LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings Inc. (LECO)

Q3 2009 Earnings Call

October 30, 2009 10:00 am ET

Executives

John Stropki - Chairman, President & Chief Executive Officer

Vincent Petrella - Senior Vice President, Chief Financial Officer & Treasurer

Analysts

Walt Liptak - Barrington Research

Mark Douglass - Longbow Research

Tom Hayes - Piper Jaffray

[Steven Ryan - HST Capital Market]

James Bank - Sidoti & Company

Steve Barger - Keybanc Capital Markets

Greg Halter - Great Lakes Review

Holden Lewis - BB&T Capital Markets

Presentation

Operator

Greetings and welcome to the Lincoln Electric third quarter 2009 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.(Operator Instructions).

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

Vincent K. Petrella

Thank you Melissa, and good morning and thank you all for joining our Lincoln Electric 2009 third quarter conference call. We issued the financial results press release prior to markets open this morning. Additional copies of the press release are available through our Investor Relations Department at 216-383-4893 or on Lincoln Electric’s website.

Lincoln’s Chairman and Chief Executive Officer, John Stropki will lead the discussion this morning, and provide commentary on the quarter and the regional results. Before we start that discussion though, let me remind you that certain statements made during this call and our discussions may be forward-looking and actual results may differ from our expectation. 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.

Let me now turn this call over to John Stropki.

John Stropki

Thank you, Vince and good morning to everyone. Our financial results for the third quarter shows significant sequential improvement in profitability compared with Q1 and Q2 of 2009. As cost savings initiatives, factory rationalization efforts and other actions aimed at improving operational efficiencies are delivering much improved results. Unfortunately, even though many domestic and international macroeconomic payrolls are indicating improvements.

This is yet to manifest itself a meaningful top line revenue growth for the overall global welding industry. However, we are starting to see signs of recovery in several key geographies and market segments. Our 2009 third quarter sales of $442 million delivered a sequential increase of 7% from the second quarter of 2009, and volume was up slightly sequentially from the previous quarter.

I should also note that our third quarter is historically weaker than the second quarter. So the Q3 volume increase is good news. Excluding non-reoccuring items, net income increased to $27 million or $0.63 per diluted share compared with 2009 second quarter earnings of $15 million or $0.34 per diluted share.

As we continue to focus on improved operating results, we took several important actions in the third quarter to further align our cost structure and improve our overall profitability. We recently announced the closing of a welding consumable manufacturing plant in Spain and the downsizing in our [Flex Cord] operations in the Netherlands. As such, we will be shifting the capacity of these facilities to our plants in Poland.

We’ve also announced plans to move all equipment manufacturing out of Lincoln Australia, to our Shang Hai manufacturing operations and with engine drive production moving back to Cleveland. As a result of these actions taken over the last year, we’ve improved our capacity utilization, eliminated meaningful fixed cost overhead and realigned our work force to current global demand.

We continue to evaluate other structural changes to further improve operational efficiencies, while maintaining our ability to meet the expected return in global demand and simultaneously, maintaining our commitment to world class customer service and product quality. This will give you more specific details about the number for the quarter in just a minute, but first an update on the market conditions we face and the latest developments regarding our strategic initiatives.

First, looking at North America. In the U.S., industrial activities continues to hover at historic low levels. While industrial activity measured by industrial production actually increased in September by seven tenth of a percent, it is still 6.1% below 2008 levels.

Capacity utilization also improved to approximately 68%, but again well below the mid 80s levels, which would be indicative of a robust manufacturing economy. Although, there continues to be uncertainty about the overall business levels moving forward, a majority of the forward-looking metrics that measure overall business expectations, not just the purchasing manager’s index are improving.

As an example, September durable goods reported up 1% with machine re-component up 7.9% in the month. Other metrics such as, steel production and demand are also showing some improvement. After major contraction this year, steel demand is forecasted to rebound nicely in 2010. U.S. steel mill capacity rate continues to climb, and was at 63% at the end of last year, with expectations as high as 70% for Q4.

Global steel productions continue to revamp. With China up 19% year-to-date and the emerging economies are expected to grow over 12% in 2010. In Canada, despite a summer of automotive sector realignment and extended factory shutdowns, industrial production manufacturing is beginning to show positive growth again with a 5% increase over early 2009.

However, a broad recovery is not expected until early 2010, when significant oil and gas related projects come back online. Reflecting the current economic environment in the region, our North American sales of $241 million in the third quarter were essentially flat compared with the second quarter of 2009.

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