Lincoln Electric Q1 2025 Earnings Call Transcript

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April 30, 2025
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Operator

Greetings, and welcome to the Lincoln Electric twenty twenty five First Quarter Financial Results Conference Call. All lines have been placed on mute and this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.

Amanda Butler
Amanda Butler
VP, IR & Communications at Lincoln Electric

Thank you, Celine, and good morning, everyone. Welcome to Lincoln Electric's first quarter twenty twenty five conference call. We released our financial results earlier today, and you can find our release and this call's slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steve Hedland, Chairman, President and Chief Executive Officer as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions.

Amanda Butler
Amanda Butler
VP, IR & Communications at Lincoln Electric

Before we start our discussion though, please note that certain statements made during this call may be forward looking and actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided in our press release and in our SEC filings on Forms 10 ks and 10 Q. In addition, we discuss financial measures that do not conform to U. S. GAAP and a reconciliation of non GAAP measures to the most comparable GAAP measure is found in the financial statements in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I'll turn the call over to Steve Hedland. Steve?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Thank you, Amanda. Good morning, everyone. Turning to slide three, we reported solid execution in the first quarter despite a softer industrial cycle. We are well positioned to manage evolving market conditions while still investing in long term growth, advancing our strategic operational initiatives which are focused on driving margin improvement and increasing our returns to shareholders. Looking at our first quarter highlights, tops line sales increased on benefits from acquisition and price while volumes were a bit softer than we expected.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Half of the volume decline was due to labor negotiations in our Turkey facility, which impacted sales. We successfully concluded negotiations mid March and orders started to normalize in April. Our first quarter price included our initial response to announced tariffs and we have since implemented additional pricing. Together these actions are expected to yield mid single digit percent higher price in the second quarter and we are prepared to take further pricing actions if other tariffs come into effect. The team did a great job maintaining diligent cost management and generated an incremental $16,000,000 from our saving actions in the quarter.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Our adjusted operating income margin declined by 60 basis points to 16.9. Acquisitions which we are still integrating and the impact from Turkey had an unfavorable 110 basis point impact to our adjusted operating income margin. Our adjusted earnings per share of $2.16 was slightly lower than expected, but included a zero five dollars headwind from the combination of Turkey and unfavorable foreign exchange. ROIC remained top quartile at 21.5% and we generated record cash flows with a 130% cash conversion ratio. We returned $150,000,000 to shareholders through our higher dividend and share repurchases.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

In this period of uncertainty, we are staying agile and are working diligently to serve customers with our innovative solutions while leveraging our global supply chain to minimize costs wherever possible. We are continuing our savings actions until we have better confidence in improving fundamentals and demand. We continue to expect to generate an incremental 15,000,000 to $20,000,000 in year over year savings in the second quarter and we expect some easing in our savings rate in the third quarter as we anniversary the program, but are committed to limiting discretionary spending until volume performance improves. We have also decided to temporarily suspend merit increases, which are normally implemented April 1. This delays an increase in employee cost of approximately $5,000,000 per quarter until we better understand customer demand trends as trade policies evolve.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

