Lincoln Electric Q3 Earnings Call Highlights

Key Points

• Record third-quarter results: Sales rose 15% to $1.221 billion and adjusted EPS increased 21% to a record $2.98, supported by broad-based demand, 9% volume growth and 6% pricing. U.S. sales grew more than 20%, with momentum continuing into October.
• Automation demand strengthened: Automation sales grew at a high-teens organic rate, lifting orders and backlog to records and supporting growth into 2027. Management expects high-single-digit organic automation growth over the next 12 months, aided by recovering automotive investment and industrial demand.
• Outlook and shareholder returns improved: Lincoln Electric raised its full-year sales-growth outlook to the low-teens percentage range and increased planned capital spending to $140 million-$150 million. The board also approved a 10% dividend increase, marking the company’s 31st consecutive annual increase, while cost pressures are expected to reach price-cost neutrality in the fourth quarter.

Lincoln Electric NASDAQ: LECO reported record third-quarter sales and earnings, citing broad-based demand growth across its welding, automation and Harris Products businesses. Adjusted earnings per share rose 21% from a year earlier to a record $2.98, while sales increased 15% to $1.221 billion.

Chairman and Chief Executive Officer Steve Hedlund said the company benefited from accelerating demand in core markets, with organic sales growth in the mid-teens percentage range driven by 9% volume growth and 6% pricing. It was the first quarter in more than 2.5 years in which volume growth exceeded price growth, he said, and momentum continued through October.

“Organic sales growth was broad,” Hedlund said, noting growth across all three reportable segments, product categories and each of the company’s five end markets. U.S. sales increased more than 20%, while Asia-Pacific expanded in China, India and North Asia. Core European demand was relatively steady, he said, with some benefit from import tariffs and defense spending.

Margins Affected by Cost Pressures

Despite higher sales and operating leverage, Lincoln Electric faced rising costs for energy, logistics and electronic components. Hedlund said demand related to artificial intelligence data-center construction has created spot shortages for certain raw materials. The company took pricing actions in all three segments during the quarter and expects to reach price-cost neutrality in the fourth quarter.

Gross profit rose 9% to $425 million, but gross margin declined 190 basis points to 34.8%. Chief Financial Officer Gabe Bruno attributed the pressure primarily to the timing of price increases, which took effect late in the quarter, and unfavorable product mix.

Adjusted operating income increased 19% to $220 million. The adjusted operating margin expanded 60 basis points to 18%, supported by sales leverage, and the company generated a 22% incremental margin. Reported diluted earnings per share rose 19% to $2.63.

Bruno said Lincoln Electric expects fourth-quarter price-cost neutrality and year-over-year gross-margin expansion. The company expects a mid-20% incremental adjusted operating income margin in the fourth quarter and said its longer-term objective remains to move toward a high-20% incremental margin profile.

Automation Demand and Backlog Reach Records

Automation sales grew at a high-teens organic rate to $232 million during the quarter, while equipment sales grew at a low-teens rate. Strong orders in both categories lifted backlog to record levels, positioning the company for continued growth into 2027, management said.

In the Americas Welding segment, sales rose approximately 16% to $801 million, fueled by 13% volume growth and 2.4% higher pricing. Adjusted EBIT increased about 27% to $167 million, and the segment’s adjusted EBIT margin expanded 190 basis points to 20.1%.

Management said automation growth reflects both a normalization in automotive investment activity and expanding demand from general fabrication, structural steel and heavy-industry customers. Hedlund said uncertainty around automotive powertrain strategies had previously created an “air pocket” in capital-spending decisions, but model-change activity has begun to recover.

Lincoln Electric also pointed to increased quoting activity for long-lead-time automotive automation systems tied to expected 2029 and 2030 model launches. Bruno said the company expects high-single-digit organic automation growth over the next 12 months, supported by orders and backlog.

At the FABTECH trade show, the company introduced more than a dozen products, including XpertLINC, a physical artificial intelligence capability initially offered on its Cooper Cobot. Hedlund said the technology enables a welding robot to adapt to real-world variation in parts, similar to how an experienced human welder would adjust a process.

XpertLINC includes a subscription component, with the first year included in the original purchase and an ongoing fee of about $3,000 annually per cobot or robot arm, according to Hedlund. The company plans to integrate the technology across its automation portfolio over the next several years.

International and Harris Results

International Welding sales increased 3% to $227 million, aided by pricing and acquisitions, although volume declined 1%. Strength in Asia-Pacific was offset by weak European capital spending and lower Middle East sales. The ongoing conflict in the region reduced segment sales by approximately $5 million during the quarter, and the company expects a $6 million to $7 million headwind in the fourth quarter.

International Welding adjusted EBIT declined 7% to $24 million, with margin falling 100 basis points to 10.3%. Lincoln Electric expects a 12% to 13% adjusted EBIT margin for the segment in the fourth quarter.

Harris Products Group sales climbed 29% to $193 million, driven largely by 26% higher pricing related to metal input costs, particularly silver, alongside 3% volume growth. HVAC and gas-equipment demand supported volumes, while retail activity remained weak amid soft housing trends.

Harris adjusted EBIT increased 21% to $34 million, but adjusted EBIT margin declined 100 basis points to 17.3% because of unfavorable mix and operational inefficiencies. Management expects the segment to operate near an 18% margin in the fourth quarter at current metal prices.

Capital Allocation and Updated Outlook

Cash flow from operations totaled $216 million, representing 107% cash conversion for the quarter. Lincoln Electric invested $41 million in capital expenditures and returned $143 million to shareholders through $43 million in dividends and $99 million in share repurchases. Adjusted return on invested capital rose 170 basis points year over year to 23.9%.

The board also raised the annualized dividend rate 10% to $3.48 per share, marking the company’s 31st consecutive annual dividend increase. The first payment at the higher rate is scheduled for January 2027.

For the full year, Lincoln Electric raised its net-sales growth outlook to the low-teens percentage range and increased planned capital expenditures to $140 million to $150 million, from an earlier range of $110 million to $130 million. The company said the additional investments will support capacity, operating capabilities and initiatives under its RISE strategy.

About Lincoln Electric (NASDAQ:LECO)

Lincoln Electric Holdings, Inc NASDAQ: LECO is a global manufacturer of welding, cutting and industrial automation products. The company serves customers in industries including construction, manufacturing, energy, transportation and heavy equipment.

Its product portfolio includes arc-welding equipment, welding consumables such as electrodes and welding wire, plasma-cutting systems, welding accessories and personal protective equipment. Lincoln Electric also provides robotic and automated welding systems, industrial automation solutions, application engineering, training and maintenance services.

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