Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings (LECO)

Q2 2013 Earnings Call

July 29, 2013 10:00 am ET


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


Thomas L. Hayes - Thompson Research Group, LLC

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

Mark Douglass - Longbow Research LLC

Steve Barger - KeyBanc Capital Markets Inc., Research Division

Walter S. Liptak - Global Hunter Securities, LLC, Research Division

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Joseph Mondillo - Sidoti & Company, LLC

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

Gregory W. Halter - LJR Great Lakes Review



Greetings, and welcome to the Lincoln Electric 2013 Second 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, SVP and Chief Financial Officer. Thank you. Sir, you may begin.

Vincent K. Petrella

Thank you, Brenda, and good morning to everyone. Welcome to the Lincoln Electric 2013 Second Quarter Conference Call. We released our financial results for the quarter this morning prior to the market's open, 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 today on the call are John Stropki, Lincoln's Executive Chairman; and Chris Mapes, President and Chief Executive Officer. John will start the discussion this morning with an overview of the quarter, and Chris will highlight our top line performance and strategic initiatives. I will then cover the numbers and our uses of cash. We will then take questions following our prepared remarks. We are using a slide presentation as part of today's webcast, which can be accessed on our website under the Company and Investor Relations tabs. The presentation will also be posted along with the replay of the call later today.

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 will 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 their reconciliation to U.S. GAAP in the financial tables that we have included in our earnings release.

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 today.

We'll begin by reviewing Slide 3.

We are pleased to report that despite the combination of uneven end market conditions and challenging year-over-year comparison during the second quarter, we were able to increase our quarterly profit margin by 9%, achieving a record operating income margin of 14.8% in the quarter, up 150 basis points compared with the prior year.

Additionally, we achieved double-digit earnings growth, up 10% to $0.87 on a reported basis and up 12% to $0.91 on an adjusted basis. We also increased our operating cash flow by 31%, with a cash conversion ratio of over 120%.

Lastly, we increased our return on invested capital, or ROIC ratio, by 20 basis points to 18.9% compared with the December 31, 2012, ROIC of 18.7%.

Looking at capital allocation, we continued to invest in our business to ensure that we are well-positioned to achieve our long-term growth goal, and we also accelerated the return of cash to shareholders, reflecting our confidence in delivering on our 2020 Vision objectives.

In the second quarter, we returned $73 million to our shareholders through the combination of dividends and increased share repurchases. And just this past Friday, we announced that the board approved a new 15 million share repurchase program. This program now authorizes total shares for repurchase of approximately 20% of our diluted weighted-average shares outstanding. This program will give us the added flexibility to continue our balanced approach of investing for the long-term growth and accelerating the return of cash to shareholders.

Now before I pass the call to Chris, and looking at the summary of the second quarter income statement on Slide 4, it is clear that the results demonstrate our ability to drive measurable improvements even in weaker market conditions and even as we are incurring additional overhead expenses to integrate our new acquisitions. We are focused on optimizing our product mix in targeted regions, continuing to invest in our strong product pipeline and generating improved profitability from our operational initiatives. We are clearly executing on what we feel is a disciplined approach that positions us to meet our long-term 2020 Vision goals and to continually increase shareholder returns.

Chris will now walk us through the top line performance and comment on the key end markets, as well as update us on specific initiatives.

Christopher L. Mapes

Thank you, John, and good morning, everyone.

Moving to Slide 5. Our second quarter sales declined 2% to approximately $727 million. Looking at the key components of our reported sales performance for the second quarter, we realized a 3% increase from acquisitions we completed last year, 2 of which have yet to fully anniversary: Kaliburn, Burny, which is part of our plasma and shape-cutting strategy; and Tennessee Rand, which is part of our global automation strategy.

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