LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings (LECO)

Q1 2013 Earnings Call

April 23, 2013 11:00 am ET

Executives

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

John M. Stropki - Executive Chairman

Christopher L. Mapes - Chief Executive Officer, President and Director

Analysts

Christopher Schon Williams - BB&T Capital Markets, Research Division

Thomas L. Hayes - Thompson Research Group, LLC

Steve Barger - KeyBanc Capital Markets Inc., Research Division

Mark Douglass - Longbow Research LLC

Joseph Mondillo - Sidoti & Company, LLC

Matthew Dodson

Stanley S. Elliott - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Lincoln Electric 2013 First Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Vincent Petrella, Senior Vice President and Chief Financial Officer. Thank you, sir. You may begin.

Vincent K. Petrella

And thank you, Rob, and good morning to everyone. Welcome to the Lincoln Electric 2013 First Quarter Conference Call. We released our financial results this morning and our release is available on the Lincoln Electric website at lincolnelectric.com or by contacting our Investor Relations office at (216) 383-2534. Joining me on the call today are John Stropki, Lincoln's Executive Chairman; and Chris Mapes, President and Chief Executive Officer. John will start the discussion this morning and provide an overview of the quarter, while Chris will highlight our top line performance and strategic initiatives. I will then cover the numbers in some more detail. We are using a slide presentation as part of our webcast today, and these slides are available on today's webcast, which is accessed on our website under the Company and Investor Relations tab. The presentation will also be posted along with a replay of the call later today.

But before we start our discussion, please be reminded that certain statements made during this call, and in our discussions, may be forward-looking and actual results may differ from our expectations. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the company's operating results. Risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.

Additionally, we also discuss financial measures that do not conform to U.S. GAAP, and you may find important information on our use of these measures and the reconciliation to U.S. GAAP in the financial tables that we have included in our earnings release. Now with that, let me turn the call over to John Stropki.

John M. Stropki

Thank you, Vince, and good morning to everyone joining us on the call.

I'm pleased to report that our 2013 first quarter results demonstrate solid profit performance even as we continue to navigate through challenging market conditions. Despite the slowing pace of economic growth in many regions and the ongoing persistent economic weakness in Europe, we achieved the reported $0.80 earnings per share in the quarter. As are reported, our earnings were also unfavorably impacted by a $0.12 per share charge from the recent devaluation of the Venezuelan currency. On an adjusted basis, we achieved a very solid 21% increase in our adjusted EPS to $0.92. Our earnings performance reflects our team's solid execution in a number of important areas. These include optimizing our product and customer mix in targeted regions, generating improved profitability from our operational initiatives and our continued focus on growing and building out our automation business. We made good progress in these areas in the quarter, while also successfully integrating our 4 2012 closed acquisitions. These acquisitions not only contributed positively to our top line performance in the quarter but were also key growth drivers in achieving our longer-term 2020 vision and further enhancing shareholder returns. So we are pleased to see these efforts progressing well at this early stage.

Turning to Slide 4, which provides a snapshot of the quarter's P&L items. The trend clearly highlights that our business is showing its hallmark resilience, and our ongoing efforts are showing good results. Despite a 1% decline in net sales on the challenging market conditions and difficult year-over-year comparisons, we delivered a solid 120 basis point improvement in our operating margins to 13.8%, excluding special items. As I stated earlier, we achieved a 21% increase in earnings, demonstrating that we are making very good headways across our key initiatives. And now, I will ask Chris to walk through our top line performance and strategic initiatives.

Christopher L. Mapes

Thank you, John, and good morning, everyone.

Moving on to Slide 5. Our reported first quarter sales declined 1% to $719 million on a constant dollar basis, which exclude the unfavorable impact of foreign exchange. Our sales held relatively steady on a year-over-year basis.

We realized -- looking at the components of our reported sales performance, we realized a 6% increase in sales from the 4 acquisitions we completed last year. These acquisitions include Tennessee Rand and Wayne Trail, who are leading providers in high-growth automation and welding solutions. Additionally, we benefited from ongoing demand for our equipment solutions, led by automation solutions, which continue to generate solid double-digit percent growth in the quarter. Exports, which predominantly source from North America, were also higher in the quarter on solid demand from China, Brazil and parts of the Middle East.

As John just referenced, our volume performance reflects slowing macroeconomic and industrial production growth rates, weak global crude steel production in many regions and persistent weakness in Europe.

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