LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings, Inc. (LECO)

Q3 FY08 Earnings Call

October 22, 2008, 10:00 AM ET

Executives

Vincent K. Petrella - Sr. VP, CFO and Treasurer

John M. Stropki - Chairman, President and CEO

Analysts

Walter Liptak - Barrington Research

Mark Douglas - Longbow Research

Thomas Hayes - Piper Jaffray

James Bank - Sidoti and Company

Steve Barger - KeyBanc Capital Markets

Holden Lewis - BB&T

Jason Rogers - Great Lakes Review

Elliott Schlang - Great Lakes Review

Fritz von Carp - Sage Investment Management

Presentation

Operator

Greeting ladies and gentlemen and welcome to the Lincoln Electric Holdings Third Quarter 2008 Financial Results. At this time all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Vince Petrella, Senior Vice President and Chief Financial Officer for Lincoln Electric. Thank you sir, you may begin.

Vincent K. Petrella - Senior Vice President, Chief Financial Officer and Treasurer

Thank you Ryan. Good morning and welcome to Lincoln Electric's conference call for the third quarter of 2008. Results for the quarter and nine months period were released this morning prior to the market's open.

If you do not have copy, you can obtain one from Lincoln Electric website, or by contacting our investor relation office at 216-383-4893. Lincoln's Chairman and Chief Executive Officer John Stropki will provide a review of the quarter and activity in our market regions in a moment. But first let me remind you that certain statements made during this call and discussion may be forward-looking and actual result may differ from our expectation. Risks and uncertainties that may affect our results are provided in our pres released and in our SEC filings on Forms 10-K and 10-Q.

Now let me turn the call over to John Stropki.

John M. Stropki - Chairman, President and Chief Executive Officer

Thank you Vince and good morning everyone. Given the financial turbulence experienced in United State and abroad, we are pleased that we are able to close the third quarter with such excellent results. We had strong revenue increases, good improvements in profitability and strong cash flow despite the ongoing negative effects of the global financial crisis on several key geographic and market segment.

Even that the economic growth is slowing worldwide, we enter the fourth quarter with uncertainty regarding the full implications [ph] of the global prices and commodity prices, customer purchasing patterns and specific geographic and market segment ramifications.

We expect decline in sales volumes and the impact of lower commodity costs to pressure margins in the fourth quarter of this year and into 2009. However against this backdrop we will continue to execute our long-term strategy of global expansion and capitalizing on key infrastructure and energy projects.

We also plan to utilize out strong balance sheet to gain market share through continued R&D investments and acquisition opportunities which leverage our value driven welding products and service offerings.

As for the results, diluted earnings per share increased 39% to $1.60. Operating net income increased 33% to 90 million on a 12% sales increase to $633 million in the quarter. Cash flow from operations totaled $96 million in the quarter, and our third quarter ending cash balance was $313 million.

Sales for our North American operations increased almost 7% to $370 million. And subsidiaries outside of North America recorded a sales increase of 20% to $262 million. Excluding acquisitions and the effects of changes in foreign currency exchange rates sales outside North America increased 7%.

Those are the general results and Vince will return in a moment with more detail around the numbers. But for the next few minutes let me give you an update on the quarter and the view of the market regions and outlook moving into the fourth quarter and early 2009.

First I would like to comment on Lincoln's position in the face of the current market volatility. The company is well positioned to withstand the current market turbulence. The $313 million of cash untapped and available credit lines of over $215 million and very strong operating cash flows, Lincoln would be able to continue to execute its long-term strategies and look for opportunities to leverage our strong financial position.

While the market would like to remain volatile in the short-term and some of our most important geographies such as the United States are in the midst of an industrial recession, we remain confident of the long term growth prospect for our company and for our industry.

Our continuing strength in export markets reflect the strong demand for our high quality products in developing markets, and we will service well to diversify our business profile. We have the welding industry's strongest brand, the broadest high technology product portfolio, the largest and most efficient global manufacturing platform and most importantly a great team of over 9,000 dedicated employees worldwide. As such we are confident that Lincoln Electric will emerge from the current market crisis in a better competitive position than ever before, as we continue to execute our strategies and take advantages of the global market position.

Now turning to the regions; in North America. During the quarter overall results continue to be positive, while the overall economic environment was increasing challenging. We were able to capitalize on the strength of exports and manage effectively through dynamic commodity challenges.

Overall, industrial activity represented key measures such as industrial production and capacity utilization, and United States have softened at accelerating rates compared to prior years. Excluding high-tech, total manufacturing industrial production was trending 6.1% below 2007 as of September 2008, while capacity utilization was running approximately 74.3%, levels not seen since early 2003.

In addition market impacted by housing and consumer sectors continue to fall. The significant volatility in the credit market and Wall Street has led to much uncertainty about the overall business levels in the fourth quarter and early 2009.

Specifically, orders trends in our traditional U.S. welding markets continue to be choppy and downward in the third quarter providing much uncertainty in the overall strength of the industrial markets we serve in the U.S. Third quarter results, from the region reflect decreasing volumes more than offset by inflationary price increases. As you know pricing has been adjusted numerous times throughout the year to respond to cost increase in key material groups like fuel and chemical.

This could obviously represent an ongoing challenge based on the recent movements in key commodity prices. However, despite the negative economic data, the recently held industrial trade show FABTECH in Las Vegas was very well attended. And our new end-user segment focus booth was well received by participants and allowed for Lincoln Electric to clearly demonstrate our complete product line offering and application value added selling focus.

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