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Record Sales for Lincoln Electric

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Lincoln Electric Holdings Inc. (LECO) recently reported first quarter EPS of 76 cents, up 52% from 50 cents in the year-earlier quarter and ahead of the Zacks Consensus Estimate of 67 cents. The upbeat results were driven by improved product mix, pricing as well as the positive impact from recent acquisitions. 

The reported quarter did not note any special item. However, the prior-year quarter noted a net gain of $0.05 per share pertaining to the sale of assets at rationalized operations offset by charges associated with severance and other costs from the consolidation of manufacturing operations initiated in 2009.  Including this, adjusted EPS amounted to 76 cents versus 55 cents in the year-over-year quarter.

Total revenue, as reported by the company, increased 21% year over year to a record $727 million, beating the Zacks Consensus Estimate of $700 million.

Cost and Margins

Lincoln reported cost of goods sold of $512 million in the reported quarter versus $438 million in the year-ago quarter. Gross profit also increased to $215 million from $161 million in the prior-year quarter. Gross margins expanded 270 basis points year over year to 29.6% in the quarter.

Selling, general & administrative expenses increased 22% to $124 million from $102 million in the year-ago quarter. Adjusted operating profit improved 53% to $91.7 million in the quarter.

Financial Position

As of March 31 2012, cash and cash equivalents were $300.8 million versus $361.1 million as of December 31, 2011. Cash from operating activities increased substantially to $79.2 million during the quarter from $16.7 million during the prior-year quarter.

As of March 31 2012, the debt-to-capitalization ratio was at 1.9% compared with 8% as of December 31, 2011. During the quarter, Lincoln Electric repaid its $80 million senior unsecured note and returned $34.3 million to shareholders through the payment of $14.2 million as dividends and share repurchases worth $20.1 million.

Our Take

Lincoln Electric continues to focus on its growth strategies, which include acquisitions and new product introductions. Allied with its aim of turning cost-competitive, Lincoln Electric is implementing various cost-control measures. We believe that the company will post strong growth on the heels of an economic recovery and investments in the emerging markets. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Cleveland, Ohio-based Lincoln Electric designs, develops and manufactures arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and commands a leading position in the brazing and soldering alloys market. Lincoln Electric competes with Illinois Tool Works Inc. (ITW), Charter International Plc and ESAB Group Holdings Ltd.

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