Lincoln Electric Holdings, Inc. Q4 FY2025 earnings call

• Record 2025 performance with sales increasing 6% to a record $4,200,000,000, adjusted operating income margin maintained, adjusted EPS at a record $9.87, and strong cash flows. Disciplined cost management and supply chain agility mitigated inflation, with $31,000,000 of permanent savings. - Fourth quarter sales were $1,079,000,000, up 5.5%, gross profit dollars increased ~1% to $374,000,000 with margin compressed 140 basis points. SG&A expense decreased ~$3,000,000. Reported operating income increased 4%, adjusted operating income increased 4%. - Automation sales in Q4 were $240,000,000, a 11% decline, but strong order rates in Q4. 2026 guidance includes mid single digit sales growth, volume growth improving from Q2, and capital spending target $110-$130,000,000. - Introduced RISE strategy for 2030, focusing on reimagining work, innovating, serving better, and investing in teams, with targets like sales over $6,000,000,000 and high 20% incremental operating income margin.

Americas Welding: Fourth quarter sales increased approximately 4% driven by 10.4% higher price and 60 basis points of favorable foreign exchange translation. Volumes declined approximately 7% primarily from the automation portfolio. The adjusted EBIT increased 7% to $141,000,000, and the adjusted EBIT margin increased 90 basis points to 20%. International Welding: Had a 7% benefit from the alloy steel acquisition, 5% favorable foreign exchange translation, and 50 basis points of price, but volumes were down 4%. Adjusted EBIT decreased approximately 4% to $31,000,000, and the margin compressed 100 basis points to 11.8%. Harris Products Group: Fourth quarter sales increased 11% driven by 18% higher price and 170 basis points of favorable foreign exchange translation. Volumes compressed 9% due to the decline in HVAC sector production activity. Adjusted EBIT increased 8%, but the margin declined 30 basis points.

• Full year 2026 sales growth is expected to be in the mid single digit percent range, with organic sales split fifty-fifty between volume and 2025 price actions. - Volume growth rates are expected to improve starting in the second quarter and through year end. - Price is expected to be strongest in the first quarter, especially in the Americas Welding segment, before largely anniversarying last year's price actions in the second quarter. - Capital spending target is $110 to $130,000,000 for 2026.

• Volatile end markets pose challenges. - Geopolitical uncertainties and trade negotiations can impact operations. - Metal price volatility in the Harris Products Group segment due to the volatility of metal markets. - Automation business, while expected to grow, has been a challenge in terms of margin in recent periods.

Q: Could you talk a little bit more about the timeline of how we should think about the levers being achieved for the higher incremental margins?

A: Enterprise initiatives are in various stages of maturation. The finance function transformation is furthest along, followed by HR, and others like purchasing and R&D are earlier. Benefits from enterprise initiatives are expected to flow in fairly steadily over the five-year period.

Q: Did you break down exactly what your expectation is for organic growth within the mid single digits guide for net sales?

A: Organic growth assumption is split fifty-fifty between volume and 2025 price actions that carry over to 2026. Pricing reflects 2025 actions, and volume growth is expected to pivot to growth starting in the second quarter due to order levels and backlog in automation.

Q: Can you talk about the expectations for the automation business in 2026?

A: Automation sales in 2025 were $870,000,000 with a mid single digit percent decline. Expect mid single digit type of growth trajectory in 2026 based on order levels and backlog, with growth expected to ramp up in the second quarter.

Q: How should we think about the impact of metal cost inflation on Harris?

A: Harris has a mechanical adder in pricing methodology to incorporate metal cost inflation. It does not have a significant impact on margins as it is incorporated into pricing adjustments. Pricing actions will be responsive to market dynamics.

Q: You referenced some large product project orders won in the fourth quarter. Is that primarily automotive, and does it feel like inbound calls are starting to accelerate?

A: The large projects won in Q4 were primarily automotive. The funnel of opportunities is good, but the challenge is converting high probability opportunities into actual sales due to customer confidence in releasing capital.