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Lincoln Electric Reports Mixed 3Q

Zacks Equity Research

Lincoln Electric Holdings Inc. (LECO) reported third-quarter 2012 earnings of 80 cents per share, up 21.2% from 66 cents in the year-earlier quarter and ahead of the Zacks Consensus Estimate of 73 cents.

Adjusted income included special items of 3 cents per share in the reported quarter while the year-ago quarter did not note any such items. Including this, reported earnings were 77 cents per share in the quarter compared to 66 cents in the year-ago quarter.

Total revenue clipped down 0.6% year over year to $697.6 million, missing the Zacks Consensus Estimate of $730 million.

Cost and Margins

Cost of goods sold rose 6.2% to $484.2 million in the quarter. Gross profit also increased 15% to $213.4 million. Gross margins expanded 420 basis points (bps) year over year to 30.6% in the quarter.

Selling, general & administrative expenses increased 9.9% to $121.6 million from $110.6 million in the year-ago quarter. Adjusted operating profit improved 22.6% to $91.8 million in the quarter. Adjusted operating margin inflated 250 bps to 13.2%.

Financial Position

As of September 30, 2012, cash and cash equivalents were $340.7 million versus $361.1 million as of December 31, 2011. Cash from operating activities declined to $82.5 million during the quarter from $84.8 million during the prior-year quarter.

As of September 30, 2012, the debt-to-capitalization ratio was at 1.6% compared with 1.7% as of June 30, 2012, and 8% as of December 31, 2011. During the first nine months of 2012, Lincoln Electric repaid its $80 million senior unsecured note and returned $102.7 million to shareholders through the payment of $42.5 million as dividends and share repurchases worth $60.2 million.

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. Moreover, slow growth rates in the North America welding segment is an added concern.

Lincoln Electric retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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