Lincoln Electric Reports 3Q'12 Sales of $697.6 Million; 3Q Operating income increase of 18.5%; 3Q EPS of $0.77, $0.80 as adjusted, an increase of 16.7%, 21.2% as adjusted

CLEVELAND, Oct. 31, 2012 /PRNewswire/ -- 

Third Quarter and Nine Month Highlights

  • Sales were $697.6 million in the Third Quarter 2012; Sales were $2.2 billion for the nine months ended September 30, 2012, an increase of 8.4% from 2011
  • Operating income increased 18.5% to $88.7 million, or 12.7% of sales, from $74.8 million, or 10.7% of sales, in the Third Quarter 2011; Adjusted operating income increased 22.6% to $91.8 million or 13.2% of sales
  • Operating income increased 29.0% to $276.4 million, or 12.7% of sales, from $214.3 million, or 10.7% of sales, in the nine months ended September 30, 2011; Adjusted operating income increased 31.4% to $282.1 million, or 13.0% of sales
  • Net income increased 16.6% to $64.8 million, or $0.77 per diluted share, from $55.5 million, or $0.66 per diluted share, in the Third Quarter 2011; Adjusted net income increased 21.5% to $67.5 million, or $0.80 per diluted share, from $55.5 million, or $0.66 per diluted share, in the Third Quarter 2011
  • Net cash provided by operating activities was $82.5 million in the Third Quarter 2012; Net cash provided by operating activities in the nine months ended September 30, 2012 increased $112.9 million, or 86.6%, to $243.3 million

Lincoln Electric Holdings, Inc. (the "Company") (Nasdaq: LECO) today reported third quarter 2012 net income of $64.8 million, or $0.77 per diluted share.  Adjusted net income was $67.5 million, or $0.80 per diluted share, compared to adjusted net income of $55.5 million, or $0.66 per diluted share, in the comparable 2011 period. 

Sales were $697.6 million in the third quarter 2012 versus $701.6 million in the comparable 2011 period, a decrease of 0.6%.  Operating income for the third quarter increased $13.9 million to $88.7 million, or 12.7% of sales, from $74.8 million, or 10.7% of sales, in the comparable 2011 period.  The effective tax rate for the third quarter 2012 was 28.8% compared with 27.0% in the same period of 2011. 

Sales for the nine months ended September 30, 2012 were $2.2 billion versus $2.0 billion in the comparable 2011 period, an increase of 8.4%.  Operating income for the nine months ended September 30, 2012 increased $62.1 million to $276.4 million, or 12.7% of sales, from $214.3 million, or 10.7% of sales, in the comparable 2011 period. 

Net income for the nine months ended September 30, 2012 was $195.3 million, or $2.32 per diluted share, compared with net income of $159.5 million, or $1.88 per diluted share, in the comparable 2011 period.  Adjusted net income was $199.9 million, or $2.37 per diluted share, compared to adjusted net income of $154.8 million, or $1.83 per diluted share, in the comparable 2011 period.  The effective tax rate for the nine months ended September 30, 2012 was 30.8% compared with 26.9% in 2011.  The nine months ended September 30, 2011 included a favorable $4.8 million tax adjustment for tax audit settlements.

"The Company delivered excellent operating results this quarter," said John M. Stropki, Chairman and Chief Executive Officer.  "We expanded margins significantly, drove our return on invested capital to almost 19% and generated strong operating cash flows which we will continue to deploy to increase shareholder value.

"Our strong operating performance was delivered in spite of the challenges associated with a weaker macroeconomic environment in international markets and the slowing growth rates in our North America Welding segment.  Despite these headwinds, we saw stabilization in orders and revenues.  Although we remain cautious for the near term, we are mildly optimistic that the global economy could show moderate improvement in 2013.

"Our overall performance reflects the successful execution of our global growth and operational improvement strategies.  We will continue to explore attractive acquisitions that will shape our product portfolio and grow our global reach.  We plan to continue our strong investment in new product development and global commercial infrastructure.  We remain well positioned to execute our long-term strategic objectives, achieving significant earnings growth and superior returns on invested capital."

Net cash provided by operating activities decreased $2.3 million to $82.5 million in the third quarter from $84.8 million for the comparable period in 2011.  Third quarter cash flows from operations was reduced by a $56.0 million deposit related to a Canadian income tax dispute.  During the quarter, the Company returned $34.2 million to shareholders through the payment of $14.2 million in dividends and the repurchase of $20.0 million, or 481,300 of the Company's common shares, for treasury.  The Company also invested $3.5 million in acquisitions and voluntarily contributed $17.3 million to its U.S. pension plans during the quarter. 

