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Lincoln Electric (LECO) Q3 Earnings & Sales Lag Estimates

Zacks Equity Research

Lincoln Electric Holdings, Inc. LECO reported adjusted earnings of $1.09 per share in third-quarter 2019, down 10% year over year. The reported figure also missed the Zacks Consensus Estimate of $1.25. Lower capital spending and slowing global industrial production rates led to the weaker-than-expected results in the quarter.

Including one-time items, earnings in the reported quarter came in at $1.17 compared with $1.07 in the prior-year quarter.

Total revenues declined 0.9% year over year to $730.8 million, with 4.7% decrease in organic sales and 1.6% from unfavorable foreign-currency translation in the reported quarter. However, the revenue decline was partly offset by 5.4% benefit from acquisitions. The top line also missed the Zacks Consensus Estimate of $750 million. The ongoing double-digit percent declines in automation and Asia Pacific, and the overall slowdown in industrial production impacted volumes in the reported quarter.

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 up 1.4% to $492 million from $486 million in the prior-year quarter. Gross profit declined 5% to $238 million from the prior-year quarter’s $252 million. Gross margin came in at 32.6% compared with the prior-year quarter’s figure of 34.1%.

Selling, general and administrative expenses remained flat at $148 million from the year-earlier quarter. Adjusted operating profit plunged 12% year over year to $91.7 million in the quarter. Operating margin came in at 12.5% compared with 14.2% in the year-ago quarter.
Financial Update

Lincoln Electric had cash and cash equivalents of $156 million at the end of the third quarter compared with $359 million at the end of the fiscal 2018. The company recorded cash flow from operations of $129 million during the reported quarter compared with $106 million in the year-earlier quarter.

During the third quarter, Lincoln Electric returned $90 million to shareholders through dividend and share repurchases. The company's board of directors declared an increase of 4.3% in the quarterly dividend to 49 cents per share. The dividend will be paid out on Jan 15, 2020 to shareholders of record as of Dec 31, 2019.

The company is focusing on cost management to sustain margins in the backdrop of the weak of the broader deceleration in global industrial production. The initiatives include lower work hours, less overtime, suspending new hiring and also cutting down discretionary spending.

Price Performance


Lincoln Electric’s shares have gained 8.8% over the past year compared with the industry’s growth of 16.5 %.

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 Casella Waste Systems, Inc. CWST, Sharps Compliance Corp. SMED and Tennant Co. TNC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Casella Waste Systems has an estimated earnings growth rate of 37.7% for the ongoing year. The company’s shares have gained 44% in the past year.

Sharps Compliance has an expected earnings growth rate of 500% for the current year. The stock has appreciated 22% in a year’s time.

Tennant has a projected earnings growth rate of 29.82% for 2019. The company’s shares have rallied 25% over the past year.

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