Lincoln Electric Reports First Quarter 2023 Results
04/27/2023 - 07:30 AM
First Quarter 2023 Highlights Net sales increase 12.3% to record $1,039 million on 8.5% higher organic sales Operating income margin of 15.8% ; Adjusted operating income margin of 16.3% EPS of $2.09 ; Adjusted EPS of $2.13 Cash flows from operations increase 188% to record $124 million Returned $70 million to shareholders through dividends and share repurchases
CLEVELAND, April 27, 2023 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported first quarter 2023 net income of $121.9 million , or diluted earnings per share (EPS) of $2.09 , which includes special item after-tax net charges of $2.3 million , or $0.04 EPS. This compares with prior year period net income of $126.0 million , or $2.13 EPS, which included special item after-tax net gains of $1.3 million , or $0.03 EPS. Excluding these items, first quarter 2023 adjusted net income was $124.2 million , or $2.13 adjusted EPS. This compares with adjusted net income of $124.7 million , or $2.10 adjusted EPS, in the prior year period.
First quarter 2023 sales increased 12.3% to $1,039.3 million reflecting an 8.5% increase in organic sales and a 5.7% benefit from acquisitions, partially offset by 1.9% unfavorable foreign exchange. Operating income for the first quarter 2023 was $164.4 million , or 15.8% of sales. This compares with operating income of $161.2 million , or 17.4% of sales, in the prior year period. Excluding special items, adjusted operating income was $169.1 million , or 16.3% of sales, as compared with $163.1 million , or 17.6% of sales, in the prior year period.
“I am pleased to report record first quarter sales, adjusted earnings per share and cash flow generation driven by strong demand momentum in Americas Welding, including automation, as well as solid operational performance across all of our segments,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “Our team continues to successfully execute on our Higher Standard 2025 Strategy initiatives, and our integration of Fori Automation is on track to improve profitability in that portion of our business.” Mapes continued, “Strong momentum heading into the second quarter, including high backlog levels and record automation orders, position us well to continue to drive higher results this year.”
Webcast Information
A conference call to discuss first quarter 2023 financial results will be webcast live today, April 27, 2023, at 10:00 a.m., Eastern Time. Those interested in participating via webcast in listen-only mode can access the event here Investor Relations https://ir.lincolnelectric.com here website
About Lincoln Electric
Lincoln Electric is the world leader in the engineering, design, and manufacturing of advanced arc welding solutions, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment, and has a leading global position in brazing and soldering alloys. Lincoln is recognized as the Welding Expert™ for its leading materials science, software development, automation engineering, and application expertise, which advance customers’ fabrication capabilities to help them build a better world. Headquartered in Cleveland, Ohio, Lincoln has 71 manufacturing locations in 20 countries and a worldwide network of distributors and sales offices serving customers in over 160 countries. For more information about Lincoln Electric and its products and services, visit the Company’s website at https://www.lincolnelectric.com
Non-GAAP Information
Adjusted operating income, adjusted net income, adjusted EBIT, adjusted effective tax rate, adjusted diluted earnings per share (“adjusted EPS”), Organic sales, Cash conversion, adjusted net operating profit after taxes and adjusted return on invested capital (“adjusted ROIC”) are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
Forward-Looking Statements
