Non-GAAP Information Adjusted operating income, Adjusted EBIT, Adjusted net income, Organic sales, Adjusted effective tax rate, 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 acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; 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, 2018. Contact Amanda Butler Vice President, Investor Relations & Communications Tel: 216.383.2534 Email: Amanda_Butler@lincolnelectric.com 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 2019 % of Sales 2018 % of Sales $ % Net sales $ 759,174 100.0 % $ 757,696 100.0 % $ 1,478 0.2 % Cost of goods sold 500,753 66.0 % 501,142 66.1 % 389 0.1 % Gross profit 258,421 34.0 % 256,554 33.9 % 1,867 0.7 % Selling, general & administrative expenses 160,408 21.1 % 161,191 21.3 % 783 0.5 % Rationalization and asset impairment charges 3,535 0.5 % 10,175 1.3 % 6,640 65.3 % Operating income 94,478 12.4 % 85,188 11.2 % 9,290 10.9 % Interest expense, net 5,323 0.7 % 4,441 0.6 % (882 ) (19.9 %) Other income (expense) 3,763 0.5 % 3,451 0.5 % 312 9.0 % Income before income taxes 92,918 12.2 % 84,198 11.1 % 8,720 10.4 % Income taxes 21,452 2.8 % 23,378 3.1 % 1,926 8.2 % Effective tax rate 23.1 % 27.8 % 4.7 % Net income including non-controlling interests 71,466 9.4 % 60,820 8.0 % 10,646 17.5 % Non-controlling interests in subsidiaries’ loss (14 ) — (4 ) — (10 ) (250.0 %) Net income $ 71,480 9.4 % $ 60,824 8.0 % $ 10,656 17.5 % Basic earnings per share $ 1.13 $ 0.93 $ 0.20 21.5 % Diluted earnings per share $ 1.12 $ 0.92 $ 0.20 21.7 % Weighted average shares (basic) 63,160 65,579 Weighted average shares (diluted) 63,899 66,443 Lincoln Electric Holdings, Inc.Financial Highlights(In thousands)(Unaudited) Balance Sheet Highlights Selected Consolidated Balance Sheet Data March 31, 2019 December 31, 2018 Cash and cash equivalents $ 267,134 $ 358,849 Total current assets 1,193,170 1,237,799 Property, plant and equipment, net 476,876 478,801 Total assets 2,354,851 2,349,825 Total current liabilities 525,527 538,182 Short-term debt (1) 110 111 Long-term debt, less current portion 705,725 702,549 Total equity 864,665 887,592 Operating Working Capital March 31, 2019 December 31, 2018 Accounts receivable, net $ 423,187 $ 396,885 Inventories 375,737 361,829 Trade accounts payable 252,840 268,600 Operating working capital $ 546,084 $ 490,114 Average operating working capital to Net sales (2) 18.0 % 16.5 % Invested Capital March 31, 2019 December 31, 2018 Short-term debt (1) $ 110 $ 111 Long-term debt, less current portion 705,725 702,549 Total debt 705,835 702,660 Total equity 864,665 887,592 Invested capital $ 1,570,500 $ 1,590,252 Total debt / invested capital 44.9 % 44.2 % Includes current portion of long-term debt. 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, 2019 2018 Operating income as reported $ 94,478 $ 85,188 Special items (pre-tax): Rationalization and asset impairment charges (2) 3,535 10,175 Acquisition transaction and integration costs (3) 790 1,907 Adjusted operating income (1) $ 98,803 $ 97,270 As a percent of total sales 13.0 % 12.8 % Net income as reported $ 71,480 $ 60,824 Special items: Rationalization and asset impairment charges (2) 3,535 10,175 Acquisition transaction and integration costs (3) 790 1,907 Pension settlement charges (4) — 758 Tax effect of Special items (5) (813 ) (381 ) Adjusted net income (1) 74,992 73,283 Non-controlling interests in subsidiaries’ earnings (loss) (14 ) (4 ) Interest expense, net 5,323 4,441 Income taxes as reported 21,452 23,378 Tax effect of Special items (5) 813 381 Adjusted EBIT (1) $ 102,566 $ 101,479 Effective tax rate as reported 23.1 % 27.8 % Net special item tax impact (0.2 )% (3.3 )% Adjusted effective tax rate (1) 22.9 % 24.5 % Diluted earnings per share as reported $ 1.12 $ 0.92 Special items per share 0.05 0.18 Adjusted diluted earnings per share (1) $ 1.17 $ 1.10 Weighted average shares (diluted) 63,899 66,443 Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate 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. Primarily related to severance, asset impairments and gains or losses on the disposal of assets. Related to the acquisition of Air Liquide Welding. Related to lump sum pension payments. Includes the net tax impact of Special items recorded during the respective periods. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. 