While a difficult decision, we felt this was the prudent position to take in the near term. Turning to slide four, reported organic sales declined 1.2% in the quarter, which includes a 190 basis point unfavorable impact from Turkey. We continued to see better resilience in consumable organic sales as customer order rates improved through the quarter. Automation's organic sales remained steady year over year as double digit international growth was offset by ongoing compression in the American region this quarter. Long lead time automotive projects and energy were sources of growth for automation, while all other end markets continued to compress as customers defer capital spending.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Automation reported sales increased mid single digit percent to $215,000,000 The automation team continues to see strong quoting activity as customers hedge different investment scenarios, but order rates and backlog have not yet normalized, which puts what is normally a seasonally strong back half of the year at risk. Looking at end sector direct channel sales trends across the company, we were pleased to see that four of our five end markets achieved organic sales growth. This was led by global growth in both non residential construction infrastructure applications and in automotive. General Industries also improved with momentum in HVAC within the Harris Products Group and in International due to select automation projects. Heavy Industries remains challenged and we expect this trend through year end until production activity normalizes in the agricultural sector.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Our domestic rental and industrial distribution channels, which predominantly serve commercial and light industrial solutions, also performed well as compared to industrial demand. To conclude before passing the call to Gabe, while this is a more dynamic environment to navigate, we are continuing to prioritize our customers, are implementing short term actions to mitigate inflation and are progressing towards our higher standard strategic targets. We are focused on executing what we can control and staying agile to adapt quickly to evolving conditions. Our strong balance sheet, ample levels of liquidity and confidence in cash generation allows us to pursue our capital allocation strategy through the cycle to continue to compound earnings and position ourselves for superior returns once growth returns. I will now pass the call to Gabe Brino to cover first quarter financials in more detail.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Thank you, Steve. Moving to slide five, our first quarter sales increased approximately 2.4% to 1,400,000,000 from a 4.9% benefit from acquisitions and 2.6% from higher prices. These increases were partially offset by 130 basis points from unfavorable foreign exchange translation and 3.8% lower volumes. Turkey had a 200 basis point unfavorable impact to net sales. Gross profit dollars declined by approximately 1% to $365,000,000 as a $4,000,000 benefit from our savings actions as well as benefits from cost management and operational initiatives were offset by the impact of lower volumes, Turkey, acquisitions and an approximate $2,000,000 LIFO charge in the quarter.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Our gross profit margin declined 110 basis points to 36.4% versus the prior year's record results. Acquisitions and Turkey combined had a 90 basis point unfavorable impact to gross profit margin results. Our SG and A expense decreased 1% as $11,000,000 of expense from acquisitions was offset by approximately $12,000,000 of savings benefits and $6,000,000 of favorable foreign exchange. SG and A as a percent of sales improved 60 basis points to 19.5% of sales. For analysts closely following our EBIT schedule, we reported corporate expense of approximately $1,700,000 which was substantially lower than prior year.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

The decline was primarily due to a lower level of accelerated stock compensation and equity awards as well as an update to corporate allocations in mid-twenty twenty four, which decreases the distribution of corporate costs to reportable segments. This lowered corporate expense by approximately $4,000,000 in the quarter. Looking ahead, we expect corporate expense of approximately 2,000,000 to $3,000,000 per quarter for the balance of the year. Reported operating income held relatively steady versus prior year. Excluding special items, adjusted operating income declined 1% to $160,000,000 with an adjusted operating income margin of 16.9%, sixty basis points lower than prior year.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

As Steve mentioned, Turkey and acquisitions had a combined unfavorable impact of 110 basis points to margin. We reported first quarter diluted earnings per share of $2.1 or $2.16 on an adjusted basis. We incurred a $05 headwind to EPS this quarter from the combined impact of Turkey and unfavorable foreign exchange. Moving to our reportable segments on Slide six. Americas Welding sales increased approximately 5% in the quarter driven by a nearly 8% contribution from acquisitions and 2% higher prices.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

These increases were partially offset by 4% lower volumes and 1% unfavorable foreign exchange. Pricing reflects benefits of prior 2024 pricing actions, which anniversaried at the end of the first quarter and new first quarter pricing implemented to address rising material costs and tariffs. As Steve mentioned, we have also announced additional pricing in the second quarter including surcharges to mitigate the impact of the announced tariffs. We will continue to monitor the dynamic situation and respond as trade policies evolve. First quarter volume softness reflected customers cautious capital investment spending with automation representing just under half of the decline due to soft second half twenty twenty four order rates, which we've previously discussed.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Consumable demand was relatively steady as order rates improved progressively through the quarter. This was most notable in our industrial distribution channel and in non residential construction and energy. We expect acquisition contributions to narrow starting in the second quarter reflecting the April 1 anniversarying of the Red Viking acquisition. Vanair will then anniversary on August 1. Americas Welding segment's first quarter adjusted EBIT decreased approximately 9% to $124,000,000 The adjusted EBIT margin declined two sixty basis points to 18.2% only due to the impact of lower volumes as well as an 80 basis point unfavorable impact from acquisitions and a 40 basis point impact from the higher allocation of corporate expenses.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