The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; the effectiveness of commercial and operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as the impact of the Russia-Ukraine conflict, political unrest, acts of terror, natural disasters and pandemics, including the coronavirus disease ("COVID-19") pandemic, on the Company or its customers, suppliers and the economy in general. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share amounts) (Unaudited)
Consolidated Statements of Income
Fav (Unfav) to Three Months Ended March 31, Prior Year 2023 % of Sales 2022 % of Sales $ % Net sales $ 1,039,343 100.0 % $ 925,448 100.0 % $ 113,895 12.3 % Cost of goods sold 683,986 65.8 % 595,671 64.4 % (88,315 ) (14.8 ) % Gross profit 355,357 34.2 % 329,777 35.6 % 25,580 7.8 % Selling, general & administrative expenses 190,116 18.3 % 166,686 18.0 % (23,430 ) (14.1 ) % Rationalization and asset impairment charges 877 0.1 % 1,885 0.2 % 1,008 53.5 % Operating income 164,364 15.8 % 161,206 17.4 % 3,158 2.0 % Interest expense, net 13,201 1.3 % 6,198 0.7 % (7,003 ) (113.0 ) % Other income 4,209 0.4 % 4,634 0.5 % (425 ) (9.2 ) % Income before income taxes 155,372 14.9 % 159,642 17.3 % (4,270 ) (2.7 ) % Income taxes 33,413 3.2 % 33,611 3.6 % 198 0.6 % Effective tax rate 21.5 % 21.1 % (0.4 ) % Net income including non-controlling interests 121,959 11.7 % 126,031 13.6 % (4,072 ) (3.2 ) % Non-controlling interests in subsidiaries’ income 28 — 1 — 27 - Net income $ 121,931 11.7 % $ 126,030 13.6 % $ (4,099 ) (3.3 ) % Basic earnings per share $ 2.12 $ 2.15 $ (0.03 ) (1.4 ) % Diluted earnings per share $ 2.09 $ 2.13 $ (0.04 ) (1.9 ) % Weighted average shares (basic) 57,596 58,606 Weighted average shares (diluted) 58,417 59,272
Lincoln Electric Holdings, Inc. Financial Highlights (In thousands) (Unaudited)
Balance Sheet Highlights
Selected Consolidated Balance Sheet Data March 31, 2023 December 31, 2022 Cash and cash equivalents $ 198,803 $ 197,150 Accounts receivable, net 573,467 541,529 Inventories 664,599 665,451 Total current assets 1,610,491 1,557,790 Property, plant and equipment, net 553,409 544,871 Total assets 3,253,201 3,180,546 Trade accounts payable 361,236 352,079 Total current liabilities 835,939 852,897 Short-term debt (1) 49,340 93,483 Long-term debt, less current portion 1,110,626 1,110,396 Total equity 1,125,236 1,034,041 Operating Working Capital March 31, 2023 December 31, 2022 Average operating working capital to Net sales (2) 19.6 % 20.9 % Invested Capital March 31, 2023 December 31, 2022 Short-term debt (1) $ 49,340 $ 93,483 Long-term debt, less current portion 1,110,626 1,110,396 Total debt 1,159,966 1,203,879 Total equity 1,125,236 1,034,041 Invested capital $ 2,285,202 $ 2,237,920 Total debt / invested capital 50.8 % 53.8 %
(1) Includes current portion of long-term debt. (2) Average operating working capital to Net sales is defined as the sum of Accounts receivable, Inventories and contract assets less Trade accounts payable and contract liabilities as of period end divided by annualized rolling three months of Net sales.
Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share amounts) (Unaudited)
Non-GAAP Financial Measures
Three Months Ended March 31, 2023 2022 Operating income as reported $ 164,364 $ 161,206 Special items (pre-tax): Rationalization and asset impairment charges (2) 877 1,885 Amortization of step up in value of acquired inventories (3) 3,856 — Adjusted operating income (1) $ 169,097 $ 163,091 As a percent of total sales 16.3 % 17.6 % Net income as reported $ 121,931 $ 126,030 Special items: Rationalization and asset impairment charges (2) 877 1,885 Pension settlement net gains (4) — (4,273 ) Amortization of step up in value of acquired inventories (3) 3,856 — Gain on asset disposal (5) (1,646 ) — Tax effect of Special items (6) (818 ) 1,041 Adjusted net income (1) 124,200 124,683 Non-controlling interests in subsidiaries’ income (loss) 28 1 Interest expense, net 13,201 6,198 Income taxes as reported 33,413 33,611 Tax effect of Special items (6) 818 (1,041 ) Adjusted EBIT (1) $ 171,660 $ 163,452 Effective tax rate as reported 21.5 % 21.1 % Net special item tax impact 0.1 % (0.4 ) % Adjusted effective tax rate (1) 21.6 % 20.7 % Diluted earnings per share as reported $ 2.09 $ 2.13 Special items per share 0.04 (0.03 ) Adjusted diluted earnings per share (1) $ 2.13 $ 2.10 Weighted average shares (diluted) 58,417 59,272
