LECO

Lincoln Electric Holdings, Inc. (LECO)

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Lincoln Electric Holdings (LECO)

Q3 2012 Earnings Call

October 31, 2012 10:00 am ET

Executives

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

John M. Stropki - Chairman, Chief Executive Officer and President

Christopher L. Mapes - Chief Operating Officer and Director

Analysts

Joseph Mondillo - Sidoti & Company, LLC

Walter S. Liptak - Barrington Research Associates, Inc., Research Division

Brian Michael Rayle - Northcoast Research

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

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

Steve Barger - KeyBanc Capital Markets Inc., Research Division

Jason Rodgers

Presentation

Operator

Greetings and welcome to the Lincoln Electric Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vince Petrella, Chief Financial Officer of Lincoln Electric. Thank you, sir. You may begin.

Vincent K. Petrella

And thank you, Dan, and good morning to all of you joining us today. Welcome to Lincoln Electric's 2012 Third Quarter Financial Results Conference Call. We released results for the quarter and the 9-month period this morning prior to the market's open. Lincoln Electric Chairman and Chief Executive Officer, John Stropki, will start the discussion this morning and provide commentary on the quarter. Also joining the call today is Chris Mapes, Lincoln's Chief Operating Officer. Chris will have comments on the segments and after Chris gives his remarks, I will review in more detail the numbers.

A slide presentation is part of today's discussion and is available on the Lincoln website under the Investor tab as part of today's webcast. The presentation will also be posted along with a replay of today's webcast on the company's website later this afternoon.

But before we get started, let me remind you that certain statements made during this call and in our discussions may be forward-looking, and actual results may differ from our expectation. 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.

Now let me turn the call over to John Stropki. John?

John M. Stropki

Thank you, Vince, and good morning to everyone joining us today. Lincoln's operating results for the 2012 third quarter were excellent. We saw significant margin expansion and generated very strong operating cash flows. This strong operating performance was achieved even as the North American economy experienced slowing growth rates and we witnessed a weak macroeconomic environment in many of our international markets.

Sales on a consolidated basis in the quarter, including a reduction of $21 million caused by FX translations, were down 0.6% to $697 million. Without FX, sales were up 2.4%.

Operating income increased to 18.5% to $88.7 million, or 12.7% of sales. And adjusted operating income increased 22.6% to $91.8 million or 13.2% of sales. Net income was up 16.6% to $64.8 million or $0.77 per diluted share. And adjusted income increased 21.5% to $67.5 million or $0.80 per diluted share. These results reflect the hard work of our management team and our global workforce and their combined focus to our 2020 long-term vision, which focuses on global growth and operational improvement strategies.

Before Chris Mapes takes over the results of the Lincoln operating segments, let me provide a quick overview and comments of what we see happening in the industrial segments. In Heavy Fabrication, the construction equipment industry worldwide is experiencing a slowdown. In addition, overproduction during the last quarter of 2011 and in the Q1 2012 have resulted in an overstock condition with high inventories, especially in the China market. Also following commodity prices are affecting the mining industry segment, and some manufacturers report that they are starting to see some order cancellations and pushbacks on the delivery dates for new equipment. As a result, heavy equipment manufacturers are announcing reduced build schedules and rolling plant shutdowns in response to lower demand for both earthmoving and mining products.

The market has slowly started to reshape its size and is getting aligned to the expected growth rates of the future. However, we believe that the long-term prospects in this segment continue to look very promising.

In the Automotive segment, the global market demand for light vehicles is softening, the exception being in the U.S. where sales remain quite strong. In Asia, China is also slowing, but overall, China will still show modest growth this year over last year, and this year-over-year growth trend is likely to continue for many years. In Europe, the automotive market, like the lingering euro-zone concerns, is deteriorating with demand reaching new lows. Despite the softer demand in this segment, we continue to expand and improve our Automotive customer relationships around the world and have recently hosted a number of important high-level visits for our key Automotive customers at our main manufacturing campuses around the world and at our R&D headquarters here in Cleveland.

In the global Offshore segment, investment by the international super majors and the nationalized oil companies continue to grow double digits through Q3 2012. This activity is led by the emerging economies, like Brazil, who have set off on an aggressive path towards energy independence and are using local content requirements to aid their local manufacturing and construction economies. In these growth areas of the offshore construction market, our subsidiaries like Lincoln Electric Brazil are benefiting from a strong focus in this segment. And we are clearly becoming the preferred offshore shipyard equipment provider with good prospects for excellent consumable leverage.

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