These factors offset the benefits of cost management and our savings actions. We expect Americas Welding to continue to operate in their 17% to 19% EBIT margin target for the remainder of the year. Moving to Slide seven, the International Welding segment sales declined approximately 7% primarily due to 6% lower volumes. Excluding the impact of Turkey, International Welding volumes would have increased 3% on strong volume growth in Asia Pacific and a modest decline in EMEA. The overall improved demand was seen across four or five end markets excluding Heavy Industries.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Adjusted EBIT decreased approximately 17% to $23,000,000 Margin declined 120 basis points to 10.2%, which includes a 30 basis point unfavorable impact from corporate allocations and 140 basis point compression from Turkey. We expect International Welding's margin performance to improve sequentially and should be within 11% to 12% for the balance of the year. Moving to the Harris Products Group on Slide eight. First quarter sales increased 9% with a 9.5% higher price and 60 basis points of higher volumes. Price increased on metal cost and volume growth reflected ongoing strength in the HVAC industry, which was partially offset by softer retail trends.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Adjusted EBIT increased approximately 22% to $24,000,000 and margin improved 190 basis points to 17.9%. Improved profitability reflects effective cost management and strategic initiatives in the segment. We expect the Harris segment to operate in the 17% to 18% margin range for the full year 2025. Moving to slide nine. We generated a record $186,000,000 in cash flows from operations in the quarter resulting in a 130% cash conversion ratio.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Average operating working capital improved 100 basis points to 17.8% versus the comparable prior year period due to continued improvement in operating disciplines in the business and timing. Moving to slide 10. We invested $27,000,000 in CapEx and cash returns to shareholders were strong at $150,000,000 in the quarter through a higher dividend payout and approximately $107,000,000 of share repurchases. We maintained a solid adjusted return on invested capital of 21.5%. Moving to Slide 11 to discuss our operating assumptions for 2025.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

We have adjusted our full year framework to incorporate U. S. Tariffs enacted through April. At this early stage in the year, we are assuming our full year 2025 organic sales will be relatively flat year over year, which is consistent with our prior position. However, we have updated the drivers.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

To maintain a neutral price cost position on enacted tariffs, we have estimated our full year consolidated price will be in the mid single digit percent range as compared with our original estimate of 50 to 100 basis points. We are assuming that higher prices and the possibility of incremental tariffs in the months ahead will lead to lower volumes. We are expecting to see this starting in the second quarter. Our framework assumes that we are able to substantially mitigate the impact of enacted tariffs and mid single digit percent lower volumes through a combination of price, supply chain and operational initiatives in our savings actions, which is in line with our track record. This would result in a full year adjusted operating income margin that is flat to down 50 basis points versus the prior year at a high teens percent decremental margin.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

While April demand has been relatively steady sequentially, this stability may not reflect improved fundamentals nor the impact of all of our pricing actions. We also recognize that evolving trade policies and tariffs will continue to shape market conditions and uncertainty in the quarters ahead, which could prompt customers to further defer capital spending and lower production levels until conditions stabilize. We will monitor trade and demand conditions as the year progresses and aggressively manage conditions as warranted. Looking further down the income statement, we now expect a contribution of approximately $1,000,000 in other income per quarter from a recent equity investment. While we are continuing to pursue M and A, the sluggish deal environment in our own valuation favors an elevated level of opportunistic share repurchases.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

We are now estimating our full year 2025 share repurchases to be in the range of 300,000,000 to $400,000,000 We are maintaining our other assumptions on interest expense, tax, CapEx and cash conversion. And now I would like to turn the call over for questions.

Operator

Session. Your first question comes from the line of Saree Borodsky with Jefferies. Please go ahead.

