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Lincoln Electric Reports First Quarter 2021 Results

Apr 27 2021
First Quarter 2021 Highlights
• Net sales increase 7.8% to $757.0 million on 6.4% higher organic sales
• Operating income margin of 13.7%; Adjusted operating income margin of 14.4%
• EPS increases 35.2% to $1.23; Adjusted EPS increases 37.0% to $1.37
 

CLEVELAND, April 27, 2021 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported first quarter 2021 net income of $74.2 million, or diluted earnings per share (EPS) of $1.23, which includes special item after-tax charges of $8.6 million, or $0.14 EPS. This compares with prior year period net income of $55.6 million, or $0.91 EPS, which included special item after-tax charges of $5.4 million, or $0.09 EPS. Excluding these items, first quarter 2021 Adjusted net income was $82.8 million, or $1.37 Adjusted EPS. This compares with Adjusted net income of $60.9 million, or $1.00 Adjusted EPS in the prior year period.

First quarter 2021 sales increased 7.8% to $757.0 million from a 6.4% increase in organic sales and 1.4% favorable foreign exchange. Operating income for the first quarter 2021 was $103.9 million, or 13.7% of sales, including special item charges of $5.3 million. This compares with operating income of $81.1 million, or 11.5% of sales, in the prior year period. Excluding special items, Adjusted operating income was $109.2 million, or 14.4% of sales, as compared with $88.4 million, or 12.6% of sales, in the prior year period.

“I am pleased to report record first quarter earnings, which reflect solid execution of our strategic initiatives, cost reduction actions and an accelerated recovery in our end markets,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “Our team continued to do an outstanding job safely serving customers while also generating significant improvement in operating profit margin as well as strong ROIC performance in the quarter.” Mapes continued, “Lincoln Electric is well-positioned to continue to capitalize on growth through innovation, new products, acquisitions and our leading automation portfolio. We remain focused on driving growth, maintaining operational agility and diligent cost management as we navigate the recovery to deliver superior long-term value for our stakeholders.”

Webcast Information

A conference call to discuss first quarter 2021 financial results will be webcast live today, April 27, 2021, 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.

If investors would like to ask questions, please dial (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 1341827. Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.

Financial results for the first quarter 2021 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, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment and has a leading global position in brazing and soldering alloys. Headquartered in Cleveland, Ohio, Lincoln has 55 manufacturing locations in 18 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 net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Organic sales, Cash conversion, Return on invested capital and Earnings before interest, taxes, depreciation and amortization ("EBITDA") 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, financial 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, natural disasters and pandemics, including the current coronavirus disease ("COVID-19") outbreak, 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, 2020.

 

Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)

Consolidated Statements of Income

                                   
                                Fav (Unfav) to  
    Three Months Ended March 31,    Prior Year  
    2021     % of Sales      2020        % of Sales   $   %  
Net sales   $ 757,021       100.0   % $ 701,991     100.0 % $ 55,030     7.8   %
Cost of goods sold     503,254       66.5   %   464,669     66.2 %   (38,585 )   (8.3 ) %
Gross profit     253,767       33.5   %   237,322     33.8 %   16,445     6.9   %
Selling, general & administrative expenses     145,676       19.2   %   149,727     21.3 %   4,051     2.7   %
Rationalization and asset impairment charges     4,163       0.5   %   6,521     0.9 %   2,358     36.2   %
Operating income     103,928       13.7   %   81,074     11.5 %   22,854     28.2   %
Interest expense, net     5,359       0.7   %   5,458     0.8 %   99     1.8   %
Other income (expense)     (1,416 )     (0.2 ) %   309         (1,725 )   (558.3 ) %
Income before income taxes     97,153       12.8   %   75,925     10.8 %   21,228     28.0   %
Income taxes     23,020       3.0   %   20,370     2.9 %   (2,650 )   (13.0 ) %
Effective tax rate     23.7   %         26.8   %        3.1   %     
Net income including non-controlling interests     74,133       9.8   %   55,555     7.9 %   18,578     33.4   %
Non-controlling interests in subsidiaries’ income (loss)     (44 )           (7 )       (37 )   (528.6 ) %
Net income   $ 74,177       9.8   % $ 55,562     7.9 % $ 18,615     33.5   %
                                   
Basic earnings per share   $ 1.24           $ 0.92         $ 0.32     34.8   %
Diluted earnings per share   $ 1.23           $ 0.91         $ 0.32     35.2   %
Weighted average shares (basic)     59,642             60,184                     
Weighted average shares (diluted)     60,299             60,799                    


 

Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands)
(Unaudited)

Balance Sheet Highlights

               
Selected Consolidated Balance Sheet Data      March 31, 2021      December 31, 2020  
Cash and cash equivalents   $ 242,126   $ 257,279  
Accounts receivable, net     431,350     373,487  
Inventories     415,901     381,258  
Total current assets     1,196,287     1,112,343  
Property, plant and equipment, net     500,449     522,092  
Total assets     2,361,749     2,314,453  
Trade accounts payable     294,062     256,530  
Total current liabilities     614,461     549,449  
Short-term debt (1)     3,607     2,734  
Long-term debt, less current portion     715,328     715,456  
Total equity     803,408     790,250  
               
