Lincoln Electric Reports First Quarter 2015 Results

News provided by

Lincoln Electric Holdings, Inc.

Apr 21, 2015, 07:28 ET

CLEVELAND, April 21, 2015 /PRNewswire/ -- 


First Quarter 2015 Key Metric Highlights 

  • Sales decreased 4% to $658 million, up 4% excluding unfavorable foreign exchange
  • Operating income margin of 13.8% of net sales
  • Diluted EPS of $0.89
  • Cash flows from operations increased to $53 million
  • ROIC increased 100 bps to 20.1%

Lincoln Electric Holdings, Inc. (the "Company") (Nasdaq: LECO) today reported first quarter 2015 net income of $68.4 million, or $0.89 diluted earnings per share (EPS).  This compares with net income of $56.5 million, or EPS of $0.69 and adjusted net income of $74.1 million, or EPS of $0.91, in the comparable 2014 period.  The 2014 adjusted EPS includes $0.14 of earnings from our Venezuelan operations, which operates in a hyper-inflationary environment.  This compares with earnings of $0.03 per share from our Venezuelan operations in the first quarter 2015.

Sales decreased 4.0% to $657.9 million in the first quarter 2015 versus $685.1 million in the comparable 2014 period primarily due to unfavorable foreign currency translation and lower volumes in the Asia Pacific segment.  Operating income for the first quarter increased 12.5% to $90.5 million, or 13.8% of sales, from $80.4 million, or 11.7% of sales, in the comparable 2014 period.  Adjusted operating income decreased 7.7% to $90.5 million or 13.8% of sales, compared with $98.1 million, or 14.3% of sales in 2014.  Excluding Venezuelan operations, our adjusted operating margin would have increased 60 basis points from the comparable 2014 period. 

Christopher L. Mapes, Chairman, President and Chief Executive Officer stated, "Our business demonstrated resilience in a challenging first quarter.  We achieved volume growth in Europe Welding and The Harris Products Group on solid execution of their commercial initiatives, and maintained steady volume performance in North America.  As anticipated, we experienced weakness in South American end-markets and continued to strategically reposition our business in Asia Pacific for long-term profitable growth.  Our first quarter profitability margins remained strong on operational initiatives and favorable mix, helping offset unfavorable foreign exchange translation.  Cash flows from operations improved, supporting an accelerated return of cash to shareholders through share repurchases and dividends in the quarter."

Dividend and Share Repurchases

The Company's Board of Directors declared a quarterly cash dividend of $0.29 per share, which was paid on April 15, 2015 to shareholders of record as of March 31, 2015.  During the quarter, the Company returned $102.9 million to shareholders through the repurchase of the Company's common shares.

Other Matters

The Company issued Senior Unsecured Notes (the "Notes") totaling $350 million through a private placement, of which $150 million in proceeds were received during April 2015.  The Notes have maturities ranging from 10 to 30 years with a weighted average effective interest rate of 3.5% and an average tenure of 19 years.  The proceeds will be used for general corporate purposes.

Webcast Information

A conference call to discuss first quarter 2015 financial results will be webcast live today, April 21, 2015, at 9:00 a.m., Eastern Time.  This webcast is accessible at http://ir.lincolnelectric.com.  Listeners should go to the web site prior to the call to register and download and install any necessary audio software.  A replay of the webcast will be available on the Company's web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 11243771.  Telephone participants are asked to dial in 10-15 minutes prior to the start of the conference call.

Financial results for the first quarter 2015 can also be obtained at http://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market.  Headquartered in Cleveland, Ohio, Lincoln has 47 manufacturing locations, including operations and joint ventures in 19 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 www.lincolnelectric.com.

Non-GAAP Information

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.

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 and market conditions; the effectiveness of 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, including in highly inflationary countries such as Venezuela; adverse outcome of pending or potential litigation; actual costs of the Company's rationalization plans; 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 for the year ended December 31, 2014.

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Consolidated Statements of Income













Three months ended March 31,

Fav (Unfav) to Prior Year

2015

% of Sales

2014

% of Sales

$

%

Net sales

$

657,900

100.0

%

$

685,062

100.0

%

$

(27,162)

(4.0%)

Cost of goods sold

437,510

66.5

%

458,726

67.0

%

21,216

4.6

%

Gross profit

220,390

33.5

%

226,336

33.0

%

(5,946)

(2.6%)

Selling, general & administrative expenses

129,891

19.7

%

145,915

21.3

%

16,024

11.0

%

Rationalization and asset impairment charges (gains)

—

—

(17)

—

(17)

(100.0%)

Operating income

90,499

13.8

%

80,438

11.7

%

10,061

12.5

%

Interest income

593

0.1

%

914

0.1

%

(321)

(35.1%)

Equity earnings in affiliates

849

0.1

%

1,561

0.2

%

(712)

(45.6%)

Other income

2,610

0.4

%

1,083

0.2

%

1,527

141.0

%

Interest expense

(1,844)