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 2019 2018 Net income as reported $ 297,722 $ 252,483 Rationalization and asset impairment charges 18,645 16,765 Pension settlement charges 5,928 8,908 Acquisition transaction and integration costs 3,381 13,294 Amortization of step up in value of acquired inventories — 4,578 Bargain purchase gain — (49,650 ) Tax effect of Special items (3) (7,328 ) 21,036 Adjusted net income (1) $ 318,348 $ 267,414 Plus: Interest expense, net of tax of $6,211 and $5,997 in 2019 and 2018, respectively 18,666 18,022 Less: Interest income, net of tax of $1,605 and $1,369 in 2019 and 2018, respectively 4,825 4,114 Adjusted net income before tax-effected interest $ 332,189 $ 281,322 Invested Capital March 31, 2019 March 31, 2018 Short-term debt 110 1,981 Long-term debt, less current portion 705,725 700,869 Total debt 705,835 702,850 Total equity 864,665 980,672 Invested capital $ 1,570,500 $ 1,683,522 Return on invested capital (1)(2) 21.2 % 16.7 % 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. Return on invested capital is defined as rolling 12 months of Adjusted net income before tax-effected interest income and expense divided by Invested capital. Includes the net tax impact of Special items recorded during the respective periods, including net charges of $31,116 related to the U.S. Tax Act in the twelve months ended March 31, 2018. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item. Lincoln Electric Holdings, Inc.Financial Highlights(In thousands, except per share amounts)(Unaudited) Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2019 2018 OPERATING ACTIVITIES: Net income $ 71,480 $ 60,824 Non-controlling interests in subsidiaries’ loss (14 ) (4 ) Net income including non-controlling interests 71,466 60,820 Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: Rationalization and asset impairment net charges 1,424 676 Depreciation and amortization 18,901 18,134 Equity earnings in affiliates, net (448 ) (538 ) Other non-cash items, net 4,394 7,302 Changes in operating assets and liabilities, net of effects from acquisitions: Increase in accounts receivable (26,900 ) (40,468 ) Increase in inventories (14,638 ) (28,052 ) (Decrease) increase in trade accounts payable (15,107 ) 3,191 Net change in other current assets and liabilities (14,648 ) 21,508 Net change in other long-term assets and liabilities 1,434 1,204 NET CASH PROVIDED BY OPERATING ACTIVITIES 25,878 43,777 INVESTING ACTIVITIES: Capital expenditures (16,251 ) (14,657 ) Acquisition of businesses, net of cash acquired — 6,235 Proceeds from sale of property, plant and equipment 302 118 Purchase of marketable securities — (89,545 ) Proceeds from marketable securities — 131,966 Other investing activities 2,000 — NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES (13,949 ) 34,117 FINANCING ACTIVITIES: Net change in borrowings (3 ) (63 ) Proceeds from exercise of stock options 637 1,962 Purchase of shares for treasury (75,584 ) (14,724 ) Cash dividends paid to shareholders (30,560 ) (25,661 ) NET CASH USED BY FINANCING ACTIVITIES (105,510 ) (38,486 ) Effect of exchange rate changes on Cash and cash equivalents 1,866 2,947 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (91,715 ) 42,355 Cash and cash equivalents at beginning of period 358,849 326,701 Cash and cash equivalents at end of period $ 267,134 $ 369,056 Cash dividends paid per share $ 0.47 $ 0.39 Lincoln Electric Holdings, Inc.Segment Highlights(In thousands)(Unaudited) Americas Welding International Welding The HarrisProducts Group Corporate /Eliminations Consolidated Three months ended March 31, 2019 Net sales $ 457,719 $ 218,086 $ 83,369 $ — $ 759,174 Inter-segment sales 29,388 4,209 1,867 (35,464 ) — Total $ 487,107 $ 222,295 $ 85,236 $ (35,464 ) $ 759,174 Net income $ 71,480 As a percent of total sales 9.4 % EBIT (1) $ 80,416 $ 11,138 $ 10,519 $ (3,832 ) $ 98,241 As a percent of total sales 16.5 % 5.0 % 12.3 % 12.9 % Special items charges (3) 1,336 2,199 — 790 4,325 Adjusted EBIT (2) $ 81,752 $ 13,337 $ 10,519 $ (3,042 ) $ 102,566 As a percent of total sales 16.8 % 6.0 % 12.3 % 13.5 % 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 Net income $ 60,824 As a percent of total sales 8.0 % 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 (4) 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 % EBIT is defined as Operating income plus Other income (expense). 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. Special items in 2019 reflect Rationalization and asset impairment charges of $1,336 in Americas Welding and $2,199 in International Welding and acquisition transaction and integration costs of $790 in Corporate/Eliminations related to the acquisition of Air Liquide Welding. Special items in 2018 reflect pension settlement charges of $758 in Americas Welding, Rationalization and asset impairment charges of $10,175 in International Welding and acquisition transaction and integration costs of $1,907 in Corporate/Eliminations 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 2018 Volume Acquisitions Price ForeignExchange Net Sales 2019 Operating Segments Americas Welding $ 434,772 $ (12,395 ) $ 12,720 $ 27,428 $ (4,806 ) $ 457,719 International Welding 247,320 (17,917 ) — 6,475 (17,792 ) 218,086 The Harris Products Group 75,604 2,961 5,774 450 (1,420 ) 83,369 Consolidated $ 757,696 $ (27,351 ) $ 18,494 $ 34,353 $ (24,018 ) $ 759,174 % Change Americas Welding (2.9 %) 2.9 % 6.3 % (1.1 %) 5.3 % International Welding (7.2 %) — 2.6 % (7.2 %) (11.8 %) The Harris Products Group 3.9 % 7.6 % 0.6 % (1.9 %) 10.3 % Consolidated (3.6 %) 2.4 % 4.5 % (3.2 %) 0.2 % Source: Lincoln Electric Holdings, Inc.