Net cash provided by operating activities increased $112.9 million to $243.3 million in the nine months ended September 30, 2012 from $130.4 million for the comparable period in 2011.  The 2012 cash flows from operations was reduced by a $56.0 million deposit related to a Canadian income tax dispute.  During the period, the Company repaid its $80.0 million senior unsecured note.  The Company also returned $102.7 million to shareholders through the payment of $42.5 million in dividends and the repurchase of $60.2 million, or 1,341,984 of the Company's common shares, for treasury during the period.  The Company also invested $52.9 million in acquisitions and voluntarily contributed $53.3 million to its U.S. pension plans.

The Company's Board of Directors declared a quarterly cash dividend of $0.17 per share, which was paid on October 15, 2012 to holders of record on September 28, 2012.

Financial results for the third quarter 2012 can also be obtained at http://www.lincolnelectric.com/InvestorNews.

A conference call to discuss the third quarter 2012 financial results is scheduled for today, Wednesday, October 31, 2012, at 10:00 a.m., Eastern Time.  An audio webcast of the call is accessible through the Company's website at http://www.lincolnelectric.com/InvestorWebcasts/.

Adjusted operating income, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures that management believes are important to investors to evaluate and compare the Company's financial performance from period to period. Management uses this information in assessing and evaluating the Company's underlying operating performance.  Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.  Please refer to the attached schedule for a reconciliation of non-GAAP financial measures to the related GAAP financial measures.

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxyfuel cutting equipment and has a leading global position in the brazing and soldering alloys market.  Headquartered in Cleveland, Ohio, Lincoln has 45 manufacturing locations, including operations and joint ventures in 20 countries and a worldwide network of distributors and sales offices covering more than 160 countries.  For more information about Lincoln Electric and its products and services, visit the Company's website at http://www.lincolnelectric.com.

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 and market conditions; the effectiveness of operating initiatives; currency exchange and interest rates; adverse outcome of pending or potential litigation; possible acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, 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.



Lincoln Electric Holdings, Inc.



Financial Highlights 



(In thousands, except per share amounts)



(Unaudited)

















Consolidated Statements of Income















Three Months Ended September 30,


Fav (Unfav) to Prior Year




2012


 % of Sales 


2011


 % of Sales 


$


%



Net sales

$     697,552


100.0%


$     701,624


100.0%


$        (4,072)


(0.6%)



Cost of goods sold

484,190


69.4%


516,172


73.6%


31,982


6.2%



Gross profit

213,362


30.6%


185,452


26.4%


27,910


15.0%



Selling, general & administrative expenses

121,602


17.4%


110,629


15.8%


(10,973)


(9.9%)



Rationalization and asset impairment charges (gains)

3,059


0.4%


-


-


(3,059)


(100.0%)



Operating income

88,701


12.7%


74,823


10.7%


13,878


18.5%



Interest income

916


0.1%


1,167


0.2%


(251)


(21.5%)



Equity earnings in affiliates

1,566


0.2%


1,488


0.2%


78


5.2%



Other income 

746


0.1%


147


-


599


407.5%



Interest expense

(1,040)


(0.1%)


(1,752)


(0.2%)


712


40.6%



Income before income taxes

90,889


13.0%


75,873


10.8%


15,016


19.8%



Income taxes

26,153


3.7%


20,515


2.9%


(5,638)


(27.5%)



Effective tax rate

28.8%




27.0%




(1.7%)





Net income including noncontrolling interests

64,736


9.3%


55,358


7.9%


9,378


16.9%



Noncontrolling interests in subsidiaries' loss

(29)


-


(172)


-


143


83.1%



Net income

$       64,765


9.3%


$       55,530


7.9%


$         9,235


16.6%

















Basic earnings per share 

$           0.78




$           0.66




$           0.12


18.2%



Diluted earnings per share 

$           0.77




$           0.66




$           0.11


16.7%

















Weighted average shares (basic)

82,918




83,613









Weighted average shares (diluted)

83,916




84,549
























Nine Months Ended September 30,


Fav (Unfav) to Prior Year




2012


 % of Sales 


2011


 % of Sales 


$


%



Net sales

$  2,168,719


100.0%


$  2,000,096


100.0%


$     168,623


8.4%



Cost of goods sold

1,515,095


69.9%


1,457,702


72.9%


(57,393)


(3.9%)



Gross profit

653,624


30.1%


542,394


27.1%


111,230


20.5%



Selling, general & administrative expenses

372,931


17.2%


327,794


16.4%


(45,137)


(13.8%)



Rationalization and asset impairment charges (gains)

4,317


0.2%


282


-


(4,035)


(1430.9%)



Operating income

276,376


12.7%


214,318


10.7%


62,058


29.0%



Interest income

2,648


0.1%


2,436


0.1%


212


8.7%



Equity earnings in affiliates

4,264


0.2%


4,033


0.2%


231


5.7%



Other income 

2,015


0.1%


2,154


0.1%


(139)


