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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