LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings, Inc. (LECO)

Q2 2011 Earnings Call

July 21, 2011 10:00 am ET

Executives

Vincent Petrella – CFO

John Stropki – Chairman and CEO

Analysts

Chuck Murphy – Sidoti & Co

Tom Hayes – Piper Jaffray

Mark Douglass – Longbow Research

Walt Liptak – Barrington Research

Jason Rogers – Great Lakes Review

Steve Walter [ph] – KeyBanc

Presentation

Operator

Greeting and welcome to the Lincoln Electric second quarter 2011 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Vincent Petrella, CFO of Lincoln Electric. Thank you. Mr. Petrella, you may begin.

Vincent Petrella

And thank you, Latania and good morning to all of you that are joining our 2011 second quarter earnings call. Results for the quarter, I am happier, were issued this morning prior to the markets opening. Additional copies of the news release are available through the Lincoln Electric Investor Relations department or on our company website.

John Stropki, our Chairman and Chief Executive Officer, will start off the discussion today and provide some color on the quarter and the regions. Today’s call also includes a synchronized slide presentation which is available through the webcast and will be posted for replay. But before we start the discussion today, let me remind you that certain statements made during this call and during our discussions afterward may be forward-looking and actual results may differ from our expectations. Actual results may differ materially from the statements we make today 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. Now let me turn the call over to John Stropki.

John Stropki

Thank you, Vincent. Good morning to all of you on the call today. As the economies around the world continue to grow, we improved our performance and market position throughout the global markets. Second quarter sales were $699.3 million, an increase of 35.6 % from last year’s quarter and also represents the ninth consecutive quarter of revenue growth.

Equipment and consumable sales were both very strong and each ended up the quarter up over 35 %. As the income for the quarter rose 75% to $57 million and diluted earnings per share increased 79% to $0.68 per share. We are very pleased with both the strength and the quality of the operating results for the quarter. A number of factors contributed to the growth and strong results in the quarter, including market share gains, new product introductions and our ability to provide our end-user customers and distributor partners with welding solutions they need to be productive and successful growing their businesses. All of this is made possible, of course, through our strong global management team and the dedicated workforce whose hard work and high energy keep us strong and growing stronger in the increasingly challenging global marketplace. The significant increase in both sales and operating profit provide us with good momentum for the second half of the year. However, given the ongoing global economic and political uncertainty permeating throughout a number of markets, we remain optimistic, but cautious in our outlook for the rest of this year. Vince will get into the financial detail shortly, but before that, I want to cover some of the highlights of the quarter as it related to our performance by segments.

First here in North America, business conditions in our North American operations remained strong during the quarter. Sales were $322 million, up 26.7% from the prior year’s period. Export sales were also up approximately 21% to $56 million, with exports to the BRIC countries continuing to show strength growing over 37%. Although order trends continued strong through the second quarter, we are seeing some seasonal softenings in July based on annual vacation slowdowns within several key market segments. Margin improvements in the quarter were driven by improved pricing and the favourable impact of increased volumes on our overall manufacturing costs which were offset by significant material cost increases. (04:46) Seasonal commodity prices continued to trend higher, although the increases are moderating at this time. Industrial production and capacity utilization in the United States ran ahead of last year comparable, although the comparisons to prior years soften somewhat in the second quarter.

Industrial output rose moderately in June, up 0.2 tenths of a percent sequentially and was up 3.4% from June of 2010. Capacity utilization was at 76.7 %, the same as May, but still below its pre-recession highs. Purchasing Manager Index was 55.3 in June, up 1.8 points from May and marking the 23rd consecutive month of expansion in the manufacturing sector.

A recent survey by (inaudible) showed that industrial sector will continue to grow, although at a slower rate than during the past 12 months. Overall manufacturing activity still remains very strong even as the rate of expansion is slowing. Europe and the Middle East, despite the sluggish demand environment in the European region, Lincoln continued to make progress in the second quarter, with US dollar sales growing in excess of 60% and EBIT growing by more than 62%. The company’s acquisitions in Russia were major drivers of the sales growth along with FX translation effects. However, there was also some important organic growth driven by the ongoing strength of the energy-related segments and to a lesser degree the automotive segment. We believe that the company has made substantial progress lowering the cost of the region’s manufacturing base, including our investments in Poland and other important ongoing global sourcing initiatives. Our much leaner overhead cost base should allow the region to produce positive results in the more uncertain times that lie ahead.

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