(6.5%)



Interest expense

(3,338)


(0.2%)


(5,037)


(0.3%)


1,699


33.7%



Income before income taxes

281,965


13.0%


217,904


10.9%


64,061


29.4%



Income taxes

86,715


4.0%


58,582


2.9%


(28,133)


(48.0%)



Effective tax rate

30.8%




26.9%




(3.9%)





Net income including noncontrolling interests

195,250


9.0%


159,322


8.0%


35,928


22.6%



Noncontrolling interests in subsidiaries' loss

(77)


-


(131)


-


54


41.2%



Net income

$     195,327


9.0%


$     159,453


8.0%


$       35,874


22.5%

















Basic earnings per share 

$           2.35




$           1.90




$           0.45


23.7%



Diluted earnings per share 

$           2.32




$           1.88




$           0.44


23.4%

















Weighted average shares (basic)

83,233




83,781









Weighted average shares (diluted)

84,326




84,826






















 





Lincoln Electric Holdings, Inc.



Financial Highlights 



(In thousands, except per share amounts)



(Unaudited)













Non-GAAP Financial Measures











Three Months Ended September 30,


Nine Months Ended September 30,




2012


2011


2012


2011



Operating income as reported

$             88,701


$             74,823


$           276,376


$           214,318



   Special items (pre-tax):










      Rationalization and asset impairment charges (gains) (1)

3,059


-


4,317


282



      Venezuelan statutory severance obligation  (2)

-


-


1,381


-



Adjusted operating income (4)

$             91,760


$             74,823


$           282,074


$           214,600













Net income as reported

$             64,765


$             55,530


$           195,327


$           159,453



   Special items (after-tax):










      Rationalization and asset impairment charges (gains) (1)

2,704


-


3,619


237



      Venezuelan statutory severance obligation  (2)

-


-


906


-



      Adjustment for tax audit settlements (3)

-


-


-


(4,844)



Adjusted net income (4)

$             67,469


$             55,530


$           199,852


$           154,846













Diluted earnings per share as reported

$                 0.77


$                 0.66


$                 2.32


$                 1.88



Special items

0.03


-


0.05


(0.05)



Adjusted diluted earnings per share (4)

$                 0.80


$                 0.66


$                 2.37


$                 1.83













Weighted average shares (diluted)

83,916


84,549


84,326


84,826













(1)

The three and nine month periods ended September 30, 2012 include net charges associated with severance, impairment and other costs from the consolidation of manufacturing operations initiated in 2012 partially offset by gains related to the sale of assets at rationalized operations.  The nine month period ended Septembr 30, 2011 includes charges associated with severance and other costs from the consolidation of manufacturing operations initiated in 2009 partially offset by gains related to the sale of assets at rationalized operations.














(2)

Represents an unfavorable adjustment due to a change in Venezuelan labor law which provides for increased employee severance obligations.





(3)

Represents a favorable adjustment for tax audit settlements.





(4)

Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share are non-GAAP financial measures that management believes are important to investors to evaluate and compare the Company's financial performance from period to period.  Management uses this information in assessing and evaluating the Company's underlying operating performance.  Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.




 












Lincoln Electric Holdings, Inc.



Financial Highlights 



(In thousands)



(Unaudited)













Balance Sheet Highlights












September 30,


December 31,



Selected Consolidated Balance Sheet Data

2012


2011



Cash and cash equivalents


$       340,675


$       361,101



Total current assets



1,239,631


1,219,270



Property, plant and equipment, net

479,024


470,451



Total assets




2,091,522


1,976,776













Total current liabilities



492,702


471,042



Short-term debt (1)



19,494


101,418



Long-term debt



1,680


1,960



Total equity




1,336,191


1,193,242


















September 30,


December 31,



Net Operating Working Capital

2012


2011



Accounts receivable



$       391,360


$       386,197



Inventory




390,948


373,238



Trade accounts payable


186,545


176,312



Net operating working capital


$       595,763


$       583,123













Net operating working capital to net sales(2)

21.4%


21.0%


















September 30,


December 31,



Invested Capital



2012


2011



Short-term debt (1)



$         19,494


$       101,418



Long-term debt



1,680


1,960



Total debt




21,174


103,378



Total equity




1,336,191


1,193,242



Invested capital



$    1,357,365


$    1,296,620













Total debt / invested capital


1.6%


8.0%



Return on invested capital (3)


18.7%


16.9%













(1)

Includes current portion of long-term debt.













(2)

Net operating working capital to net sales is defined as net operating working capital divided by annualized rolling three months of sales.













(3)

Return on invested capital is defined as rolling 12 months of earnings excluding tax-effected interest divided by invested capital.