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What's in Store for Lincoln Electric's (LECO) Q2 Earnings?

Zacks Equity Research

Lincoln Electric Holdings, Inc. LECO is slated to report second-quarter 2019 results on Jul 23, before the opening bell. The company has a mixed track record, wherein it beat earnings expectations in one, missed the same twice and came in line in the other in the trailing four quarters. Notably, the company had fallen short of expectations in the last reported quarter. It has an average positive earnings surprise of 0.45% in the trailing four quarters.

Which Way Are Q2 Estimates Headed?

The Zacks Consensus Estimate for second-quarter revenues is pegged at $792 million, indicating an improvement of 0.24% from the year-ago quarter. The same for earnings stands at $1.31, suggesting growth of 7.38% from the prior-year reported figure.

Lincoln Electric Holdings, Inc. Price and EPS Surprise

Lincoln Electric Holdings, Inc. Price and EPS Surprise

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

The company has been witnessing downward revisions of late. The Zacks Consensus Estimate for the company’s earnings in second quarter has declined 3% to $1.31 per share in the past 30 days.

Shares of the company have declined 5.2% in a year, against the industry’s growth of 1.6%. Will the upcoming earnings release provide a boost to Lincoln Electric’s stock? Let’s take a look.

Factors to Influence Q2 Results

Lincoln Electric continues to witness growth in the heavy industries, construction/infrastructure and Oil & Gas markets, which is likely to drive second-quarter results. However, weak automotive end market (which generates around 17% of the company’s revenues) will be a deterrent.

Raw material inflation will remain a headwind in the to-be-reported quarter. Further, higher year-over-year R&D spending will impact margins. Moreover, Lincoln Electric implemented annual merit wage increases in April, it expects an additional $3 million in salary and wage cost per quarter for the balance of 2019. Nevertheless, pricing actions and cost cutting initiatives are likely to sustain margins in the to-be-reported quarter’s results despite the aforementioned headwinds.

Expectations from Segmental Performance

The Zacks Consensus Estimate for the Americas Welding segment’s revenues iscurrently pegged at $477 million, suggesting a decline of 3% year over year. The segment’s operating profit for the quarter is projected to go up 2% year over year to $90 million.

The Zacks Consensus Estimate for the International Welding’s segment’s revenues is pegged at $217 million for the quarter to be reported, likely to be down 13% from the year-ago quarter’s $249 million. Sales growth is likely to be impacted owing to the ongoing volume compression in the segment owing to the ongoing Air Liquide integration. Further, weak European demand particularly in Italy and France remains a concern for the segment. This segment is anticipated to report an operating income of $14.57 million in the quarter compared with the $16.28 million in the prior-year quarter.

The Harris Products Group segment revenues will likely go up 7% year over year to $92 million in the to-be-reported quarter. The segment’ operating profit is estimated at $11.1 million for the April-June quarter, indicating an improvement of 9% from the $10.2 million reported a year ago.

Earnings Whispers

Our proven model does not show that Lincoln Electric is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Lincoln Electric’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.57%.

Zacks Rank: Lincoln Electric currently has a Zacks Rank #4 (Sell). Notably, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are a few Industrial Products stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Jon Bean Technologies Corporation JBT has an Earnings ESP of +1.85% and a Zacks Rank of 1. The stock has appreciated 34% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup, Inc. ATR has a Zacks Rank #2 and an Earnings ESP of +0.88%. The stock has gained 30% over the past year.

Avery Dennison Corporation AVY, a Zacks Ranked #2 stock, has an Earnings ESP of +0.06%. The stock has moved up 11% in a year’s time.

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