Operating Working Capital   March 31, 2021   December 31, 2020  
Average operating working capital to Net sales (2)     17.7 %     17.4 %
               
Invested Capital   March 31, 2021   December 31, 2020  
Short-term debt (1)   $ 3,607   $ 2,734  
Long-term debt, less current portion     715,328     715,456  
Total debt     718,935     718,190  
Total equity     803,408     790,250  
Invested capital   $ 1,522,343   $ 1,508,440  
               
Total debt / invested capital     47.2 %     47.6 %

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

(2) Average operating working capital to Net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities 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,    
    2021     2020    
Operating income as reported   $ 103,928     $ 81,074    
Special items (pre-tax):                
Rationalization and asset impairment charges (2)     4,163       6,521    
Acquisition transaction costs (3)     1,113          
Amortization of step up in value of acquired inventories (4)           806    
Adjusted operating income (1)   $ 109,204     $ 88,401    
As a percent of total sales     14.4   %   12.6   %
               
Net income as reported   $ 74,177     $ 55,562    
Special items:                
Rationalization and asset impairment charges (2)     4,163       6,521    
Acquisition transaction costs (3)     1,113          
Pension settlement charges (5)     4,886          
Amortization of step up in value of acquired inventories (4)           806    
Tax effect of Special items (6)     (1,561 )     (1,976 )  
Adjusted net income (1)     82,778       60,913    
Non-controlling interests in subsidiaries’ income (loss)     (44 )     (7 )  
Interest expense, net     5,359       5,458    
Income taxes as reported     23,020       20,370    
Tax effect of Special items (6)     1,561       1,976    
Adjusted EBIT (1)   $ 112,674     $ 88,710    
               
Effective tax rate as reported     23.7   %   26.8   %
Net special item tax impact     (0.8 ) %      
Adjusted effective tax rate (1)     22.9   %   26.8   %
               
Diluted earnings per share as reported   $ 1.23     $ 0.91    
Special items per share     0.14       0.09    
Adjusted diluted earnings per share (1)   $ 1.37     $ 1.00    
               
Weighted average shares (diluted)     60,299       60,799    

(1) Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate and Adjusted diluted earnings per share are non-GAAP financial measures. Refer to Non-GAAP Information section.

(2) Primarily related to severance and gains or losses on the disposal of assets.

(3) Related to an acquisition and are included in Selling, general & administrative expenses.

(4) Related to an acquisition and are included in Cost of goods sold.

(5) Related to lump sum pension payments and are included in Other income (expense).

(6) 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      2021        2020    
Net income as reported   $ 224,730     $ 277,191    
Rationalization and asset impairment charges     43,110       18,174    
Acquisition transaction and integration costs     1,113       1,014    
Pension settlement charges     13,005          
Amortization of step up in value of acquired inventories           3,814    
Gains on asset disposals           (3,554 )  
Gain on change in control           (7,601 )  
Tax effect of Special items (2)     (10,179 )     (8,549 )  
Adjusted net income (1)   $ 271,779     $ 280,489    
Plus: Interest expense, net of tax of $5,904 and $6,484 in 2021 and 2020, respectively     17,550       19,489    
Less: Interest income, net of tax of $396 and $605 in 2021 and 2020, respectively     1,184       1,818    
Adjusted net income before tax-effected interest   $ 288,145     $ 298,160    
               
Invested Capital   March 31, 2021   March 31, 2020  
Short-term debt   $ 3,607     $ 132,378    
Long-term debt, less current portion     715,328       715,950    
Total debt     718,935       848,328    
Total equity     803,408       667,960    
Invested capital   $ 1,522,343     $ 1,516,288    
               
Return on invested capital (1)     18.9   %     19.7   %  

 

             
       Twelve Months Ended March 31, 
Total Debt / EBITDA   2021   2020
Net income as reported   $ 224,730   $ 277,191
Income taxes          60,546          74,328
Interest expense, net     21,874     23,550
Depreciation and amortization     78,582     83,614
EBITDA (1)   $ 385,732   $ 458,683
             
    March 31, 2021   March 31, 2020
Total debt   $ 718,935   $ 848,328
             
Total debt / EBITDA     1.86     1.85

(1) Adjusted net income, Return on invested capital and EBITDA are non-GAAP financial measures. Refer to Non-GAAP Information section.

(2) Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the twelve months ended March 31, 2020.

