Lincoln Electric Reports Third Quarter 2018 Results

Third Quarter 2018 Highlights

• Sales increase 10.1%
• EPS decreases 32.7% to $1.07, Adjusted EPS increases 30.1% to $1.21
  
• ROIC increases 410 basis points to 19.3%
• $97 million returned to shareholders and announced a 21% increase in the dividend payout rate

CLEVELAND, Oct. 25, 2018 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported third quarter 2018 net income of $70.5 million, or diluted earnings per share (EPS) of $1.07.  This compares with $106.1 million, or $1.59 EPS in the prior year period. Reported EPS includes special item after-tax charges of $8.9 million, or $0.14 EPS. The prior year included special item after-tax income of $44.4 million, including a bargain purchase gain of $51.6 million. Excluding these items, third quarter 2018 adjusted net income increased 28.5% to $79.4 million, or $1.21 EPS, as compared with $61.8 million, or $0.93 EPS in the prior year period.

Third quarter 2018 sales increased 10.1% to $737.1 million from a 14.9% improvement in organic sales in the Americas Welding segment. Organic sales in the International Welding segment declined 5.3% in the quarter.

Operating income for the third quarter 2018 was $100.8 million, or 13.7% of sales. This compares with operating income of $135.6 million, or 20.3% of sales, in the comparable 2017 period. On an adjusted basis, operating income increased 16.5% to $104.4 million, or 14.2% of sales, as compared with $89.6 million, or 13.4% of sales, in the prior year period.

“We achieved solid third quarter organic sales growth from strong demand in Americas Welding and price management worldwide,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer.  “We are realizing synergies in our International Welding business from our Air Liquide Welding acquisition despite incurring lower volumes from our integration activities. We remain very confident in the long-term value we are generating from this acquisition. Our regional initiatives, price measures and productivity improvements delivered higher margin performance, solid cash flows and cash conversion in the quarter. We continue to execute well on our strategic goals and are positioned to deliver superior value for our stakeholders.”

Nine Months 2018 Summary

Net income for the nine months ended September 30, 2018 was $200.2 million, or $3.03 EPS.  This compares with $223.3 million, or $3.35 EPS, in the comparable 2017 period. Reported EPS includes special item after-tax net charges of $32.9 million or $0.50 EPS. The prior year included special item after-tax income of $38.1 million, including a bargain purchase gain of $51.6 million. Excluding these items, adjusted net income for the nine months ended September 30, 2018 increased 25.9% to $233.1 million, or $3.53 EPS, compared with $185.2 million, or $2.78 EPS, in the comparable 2017 period. The effective tax rate for the nine months ended September 30, 2018 was 27.0% due to special items. Excluding special items, the effective tax rate was 24.1%, which compares to 28.8% in the comparable 2017 period.

Sales increased 21.7% to $2.3 billion in the nine months ended September 30, 2018 from a 12.6% benefit from acquisitions, an 8.7% improvement in organic sales and 0.5% from favorable foreign exchange.

Operating income for the nine months ended September 30, 2018 was $280.6 million, or 12.3% of sales.  This compares with operating income of $300.6 million, or 16.0% of sales, in the comparable 2017 period. On an adjusted basis, operating income increased 17.5% to $308.6 million, or 13.5% of sales, as compared with $262.7 million, or 14.0% of sales, in the comparable 2017 period.

Dividend

The Company's Board of Directors declared a 21% increase in the quarterly cash dividend, from $0.39 per share to $0.47 per share, or $1.88 per share on an annual basis. The declared quarterly cash dividend of $0.47 per share is payable January 15, 2019 to shareholders of record as of December 31, 2018.

Webcast Information

A conference call to discuss third quarter 2018 financial results will be webcast live today, October 25, 2018, at 10:00 a.m., Eastern Time.  This webcast is accessible at http://ir.lincolnelectric.com.  Listeners should go to the web site prior to the call to register, download and install any necessary audio software.  A replay of the webcast will be available on the Company's web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 1636717.  Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.

Financial results for the third quarter 2018 can also be obtained at http://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market.  Headquartered in Cleveland, Ohio, Lincoln Electric has 56 manufacturing locations, including operations and joint ventures in 20 countries and a worldwide network of distributors and sales offices covering more than 160 countries.  For more information about Lincoln Electric and its products and services, visit the Company’s website at http://www.lincolnelectric.com.

Non-GAAP Information

Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.

Forward-Looking Statements

The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect management’s current expectations and involve a number of risks and uncertainties.  Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning.  Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results.  The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate the Air Liquide Welding business acquisition; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general.  For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Contact

Amanda Butler
Vice President, Investor Relations & Communications
Tel: 216.383.2534
Email: Amanda_Butler@lincolnelectric.com

1. Includes current portion of long-term debt.
2. Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales.  

1. Adjusted operating income, Adjusted EBIT, Adjusted net income and Adjusted diluted earnings per share are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
2. Primarily related to severance, asset impairments and gains or losses on the disposal of assets.
3. Related to the acquisition of Air Liquide Welding.
4. Related to lump sum pension payments.
5. Includes the net tax impact of Special items recorded during the respective periods, including an adjustment to taxes on unremitted foreign earnings related to the U.S. Tax Act of $2,323 and $4,823 in the three and nine months ended September 30, 2018, respectively.
   
   The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.  The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

1. Adjusted net income and Return on invested capital are non-GAAP financial measures.  Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business.  Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully.  Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly.  Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
2. Return on invested capital is defined as rolling 12 months of Adjusted net income before tax-effected interest income and expense divided by invested capital.
3. Includes the net tax impact of Special items recorded during the respective periods, including the net impact of the U.S. Tax Act of $33,439 in the twelve months ended September 30, 2018.
   
   The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.  The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

1. EBIT is defined as Operating income plus Other income (expense).
2. The primary profit measure used by management to assess segment performance is Adjusted EBIT.  EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
3. Special items in 2018 reflect pension settlement charges of $4,232 in Americas Welding, rationalization and asset impairment charges of $2,636 in International Welding and acquisition transaction and integration costs of $970 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2017 reflect pension settlement charges of $5,283 in Americas Welding, amortization of step up in value of acquired inventories of $2,314 in International Welding and acquisition transaction and integration costs of $3,273 and a bargain purchase gain of $51,585 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.

1. EBIT is defined as Operating income plus Other income (expense).
2. The primary profit measure used by management to assess segment performance is Adjusted EBIT.  EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
3. Special items in 2018 reflect pension settlement charges of $4,990 in Americas Welding, rationalization and asset impairment charges of $24,353 in International Welding and acquisition transaction and integration costs of $3,665 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2017 reflect pension settlement charges of $5,283 in Americas Welding, amortization of step up in value of acquired inventories of $2,314 in International Welding and acquisition transaction and integration costs of $11,386 and a bargain purchase gain of $51,585 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.