Saree Boroditsky
Senior Vice President at Jefferies & Company Inc

Morning and thanks for taking the question. You talked about growth excluding heavy industries. I believe that includes price. If you just talk through what you saw from those end markets on a volume basis and then how you're thinking about that for the remainder of the year?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Yeah. Just to give you some some clarity, Sareet. Yeah. While the the four out of the five end markets were stronger than they had been, we do have an unclear picture as as the year progresses as you can appreciate. As we've talked in the past, construction infrastructure while it was up mid to high single digits pretty choppy.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

So we've got good momentum there, but depending on where we see activity levels will progress and how view that part of the market. Smaller part of our business as you know, it's about 13% of our overall sales. Automotive, General Industries were positive. We were good to see that they're up mid single digit. When you see the mix of our business in General Industries, we did see strength in the Consumables side of our business and we saw that not only in the international markets but also in The U.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

S. We did have some strength on the HVAC as we've mentioned. And so while we had positive trends there, again pretty difficult to assert whether or not that momentum will continue in the balance of the year and that's why our cautious position on volume activity. On automotive, as we've mentioned, we were up mid single digit. And while we're trending favorable on the capital side, automation as well as standard equipment, consumables were down mid single digit.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

That reflects production activity. And as you know, there's some caution on where production activity goes across the automotive industry, but we'll continue to monitor that. The comps on the automation side, as you know, were easier and we're looking to see quotes to translate it to orders as we've commented on how that impacts us for the second half of the year. Lastly, I'd just comment on Heavy Industries. Heavy Industries down high teens.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

That's the same progression that we've noted throughout the last year. Ag continues to be the most challenged. We are seeing some positive reports on the destocking, but we're still cautious as we progress throughout the year and we've positioned our expectation to see softening production levels through the balance of the year. I should comment lastly on Energy. Energy was up low single digits.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

And as we've talked, we're bullish on oil and gas, But there were some tough comparisons beginning part of twenty twenty four and we do see easier comps in the back half. So that's kind of an outlook that we would have. A lot of uncertainty as you know, which is dependent upon how the end markets progress on production levels as well as decisions on capital investment.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

So we just add as you look at the consumable demand in the first quarter, think the question on everybody's mind is how much of that reflects pre buy activities by our customers. And through both our analysis of demand trends and conversations with many of our large customers, the feedback is they're not pre buying. There may be some opportunistic purchases here and there. But in general, our customers are very reluctant to get stuck with inventory they don't need given the uncertainty of demand in the future. So while there may be a little bit of pre buying in the first quarter numbers and in the April order trends, we don't believe it's significant at this point in time.

Saree Boroditsky
Senior Vice President at Jefferies & Company Inc

Pre evaluating may next question, so I appreciate that. I'll I'll add one more just kind of high level. You mentioned customers deferring capital spending a couple times in the pre remarks, impacting automation demand. Can you just provide some color on just what you're hearing from customers, you know, and what they're really looking to see to start resuming some of those projects? Thank you.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Yes. Saree, as we commented, we continue to see a lot of quotation activity. So a lot of customers trying to figure out how they're going to respond to the shifting trade policies. And I believe long term there will be a lot of good growth opportunity for us as a result of that. It's the near term where given the uncertainty of where the trade policies are finally going to shake out, the general uncertainty over macroeconomic conditions, impact on demand and the like.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

The customers are just taking a little longer to make decisions than we would like to see.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

And I would just add, Sheri, when you translate a pause in the decision making on capital investment, we can see up to another quarter and that's the risk that we see in the second half of the year. So we had been pointing to, if you recall, throughout the second half of last year of softening order trends that would impact the first half of this year. And so we're more cautious because of the pause in making capital investment decision on what it means to our second half. And that's our that's why we posture our dialogue on volumes to be offset with the pricing impacts that we've announced.

Operator

Your next question comes from the line with Brian Blair with Oppenheimer. Please go ahead.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

Thank you. Good morning, everyone. I just wanted to to level set on, yeah, announced pricing. What in terms of the mid single digit incremental pricing, what is the split between direct price and surcharges? And then if you're willing to share, what was price cost in Q1 and given the moving parts and timing of those moving parts at hand, how's your team thinking about price cost impact in Q2 and throughout 2H to net to the roughly neutral full year level?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Yes. So Brian on the price cost, we're essentially flattish in the first quarter. And you know that is our strategy to be price cost neutral. We're not disclosing the split between surcharges and absolute price changes, but we're looking at that balance to be able to respond to tariffs. So you can see a mix of that being just more traditional pricing that's reflective of inflationary pressures and then the surcharge to tie into some of the tariff actions.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

Okay. Understood. And maybe offer quick updates on Red Viking and Ben Air integration. Red Viking obviously, owned for around a year now. I'm just curious how those deals are progressing relative to plan the impact of the operating environment and just overall macro uncertainty on that progression.

