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CST: 22/10/2019 12:18:25   

Lincoln Electric Reports First Quarter 2019 Results

183 Days ago

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 %
  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,
    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  
  1. 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.
  2. Primarily related to severance, asset impairments and gains or losses on the disposal of assets.
  3. Related to the acquisition of Air Liquide Welding.
  4. Related to lump sum pension payments.
  5. 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 %
  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 before tax-effected interest income and expense divided by Invested capital.
  3. 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 Harris
Products 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 %
  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 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.
  4. 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   Foreign
Exchange
  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 %
                         

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