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Lincoln Electric (LECO) Q1 Earnings Match, Sales Lag Estimates

Zacks Equity Research

Lincoln Electric Holdings, Inc. LECO reported first-quarter 2020 adjusted earnings of $1.00 per share, which matched the Zacks Consensus Estimate. However, the reported figure declined around 15% year over year. The company witnessed low demand owing to the COVID-19 pandemic, which dealt a blow to an already ailing industrial sector.

Including one-time items, the bottom line came in at 91 cents compared with $1.12 in the prior-year quarter.

Total revenues declined 7.5% year over year to $702 million. This can be attributed to a decrease of 9.5% in organic sales and an unfavorable impact of 1.3% from foreign exchange, which offset a gain of 3.2% from acquisitions. Further, the top line missed the Zacks Consensus Estimate of $712 million.

Lincoln Electric Holdings, Inc. Price, Consensus and EPS Surprise

Lincoln Electric Holdings, Inc. Price, Consensus and EPS Surprise

Lincoln Electric Holdings, Inc. price-consensus-eps-surprise-chart | Lincoln Electric Holdings, Inc. Quote

Costs and Margins

Cost of goods sold was down 7% to $465 million from $501 million in the prior-year quarter. Gross profit declined 8% to $237 million from the prior-year quarter figure of $258 million. Gross margin came in at 33.8% compared with 34.0% in the year-ago quarter.

Selling, general and administrative expenses declined 7% year over year to $150 million from the prior-year quarter. Adjusted operating profit was down 11% year over year to $88.4 million in the quarter. Adjusted operating margin came in at 12.6% compared with 13.0% in the year-ago quarter.
 
Financial Update

Lincoln Electric had cash and cash equivalents of around $163 million at the end of first-quarter 2020 compared with $200 million at the end of the 2019. The company reported record cash flow from operations of $22 million during the first quarter compared with $26 million in the prior-year quarter.

The company’s debt to invested capital was at 55.9% at the end of first-quarter 2020 compared with 47.7% as of the end of fiscal 2019.
During first-quarter 2020, Lincoln Electric returned $140 million to shareholders through dividend and share repurchases.

Outlook

The company cautioned that global demand trends are at weak levels currently. To counter this impact, the company has expanded its cost reduction initiatives to sustain margins in the backdrop. These actions are anticipated to contribute approximately $40 million to $45 million of annualized cost savings in 2020.

Price Performance


Lincoln Electric’s shares have declined 8.3% over the past year compared with the industry’s growth of 26.7%.

Zacks Rank and Stocks to Consider

Lincoln Electric currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Sharps Compliance Corp SMED, Ampco-Pittsburgh Corporation AP and Silgan Holdings Inc. SLGN. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for the ongoing year. In a year’s time, the company’s shares have gained 124%.

Ampco-Pittsburgh has an expected earnings growth rate of 2.70% for the current year. The stock has appreciated 33% over the past year.

Silgan Holdings has a projected earnings growth rate of 11% for 2020. The company’s shares have rallied 16% over the past year.

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