Bryan Blair
Managing Director & Senior Research Analyst at Oppenheimer & Co. Inc.

And then any quick comments you could offer on the deal pipeline and how you know, this this unique backdrop is, you know, affecting, you know, the development of pipeline, actionability, etcetera. Thank you.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Yes. So generally, Brian, the integration work on both Red Viking Viking and Van Aire are doing great. We're right on schedule. We've deployed new systems at Red Viking. We've we've integrated them within our Lincoln business system.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

That's progressing nicely. The Van Aire strategy is also driven by growth in that, so that's also progressing right on schedule. But just keep in mind that the first three years of any integration, the results are expected to be dilutive to the overall business. So it's running right on track. The Red Viking business is a little bit more choppy because of the project level of activity.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

For example, fourth quarter was pretty strong and yet first quarter while we had incremental sales contributions, did have some margin pressure on the Red Viking side of things. So we're very pleased with the progression of both businesses and they're very much on schedule. On the pipeline, you've heard our comments around a sluggish environment. We have as you know a very active pipeline. But we do anticipate some slowness in being able to complete deals and that's why we pressed on our dialogue around share repurchases as we think about capital allocation.

Operator

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Stefan Diaz
Stefan Diaz
Vice President, Equity Research at Morgan Stanley

Hello. Thanks for taking my question. This is actually Stefan Diaz sitting in for Angel. I was wondering if you could just speak to your, Americas margin performance for the quarter. I know in the slides you mentioned, you know, impact of lower volumes and some impact from acquisitions and then, you know, also that corporate reallocation.

Stefan Diaz
Stefan Diaz
Vice President, Equity Research at Morgan Stanley

But maybe if you could also, you know, just mention how quickly you expect kind of the integration of InAir and Red Viking. I know you just mentioned maybe some margin impact this quarter, but maybe like how quickly do you expect the integration of those two to progress to the point where it's not margin accretive?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Yes. So Stephane, thanks for that question. So in general, as I just mentioned on acquisitions, we look to up to three years to get to our normalized margins. So both Van Air and Red Viking are progressing on schedule. A little bit more choppiness from Red Viking and more accelerated growth on the Van Aire side is what we expect.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

In terms of the margins for The Americas, we've talked about the impact of acquisitions being dilutive impact of 80 basis points, resetting corporate allocations, decreased the EBIT margins for Americas at 40 basis points. But the larger driver is volumes. And by half of that we noted that was in the automation side of our business. So we're looking at mid to high single digit types of decline in growth in this in the first quarter. And Americas overall stable in automation, but the other offset is in the strength in the international side.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

So we do expect Americas though to stay within our target range of 17 to 19% and you can see that's how we ended the first quarter. But those are the drivers. We'll need to see progression around automation orders to have more confidence that volumes will improve in the second half of the year.

Stefan Diaz
Stefan Diaz
Vice President, Equity Research at Morgan Stanley

Thanks. That's really helpful. Maybe just sticking with automation, given all the uncertainty and maybe the reluctance of capital spend that that you're mentioning, particularly in in Americas, are you still expecting that business to sort of hit 1,000,000,000 this year? Because I know you were expecting some organic growth from the automation business last quarter. Thanks.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Stefan, so I would say the core of our business, all the fundamentals are there to achieve our long term targets. But this year, I don't expect us to hit the billion based on everything that we see now. The order patterns and the trends around capital investment are going to put a lot of pressure on our automation business. But I'm pretty excited about how the business is positioned in long term when you just take the core business and the acquisitions we've completed on a normalized basis, we're exceeding the $1,000,000,000 objective.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Yes, Stefan, it really comes back to the comments we made about customers delaying decision making. So given the mix of our business in terms of project life cycle, we need to be getting orders in this part of the quarter, in the second quarter to have greater confidence in the third and fourth quarter of this year. And what we've seen so far gives us an indication that customers are still delaying decision making, which puts the back half at risk for us.