(1) Adjusted operating income, adjusted net income, adjusted EBIT, adjusted effective tax rate and adjusted diluted EPS are non-GAAP financial measures. Refer to Non-GAAP Information section. (2) 2023 charges are primarily related to rationalization plans initiated within International Welding. 2022 charges are primarily related to severance, gains or losses on the disposal of assets. (3) Related to acquisitions and are included in Cost of goods sold. (4) Pension net gains primarily due to the final settlement associated with the termination of a pension plan and are included in Other income (expense). (5) Gain on asset disposal and included in Other income (expense). (6) Includes the net tax impact of Special items recorded during the respective periods. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share amounts) (Unaudited)
Non-GAAP Financial Measures
Twelve Months Ended March 31, Return on Invested Capital 2023 2022 Net income as reported $ 468,125 $ 328,319 Plus: Interest expense (after-tax) 28,875 18,364 Less: Interest income (after-tax) 1,560 1,113 Net operating profit after taxes $ 495,440 $ 345,570 Special Items: Rationalization and asset impairment charges 10,780 7,549 Acquisition transaction costs (2) 6,003 810 Pension settlement charges (3) — 117,343 Amortization of step up in value of acquired inventories 4,962 5,804 Gain on asset disposal (1,646 ) — Tax effect of Special items (4) (3,051 ) (44,586 ) Adjusted net operating profit after taxes (1) $ 512,488 $ 432,490 Invested Capital March 31, 2023 March 31, 2022 Short-term debt $ 49,340 $ 150,560 Long-term debt, less current portion 1,110,626 715,032 Total debt 1,159,966 865,592 Total equity 1,125,236 863,060 Invested capital $ 2,285,202 $ 1,728,652 Return on invested capital as reported 21.7 % 20.0 % Adjusted return on invested capital (1) 22.4 % 25.0 %
(1) Adjusted net operating profit after taxes and adjusted ROIC are non-GAAP financial measures. Refer to Non-GAAP Information section. (2) Related to acquisitions and are included in Selling, general & administrative expenses. (3) Related to lump sum pension payments due to the final settlement associated with the termination of a pension plan. (4) Includes the net tax impact of Special items recorded during the respective periods. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.
Lincoln Electric Holdings, Inc. Financial Highlights (In thousands, except per share amounts) (Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2023 2022 OPERATING ACTIVITIES: Net income $ 121,931 $ 126,030 Non-controlling interests in subsidiaries’ income 28 1 Net income including non-controlling interests 121,959 126,031 Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities: Rationalization and asset impairment net charges — 1,188 Depreciation and amortization 21,295 19,891 Equity earnings in affiliates, net (188 ) (113 ) Other non-cash items, net 2,658 (7,221 ) Changes in operating assets and liabilities, net of effects from acquisitions: Increase in accounts receivable (27,664 ) (86,120 ) Decrease (Increase) in inventories 5,881 (55,407 ) Increase in trade accounts payable 6,841 39,284 Net change in other current assets and liabilities (6,082 ) 6,964 Net change in other long-term assets and liabilities (769 ) (1,407 