We have downgraded our recommendation on
Lincoln Electric Holdings Inc.
(
LECO
) from Outperform to Neutral. We currently have a Zacks #3 Rank
(short-term Hold recommendation) on the stock.
Lincoln Electric reported fiscal 2012 first quarter adjusted
earnings per share of 76 cents, versus 50 cents in the year-earlier
quarter. Total revenue increased 21% year over year to a record
$727 million. Both outperformed the respective Zacks Consensus
Estimates.
North America contributes more than 50% to the company's business
and is the strongest geographic region. Demand continues to be
strong despite the ongoing uncertainty in the macroeconomic
environment. In 2011, Lincoln Electric acquired three businesses in
the United States - Torchmate, Techalloy, and Arc Products - and
all of them have good upside potential with current performance
superseding expectation.
The company's recent acquisition of Weartech, a major producer
of specialized cobalt and wear-resistant welding consumables, is
expected to generate comparable synergies. These acquisitions will
complement Lincoln's ability to serve its global customers in the
nuclear, power generation and process industries.
We believe the company is well positioned to take advantage of the
expected long-term growth in its key global markets including power
generation, offshore drilling and automotive sectors.
In power generation, new nuclear plants are being planned in
many countries. Demand for nuclear power generation is growing in
China, India, Poland, Lithuania and Finland. In the United States,
Lincoln Electric is the preferred supplier of arc-welding equipment
and consumable products for planned nuclear plants in South
Carolina and Georgia.
In the wind energy sector, wind farms are expected to become an
increasingly important source of energy in Europe. Further, in the
United States, the Department of Interior is planning to issue
offshore wind energy leases for regions along the East Coast.
In the offshore drilling industry, emerging countries such as
Brazil are focused on exploring their own oil and gas reserves,
leading to new offshore construction, while drilling continues to
expand in the more mature regions of North America and Western
Europe.
The automotive sector is also rising, with most of the growth
coming from China and India. In the United States, the average age
of cars and trucks on the road is increasing, which bodes well for
the demand for new cars in the coming years.
Lincoln Electric has appreciably increased its sales volume in the
pipeline sector and maintained profitability and market leadership.
According to the U.S. Energy Information Agency, energy consumption
is projected to increase by 53% globally through 2035, using 2008
as a baseline.
Consequently, new pipeline construction is expected to increase
approximately 6% annually. Lincoln is well-positioned globally to
capitalize on this, and offers a complete line of welding solutions
for pipeline projects both onshore and offshore.
Lincoln has successfully maintained its product leadership by
investing heavily in product development. The company's goal is to
generate 50% of its annual sales from products introduced in the
past five years.
On the flipside, around 32% of Lincoln Electric's revenue is
generated from Europe and Asia. We remain cautious about Europe's
persistent debt problems and the slowing Chinese economy.
Raw material costs are also steadily on the rise and the company
has thus far been successful in passing it on to the customers.
However, competitive pricing may prevent the company to
implement price hikes thereby affecting margins.
Headquartered in Cleveland, Ohio, Lincoln Electric is a full-line
manufacturer and reseller of welding and cutting products. The
company's welding products range from welding power sources, wire
feeding systems, robotic welding packages, fume extraction
equipment, consumables and fluxes to regulators and torches used in
cutting. It competes with
Illinois Tool Works Inc
. (
ITW
).
ILL TOOL WORKS (ITW): Free Stock Analysis
Report
LINCOLN ELECTRC (LECO): Free Stock Analysis
Report
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