Lincoln Electric Holdings, Inc. Q2 FY2025 earnings call

• Strong second quarter results with 7% sales growth due to diligent price management, M&A benefits, and improved volume performance.
• Managed inflationary headwinds and supply chain complexities while maintaining neutral price/cost position.
• Adjusted earnings per share up 11% to $2.60. Year-to-date cash flow generation strong with over 100% cash conversion of free cash flow.
• Announced acquisition of remaining 65% interest in Alloy Steel, expected to close August 1, which will be accretive to margins and earnings.
• Organic sales increased ~3% in the quarter, with volume declines narrowing. Americas Welding and Harris Products Group had positive volume performance.
• Reinstated annual compensation merit increase in the quarter.
• Savings program generated $47 million in incremental savings in the first 4 quarters, with additional $10M-$15M expected in the balance of the year from permanent structural savings.

Americas Welding: Sales increased approximately 7%, driven by 6.5% higher price and ~5% contribution from the Vanair acquisition (anniversaries August 1). Volumes were lower by approximately 3%. Adjusted EBIT increased 1% to $138 million, with the adjusted EBIT margin declining 130 basis points to 18.6%. International Welding: Sales declined 2.5% as ~4% favorable foreign exchange translation partially offset 7% lower volumes. Adjusted EBIT increased approximately 19% to $31 million, and the margin increased 230 basis points to 12.7%. Harris Products Group: Second quarter sales increased 19% with 11% higher volumes and 7% higher price. Adjusted EBIT increased approximately 28% to $32 million, and the margin improved 100 basis points to a record 19.4%.

• Raised operating framework assumptions due to first half actuals and inclusion of Alloy Steel, expecting low single-digit percent organic sales growth for the full year.
• Acquisitions expected to generate approximately 270 basis points in sales growth this year, with Alloy Steel contributing $20 million to $25 million in sales for the balance of the year.
• Expect Americas Welding to continue in the 18% to 19% EBIT margin range for the remainder of the year.
• International Welding margin expected to operate on the higher end of their 11% to 12% margin range for the balance of the year, reflecting inclusion of Alloy Steel.
• Harris segment expected to operate in the 17% to 18% margin range for the balance of the year due to seasonality and normalized volume trends.
• Full year adjusted operating income margin expected to be steady to slightly up versus prior year with a high teens percent incremental margin.
• Expect additional $10M-$15M in savings from the savings program in the balance of the year, with a 50-50 split between temporary and permanent savings.

• Trade policy uncertainties which continue to impact equipment and automation portfolios.
• Supply chain complexities.
• Customer deferral of capital spending due to policy uncertainty, affecting equipment and automation sales.
• Economic challenges in regions like EMEA (outside core Europe) and Asia Pacific impacting International Welding segment.

Q: Could you unpack orders and customer demand, especially trends in July and how it informs the second half outlook?

A: July order trends hold. More strength in general industries, cautious in heavy industries, and automotive volumes with a little more pressure.

Q: Help understand Harris segment volume dynamic, including underlying organic demand trends and impact on second half/next year?

A: Removing initial stocking for a new retail customer, volumes are flattish progressively into the third quarter.

Q: Building on end market commentary, any changes in customer behavior with more tariff certainty?

A: As trade policy gets clearer, it should encourage customers to pull the trigger on projects, but wait-and-see approach persists until rules are firmly set.

Q: Finer points on automation quoting activity, auto component of automation business, and general industries volume?

A: Automation quoting activity strong, pipeline strong; general industries volume less negative than feared leading to organic growth.

Q: Follow-up on consumables in Americas, volume vs price?

A: Pricing higher on consumables side, volumes flattish, more resilient than expected.

Q: Expectations for 3Q pricing and need for more price due to tariffs?

A: Expect another 100-200 basis points of incremental pricing in 3Q; will respond to maintain neutral price/cost model based on country-by-country tariffs and input costs.

Q: Thinking about incentive comp programs brought back, reason for reinstatement?

A: Volume response to tariffs wasn't as bad as feared, so merit increases were restored as normal program.

Q: Third quarter revenue seasonality and quoting activity in robotics?

A: Normal seasonality expected; focused on making automation easier for customers, with quoting activity strong but each deal idiosyncratic.