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 123,931 43,090 INVESTING ACTIVITIES: Capital expenditures (18,787 ) (18,672 ) Acquisition of businesses, net of cash acquired — (22,013 ) Proceeds from sale of property, plant and equipment 3,314 569 Purchase of marketable securities (576 ) — NET CASH USED BY INVESTING ACTIVITIES (16,049 ) (40,116 ) FINANCING ACTIVITIES: (Payments on) proceeds from short-term borrowings (43,940 ) 98,408 Payments on long-term borrowings (111 ) (2,100 ) Proceeds from exercise of stock options 2,476 1,035 Purchase of shares for treasury (32,158 ) (104,579 ) Cash dividends paid to shareholders (37,583 ) (33,361 ) NET CASH USED BY FINANCING ACTIVITIES (111,316 ) (40,597 ) Effect of exchange rate changes on Cash and cash equivalents 5,087 (962 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,653 (38,585 ) Cash and cash equivalents at beginning of period 197,150 192,958 Cash and cash equivalents at end of period $ 198,803 $ 154,373 Cash dividends paid per share $ 0.64 $ 0.56
Lincoln Electric Holdings, Inc. Segment Highlights (1) (In thousands) (Unaudited)
Americas International The Harris Corporate / Welding Welding Products Group Eliminations Consolidated Three months ended March 31, 2023 Net sales $ 658,645 $ 252,416 $ 128,282 $ — $ 1,039,343 Inter-segment sales 32,318 6,753 2,897 (41,968 ) — Total sales $ 690,963 $ 259,169 $ 131,179 $ (41,968 ) $ 1,039,343 Net income $ 121,931 As a percent of total sales 11.7 % EBIT (1) $ 129,668 $ 29,296 $ 18,983 $ (9,374 ) $ 168,573 As a percent of total sales 18.8 % 11.3 % 14.5 % 16.2 % Special items charges (3) 2,785 302 — — 3,087 Adjusted EBIT (2) $ 132,453 $ 29,598 $ 18,983 $ (9,374 ) $ 171,660 As a percent of total sales 19.2 % 11.4 % 14.5 % 16.5 % Three months ended March 31, 2022 Net sales $ 534,055 $ 258,041 $ 133,352 $ — $ 925,448 Inter-segment sales 28,156 6,228 3,062 (37,446 ) — Total sales $ 562,211 $ 264,269 $ 136,414 $ (37,446 ) $ 925,448 Net income $ 126,030 As a percent of total sales 13.6 % EBIT (1) $ 115,303 $ 35,740 $ 19,598 $ (4,801 ) $ 165,840 As a percent of total sales 20.5 % 13.5 % 14.4 % 17.9 % Special items charges (gains) (4) (3,735 ) 1,347 — — (2,388 ) Adjusted EBIT (2) $ 111,568 $ 37,087 $ 19,598 $ (4,801 ) $ 163,452 As a percent of total sales 19.8 % 14.0 % 14.4 % 17.7 %
(1) EBIT is defined as Operating income plus Other income (expense). (2) The primary profit measure used by management to assess segment performance is adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive adjusted EBIT. (3) Special items in 2023 primarily reflect amortization of step up in value of acquired inventories of $2,785 and $1,071 in Americas and International Welding, respectively, Rationalization and asset impairment net charges of $877 in International Welding, and a gain on asset disposal of $1,646 in international Welding. (4) Special items in 2022 primarily reflect Rationalization and asset impairment charges of $1,885 in International Welding and a $3,735 net gain related to final settlement associated with the termination of a pension plan in Americas Welding.
Change in Net Sales by Segment (In thousands) (Unaudited)
Three Months Ended March 31 st Change in Net Sales by Segment
Change in Net Sales due to: Net Sales Foreign Net Sales 2022 Volume Acquisitions Price Exchange 2023 Operating Segments Americas Welding $ 534,055 $ 58,650 $ 45,249 $ 24,699 $ (4,008 ) $ 658,645 International Welding 258,041 (14,657 ) 7,356 14,869 (13,193 ) 252,416 The Harris Products Group 133,352 (5,017 ) — 565 (618 ) 128,282 Consolidated $ 925,448 $ 38,976 $ 52,605 $ 40,133 $ (17,819 ) $ 1,039,343 % Change Americas Welding 11.0 % 8.5 % 4.6 % (0.8 ) % 23.3 % International Welding (5.7 ) % 2.9 % 5.8 % (5.1 ) % (2.2 ) % The Harris Products Group (3.8 ) % — 0.4 % (0.5 ) % (3.8 ) % Consolidated 4.2 % 5.7 % 4.3 % (1.9 ) % 12.3 %
