Lincoln Electric Holdings, Inc. Q3 FY2025 earnings call

• Third quarter results: Sales increased 8% driven by pricing, M&A benefits, and resilient demand in Americas Welding and Harris Products Group. Generated $8M in permanent savings, higher gross profit and operating income margins, 15% adjusted EPS increase, and record cash flow with 149% cash conversion.
• Organic sales performance: Organic sales up 5.6% on higher price and narrowing volume declines. Automation sales ~$200M in Q3, below expectation due to project timing, but encouraged by order rate increase in late Sep/Oct, expecting 15-20% Q4 sequential increase but below last year.
• End market trends: 3 out of 5 end markets (60% of revenue) had steady to higher organic sales growth. Automation portfolio challenged by deferred capital spending, but seeing order rate increase.
• Financials: Sales $1.061B, +7.9%; gross profit $389M, +11%, margin 36.7%; SG&A up 11%, operating income up 21%, adjusted EPS up 15%, cash conversion 149%.

Americas Welding: Sales increased ~9% driven by 9.6% higher price and 1.4% contribution from Vanair acquisition. Adjusted EBIT increased 5%, margin declined 60 basis points to 18.2%. Harris Products Group: Third quarter sales increased 15% with 2% higher volumes and nearly 12% higher price. Adjusted EBIT increased approximately 28%, and margin improved 190 basis points to a record 18.3%. International Welding: Sales increased 1.6% with 4% benefit from Alloy Steel acquisition and 2% favorable foreign exchange translation, but volumes down 4%. Adjusted EBIT increased approximately 29%, margin increased 230 basis points to 11.3%.

• Maintaining top line and margin assumptions. Increasing interest expense assumption to low $50M range due to Alloy Steel borrowings. Increasing cash conversion range to above 100%. Announced 30th consecutive annual dividend increase.
• Automation sales expected Q4 to be 15-20% higher sequentially but below last year. HVAC production expected to soften in Q4.

• Challenged capital spending in automation portfolio.
• Sluggish demand in EMEA region.
• LIFO charges in quarters.

Q: How are seeing demand trends unfold into the quarter, specifically around construction and infra?

A: Continued strength as we wrapped up the third quarter and into the fourth quarter, with automation orders accelerating, but expecting softness in HVAC production in Q4.

Q: Cycle positioning and 2026 outlook?

A: Well positioned, with consumables showing positive trends, automation orders broad-based, but need more consistency in order activity before confident on growth pattern.

Q: Europe volume growth?

A: Cautiously optimistic, but no immediate order intake in Europe yet.

Q: Incremental margins?

A: High teens incremental margins currently, expecting more acceleration with volume growth, with automation and international segment having potential for higher incrementals.

Q: LIFO and 2026?

A: LIFO charges to follow trend, temporary cost savings part of incremental framework, but 2026 LIFO depends on inflation trends.

Q: Automation underperformance and Q4 outlook?

A: Compression in automotive and heavy industries in Q3, expecting Q4 to be better sequentially but mid-single digit decline for year.

Q: Harris pricing?

A: Largely driven by commodity movements, especially silver and copper, with pricing reflective of broader market changes.