A month has gone by since the last earnings report for Lincoln Electric Holdings (LECO). Shares have added about 3.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lincoln Electric due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lincoln Electric Q1 Earnings Match, Sales Lag Estimates
Lincoln Electric 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.
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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -59.83% due to these changes.
At this time, Lincoln Electric has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lincoln Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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