(0.3%)

(1,570)

(0.2%)

(274)

(17.5%)

Income before income taxes

92,707

14.1

%

82,426

12.0

%

10,281

12.5

%

Income taxes

24,389

3.7

%

26,002

3.8

%

1,613

6.2

%

Effective tax rate

26.3

%


31.5

%


5.2

%

Net income including non-controlling interests

68,318

10.4

%

56,424

8.2

%

11,894

21.1

%

Non-controlling interests in subsidiaries' loss

(36)

—

(29)

—

(7)

(24.1%)

Net income

$

68,354

10.4

%

$

56,453

8.2

%

$

11,901

21.1

%











Basic earnings per share

$

0.90



$

0.70



$

0.20

28.6

%

Diluted earnings per share

$

0.89



$

0.69



$

0.20

29.0

%

Weighted average shares (basic)

76,242



80,648






Weighted average shares (diluted)

77,059



81,616



















Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)

Non-GAAP Financial Measures

Three months ended March 31,

2015

2014

Operating income as reported

$

90,499

$

80,438

Special items (pre-tax):



Rationalization and asset impairment charges (gains) (1)

—

(17)

Venezuela foreign exchange losses (2)

—

17,665

Adjusted operating income (3)

$

90,499

$

98,086





Net income as reported

$

68,354

$

56,453

Special items (after-tax):



Rationalization and asset impairment charges (gains) (1)

—

(7)

Venezuela foreign exchange losses (2)

—

17,665

Adjusted net income (3)

$

68,354

$

74,111





Diluted earnings per share as reported

$

0.89

$

0.69

Special items

—

0.22

Adjusted diluted earnings per share (3)

$

0.89

$

0.91





Weighted average shares (diluted)

77,059

81,616








(1) The three months ended March 31, 2014 include net credits primarily related to the sale of assets at rationalized operations.

(2) The three months ended March 31, 2014 include the impact of the Venezuelan remeasurement loss related to the adoption of a new foreign exchange mechanism. This remeasurement loss was classified in Selling, general and administrative expenses.

(3) 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



Selected Consolidated Balance Sheet Data

March 31, 2015

December 31, 2014

Cash and cash equivalents

$

289,017

$

278,379

Total current assets

1,095,002

1,098,677

Property, plant and equipment, net

423,020

437,209

Total assets

1,921,508

1,939,215

Total current liabilities

608,425

492,419

Short-term debt (1)

167,985

68,166

Long-term debt

3,882

2,488

Total equity

1,179,955

1,285,781





Net Operating Working Capital

March 31, 2015

December 31, 2014

Accounts receivable

$

334,928

$

321,862

Inventory

332,892

330,840

Trade accounts payable

185,944

202,482

Net operating working capital

$

481,876

$

450,220





Net operating working capital to net sales (2)

18.3

%

16.5

%



Invested Capital

March 31, 2015

December 31, 2014

Short-term debt (1)

$

167,985

$

68,166

Long-term debt

3,882

2,488

Total debt

171,867

70,654

Total equity

1,179,955

1,285,781

Invested capital

$

1,351,822

$

1,356,435





Total debt / invested capital

12.7

%

5.2

%

Return on invested capital (3)

20.1

%

19.1

%





(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.

Lincoln Electric Holdings, Inc.

Financial Highlights

(In thousands, except per share amounts)

(Unaudited)


Condensed Consolidated Statements of Cash Flows

Three months ended March 31,

2015

2014

OPERATING ACTIVITIES:



Net income

$

68,354

$

56,453

Non-controlling interests in subsidiaries' loss

(36)

(29)

Net income including non-controlling interests

68,318

56,424

Adjustments to reconcile Net income including non- controlling interests to Net cash provided by operating activities:



Rationalization and asset impairment charges (gains)

30

(35)

Depreciation and amortization

16,032

17,931

Equity earnings in affiliates, net

(216)

(796)

Pension expense

5,679

2,800

Pension contributions and payments

(21,234)

(22,081)

Other non-cash items, net

(18,562)

23,984

Changes in operating assets and liabilities, net of effects from acquisitions:



Increase in accounts receivable

(25,377)

(43,885)

Increase in inventories

(16,233)

(15,157)

Decrease in trade accounts payable

(12,916)

(12,108)

Net change in other current assets and liabilities

55,069

5,547

Net change in other long-term assets and liabilities

2,194

1,007

NET CASH PROVIDED BY OPERATING ACTIVITIES

52,784

13,631





INVESTING ACTIVITIES:



Capital expenditures

(12,456)

(14,506)

Acquisition of businesses, net of cash acquired

—

(892)

Proceeds from sale of property, plant and equipment

1,187

1,066

Other investing activities

2,024

573

NET CASH USED BY INVESTING ACTIVITIES

(9,245)

(13,759)





FINANCING ACTIVITIES:



Net change in borrowings

101,510

(8,056)

Proceeds from exercise of stock options

1,733

2,956

Excess tax benefits from stock-based compensation

537

1,652

Purchase of shares for treasury

(102,853)

(51,021)

Cash dividends paid to shareholders

(22,329)

(18,623)

Other financing activities

(20)

(2,330)

NET CASH USED BY FINANCING ACTIVITIES

(21,422)

(75,422)





Effect of exchange rate changes on Cash and cash equivalents

(11,479)

(18,888)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

10,638

(94,438)

Cash and cash equivalents at beginning of period

278,379

299,825

Cash and cash equivalents at end of period

$

289,017

$

205,387





Cash dividends paid per share

$

0.29

$

0.23

Lincoln Electric Holdings, Inc.