Operator

And your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead.

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

Good morning, everyone. This is actually Christian Zyla on for Steve Barger. Thank you for taking the questions. First question on Automation and Robotics, solid performance on a tough comp. Given your prepared remarks, has your visibility improved or changed since 4Q, especially in the auto end market?

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

And I know it's fresh, but is there any indication that the stack tariff relief helps your outlook or your customers' outlook on the automotive related automation?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

There's an issue there. Krishna, are you still with us there?

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

Yeah. Can you guys hear me? Do you need me to repeat the question?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

If if you yeah. If you could just clarify your first question. The the second one is pretty easy. Right? I mean, it's a very, very fluid dynamic environment.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

The administration's policy around double stacking of tariffs, I think, just occurred yesterday. So it's a little bit too early to see any impact of that.

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

Got it. Understood. And I guess the question was, has visibility changed in the automotive, related automation segment just given, you know, from 4Q to 1Q, has any visibility changed?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

No. I think, Christian, what you're referring to are longer lead time parts of our business. We would comment that the forward portion of our business we had good activity into this first quarter. So that gives us some positive indication of some decisions on the longer 2026, '20 '20 '7 program years. And that drove some of the automotive strength in the first quarter.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

But I think it's important for us to really monitor as Steve mentioned, how the automotive industry then positions the response to tariffs. So we'll stay very close to that.

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

Got it. Understood. And then second question, if we go back to early twenty eighteen, your Americas segment had solid margin expansion from tariff related price increases and surcharges, but then contracted in 2019 because of broader industrial weakness and volume declines. So the question is, if we fast forward to today, do you expect a similar playbook? And do you see opportunities in Americas margin longer term given we started this time at lower volumes?

Christian Zyla
Christian Zyla
Senior Associate Equity Research at KeyBanc Capital Markets

Or are you anticipating a lower leg down in volumes? Thank you.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

No, think the longer term picture for Americas margins are to continue to improve. I mean you know that we've operated above the range. We need to see more contribution volumes from our automation business, but our Americas EBIT is solid and the acquisition contributions will improve over time and as well as volume. So we're well positioned to continue to improve the EBIT profile for Americas.

Operator

Your next question comes from the line of Nick Dobre with Baird. Please go ahead.

Mircea Dobre
Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co

All right. Thank you. Good morning. I must admit, I am a little bit confused with all the moving pieces here. So I just want to make sure that I understand this clearly because when you're talking about Q1, right, four out of five end markets reported growth, then you mentioned that at least in April, what you're seeing is demand was stable sequentially.

Mircea Dobre
Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co

Yet your commentary points to uncertainty about the back half of the year. So I'm I'm I'm sort of trying to understand here. Is it a function of automation primarily and the backlog sort of depletion and the push out that you're seeing there that gives you this this sort of more cautious tone about the back half? Or is it that you're sort of saying, yeah, there's that, but there's also the maybe the consumables business that has been steady that could potentially deteriorate as customer production levels yet take another step down in the back half. So maybe we can parse this out. That'd be helpful to me at least.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Perfect. Meg, at a high level, there are two things that give us, concern over the second half of the year. The the first and the easy one to understand is automation. Right? As customers continue to delay decision making, that puts the revenue recognition in the second half of the year at risk for projects that we're hoping they will award soon that we can start working on, recognize the revenue under percent complete accounting.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

But if they don't award it, we can't start. We can't recognize the revenue. Right? So that's pretty straightforward. The core part of our business, what we're seeing so far is that as we take price in response to material inflation and tariffs, there's an offset in volume.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

And we're assuming for second quarter that the price volume offset is effectively neutral. As we, have to take further pricing actions depending on how all the Liberation Day tariff announcements get resolved, there's a concern that as that price gets further elevated there might be a more demand elastic response from a volume standpoint. And then you've got the general uncertainty in macroeconomic conditions. You see falling consumer confidence, PMIs, etcetera. So it just makes us very cautious about the back half of the year based on what we can see at this particular point in time.

