Technology

Why Is Lincoln Electric (LECO) Up 7% Since Last Earnings Report?

A month has gone by since the last earnings report for Lincoln Electric Holdings (LECO). Shares have added about 7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is Lincoln Electric due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lincoln Electric Q2 Earnings & Revenues Top Estimates

Lincoln Electric reported second-quarter 2020 adjusted earnings of 80 cents per share, which beat the Zacks Consensus Estimate of 34 cents. However, the reported figure declined 38% year over year. This can be attributed to low demand as industrial activities have slowed due to customer shutdowns on account of the coronavirus pandemic.

Including one-time items, the bottom line came in at 45 cents compared with $1.36 in the prior-year quarter.

Total revenues slumped 24% year over year to $591 million. However, the top line surpassed the Zacks Consensus Estimate of $556 million. The decline in revenues was due to a decrease of 24.8% in organic sales and an unfavorable impact of 1.1% from foreign exchange, which offset a gain of 2% from acquisitions.

Costs and Margins

Cost of goods sold went down 21% to $401 million from the prior-year quarter. Gross profit plunged 30% to $189 million from $270 million reported in the prior-year quarter. Gross margin came in at 32.1% compared with 34.7% in the year-ago quarter.

Selling, general and administrative expenses declined 23% year over year to $126 million from the prior-year quarter. Adjusted operating profit plummeted 41% year over year to $63 million in the quarter. Adjusted operating margin came in at 10.7% compared with 13.6% in the year-ago quarter.

Financial Update

Lincoln Electric had cash and cash equivalents of around $143 million at the end of second-quarter 2020 compared with $200 million at the end of the 2019. The company reported cash flow from operations of $104 million during the second quarter compared with $126 million in the prior-year quarter.

The company’s debt to invested capital was at 53.7% at the end of second-quarter 2020 compared with 47.7% as of the end of fiscal 2019.

Outlook

Considering the uncertainty arising out of the coronavirus pandemic, the company has expanded cost reduction initiatives to sustain margins. These actions are anticipated to contribute approximately $55 million to $65 million to annualized cost savings in 2020.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Lincoln Electric has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lincoln Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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