Lincoln Electric Ends 2012 on a High

Zacks

Lincoln Electric Holdings Inc. (LECO) reported fourth-quarter 2012 earnings of 79 cents per share, up 16% from 68 cents in the year-earlier quarter and ahead of the Zacks Consensus Estimate of 74 cents.

Adjusted income excluded rationalization and asset impairment charges of 5 cents per share in the reported quarter while the year-ago quarter did not note any such items. Including this, reported earnings were 74 cents per share in the quarter versus 68 cents in the year-ago quarter.
 
Total revenue dipped 1% year over year to $684 million, missing the Zacks Consensus Estimate of $691 million.
 
Cost and Margins
 
Cost of goods sold declined 6% to $471.6 million in the quarter. Gross profit increased 10% to $213 million. Gross margin expanded 310 basis points (bps) year over year to 31.1% in the quarter.
 
Selling, general & administrative expenses increased 9% to $122 million from $112 million in the year-ago quarter. Adjusted operating profit improved 10% to $90.7 million in the quarter. Adjusted operating margin inflated 140 bps to 13.3%.
 
Fiscal 2012 Performance
 
Lincoln Electric reported record adjusted earnings per share of $3.16 in 2012, up 26% from $2.51 in 2011 and ahead of the Zacks Consensus Estimate of $2.16. Including special items, reported earnings were $3.06 per share compared with $2.56 in 2011. Total revenue improved 6% year over year to another record of $2.85 billion.
 
Financial Position
 
As of 2012 end, cash and cash equivalents were $286 million versus $361 million as of 2011 end. Cash from operating activities increased to $327.5 million in the year from $193.5 million in the prior year.
 
As of Dec 31, 2012, the debt-to-capitalization ratio was at 1.5% compared with 8% as of Dec 31, 2011. During the year, Lincoln Electric repaid its $80 million senior unsecured note and returned $154.1 million to shareholders through the payment of $73.1 million as dividends and share repurchases worth $81 million. The company also expended $134.6 million toward acquisitions and voluntarily contributed $63.4 million to its U.S. pension plans.
 
Our View
 
Lincoln Electric’s is focusing on making new acquisitions, introducing new products as well as increasing its footprint in the global arena. However, the weak global economic condition will be headwind moving ahead.  Lincoln Electric currently retains a short-term Zacks Rank #2 (Buy). 
 
Peer Performance
 
Stanley Black & Decker (SWK) reported earnings per share of $1.37 in the fourth quarter of 2012, up from $1.22 in the year-ago quarter and a penny above the Zacks Consensus Estimate of $1.36. 
 
Hardinge Inc. (HDNG) reported fourth quarter adjusted earnings per share of 43 cents compared with 28 cents reported in the year-ago quarter and way ahead of the Zacks Consensus Estimate of 23 cents. 
 
Illinois Tool Works Inc. (ITW) reported fourth quarter 2012 adjusted earnings per share of 89 cents, a cent above the year-ago adjusted results of 88 cents, but short of the Zacks Consensus Estimate of 90 cents.
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