Mircea Dobre
Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co

Okay. That's helpful. And I think it would also be useful to talk a little bit about where your business is experiencing cost headwinds from tariffs. Is it certain countries where you're sourcing components? Is it primarily in equipment, anything on the consumable side?

Mircea Dobre
Associate Director of Research & Senior Research Analyst at Robert W. Baird & Co

And I ask really because as this tariff picture continues to evolve from a policy standpoint, it'd be helpful to know if certain deals are reached with certain countries or whatnot if if if that would have a more immediate or direct effect on on your cost cost structure as well.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

So I would make emphasize that, yes, we have pressure on steel. We have some on components, some on accessories. We have about just less than 20% of our overall COGS that are exposed to where we believe tariff actions have an impact. You have a mix between when the sourcing from Mexico, Canada, China and EMEA and the rest of the world. But that's what drives the visibility that we have in responding with a mid single digit average price impact.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

So it's simply understanding the supply chains and the exposures of risk and it's broad based but there are definitely areas that we're working through with components and accessories particularly within the supply chain to mitigate. But that's kind of how we think about it big picture wise.

Operator

Your next question comes from the line of Nathan Jones with Stifel. Please go ahead.

Adam Farley
Adam Farley
Associate Analyst at Stifel Financial

Yes. Thanks. Good morning. This is Adam Farley on for Nathan. I wanted to clarify the the price cost discussion.

Adam Farley
Adam Farley
Associate Analyst at Stifel Financial

Historically, you passed through cost to customers with a margin. I know this environment is very different, but are are you looking to to drive margin with your price increases?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Adam, we're maintaining our same posture that we've had historically, and that's price cost neutral. And we'll continue with that posture in the markets.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Yes. Adam, our goal is to manage and maintain and defend the profitability of the business through a combination of pricing, productivity actions in our factories, the cost savings initiatives that we've taken and really being aggressive on trying to find alternative sources of supply that aren't subject to tariffs or subject to lower tariffs. So it's a combination of all those effects that lead us to have an objective of trying to maintain the EBIT margin of the business to flat to down 50 basis points over the course of the year.

Adam Farley
Adam Farley
Associate Analyst at Stifel Financial

Okay.

Adam Farley
Adam Farley
Associate Analyst at Stifel Financial

That does make sense. That's understandable. I guess if if the tariff picture does hypothetically improve from here, would you look to to maybe hold on to pricing gains? Or, again, with the tariff environment, you can it's it's easy to point to what the cost increases are. You know, should we maybe assume maybe a lag on the way down from price increases, or or or does all that price kinda go away?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Adam, we just assume that we're gonna manage the conditions, and we'll be agile and responsive to what we see and we want to predict outcomes and uncertainties progressively.

Operator

Your next question comes from the line of Walt Diptak with Seaport Research. Please go ahead.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Hey, Walt.

Operator

Hi, mister Walt. I think your line is on mute.

Walter Liptak
Industry Analyst at Seaport Research Partners

Oh, sorry about that. Good morning, everyone. So I just wanted to to ask about the you know, we get it on the the, you know, surcharging and, you know, price increases and how that could hit volumes. But I wonder if, you talk a little bit more about, some of the things you just mentioned about, you know, finding, you know, new local suppliers, you know, if that's possible for, you know, electronics yet. You know, are you seeing, opportunities for, reshoring?

Walter Liptak
Industry Analyst at Seaport Research Partners

And and then in automation, as you're you're talking to your customers, are they are some of the quotes on reshoring, especially around automotive automation for the auto sector?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Sure, Walt. As we go through the categories of products that we buy that Gabe mentioned earlier, we we buy a lot of steel outside The US. That's largely a function of limited supply domestically of people that want to make welding grade products. Right? So reshoring steel buying is a very long cycle activity that requires significant investment on behalf of our suppliers.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