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, 
  2021     2020  
OPERATING ACTIVITIES:            
Net income $ 74,177     $ 55,562  
Non-controlling interests in subsidiaries’ income (loss)   (44 )     (7 )
Net income including non-controlling interests   74,133       55,555  
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:            
Rationalization and asset impairment charges (gains)   60       (236 )
Depreciation and amortization   19,118       21,028  
Equity earnings in affiliates, net   (177 )     (162 )
Other non-cash items, net   (697 )     (4,182 )
Changes in operating assets and liabilities, net of effects from acquisitions:            
Increase in accounts receivable   (65,795 )     (25,698 )
Increase in inventories   (42,568 )     (17,401 )
Increase (decrease) in trade accounts payable   42,325       (16,676 )
Increase in other current liabilities   22,171       11,693  
Net change in other long-term assets and liabilities   (3,308 )     (1,949 )
NET CASH PROVIDED BY OPERATING ACTIVITIES   45,262       21,972  
           
INVESTING ACTIVITIES:            
Capital expenditures   (9,936 )     (11,828 )
Proceeds from sale of property, plant and equipment   584       6,100  
Other investing activities   6,500        
NET CASH USED BY INVESTING ACTIVITIES   (2,852 )     (5,728 )
           
FINANCING ACTIVITIES:            
Net change in borrowings   1,307       97,777  
Proceeds from exercise of stock options   2,780       1,047  
Purchase of shares for treasury   (28,459 )     (109,762 )
Cash dividends paid to shareholders   (30,999 )     (30,675 )
NET CASH USED BY FINANCING ACTIVITIES   (55,371 )     (41,613 )
           
Effect of exchange rate changes on Cash and cash equivalents   (2,192 )     (10,819 )
DECREASE IN CASH AND CASH EQUIVALENTS   (15,153 )     (36,188 )
Cash and cash equivalents at beginning of period   257,279       199,563  
Cash and cash equivalents at end of period $ 242,126     $ 163,375  
           
Cash dividends paid per share $ 0.51     $ 0.49  


 

Lincoln Electric Holdings, Inc.
Segment Highlights (1)
(In thousands)
(Unaudited)

                                 
       Americas      International       The Harris      Corporate /           
    Welding   Welding   Products Group   Eliminations   Consolidated  
Three months ended March 31, 2021                                     
Net sales   $ 425,242   $ 223,079   $ 108,700   $     $ 757,021  
Inter-segment sales     32,748     4,285     2,147     (39,180 )      
Total   $ 457,990   $ 227,364   $ 110,847   $ (39,180 )   $ 757,021  
                                 
Net income                              $ 74,177  
As a percent of total sales                                9.8 %  
                                 
EBIT (1)   $ 72,177   $ 14,207   $ 18,697   $ (2,569 )   $ 102,512  
As a percent of total sales     15.8 %     6.2 %     16.9 %           13.5 %  
Special items charges (gains) (3)     4,440     4,609         1,113       10,162  
Adjusted EBIT (2)   $ 76,617   $ 18,816   $ 18,697   $ (1,456 )   $ 112,674  
As a percent of total sales     16.7 %     8.3 %     16.9 %           14.9 %  
                                 
Three months ended March 31, 2020                                     
Net sales   $ 418,535   $ 197,923   $ 85,533   $     $ 701,991  
Inter-segment sales     24,783     4,483     1,725     (30,991 )      
Total   $ 443,318   $ 202,406   $ 87,258   $ (30,991 )   $ 701,991  
                                 
Net income                              $ 55,562  
As a percent of total sales                                7.9 %  
                                 
EBIT (1)   $ 69,512   $ 478   $ 12,492   $ (1,099 )   $ 81,383  
As a percent of total sales     15.7 %     0.2 %     14.3 %           11.6 %  
Special items charges (gains) (4)     1,190     6,137               7,327  
Adjusted EBIT (2)   $ 70,702   $ 6,615   $ 12,492   $ (1,099 )   $ 88,710  
As a percent of total sales     15.9 %     3.3 %     14.3 %           12.6 %  

(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 2021 reflect pension settlement charges of $4,440 and $446 in Americas Welding and International Welding, respectively, Rationalization and asset impairment charges of $4,163 in International Welding and acquisition transaction costs of $1,113 in Corporate/Eliminations related to an acquisition.

(4) Special items in 2020 reflect Rationalization and asset impairment charges of $1,190 and $5,331 in Americas Welding and International Welding, respectively, and amortization of step up in value of acquired inventories of $806 in International Welding related to an acquisition.

 

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                     Foreign   Net Sales  
  2020   Volume   Acquisitions   Price   Exchange   2021  
Operating Segments                                          
Americas Welding $ 418,535   $ (3,790 )   $   $ 9,065   $ 1,432     $ 425,242  
International Welding   197,923     11,250           4,620     9,286       223,079  
The Harris Products Group   85,533     11,641           12,443     (917 )     108,700  
Consolidated $ 701,991   $ 19,101     $   $ 26,128   $ 9,801     $ 757,021  
                                     
% Change                                          
Americas Welding         (0.9 ) %   %   2.2 %   0.3   %   1.6 %
International Welding         5.7   %       2.3 %   4.7   %   12.7 %
The Harris Products Group         13.6   %   %   14.5 %   (1.1 ) %   27.1 %
Consolidated         2.7   %       3.7 %   1.4   %   7.8 %

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