LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings, Inc. (LECO)

Q4 2013 Earnings Conference Call

February 14, 2014 10:00 ET

Executives

Vince Petrella - Chief Financial Officer, Senior Vice President, Treasurer

Chris Mapes - Chairman, President, Chief Executive Officer

Analysts

Schon Williams - BB&T Capital Markets

Steve Barger - KeyBanc Capital Markets

Kathryn Thompson - Thompson Research Group

Walter Liptak - Global Hunter Securities

Stanley Elliott - Stifel

Liam Burke - Janney Capital Markets

Joe Mondillo - Sidoti & Company

Jason Rogers - Great Lakes Review

Presentation

Operator

Greetings, and welcome to the Lincoln Electric’s Fourth Quarter and Full Year 2013 Financial Results Conference Call. At this time all participants are in a listen-only mode. As a reminder, this call maybe recorded.

It is now my pleasure to introduce your host, Vincent Petrella, SVP and Chief Financial Officer. Thank you. Sir, you may begin.

Vince Petrella

Thank you, Ashley, and good morning to everyone. Welcome to the Lincoln Electric 2013 Fourth Quarter Conference Call. We released our financial results for the quarter and full year this morning prior to the market 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 on the call today is Chris Mapes, our Chairman and Chief Executive Officer. Chris will start the discussion this morning with an overview of our full-year 2013 results and then he will also highlight progress made on our strategic initiatives.

I will then cover the fourth quarter numbers in more detail, as well as our uses of cash. We will then take questions following our prepared remarks. As part of the webcast today, we are using a slide presentation, which can be accessed on our website under the Company and Investor Relations tabs.

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 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 Chris Mapes. Chris?

Chris Mapes

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

Moving to Slide 3. I’m pleased to report that our full year 2013 results demonstrate the company’s ability to stay focused and execute well in an otherwise challenging market. In 2013, we achieved record profit, earnings and cash flow performance. This achievement reinforces our confidence in our strategies and our ability to execute on our initiatives. Most notable is our record cash flow generation which increased 3% to $339 million and includes a voluntary $75 million contribution to our U.S. pension program, which is now fully funded.

We also returned just under 2/3rds of cash from operations, a record $217 million to shareholders through dividends and share repurchases. Lastly, we increased our return on invested capital by 18.9% this year up 20 basis points from 2012.

Moving to Slide 4, which highlights key income statement items for full year 2013, I would like to note that in addition to our reported results on this slide, we have footnoted the contribution of our Venezuelan operation, which operates in a highly inflationary economy and uncertain environment. We have provided more information this quarter, as our Venezuelan results have grown in significance due to inflation compared with our South American segment results.

While I know many on the call will be doing some quick math, I would like to point out that even if you exclude our Venezuelan business results, you will see that our remaining business performance still achieved record results for the year.

Now, looking at our reported full year 2013 sales performance in detail, we held sales steady at $2.9 billion. We achieved the 3.2% growth in sales; however, this gain was offset by an approximate 3% decline in volumes. Lower volumes primarily reflected our decision to strategically realign our product portfolio towards higher value solutions in various parts of our business.

We did see strength in demand in global automation solutions where we achieved a solid double-digit percent increase in sales in 2013. Additionally, demand for consumables continued to improve through the year with full year sales ultimately flat versus the prior year on stronger fourth quarter growth. Geographically, we achieved solid growth in Mexico and in our South American business where both our Colombia and Brazil businesses achieved excellent improvement in sales growth.

Moving to profitability, reported operating profit margins expanded 160 basis points to a record 14.3% of sales. On an adjusted basis, which excludes special items, we achieved a record 15% operating margin up 190 basis points from 2012. This increase reflects favorable product and geographic mix and the benefits of our internal initiatives and productivity improvements. We accomplished this while integrating several acquisitions consolidating areas of our platform, deploying 7 SAP installations in our global footprint and executing on 100s of continuous improvement projects that we pursue as part of our lean culture.

So I would like to thank our employees around the world for their hard work and perseverance to a demanding year.

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