Segment Highlights

(In thousands)

(Unaudited)

North

America

Welding

Europe

Welding

Asia Pacific

Welding

South

America

Welding

The Harris

Products

Group

Corporate /

Eliminations

Consolidated

Three Months Ended

   March 31, 2015













Net sales

$

412,988

$

88,416

$

49,250

$

37,430

$

69,816

$

—

$

657,900

Inter-segment sales

26,129

3,593

3,270

—

2,011

(35,003)

—

Total

$

439,117

$

92,009

$

52,520

$

37,430

$

71,827

$

(35,003)

$

657,900















EBIT (1)

$

71,184

$

8,748

$

3,128

$

3,150

$

7,549

$

199

$

93,958

As a percent of total sales

16.2

%

9.5

%

6.0

%

8.4

%

10.5

%


14.3

%

Special items charge (gain)

$

—

$

—

$

—

$

—

$

—

$

—

$

—

EBIT, as adjusted (2)(3)

$

71,184

$

8,748

$

3,128

$

3,150

$

7,549

$

199

$

93,958

As a percent of total sales

16.2

%

9.5

%

6.0

%

8.4

%

10.5

%


14.3

%

Three months ended

   March 31, 2014













Net sales

$

401,906

$

105,406

$

61,286

$

43,993

$

72,471

$

—

$

685,062

Inter-segment sales

32,943

5,860

4,449

29

2,118

(45,399)

—

Total

$

434,849

$

111,266

$

65,735

$

44,022

$

74,589

$

(45,399)

$

685,062















EBIT (1)

$

71,411

$

9,253

$

(631)

$

(5,900)

$

6,058

$

2,891

$

83,082

As a percent of total sales

16.4

%

8.3

%

(1.0%)

(13.4%)

8.1

%


12.1

%

Special items charge (gain) (4)

$

(47)

$

39

$

(9)

$

17,665

$

—

$

—

$

17,648

EBIT, as adjusted (2)

$

71,364

$

9,292

$

(640)

$

11,765

$

6,058

$

2,891

$

100,730

As a percent of total sales

16.4

%

8.4

%

(1.0%)

26.7

%

8.1

%


14.7

%


(1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income.

(2) The primary profit measure used by management to assess segment performance is EBIT, as adjusted. EBIT for each operating segment is adjusted for special items to derive EBIT, as adjusted.

(3) Asia Pacific Welding EBIT, as adjusted includes a $1,769 gain associated with the liquidation of a foreign subsidiary and the related non-controlling interest.

(4) Special items in the three months ended March 31, 2014 include net credits primarily related to the sale of assets at rationalized operations and the impact of the Venezuelan remeasurement loss related to the adoption of a new foreign exchange mechanism.

Lincoln Electric Holdings, Inc.

Change in Net Sales by Segment

(In thousands)

(Unaudited)


Three Months Ended March 31st Change in Net Sales by Segment









Change in Net Sales due to:



Net Sales

2014

Volume

Acquisitions

Price

Foreign

Exchange

Net Sales

2015

Operating Segments











North America Welding

$

401,906

$

927

$

12,471

$

4,023

$

(6,339)

$

412,988

Europe Welding

105,406

3,202

—

(301)

(19,891)

88,416

Asia Pacific Welding

61,286

(9,103)

—

(669)

(2,264)

49,250

South America Welding

43,993

(4,693)

—

21,474

(23,344)

37,430

The Harris Products Group

72,471

4,474

—

(4,589)

(2,540)

69,816

Consolidated

$

685,062

$

(5,193)

$

12,471

$

19,938

$

(54,378)

$

657,900

% Change











North America Welding


0.2

%

3.1

%

1.0

%

(1.6%)

2.8

%

Europe Welding


3.0

%

—

(0.3%)

(18.9%)

(16.1%)

Asia Pacific Welding


(14.9%)

—

(1.1%)

(3.7%)

(19.6%)

South America Welding


(10.7%)

—

48.8

%

(53.1%)

(14.9%)

The Harris Products Group


6.2

%

—

(6.3%)

(3.5%)

(3.7%)

Consolidated


(0.8%)

1.8

%

2.9

%

(7.9%)

(4.0%)

SOURCE Lincoln Electric Holdings, Inc.