And then you look at electronics, the global electronics industry, a lot of the core components for transistors and blank circuit boards and the like has moved to China. And so while you can look at setting up operations either our own or a supplier outside in other countries, you're still going to have an impact of buying the raw components from a country that's being heavily tariffed. And then on accessories, a lot of the things like welding guns and helmets and the like are sourced out of China because it's the only cost competitive source of supply for doing that. We're working with our suppliers to look at them setting up other operations in Vietnam and other places that are less subject to tariffs, but there's some lead time in doing that as well. So both we and they are racing to try to do that, but there's going to be a period of time where we're going to need to take pricing through to cover the tariffs to protect the business, right?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

So we're pulling all levers simultaneously and it's really a question of trying to balance the interim period and manage through it.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay, great. And then just on the flip side of that, are you seeing is it too early still? Are these longer too long cycle to see automation projects that are kind of tied to reshoring or bringing automotive manufacturing back into The U. S?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Well, I think a lot of the quoting activity we see is tied to that. And part of the uncertainty is people not wanting to pull the trigger around a major capital investment if there's uncertainty and fluidity around whether the trade policies are going to stick or not. So if you're looking at reshoring something in The US to get out from under a 50% tariff and there's a risk that the 5050% tariff goes away or gets reduced significantly in the next hundred days, you're probably going to sit on the sidelines and wait to see how that gets resolved. Right? So there is a lot of interest in reshoring, but whether that interest will translate into actual project activity is the open question.

Operator

Our final question comes from the line of Chris Stuttgart with Loop Capital Markets. Please go ahead.

Christopher Dankert
SVP - Equity Research at Loop Capital Markets LLC

Hey, good morning guys. Thanks for taking the questions. Forgive me if I missed it, but I believe you made a comment around the pricing offsetting volume for the for second quarter specifically. I guess, one, can you kind of walk through what kind of went into that algebra? Why that's the expectation in 2Q?

Christopher Dankert
SVP - Equity Research at Loop Capital Markets LLC

And is that what you've seen through April to date here?

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

Yeah. Chris, the algebra is pretty straightforward. That's what we've seen through the month of April. So we're at this point, we don't know any better to say, pricing will be, you know, an increment to volume or volume and will overcome pricing. We just don't know at this point.

Steven Hedlund
Steven Hedlund
Chair, President and Chief Executive Officer at Lincoln Electric

But what we've seen through the month of April on the order intake side is they're roughly offsetting each other.

Christopher Dankert
SVP - Equity Research at Loop Capital Markets LLC

Got it. Super helpful. Thank you. And just following up, speaking to the automation portfolio, if I remember correctly, you guys do include both automation equipment and the consumables that go through that equipment, guess. Can you remind us of that split today just to try and get arms around what project delays could kind of impact on that business?

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

No, Chris. We do not include consumable activity within our automation business. So that's strictly the equipment components, the robots, the larger projects that are tied into our automation business.

Christopher Dankert
SVP - Equity Research at Loop Capital Markets LLC

Very helpful. Thanks so much guys.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

Thank you, Chris.

Operator

This concludes our question and answer session. I would like now to turn the call over to Gabe Bruno for closing remarks. Please go ahead.

Gabriel Bruno
Gabriel Bruno
EVP, CFO & Treasurer at Lincoln Electric

I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Key Takeaways

  • Lincoln Electric’s Q1 sales rose ~2.4% to $1.4 billion, driven by acquisition and pricing gains but offset by a 3.8% volume decline and a temporary labor issue in Turkey.
  • The company implemented initial tariff-related price increases in Q1 and has announced additional surcharges and pricing actions expected to deliver mid single digit percent price gains in Q2, with more adjustments ready as trade policies evolve.
  • Cost discipline generated an incremental $16 million in savings during the quarter, with another $15–20 million expected in Q2; merit salary increases were temporarily deferred, delaying ~$5 million of quarterly labor expense.
  • Adjusted operating margin was 16.9%, down 60 bps year-over-year, reflecting a combined negative 110 bps impact from acquisitions and Turkey; adjusted EPS was $2.16, a $0.05 headwind from currency and Turkey.
  • For 2025, the company expects flat organic sales, mid single digit consolidated pricing to offset tariffs, mid single digit volume declines, a flat to 50 bps lower adjusted operating margin, and $300–400 million in share repurchases.
AI Generated. May Contain Errors.
Earnings Conference Call
Lincoln Electric Q1 2025
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